SECURITIES EXCHANGE AGREEMENT Series A Convertible Preferred Stock
Exhibit
99.1 Securities Exchange
Agreement
Series A
Convertible Preferred Stock
This
Securities Exchange Agreement (this “Agreement”), is made this
February 20, 2009, among South Texas Oil Company, a Nevada corporation and its
Subsidiaries (collectively the “Company”), and Longview Fund,
L.P., a California limited partnership, and its affiliates that appear as
signatories to and have executed this Agreement (collectively, “Longview” or “Subscriber”). Capitalized
terms used, but not otherwise defined, herein shall have the meanings ascribed
to them in the Purchase Agreement, as amended (as defined herein).
WHEREAS,
the Company and Longview entered into a securities purchase agreement, dated as
of April 1, 2008 (as amended by the June 2008 Amendment Agreement, and as may
otherwise be amended, supplemented, restated or modified and in effect from time
to time, the “Purchase
Agreement”), pursuant to which Longview purchased from the Company, among
other things, secured notes,
each bearing interest payable quarterly to Longview (such notes, together
with any promissory notes or other securities issued in exchange or substitution
therefor (other than as provided in this Agreement) or replacement thereof, and
as any of the same may be amended, supplemented, restated or otherwise modified
and in effect from time to time, the “Notes”, which Notes, together
with all Security Agreements, as amended and restated, Account Control
Agreements, Pledge Agreements, Subsidiary Guaranty, Additional Security
Documents, and each of the other agreements to which the Company or its
Subsidiaries is a party or by which it is bound, excluding Warrants, Override
Conveyances and Mortgages appurtenant thereto, are collectively, the “Transaction
Documents”);
WHEREAS,
the Company and its Subsidiaries (as defined herein) have granted to Longview
perpetual overriding royalty interests (“ORRI”)in the hydrocarbon
production of certain of the Company’s properties as set forth more particularly
in certain Override Conveyances to Longview;
WHEREAS,
the current principal amount plus accrued paid in kind interest of the Notes
(the “Principal Amount”)
and the
aggregate per diem amount of accrued interest of the Notes (the “Per Diem Interest”) due at the
Closing Date (as defined in Section 11.3) of this transaction, after giving
effect to Longview’s surrender of Notes for certain assets of the Company
pursuant to the Asset Purchase and Sale Agreement, of even date
herewith, are collectively referred to in this Agreement as the
“Total Obligations”);
WHEREAS,
the Company and Longview desire to provide for the payment of the Total
Obligations by the Company’s issuance of its Series A Convertible Preferred
Stock (the “Preferred
Stock”) to Longview, as provided in this Agreement, in exchange for the
discharge and release of the Total Obligations (the “Debt Equity
Exchange”);
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WHEREAS,
the board of directors of the Company (the “Board") has directed the
Board’s Executive Committee to evaluate, negotiate and approve the restructuring
the Company’s capital structure, including matters pertaining to the payment of
Notes;
WHEREAS,
the Audit Committee has, with the assistance of legal advisors, informed itself
about, and has directed senior management of the Company to negotiate the
exchange of the Company’s equity in full satisfaction of the Total Obligations
owed by the Company to Longview; and
WHEREAS,
the Audit Committee has determined that the terms of the Debt Equity Exchange as
set forth in this Agreement are in the best interests of the Company and all of
its stockholders and has approved this Agreement and has recommended that the
Board approve and declare advisable this Agreement and take all actions required
to be taken by the full board to effectuate the foregoing, and the Board has
effected such approval and taken such action.
NOW,
THEREFORE, in connection with the payment of the Total Obligations to be made by
the Company, and the discharge of the Total Obligations to be provided by
Longview hereunder, the Company and Longview, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
agree as follows:
1. TOTAL OBLIGATIONS OF THE
COMPANY.
1.1 The
Company and Longview acknowledge and agree that, as of the date of this
Agreement (the “Execution Date”), (i) the Principal
Amount due under the Notes is the amount set forth on Schedule 1 hereto; (ii) the
aggregate amount of interest and the Per Diem Interest payable to Longview under
the Notes are set forth on Schedule 1 hereto, and (iii)
the Company has no right of offset, defense, or counterclaim with respect to the
Total Obligations owed to Longview. The Total Obligations of the
Company shall be determined on the Closing Date in the manner set forth on Schedule 1.
1.2 The
payments of ORRI to Longview as a percentage of the net revenue generated by the
Company’s sales of hydrocarbon production, as set forth more particularly in the
Company’s Override Conveyances to Longview, at any time prior to January 1, 2011
shall be deferred and accrue to the benefit of Longview during such period.
Accordingly, the Company is not required to make any such payments to Longview
prior to January 1, 2011.
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2.
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EXCHANGE AND
RELEASE
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2.1 Exchange. Subject to
the terms and conditions set forth herein, on the Closing Date, the Company
shall issue to Longview shares of the Company’s Series A Convertible Preferred
Stock (the “Exchange
Shares”) in exchange for the surrender by Longview of the
Notes. The amount of Exchange Shares to be issued shall be equal to
the Total Obligations as set forth on Schedule 1, divided by 10, and
rounded up to the nearest whole number. The Total Obligations shall
thereupon be cancelled. The consummation of the
exchange of the Total Obligations for the Exchange Shares as described in this
Section 2.1 is hereinafter referred to as the “Debt Exchange
Closing”.
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2.2 Debt Exchange Closing
Deliveries. Upon the Debt Exchange Closing, the Company will deliver or
cause to be delivered to Longview certificates registered in the name of
Longview evidencing the Exchange Shares, and Longview will deliver to the
Company each of the Notes evidencing the Total Obligations.
2.3 Debt Exchange;
Termination. Effective upon the Debt Exchange Closing and the closing
under the Asset Purchase Agreement (defined in Section 11.3), the Company’s
monetary obligations under the Notes will be extinguished immediately and
cancelled, and any and all obligations of the Company and its Subsidiaries in
respect of the Notes and the Transaction Documents shall be terminated and
released and be of no further force and effect except that the indemnification
rights for third party claims, registration rights and other rights granted to
Longview and the other Releasees (defined below) pursuant to this Agreement and
the indemnification rights for third party claims granted to Longview and the
other Releasees pursuant to the Transaction Documents and the Asset Purchase
Agreement shall survive and not be extinguished. Longview and the
Company, each as to the other, with effect from and after the Debt Exchange
Closing and the closing under the Asset Purchase Agreement, irrevocably waives,
releases and forever discharges the other and each of the other’s Subsidiaries'
respective successors, predecessors, assigns, affiliates, subsidiaries and
divisions and each and all of their respective directors, officers,
stockholders, employees, representatives and agents (the "Releasees") from any and all
actions, causes of action, suits, claims, demands, proceedings, orders,
judgments, obligations, rights, privileges, covenants, contracts, agreements,
debts, dues, sums of money, deliveries and liabilities whatsoever, whether known
or unknown, suspected or unsuspected, both at law and in equity (collectively,
"Claims") which Claims
each party to this Agreement and their respective heirs, executors,
administrators, successors and assigns may then have, ever will have had or may
thereafter have against the Releasees in connection with, or related directly or
indirectly to, the Total Obligations, the Notes and the Transaction Documents,
including any and all the indebtedness or obligations represented thereby or the
terms thereof, but not including any claims arising out of any breach by
Longview or the Company of their respective obligations under this Agreement and
the Asset Purchase Agreement. The Claims hereby released do not
include indemnification rights for third party claims granted to Longview or the
Company pursuant to the Transaction Documents nor a release of Longview’s ORRI
rights and benefits as set forth more particularly in certain Override
Conveyances to Longview.
