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EXHIBIT 10.1
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NOTE AND WARRANT PURCHASE AGREEMENT
BETWEEN
BLUE DOLPHIN ENERGY COMPANY
AND
CERTAIN INVESTORS
SEPTEMBER 8, 2004
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TABLE OF CONTENTS
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PAGE
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ARTICLE I.
TERMS OF THE
TRANSACTION.....................................................................1
1.1
Issuance of Notes and
Warrants...............................................................1
1.2
Sale and
Purchase............................................................................1
ARTICLE II.
CLOSING......................................................................................2
2.1
Initial
Closing..............................................................................2
2.2
Additional
Closing...........................................................................2
2.3
Closing
Deliveries...........................................................................2
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY................................................2
3.1
Corporate
Organization.......................................................................2
3.2
Capitalization of the
Company................................................................2
3.3
Authority Relative to This
Agreement.........................................................3
3.4
Noncontravention.............................................................................4
3.5
Consents and
Approvals.......................................................................4
3.6
Authorization of Issuance; Reservation of
Shares.............................................4
3.7
Financial
Condition..........................................................................5
3.8
Litigation...................................................................................5
3.9
ERISA
....................................................................................5
3.10
Taxes
....................................................................................6
3.11
Titles,
etc..................................................................................7
3.12
No Material
Misstatements....................................................................7
3.13
Investment Company
Act.......................................................................8
3.14
Public Utility Holding Company
Act...........................................................8
3.15
Subsidiaries.................................................................................8
3.16
Defaults 8
3.17
Environmental
Matters........................................................................8
3.18
Compliance with the
Law.....................................................................10
3.19
Insurance...................................................................................10
3.20
Hedging
Agreements..........................................................................11
3.21
Material
Agreements.........................................................................11
3.22
Gas
Imbalances..............................................................................11
3.23
Brokerage
Fees..............................................................................11
3.24
SEC
Filings.................................................................................11
3.25
NASDAQ
Listing..............................................................................11
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
INVESTORS.................................................12
4.1
Organization................................................................................12
4.2
Authority Relative to This
Agreement........................................................12
4.3
Noncontravention............................................................................12
4.4
Consents and
Approvals......................................................................13
4.5
Purchase for
Investment.....................................................................13
4.6
No Other
Shares.............................................................................14
4.7
Financial
Resources.........................................................................15
4.8
Brokerage
Fees..............................................................................15
4.9
Proxy
Statement.............................................................................15
4.10
No General
Solicitations....................................................................15
4.11
Exchange Act
Filings........................................................................15
ARTICLE V.
ADDITIONAL
AGREEMENTS.......................................................................15
5.1
Reasonable Best
Efforts.....................................................................15
5.2
Press
Releases..............................................................................16
5.3
Fees and
Expenses...........................................................................16
5.4
Survival 16
5.5
Transfer
Restrictions.......................................................................16
5.6
Special Meeting of
Stockholders.............................................................17
5.7
Cost Savings
Plan...........................................................................19
5.8
Engagement of
SMH...........................................................................19
5.9
[RESERVED]..................................................................................19
5.10
Lock-up 19
5.11
Consulting
Agreement........................................................................19
5.12
Registration of Warrant
Shares..............................................................19
5.13
Confidentiality.............................................................................23
5.14
Directors
Warrants..........................................................................23
ARTICLE VI.
CONDITIONS TO OBLIGATIONS OF THE
COMPANY....................................................23
6.1
Representations and
Warranties..............................................................23
6.2
Covenants and
Agreements....................................................................23
6.3
Legal
Proceedings...........................................................................23
6.4
Consents 23
6.5
Stockholder
Approval........................................................................23
6.6
Purchase
Price..............................................................................23
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ARTICLE VII.
CONDITIONS TO OBLIGATIONS OF
INVESTORS......................................................24
7.1
Representations and
Warranties..............................................................24
7.2
Covenants and
Agreements....................................................................24
7.3
Legal
Proceedings...........................................................................24
7.4
Consents 24
7.5
Stockholder
Approval........................................................................24
7.6
Cost Savings
Plan...........................................................................24
7.7
No Material
Misstatements...................................................................24
7.8
Closing
Deliveries..........................................................................24
ARTICLE VIII.
COVENANTS..........................................................................................25
8.1
Affirmative
Covenants.......................................................................25
ARTICLE IX.