2.4 Conversion of Preferred
Stock – Conversion Price. The Preferred Stock will be issued
and convertible into shares of Common Stock of the Company pursuant to and in
accordance with the terms, provisions and procedures set forth in the
Certificate of Designation for the Series A Convertible Preferred Stock, (the
“Certificate of
Designation”) attached to this
Agreement as Exhibit
A, and this Agreement.
2.5 Conversion of Preferred
Stock – Common Stock Shares. The number of shares of Common
Stock issuable upon conversion of each share of Preferred Stock shall equal the
Stated Value per Preferred share divided by the Conversion Price as same may be
adjusted, from time to time, as set forth in the Certificate of
Designation.
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2.6 Exclusion of
ORRI. The ORRI granted by the Company to Longview in the
hydrocarbon production of certain of the Company’s and the Subsidiaries’
properties, as reflected in the the grants of certain Override Conveyances to
Longview, are specifically excluded from this Agreement and the terms and
conditions hereof, other than as set forth in this Section 2.6.
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3.
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LONGVIEW
REPRESENTATIONS AND
WARRANTIES
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Longview
represents and warrants, as of the date hereof, that:
3.1 Organization, Authorization
and Power.
(i) Longview
is a validly existing partnership or limited liability company, as applicable,
and has the requisite partnership or limited liability company, as applicable,
power and authority to purchase the Exchange Shares and Common Stock issuable
upon conversion of the Exchange Shares (the “Securities”) pursuant to this
Agreement. This Agreement, has been duly and validly authorized,
executed and delivered on behalf of Longview, and each is a valid and binding
agreement of Longview, enforceable against Longview in accordance with its
terms. Each of the other agreements and other documents entered into
and executed by Longview in connection with the transactions contemplated hereby
as of the date hereof will have been duly and validly authorized, executed and
delivered on behalf of Longview as of the date hereof and will constitute valid
and binding agreements of Longview, enforceable against Longview in accordance
with their respective terms.
(ii) Longview
is the sole and unconditional owner of the Notes, which are free and clear of
liens, pledges, hypothecation, third party rights or other
encumbrances.
3.2 No Conflicts. The execution, delivery and performance of
this Agreement and the other Transaction Documents and the consummation by
Longview of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of Longview’s charter documents or
bylaws or other organizational documents or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument or
obligation to which Longview is a party or by which its properties or assets are
bound, or result in a violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to such
Subscriber or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a material adverse effect
on Longview). Longview is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement and the other Transaction
Documents or to purchase the Securities in accordance with the terms
hereof, provided that for purposes of the representation made in this sentence,
Longview is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein
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3.3 Investment
Purpose. On the Closing Date Longview will purchase the
Preferred Stock as principal for its own account for investment only and not
with a view toward, or for resale in connection with, the public sale or any
distribution thereof. .
3.4 Accredited Investor
Status. Longview is an “accredited investor” as that term is
defined in Rule 501(a) of Regulation D. Longview is, and will be at
the time of the conversion of the Preferred Stock an “accredited investor”, as such
term is defined in Regulation D promulgated by the Commission under the
Securities Act of 1933 (“1933
Act”), is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable such Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. Longview either has a
pre-existing personal or business relationship with the Company or its officers,
directors or controlling persons, or by reason of Longview’s business or
financial experience, or the business or financial experience of its
professional advisors who are unaffiliated with and who are not compensated by
the Company, directly or indirectly, has the capacity to protect its own
interests in connection with the purchase of the Preferred
Stock. Longview has the authority and is duly and legally qualified
to purchase and own the Securities. Longview is able to bear the risk
of such investment for an indefinite period and to afford a complete loss
thereof. The information set forth on the signature page hereto
regarding Longview is accurate, including, without limitation, the principal
place or business or residence of Longview.
3.5 Reliance on
Exemptions. Longview understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of the securities laws and that the Company is relying in part upon
the truth and accuracy of, and Longview’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of Longview set forth
herein in order to determine the availability of such exemptions and the
eligibility of Longview to acquire the Securities. For purposes
hereof, “securities
laws” means the securities laws, legislation and regulations of, and the
instruments, policies, rules, orders, codes, notices and interpretation notes
of, the securities regulatory authorities (including the Securities and Exchange
Commission (the “Commission”) of the United
States and any applicable states and other jurisdictions.
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3.6 Information. Longview
and its advisors, if any, have been furnished with or has had access at the
▇▇▇▇▇ Website of the Commission to the Company’s Form 10-KSB for the year ended
December 31, 2007 as filed with the Commission, together with all subsequently
filed Forms 10-QSB, Forms 8-K, and other reports and filings subsequently made
with the Commission and made available at the ▇▇▇▇▇ website (hereinafter
referred to collectively as the “Reports”), all materials
relating to the business, finances and operations of the Company and the
Subsidiaries and materials relating to the offer and sale of the Securities that
have been requested by Longview. Longview and its advisors, if any,
have been afforded the opportunity to ask questions of the
Company. In addition, such Subscriber has received in writing from
the Company such other information concerning its operations, financial
condition and other matters as such Subscriber has requested in writing
identified thereon as OTHER WRITTEN INFORMATION (such other information is
collectively, the “Other
Written Information”), and considered all factors such Subscriber deems
material in deciding on the advisability of investing in the
Securities. Neither such inquiries nor any other due diligence
investigations conducted by Longview or its advisors, if any, or its
representatives shall modify, amend or affect Longview’s right to rely on the
Company’s representations and warranties contained in Section 4 below or
contained in any of the other Transaction Documents. Longview
understands that its investment in the Securities involves a high degree of
risk. Longview has sought such accounting, legal and tax advice as it
has considered necessary to make an informed investment decision with respect to
its acquisition of the Securities. For purposes hereof, (i) “Subsidiaries” means STO
Operating Company, STO Drilling Company, STO Properties LLC, Southern Texas Oil
Company and all other entities in which the
Company, STO Operating Company or Southern Texas Oil Company, directly or
indirectly, owns Capital Stock or holds equity or similar interests at the time
of this Agreement or at any time hereafter; (ii) “Capital Stock” means any and
all shares, interests, participations or other equivalents (however designated)
of capital stock of a corporation, any and all equivalent ownership interests in
a Person (other than a corporation) and any and all warrants, rights or options
to purchase any of the foregoing; and (iii) “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization or a government or any department or
agency thereof or any other legal entity.
3.7 No Governmental
Review. Longview understands that, except as may otherwise be
provided in this Agreement, no Governmental Entity has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability
of an investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities. As used in
this Agreement, “Governmental
Entity” means the government of the United States or any other nation, or
any political subdivision thereof, whether state, provincial or local, or any
agency (including any self-regulatory agency or organization), authority,
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administration powers or
functions of or pertaining to government over the Company or any of the
Subsidiaries, or any of their respective properties, assets or
undertakings.
3.8 Transfer or
Resale. Longview understands that, (i) the Securities have not
been and are not being registered under the 1933 Act or any other securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) Longview shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or
(C) Longview provides the Company with reasonable assurance that such
Securities can be, have been or are being sold, assigned or transferred pursuant
to Rule 144 promulgated under the 1933 Act, as amended (or a successor rule
thereto) (“Rule 144”);
(ii) any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144, and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the ▇▇▇▇ ▇▇▇) may require compliance with some other
exemption under the 1933 Act or any other securities laws; (iii) except as
provided in this Agreement, neither the Company nor any other Person is under
any obligation to register the Securities under the 1933 Act or any other
securities laws. Notwithstanding the
foregoing, the Securities may be pledged in connection with a bona fide margin
account or other loan or financing arrangement secured by the
Securities.
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3.9 Legends. Longview
understands that the Exchange Shares and the Common Stock certificates issuable
upon conversion of the Exchange Shares or other instruments representing the
Securities, except as set forth below, shall bear a restrictive legend in the
following form (the “1933 Act
Legend”) (and a stop-transfer order may be placed against transfer of
such certificates):
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (i) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL FOR THE
COMPANY, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (ii) UNLESS SOLD PURSUANT
TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Preferred Stock
Legend
NEITHER
THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL FOR THE ISSUE OR COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO
THE ISSUER HEREOF THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
.. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES
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Upon the
written request to the Company of a holder of a certificate or other instrument
representing Common Stock underlying the Preferred Stock, the 1933 Act Legend
shall be removed and the Company shall issue a certificate without the 1933 Act
Legend to the holder of the Securities upon which it is stamped, if
(i) such Securities are registered for resale under the 1933 Act,
(ii) in connection with a sale transaction (other than for sales pursuant
to an effective registration statement or pursuant to Rule 144 promulgated under
the 1933 Act or a successor rule thereto [“Rule 144”]), Longview at
Longview’s expense, shall provide the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
(iii) Longview provides the Company with customary representations
and assurances that the Common Stock can be and will be sold pursuant to
Rule 144, (iv) Longview provides the Company reasonable assurances
that the Common Stock has been or will be sold pursuant to Rule 144, or (v)
such holder certifies, on or after the date that is six (6) months after the
date on which the Common Stock is issued, that such holder is not an Affiliate
(as defined in Section 3.9) of the Company and has not been an Affiliate of the
Company for the prior 90 days. The Company shall be responsible for
the fees of its transfer agent and all of The Depository Trust Company (the
“DTC”) fees associated with
such issuance. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to
Longview. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.9 will be
inadequate and agrees that, in the event of a breach or threatened breach of
this Section
3.9, such holder shall be entitled, in addition to all other available
remedies, to an injunctive order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being
required. For the purposes of this Agreement, an “Affiliate” of any person or
entity means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such person or
entity, or is an officer, director or 10% equity holder of such person or
entity. Affiliate includes each Subsidiary of the
Company.
3.10 Correctness of
Representations. Longview represents that the foregoing
representations and warranties are true and correct as of the date hereof and,
unless Longview otherwise notifies the Company prior to the Closing Date shall
be true and correct as of the Closing Date.
3.11 Survival. Except as may be limited
by its terms, the foregoing representations and warranties shall survive the
Closing Date.
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4.
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REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
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The
Company represents and warrants, as of the date hereof that:
4.1 Due
Incorporation. The Company and each of
its Subsidiaries is a corporation or other entity duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has the requisite
corporate power to own its properties and to carry on its business as presently
conducted. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property owned by it
makes such qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect (as defined
below) on the Company. For purposes of this Agreement, a
“Material Adverse
Effect” on the Company
shall mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company and its Subsidiaries taken as
a whole. All of the Company’s Subsidiaries as of the Closing Date and
the Company’s ownership interest in such Subsidiaries are set forth on
Schedule
4.1 attached to this
Agreement.
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4.2 Outstanding
Stock. All issued and outstanding shares of Capital Stock of
the Company and each of its Subsidiaries has been duly authorized and validly
issued and are fully paid and non-assessable.
4.3 Authority;
Enforceability. This Agreement, the Preferred Stock and
the Certificate of Designation (the “Transaction Documents”) have
been duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and the Company has full
corporate power and authority necessary to enter into this Agreement and to
perform its obligations hereunder and all other agreements entered into by the
Company relating hereto.
4.4 Additional
Issuances. There are no outstanding agreements or preemptive
or similar rights affecting the Company's common stock or equity and no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, or agreements or understandings with respect to the
sale or issuance of any shares of common stock or equity of the Company or other
equity interest in any of the Subsidiaries of the Company, except as described
in the Reports or Other Written Information.
4.5 Consents. Except
as set forth on Schedule
4.5 attached to this Agreement, no consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates, or the Company's
Stockholders is required for execution of this Agreement, and all other
agreements entered into by the Company relating thereto, including, without
limitation issuance and sale of the Securities, and the performance of the
Company's obligations hereunder, all of which will have been obtained prior to
the Debt Exchange Closing.
4.6 No Violation or
Conflict. Assuming the representations and warranties of
Longview in Section 3 of this Agreement are true and correct and Longview
complies with its obligations under this Agreement, neither the issuance and
sale of the Securities nor the performance of its obligations under this
Agreement and all other agreements entered into by the Company relating thereto
by the Company will:
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(i) violate,
conflict with, result in a breach of, or constitute a default (or an event which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the articles of incorporation, charter
or bylaws of the Company, or any of its Subsidiaries, (B) to the Company's
knowledge, any decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Company, or any of its affiliates of any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its affiliates or over the properties or assets of the Company, or any
of its affiliates, (C) except as set forth on Schedule 4.6(i) attached to this
Agreement, the terms of any bond, debenture, note or any other evidence
of indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which the
Company, or any of its affiliates is a party, by which the Company, or any of
its affiliates is bound, or to which any of the properties of the Company, or
any of its affiliates is subject, or (D) the terms of any “lock-up” or similar
provision of any underwriting or similar agreement to which the Company, or any
of its affiliates is a party; or
(ii) result
in the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company, or any of its affiliates;
or
(iii) result
in the activation of any anti-dilution rights or a reset or repricing of any
debt, security or other instrument issued or issuable by the Company (other than
the warrant held by Longview Marquis Master Fund, L.P. as of the date hereof),
nor result in the acceleration of the due date of any obligation of the
foregoing; or
(iv) result
in the triggering of any piggy-back registration rights of any person or entity
holding securities of the Company or having the right to receive securities of
the Company.