AMENDMENT AND
WAIVER........................................................................25
9.1
Amendment...................................................................................25
9.2
Waiver
...................................................................................25
ARTICLE X.
MISCELLANEOUS...............................................................................25
10.1
Notices 25
10.2
Entire
Agreement............................................................................26
10.3
Binding Effect; Assignment; No Third Party
Beneficiaries....................................26
10.4
Severability................................................................................27
10.5
Injunctive
Relief...........................................................................27
10.6
Governing
Law...............................................................................27
10.7
Jurisdiction................................................................................27
10.8
Counterparts................................................................................27
ARTICLE XI.
DEFINITIONS.................................................................................27
11.1
Certain Defined
Terms.......................................................................27
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NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") is
entered
into as of September 8, 2004, among Blue
Dolphin Energy Company, a Delaware
corporation (the "Company"), and the
investors identified on Schedule I (each,
an "Investor" and collectively, the
"Investors").
WHEREAS the Company has authorized the sale and issuance of
promissory
notes in the aggregate principal amount of
seven hundred fifty thousand dollars
($750,000), in the form attached hereto as
Exhibit A (each a "Note" and
collectively the "Notes");
WHEREAS, the Company has authorized the sale and issuance of
warrants
in the form attached hereto as Exhibit B
(the "Warrants") to acquire an
aggregate of up to two million eight
hundred thousand (2,800,000) shares of its
Common Stock, of which (i) Warrants to
acquire up to one million two hundred
fifty thousand (1,250,000) shares of Common
Stock shall be sold and issued
concurrently with the sale and issuance of
the Notes (the "Initial Warrants")
and (ii) Warrants to acquire up to one
million five hundred fifty thousand
(1,550,000) shares may be sold and issued
thereafter (the "Additional
Warrants").
WHEREAS, the Investors desire to purchase the Notes and the
Warrants on
the terms and conditions set forth herein;
and
WHEREAS, the Company desires to issue and sell the Notes and
the
Warrants to the Investors on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained,
and intending to be legally bound
hereby, the Company and the Investors
hereby agree as follows:
ARTICLE I.
TERMS OF THE TRANSACTION
1.1 Issuance of Notes and Warrants. Upon the terms and subject to
the
conditions contained in this Agreement, the
Company has authorized (a) the sale
and issuance to the Investors of the Notes
and the Warrants and (b) the issuance
of such shares of Common Stock to be issued
upon exercise of the Warrants (the
"Warrant Shares").
1.2 Sale and Purchase. Subject to the terms and conditions hereof,
at
each Closing the Company hereby agrees to
issue and sell to the Investors and
each Investor shall purchase from the
Company (a) a Note in the aggregate
principal amount and at the purchase price
set forth opposite its name in
Schedule I and (b) the number of Initial
Warrants and Additional Warrants set
forth opposite its name in Schedule I at a
price of $0.003 per Warrant. The
Company and the Investors agree that the
purchase price of the Warrants reflects
the fair value of the Warrants.
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ARTICLE II.
CLOSING
2.1 Initial Closing. The closing of the sale and purchase of the
Notes
and the Initial Warrants under this
Agreement (the "Initial Closing") shall
occur simultaneously with the execution and
delivery hereof at the offices of
Gardere Wynne Sewell LLP, 1000 Louisiana,
Suite 3400, Houston, Texas 77002 (the
"Initial Closing Date").
2.2 Additional Closing. The closing of the sale and purchase of
the
Additional Warrants under this Agreement
(the "Additional Closing" and together
with the Initial Closing a "Closing") shall
take place at the offices of Gardere
Wynne Sewell LLP, 1000 Louisiana, Suite
3400, Houston, Texas 77002 at 10:00
a.m., local time, on the third day after
the Special Meeting (as hereinafter
defined), or at such other time or place as
the Company and the Investors may
mutually agree (the "Additional Closing
Date" and together with the Initial
Closing Date, each a "Closing Date").