4.7 The
Securities. The Securities upon issuance:
(i) are,
or will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933 Act and State
securities laws;
(ii) have
been, or will be, duly and validly authorized and on the date of issuance of the
shares of Common Stock upon conversion of the Preferred Stock, the Common Stock
will be duly and validly issued, fully paid and nonassessable and if registered
pursuant to the 1933 Act and resold pursuant to an effective registration
statement will be free trading and unrestricted; ;
(iii) will
not have been issued or sold in violation of any preemptive or other similar
rights of the holders of any securities of the Company;
(iv) will
not subject the holders thereof to personal liability by reason of being such
holders; and
(v) assuming the representations and
warranties of Longview as set forth in Section 3 of this Agreement are true and
correct, will not result in a violation of Section 5 under the ▇▇▇▇
▇▇▇.
4.8 Litigation. There is no pending or, to
the best knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates that would affect
the execution by the Company or the performance by the Company of its
obligations under the Transaction Documents. Except as disclosed in
the Reports or in the schedules hereto, there is no pending or, to the best
knowledge of the Company, basis for or threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse
Effect.
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4.9 Reporting
Company. The Company is a publicly-held company mandatorily
subject to reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934 (“1934
Act”) and has a class of common stock registered pursuant to Section
12(g) of the 1934 Act. Except as set forth on Schedule 4.9 attached to this
Agreement, Pursuant to the provisions of the 1934 Act, the Company has timely
filed all reports and other materials required to be filed thereunder with the
Commission during the preceding twelve months.
4.10 Information Concerning
Company. The Reports and Other Written Information contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since the date of the financial statements
included in the Reports, and except as modified in the Other Written Information
or in the Schedules hereto, there has been no Material Adverse Event relating to
the Company’s business, financial condition or affairs not disclosed in the
Reports. The Reports including the financial statements therein, and Other
Written Information do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, taken as a whole, not misleading in light of the
circumstances when made.
4.11 Dilution. The
Company’s executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders of
the Company’s equity or rights to receive equity of the Company. The
board of directors of the Company has concluded, in its good faith business
judgment that the issuance of the Securities is in the best interests of the
Company and its stockholders. The Company specifically acknowledges
that its obligation to issue its Common Stock upon conversion of the Preferred
Stock is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other stockholders of the
Company or parties entitled to receive equity of the Company.
4.12 Stop
Transfer. The Company has not and will not issue any stop
transfer order or other order impeding the sale, resale or delivery of any of
the Securities, except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such instruction is given
to Longview.
4.13 Defaults. The
Company is not in violation of its certificate or articles of incorporation or
bylaws. The Company is (i) not in default under or in violation of
any other material agreement or instrument to which it is a party or by which it
or any of its properties are bound or affected, which default or violation would
have a Material Adverse Effect, (ii) not in default with respect to any order of
any court, arbitrator or governmental body or subject to or party to any order
of any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, and (iii) not in
violation of any statute, rule or regulation of any governmental authority which
violation would have a Material Adverse Effect.
11
4.14 No Integrated
Offering. Neither the Company, nor any of its Affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offer of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of NASDAQ which would impair
the exemptions relied upon in this Offering or the Company’s ability to timely
comply with its obligations hereunder. Neither the Company nor any of
its Subsidiaries will take any action or steps nor conduct any offering of its
securities that would cause the offer or issuance of the Securities to be
integrated with other offerings which would impair the exemptions relied upon in
this Offering or the Company’s ability to timely comply with its obligations
hereunder.
4.15 No General
Solicitation. Neither the Company, nor any of its
Subsidiaries, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or
sale of the Securities.
4.16 Listing. The
Common Stock is currently listed on the NASDAQ Global Market (the “Principal Market” under the
symbol “STXX”; however, if the Common Stock becomes listed on another national
securities exchange after the date hereof, the “Principal Market” shall mean
such exchange) and satisfies all current requirements, as temporarily modified
to reduce such requirements, for the continuation of such
listing. The Company has not received any notice that its Common
Stock will be delisted from the NASDAQ Global Market or that the Common Stock
does not meet all requirements for the continuation of such
listing. The Company makes no representation as to whether the
temporarily reduced NASDAQ listing requirements referenced in this Section 4.16
will be continued by NASDAQ in the immediate future.
4.17 No Undisclosed Events or
Circumstances. Other than disclosed in the Reports and Other
Written Information, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company, other than
those incurred in the ordinary course of the Company’s businesses since filing
of its last filed Report and which, individually or in the aggregate, would
reasonably be expected not to have a Material Adverse Effect.
4.18 Capitalization. The
authorized and the issued and outstanding capital stock of the Company as of the
date of this Agreement and the Closing Date (not including the Securities) are
set forth on Schedule
4.18 attached to this Agreement. Except as set forth on Schedule 4.18 attached to this
Agreement, there are no options, warrants, or rights to subscribe to,
securities, rights or obligations convertible into or exchangeable for or giving
any right to subscribe for any shares of capital stock of the Company or any of
its Subsidiaries.
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4.19 DTC
Status. The Company’s transfer agent is a participant in and
the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program. The name, address,
telephone number, fax number, contact person and email address of the Company
transfer agent is set forth on Schedule 4.19 attached to this
Agreement.
4.20 Investment
Company. Neither the Company nor any Affiliate is an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.
4.21 No Undisclosed
Liabilities. The Company has no liabilities or obligations
which are material, individually or in the aggregate, which are not disclosed in
the Reports and Other Written Information, other than those incurred in the
ordinary course of the Company’s businesses since the filing of its last filed
Report and which, individually or in the aggregate, would reasonably be expected
not to have a Material Adverse Effect.
4.22 Foreign Corrupt
Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.
4.23 Correctness of
Representations. The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all
material respects, will be true and correct as of the Closing Date, and, unless
the Company otherwise notifies Longview prior to the Closing Date, shall be true
and correct in all material respects as of the Closing Date. The
foregoing representations and warranties shall survive the Closing
Date.
4.24 Solvency. Based
on the financial condition of the Company as of the Closing Date after giving
effect to the transactions contemplated in this Agreement (i) the Company’s fair
saleable value of its assets exceeds the amount that will be required to be paid
on or in respect of the Company’s existing debts and other liabilities
(including known contingent liabilities) as they mature; and (ii) the current
cash flow of the Company, were it to liquidate all of its assets, after taking
into account all anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its debt when such amounts are required to be
paid.
4.25 Survival. Except
as may be limited by its terms, the foregoing representations and warranties
shall survive the Closing Date.
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5. REGULATION D
OFFERING. The offer and issuance of the Securities to Longview
is being made pursuant to the exemption from the registration provisions of the
1933 Act afforded by Section 4(2) or Section 4(6) of the 1933 Act and/or Rule
506 of Regulation D promulgated thereunder. On the Closing Date, the
Company will provide an opinion reasonably acceptable to Subscribers from the
Company’s legal counsel in the form annexed hereto as Exhibit B opining on
the availability of an exemption from registration under the 1933 Act as it
relates to the offer and issuance of the Securities and other matters reasonably
requested by the Subscribers. The Company will provide, at the
Company’s expense, such other legal opinions in the future as are reasonably
necessary for the issuance and resale of the Common Stock issuable upon
conversion of the Preferred Stock pursuant to an effective registration
statement or pursuant to Rule 144.
6. RESALE PURSUANT TO RULE
144. The Company agrees to cooperate with Longview in
connection with all resales pursuant to Rule 144 and, at its expense, provide
legal opinions necessary to allow such resales provided the Company and its
counsel receive reasonably requested representations from Longview and selling
broker, if any. In the event commencing on November 2, 2009, Longview is not
permitted to resell, without any restrictive legend, the (i) Common Stock
underlying the then outstanding Preferred Stock, (ii) Common Stock held by
Longview issued upon conversion of the Preferred Stock and (iii) Debt Conversion
Shares , and such sales are not permitted as a result of the
unavailability to Longview of Rule 144(b) under the 1933 Act or any
successor rule (a “144
Default”), and the reason for the 144 Default is that the Company is
not current in filings required to be made with the Commission, then the
Company shall pay to Longview on demand and in cash, as liquidated
damages and not as a penalty an amount equal to one percent (1%) for each
thirty (30) days (or such lesser pro-rata amount for any period less than thirty
(30) days) thereafter of (a) the Stated Value of such Preferred Stock then
outstanding, plus (b) the purchase price of the Common Stock held by Longview
issued upon conversion of the Preferred Stock, and plus (c) the purchase price
of the Debt Conversion Shares owned by Longview during the pendency of
the 144 Default, which, but for the 144 Default could have been permissibly sold
by Longview pursuant to Rule 144. Such liquidated damages shall not be
payable in connection with a 144 Default on any of the foregoing Common Stock
which may be sold by Longview pursuant to an effective Registration Statement
(as described in Section 10).
7. COVENANTS OF THE
COMPANY
The
Company covenants and agrees with Longview as follows:
7.1 Stop
Orders. The Company will advise Longview, within twenty-four
hours after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
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7.2 Listing/Quotation. The
Company’s shares of Common Stock are listed on the Company’s Principal Market as
of the date of this Agreement. The Company shall make reasonable
attempt to maintain such listing so long as any other shares of Common Stock
shall be so listed. The Company will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market and such exchanges, as applicable. Subject to Section 7.10,
the Company will provide Longview copies of all notices it receives notifying
the Company of the threatened and actual delisting of the Common Stock on any
exchange or quotation system on which the Common Stock is listed.
7.3 Market Regulations.
The Company shall notify the Commission, NASDAQ and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to Longview and
promptly provide copies thereof to Longview.
7.4 Stockholder Approval.
Upon the execution of this Agreement, the Company promptly shall seek approval
from the Company’s stockholders (“Stockholder Approval”) in order to comply with
the Stockholder Approval Requirements under the Marketplace Rules of The NASDAQ
Stock Market, or NASDAQ for transactions that involve the issuance or potential
issuance of more than 20% of an issuer’s outstanding common stock at a price
that is less than the greater of (i) the consolidated closing bid price for
the issuer’s common stock on the trading day prior to execution of definitive
agreements and (ii) the book value of the issuer’s common
stock. The approval of the Company’s stockholders in order for the
Company to be in compliance with the Stockholder Approval Requirements, as set
forth in this Section 7.4, and the Company’s making all of the filings required
to be made with the Commission and pursuant to Nevada law are conditions to the
closing of the transactions contemplated by this Agreement.
7.5 Filing
Requirements. From the date of this Agreement and until the
last to occur of (i) five (5) years after the Closing Date, (ii) until all the
Common Stock issuable upon conversion of the Preferred Stock have been resold or
transferred by Longview pursuant to a registration statement or pursuant to Rule
144, or (iii) shares of the Preferred Stock are no longer outstanding (the date
of such latest occurrence being the “End Date”), the Company will
(A) cause its Common Stock to continue to be registered under Section 12(b) or
12(g) of the 1934 Act, (B) comply in all respects with its reporting and filing
obligations under the 1934 Act, and (C) voluntarily comply with all reporting
requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the 1934 Act, if the Company is not subject to such
reporting requirements. The Company will use its best efforts not to
take any action or file any document (whether or not permitted by the 1933 Act
or the 1934 Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said acts until the End Date. Until the End Date, the Company
will use its best efforts to continue the listing or quotation of the Common
Stock on a Principal Market and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
Principal Market. The Company agrees to timely file a Form D with
respect to the Securities if required under Regulation D and to provide a copy
thereof to Longview promptly after such filing.
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7.6 Reservation. Prior
to the Closing, and thereafter for so long as shares of Preferred Stock are
outstanding, the Company undertakes to reserveon behalf of Longview, from its
authorized but unissued Common Stock, a number of common shares equal to 150% of
the amount of Common Stock necessary to allow Longview to be able to convert all
such outstanding Preferred Stock.
7.7 Taxes. From
the date of this Agreement and until the End Date, the Company will promptly pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company; provided, however, that
any such tax, assessment, charge or levy need not be paid if the validity
thereof shall be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company 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.
7.8 Books and
Records. From the date of this Agreement and until the End
Date, the Company will keep records and books of account in which entries will
be made of all dealings or transactions in relation to its business and affairs
in accordance with generally accepted accounting principles applied on a
consistent basis.
7.9 Governmental
Authorities. From the date of this Agreement and until the End
Date, the Company shall duly observe and conform in all material respects to all
valid requirements of governmental authorities relating to the conduct of its
business or to its properties or assets.
7.10 Non-Public
Information. The Company covenants and agrees that except for
schedules and exhibits to this Agreement which information thereon will be
publicly disclosed within four (4) business days after the Closing Date, neither
it nor any other person acting on its behalf will at any time provide Longview
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto Longview shall
have agreed in writing to receive such information. The Company
understands and confirms that Longview shall be relying on the foregoing
representations in effecting transactions in securities of the
Company.
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8.
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COVENANTS OF THE
COMPANY AND LONGVIEW REGARDING
INDEMNIFICATION.
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8.1
The Company agrees to indemnify, hold harmless, reimburse and defend
Longview, its officers, directors, agents, affiliates, control persons, and
principal stockholders, against any claim, cost, expense, liability, obligation,
loss or damage (including reasonable legal fees) of any nature, incurred by or
imposed upon Subscriber which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or Reports or Other
Written Information; or (ii) any breach or default in performance by Company of
any covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Subscribers relating
hereto.
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9.
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CONVERSION.
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9.1 The
Preferred Stock will be convertible according to the procedure set forth in the
Certificate of Designation. A copy of all notices of conversion must
be delivered to the attorney for the Company identified in Section 11.2
hereof.
9.2 Within
five (5) business days (such fifth business day being the “Unlegended Shares Delivery
Date”) after the business day on which the Company has received (i) a
notice that Common Stock underlying the Preferred Stock or any other Common
Stock held by Longview has been sold pursuant to the registration statement
described in Section 10 or Rule 144, (ii) a representation that the prospectus
delivery requirements, or the requirements of Rule 144, as applicable and if
required, have been satisfied, and (iii) the original share certificates
representing the shares of Common Stock that have been sold, and (iv) in the
case of sales under Rule 144, customary representation letters of the Subscriber
and/or Subscriber’s broker regarding compliance with the requirements of Rule
144, the Company at its expense, (y) shall deliver, and shall cause legal
counsel selected by the Company to deliver to its transfer agent (with copies to
Subscriber) an appropriate instruction and opinion of such counsel, directing
the delivery of shares of Common Stock without any legends including the legend
set forth in Section 3.9 above (the “Unlegended Shares”); and (z)
cause the transmission of the certificates representing the Unlegended Shares
together with a legended certificate representing the balance of the submitted
Shares certificate, if any, to the Subscriber at the address specified in the
notice of sale, via express courier, by electronic transfer or otherwise on or
before the Unlegended Shares Delivery Date.
9.3 The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 9.2 hereof later than two business days after the Unlegended
Shares Delivery Date could result in economic loss to Subscriber (such 2nd
business day being referred to as the “Delivery Date”). As
compensation to Subscriber for such loss, the Company agrees to pay late payment
fees (as liquidated damages and not as a penalty) to such Subscriber for late
delivery of Unlegended Shares in the amount of $100 per business day after the
Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. The Company shall pay any payments
incurred under this Section in immediately available funds upon
demand. Furthermore, in addition to any other remedies which may be
available to Longview, in the event that the Company fails for any reason to
effect delivery of the Shares by the Delivery Date, Longview will be entitled to
revoke all or part of the relevant Notice of Conversion by delivery of a notice
to such effect to the Company, whereupon the Company and Longview shall each be
restored to their respective positions immediately prior to the delivery of such
notice, except that the damages payable in connection with the Company’s default
shall be payable through the date notice of revocation or rescission is given to
the Company.
9.4 Nothing
contained herein 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 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 permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to Longview and thus refunded to the
Company.
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10. REGISTRATION
RIGHTS. The Company shall file with the Securities and
Exchange Commission on a Form S-3 (or such other form that it is eligible to
use) a registration statement (the “Registration Statement”) no
later than two business days after the Closing Date, or July 1, 2009, whichever
is later (the “Filing
Date”) and cause the filed Registration Statement to be declared
effective no later than November 2, 2009 (the “Effective Date”) in order to
register the Registrable Securities for resale and distribution under the 1933
Act and maintain the effectiveness of the Registration Statement until the
sooner of (i) five (5) years after the Effective Date, or (ii) until all of the
Registrable Securities may be sold by Longview without volume limitations
pursuant to Rule 144 under the 1933 Act. Subject to not being in
excess of the Rule 415 Amount (as defined below), the Company will register not
less than a number of shares of Common Stock in the above described registration
statement that is equal to the amount of Common Stock issuable at the Conversion
Price, assuming the conversion of all the Preferred Stock which is issuable (the
“Preferred Conversion
Shares”). The Preferred Conversion Shares shall be reserved
and set aside exclusively for the benefit of Longview and not issued, employed
or reserved for anyone other than Longview. In addition to the Preferred
Conversion Shares, subject to not being in excess of the Rule 415 Amount, the
Company shall include in such registration statement 7,170,775 shares of its
Common Stock previously issued to Longview, pursuant to certain convertible debt
instruments issued pursuant to agreements executed by the parties on June 28,
2005, which shares were included in the Company’s prior registration statement
on Form SB-2, declared effective in November 2005, which registration statement
subsequently lapsed (the “Debt
Conversion Shares”). The Preferred Conversion Shares and the Debt
Conversion Shares are herein referred to as the “Registrable
Securities”. Notwithstanding anything to the contrary in this
paragraph, the amount of Registrable Securities required to be included in the
Registration Statement shall be not less than (nor more than) the maximum amount
(“Rule 415 Amount”) of
Common Stock which may be included in a single Registration Statement without
exceeding registration limitations imposed by the Commission pursuant to Rule
415 of the 1933 Act. In the event that less than all of the
Registrable Securities are included in the Registration Statement as a result of
the foregoing limitation, then the Company, when permitted, will file additional
Registration Statements each registering the Rule 415 Amount, seriatim, until
all of the Registrable Securities have been registered. The Filing
Date and Effective Date of each such additional Registration Statement shall be,
respectively, thirty (30) and ninety (90) days after the first day such
additional Registration Statement may be filed without objection by the
Commission based on Rule 415 of the 1933 Act. The Company will
register the Registrable Securities in the following order, subject to
modification at Longview’s discretion: First the Debt Conversion Shares, and
Second the Preferred Conversion Shares. The Registration Statement
will immediately be amended or additional registration statement will be
immediately filed by the Company as necessary to register additional shares of
Common Stock to allow the public resale of all Common Stock included in and
issuable by virtue of the Registrable Securities. The Company agrees
to use its best efforts to obtain a waiver (the “Waiver”) from the Commission
of the Rule 415 Amount limitation, the express purpose of which is to allow an
amount of Common Stock in excess of the Rule 415 Amount to be registered on an
accelerated basis. In the event the Waiver is obtained, the Rule 415
Amount shall thereafter be deemed to include such additional shares of Common
Stock that may be included in the Registration Statement as a result of the
Waiver. Within two (2) business days after the end of the calendar
week during which Longview has sold any Preferred Conversion Shares or Debt
Conversion Shares, Longview shall provide to the Company the following
information: (x) a report of the number of such shares of Common Stock sold in
Longview’s most recent Common Stock sale transaction, (y) after giving effect to
its most recent sale of the Common Stock, the total number of shares of the
Company’s Common Stock then beneficially owned by Longview, and (z) whether the
sale was made pursuant to an effective registration statement, Rule 144 or an
exemption to the registration of the Common Stock.
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10.1 In
addition to other Registration rights provided in this Agreement, if the Company
at any time proposes to register any of its securities under the 1933 Act for
sale to the public, whether for its own account or for the account of other
security holders or both, except with respect to registration statements on
Forms ▇-▇, ▇-▇ or another form not available for registering the Registrable
Securities for sale to the public, provided the Registrable Securities are not
otherwise registered for resale by Longview pursuant to an effective
registration statement, each such time it will give at least fifteen (15) days'
prior written notice to Longview of its intention so to do. Upon the written
request of Longview, received by the Company within ten (10) days after the
giving of any such notice by the Company, to register any of the Registrable
Securities not previously registered, the Company will cause such Registrable
Securities as to which registration shall have been so requested to be included
with the securities to be covered by the registration statement proposed to be
filed by the Company, all to the extent required to permit the sale or other
disposition of the Registrable Securities so registered on behalf of
Longview.
10.2 Registration
Procedures. If and whenever the Company is required by the provisions of
this Section 10 to effect the registration of any Securities under the 1933 Act,
the Company will, as expeditiously as possible:
a.
subject to the timelines provided in this Agreement, prepare and file with
the Commission a registration statement required by this Section 10, with
respect to the Securities, and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby, and promptly provide to Longview copies of all filings and
Commission letters of comment and notify Longview within two (2) business days
of (i) notice that the Commission has no comments or no further comments on the
Registration Statement, and (ii) the declaration of effectiveness of the
registration statement;
b.
furnish to Longview, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement;
c. use
its best efforts to register or qualify the Securities covered by such
registration statement under the securities or “blue sky” laws of such
jurisdictions as Longview shall request in writing, provided, however, that the
Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;
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d. if
applicable, list the Securities covered by such registration statement with any
securities exchange on which the Common Stock of the Company is then
listed;
e. immediately
notify Longview when a prospectus relating thereto is required to be delivered
under the 1933 Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing; and
f. provided
same would not be in violation of the provision of Regulation FD under the 1934
Act, and subject to Section 7.10, make available for inspection by Longview, and
any attorney, accountant or other agent retained by Longview or underwriter, all
publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by Longview, its attorney,
accountant or agent in connection with such registration statement.
10.3 Provision of
Documents. In connection with each registration described in
this Section 10, Longview shall furnish to the Company in writing such
information and representation letters with respect to itself and the proposed
distribution of the Securities by it as reasonably shall be necessary in order
to assure compliance with federal and applicable state securities
laws.
10.4 Non-Registration
Events. The Company and Longview agree that the Longview will
suffer damages if the Registration Statement is not filed by Filing Date, or not
declared effective by the Effective Date, or not maintained in the manner and
within the time periods contemplated by Section 10 hereof, it would not be
feasible to ascertain the extent of such damages with
precision. Accordingly, if the Registration Statement (i) is not
filed by the Filing Date, or (ii) is not declared effective by the Effective
Date, or (iii) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall exceed
30 days in the aggregate per year or more than 20 consecutive days (defined as a
period of 365 days commencing on the date the Registration Statement is declared
effective) (each such event set forth in clauses (i), (ii) and (iii) of this
Section 10.4 is referred to herein as a “Non-Registration Event”), then
the Company shall deliver to Longview, for each thirty days or part thereof
subsequent to a Non-Registration Event and during the pendency of such
Non-Registration Event, as Liquidated Damages and not as
a penalty, an amount equal to one percent (1%), prorated for partial months, of
the sum of (a) the aggregate Stated Value of the Preferred Stock remaining
unconverted and which are subject to such Non-Registration Event, (b) that
number which is the sum of the applicable Conversion Prices for each share of
Common Stock issued upon conversion of the Preferred Stock and which are subject
to such Non-Registration Event, and (c) the purchase price of the Debt
Conversion Shares, then owned of record by Longview, which are subject to such
Non-Registration Event. Payments to be made pursuant to this Section
10.4 shall be payable in cash and due and payable within ten (10) business days
after the end of each thirty (30) day period or part thereof. In no
event shall the Liquidated Damages exceed ten (10%) percent of the sum of (d)
the aggregate Stated Value of the Preferred Stock remaining unconverted and
which are subject to such Non-Registration Event and (e) that number which is
the sum of the applicable Conversion Prices for each share of Common Stock
issued upon conversion of the Preferred Stock then owned of record by Longview,
which are subject to such Non-Registration Event.
20
10.5 Expenses. The
Company will pay all registration expenses in connection with the registration
statement under this Section 10. Selling expenses in connection with
each registration statement under this Section 10 registering the Securities
shall be borne by Longview.
10.6 Indemnification and
Contribution.
a. In
the event of a registration of any Securities under the 1933 Act pursuant to
this Section 10, to the extent permitted by law, the Company will indemnify and
hold harmless Longview, each officer, director and underwriter of Longview, and
each other person, if any, who controls Longview or underwriter within the
meaning of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which Longview, or such underwriter or controlling person
may become subject under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities, or actions in respect thereof (i) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Securities were registered under the 1933 Act pursuant to this Section 10, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or (ii) arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances when made, and will, subject to the provisions of this Section
10.6, reimburse the Longview, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable to Longview to
the extent that any such damages arise out of or are based upon an untrue
statement or omission made in any preliminary prospectus if (i) Longview failed
to send or deliver a copy of the final prospectus delivered by the Company to
Longview with or prior to the delivery of written confirmation of the sale by
Longview to the person asserting the claim from which such damages arise, (ii)
the final prospectus would have corrected such untrue statement or alleged
untrue statement or such omission or alleged omission, or (iii) to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by Longview, or any such
controlling person in writing specifically for use in such registration
statement or prospectus.
21
b. In
the event of a registration of any of the Securities under the 1933 Act pursuant
to this Section 10 Longview will, to the extent permitted by law, indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the 1933 Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the 1933 Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities, or actions in respect thereof,(i) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Securities were registered under
the 1933 Act pursuant to this Section 10, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or (ii)
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that Longview will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Longview, and furnished in writing to the Company by Longview specifically
for use in such registration statement or prospectus. In no event
shall the liability of Longview or any holder of Securities or permitted
successor in connection with any Preferred Stock, the Common Stock issuable upon
conversion of the Preferred Stock and Securities included in any such
registration statement be greater in amount than the dollar amount of the net
proceeds actually received by Longview or such holder upon the sale of such
Preferred Stock, the Common Stock issuable upon conversion of the Preferred
Stock and Securities pursuant to such registration statement.
c. Promptly
after receipt by an indemnified party hereunder of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party other
than under this Section 10.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 10.6(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 10.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
22
d. In
order to provide for just and equitable contribution in the event of joint
liability under the 1933 Act in any case in which either (i) Longview, or any
controlling person of Longview, makes a claim for indemnification pursuant to
this Section 10.6 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of Longview or
controlling person(s) of Longview in circumstances for which indemnification is
not provided under this Section 10.6; then, and in each such case, the Company
and Longview will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that Longview is responsible only for the portion represented
by the percentage that the public offering price of its securities offered by
the registration statement bears to the public offering price of all securities
offered by such registration statement, provided, however, that, in any such
case, (y) Longview will not be required to contribute any amount in excess of
the public offering price of all such securities sold by it pursuant to such
registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the ▇▇▇▇ ▇▇▇) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
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11.
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MISCELLANEOUS.
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11.1 Limited
Waiver. Longview waives any adjustment to the Purchase Price
(as defined in Common Stock Purchase Warrant No. WVAM-001, as amended; the
“Warrant”) pursuant to
Section 3.4 of the Warrant, solely to the extent that such adjustment would
directly result from the Company’s issuance of (i) the Preferred Stock and (ii)
Common Stock underlying the Preferred Stock upon conversion
thereof.
11.2 Notices. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
23
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(i)
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if
to the Company:
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South
Texas Oil Company
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▇▇▇
▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇
|
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▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
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|
|
Attention:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, CEO
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Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
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with
a copy (facsimile only) to:
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▇▇▇
▇. ▇▇▇▇▇▇, ▇▇.
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|
Legal
Counsel
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Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
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(ii)
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if
to Longview,
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The
Longview Fund, L.P.
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▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
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▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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Attention:
S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
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with
a copy (facsimile only) to:
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▇▇▇▇▇▇
▇▇▇▇▇▇▇, Esq.
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Grushko
& ▇▇▇▇▇▇▇, P.C.
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▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
|
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▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
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11.3
Closing/Updates. The
consummation of the transactions contemplated herein (the “Closing”) shall take place at
the offices of the Company not later than the second business day following
receipt by the Company of the approval of the Company’s stockholders as set
forth in Section 7.4 of this Agreement and the completion of all filings and
procedures necessary in connection with the Stockholder Approval, provided
however, that the Closing shall be contingent upon and subject to the
consummation of a certain Asset Purchase Agreement entered into by the Company
and Longview on February **, 2009 (the “Asset Purchase Agreement”),
and upon the satisfaction of all other conditions to closing set forth in this
Agreement, (the “Closing
Date”). All Schedules attached to this Agreement, where
appropriate, shall be updated by the Company as of the Closing
Date. However, Longview shall not be required to proceed with the
transactions described herein if such Schedules as updated and compared to the
Schedules initially attached to this Agreement represent a material adverse
change to Longview or if the Closing does not occur on or before March 31, 2009,
which date may be extended by Longview or the Company to not later than August
31, 2009 or such later date as may be agreed to by Longview and the
Company.
24
11.4 Entire Agreement;
Assignment. This Agreement represents the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. No right or
obligation of either party shall be assigned by that party without prior notice
to and the written consent of the other party.
11.5 Counterparts/Execution. This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but one
and the same instrument. This Agreement may be executed by facsimile
signature and delivered by facsimile transmission.
11.6 Law Governing this
Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, including but not limited
to New York statutes of limitations, without regard to conflicts of laws
principles that would result in the application of the substantive laws of
another jurisdiction. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the civil or state courts of New York or in the federal courts
located in the State and county of New York. The parties and the individuals
executing this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney’s fees
and costs. In the event that any provision of this Agreement or any
other agreement delivered in connection herewith is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
11.7 Confidentiality. The
Company agrees that it will not disclose publicly or privately the identity of
Longview unless expressly agreed to in writing by Longview or only to the extent
required by law.
11.8 Specific Enforcement,
Consent to Jurisdiction. To the extent permitted by law, the
Company and Subscriber acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to one or more
preliminary and final injunctions to prevent or cure breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which any of them may be entitled
by law or equity. Subject to Section 11.6 hereof, each of the
Company, Subscriber and any signatory hereto in his or her personal capacity
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction in New York of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is
improper. Nothing in this Section shall affect or limit any right to
serve process in any other manner permitted by law.
25
11.9 Damages. In
the event a Subscriber is entitled to receive any liquidated damages pursuant to
the Transactions, such Subscriber may elect to receive the greater of actual
damages or such liquidated damages.
11.10 Maximum
Payments. Nothing contained herein 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 permitted by such law, any payments in excess of such maximum rate
shall be credited against amounts owed by the Company to a Subscriber and thus
refunded to the Company.
11.11 Captions. The
captions of the various sections and paragraphs of this Agreement have been
inserted only for the purposes of convenience; such captions are not a part of
this Agreement and shall not be deemed in any manner to modify, explain, enlarge
or restrict any of the provisions of this Agreement.
11.12 Severability. In
the event that any term or provision of this Agreement shall be finally
determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by an authority having jurisdiction and venue, that
determination shall not impair or otherwise affect the validity, legality or
enforceability: (i) by or before that authority of the remaining terms and
provisions of this Agreement, which shall be enforced as if the unenforceable
term or provision were deleted, or (ii) by or before any other authority of any
of the terms and provisions of this Agreement.
11.13 Successor
Laws. References in the Transaction Documents to laws, rules,
regulations and forms shall also include successors to and functionally
equivalent replacements of such laws, rules, regulations and forms.
11.14 Calendar
Days. All references to “days” in the Transaction Documents
shall mean calendar days unless otherwise stated. The terms “business
days” and “trading days” shall mean days that the New York Stock Exchange is
open for trading for three or more hours. Time periods shall be
determined as if the relevant action, calculation or time period were occurring
in New York City.
[Signature
Pages Follow]
26
IN WITNESS WHEREOF, the
Company and Longview have caused this Securities Exchange Agreement to be duly
executed as of the date first written above.
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SOUTH TEXAS OIL
COMPANY,
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a
Nevada corporation
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By:
|
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name:
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
|
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Title:
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Chief
Executive
Officer
|
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SUBSIDIARIES:
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SOUTHERN TEXAS OIL
COMPANY., a Texas corporation
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By:
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/s/
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name:
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
|
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Title:
|
President
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STO OPERATING COMPANY, a
Texas corporation
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By:
|
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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|
Name:
|
▇▇▇▇▇
▇▇▇▇▇▇▇
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Title:
|
President
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STO PROPERTIES
LLC,
|
|
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a
Texas limited liability company
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By:
|
/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇
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|
Name:
|
▇▇▇▇▇
▇▇▇▇▇▇▇
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Title:
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Sole
Member Representative
|
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On
behalf of STO Operating Company
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STO DRILLING
COMPANY,
|
|
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a
Texas corporation
|
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By:
|
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
|
|
Name:
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
|
|
Title:
|
President
|
[Signature
page to February 2009 Securities Exchange Amendment]
27
|
LONGVIEW:
|
|
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THE LONGVIEW FUND,
L.P.,
|
|
|
a
California limited partnership
|
|
|
By:
|
/s/ S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
|
|
Name:
|
S.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
|
|
Title:
|
CFO
& Managing Member
|
[Signature
page to February 2009 Securities Exchange Amendment]
28
SCHEDULE
1
The principal amount of the Notes
outstanding as of the Execution Date of the Securities Exchange Agreement is
$26,132,400.27 (“Execution
Date Principal
Amount”).
Per Diem Interest shall accrue on the
Execution Date Principal Amount until the day prior to Closing Date at the rate
set forth in the Notes. Such interest shall be paid by adding the
accrued Per Diem Interest to the Execution Date Principal Amount on the first
business day of each successive calendar quarter, in arrears for the prior
calendar quarter, and such increased amount shall be the “Augmented Principal
Amount”.
The Total Obligations amount shall be
the sum of the Augmented Principal Amount outstanding on the Closing Date plus
the Per Diem Interest calculated for each day since the first
business day of the previous calendar quarter on which the Augmented Principal
Amount was determined or the Execution Date Principal Amount if such Augmented
Principal Amount was not required to be determined, minus $9,800,000 (which is
the consideration to be paid by Longview pursuant to the Asset Purchase
Agreement).
The Per Diem Interest shall be
determined by multiplying the Execution Date Principal Amount or Augmented
Principal Amount, if applicable, by 12.5% and dividing such amount by
365.
29