2.3 Closing Deliveries. At the Initial Closing, subject to the
terms
and conditions hereof, the Company will
deliver to each Investor, against
payment of the purchase price therefore by
wire transfer made payable to the
Company, a Note and Initial Warrant
representing the applicable Initial Warrants
to purchase Warrant Shares as provided in
Section 1.2 above. At the Additional
Closing, subject to the terms and
conditions hereof, the Company will deliver to
each Investor, against payment of the
purchase price therefor by wire transfer
made payable to the Company, an Additional
Warrant representing the applicable
Additional Warrants to purchase Warrant
Shares as provided in Section 1.2 above.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors, as of the
date
hereof, that:
3.1 Corporate Organization. The Company is a corporation duly
incorporated, validly existing, and in good
standing under the laws of the State
of Delaware and has all requisite corporate
power and authority to own, lease,
and operate its properties and to carry on
its business in all material respects
as now being conducted. No actions or
proceedings to dissolve the Company are
pending or, to the best knowledge of the
Company, threatened. The Company is
duly qualified to do business as a foreign
corporation and is in good standing
in each jurisdiction where such
qualification is necessary, except where the
failure to so qualify or to be in good
standing would not reasonably be expected
to have a Material Adverse Effect on the
Company.
3.2 Capitalization of the Company.
(a) As of the date hereof, the authorized capital stock of the
Company
consists of 10,000,000 shares of Common
Stock and 2,500,000 shares of preferred
stock, $0.10 par value, 210,526 of which
are designated as Series A Preferred
Stock. As of the date hereof, (i) 6,712,438
shares of Common Stock are
outstanding and no shares of preferred
stock are outstanding, and (ii) 487,084
shares of Common Stock are
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reserved for issuance upon exercise of
outstanding employee, officer and
director stock options and no shares of
Common Stock are reserved for issuance
upon exercise of outstanding warrants or
conversion rights. All outstanding
shares of capital stock of the Company have
been validly issued and are fully
paid and nonassessable, and no shares of
capital stock of the Company are
subject to, nor have any been issued in
violation of, preemptive or similar
rights.
(b) Except as set forth above in subparagraph (a) of this Section
3.2,
there are outstanding (i) no shares of
capital stock or other voting securities
of the Company; (ii) no securities of the
Company convertible into or
exchangeable for shares of capital stock or
other voting securities of the
Company; (iii) no options or other rights
to acquire from the Company, and no
obligation of the Company to issue or sell,
any shares of capital stock or other
voting securities of the Company or any
securities of the Company convertible
into or exchangeable for such capital stock
or voting securities; and (iv) no
equity equivalents, interests in the
ownership or earnings, or other similar
rights of or with respect to the
Company.
(c) Neither the execution of this Agreement nor the performance of
the
Company's obligations hereunder, nor the
consummation of any other transaction
currently contemplated by the Company or
any of its Subsidiaries, will trigger
or cause any adjustment under any
anti-dilution provisions or any other similar
provisions contained in any agreement as
currently in effect that have the
effect of (i) causing a decrease in any
exercise price or conversion price in
any security exercisable for or convertible
into shares of Common Stock (a
"Common Stock Equivalent"), or (ii) causing
an increase in the number of shares
of Common Stock that may be acquired upon
conversion or exercise of a Common
Stock Equivalent.
3.3 Authority Relative to This Agreement. Subject to the
Company
obtaining the Stockholder Approval required
by the rules, regulations and
interpretations of the Nasdaq Stock Market,
Inc. with respect to the issuance of
the Additional Warrants, the Company has
requisite corporate power and authority
to execute, deliver, and perform this
Agreement and to execute, deliver, and
where applicable, perform the Ancillary
Documents to which it is a party and to
consummate the transactions contemplated
hereby and thereby. Subject to the
Company obtaining the Stockholder Approval
required by the rules, regulations
and interpretations of the Nasdaq Stock
Market, Inc. ("Nasdaq") with respect to
the issuance of the Additional Warrants,
the execution, delivery and performance
by the Company of this Agreement and the
execution, delivery, and where
applicable, performance by it of the
Ancillary Documents to which it is a party,
and the consummation by it of the
transactions contemplated hereby and thereby,
have been (or prior to the Closing will
have been) duly authorized by all
necessary corporate action of the Company.
Notwithstanding the foregoing, the
Company has requisite corporate power and
authority to perform the Company's
obligations pursuant to Article V, and such
performance has been duly authorized
by all necessary corporate action of the
Company. This Agreement has been duly
executed and delivered by the Company and
constitutes, and each Ancillary
Document executed or to be executed by the
Company has been, or when executed
will be, duly executed and delivered by the
Company and constitutes, or when
executed and delivered will constitute, a
valid and legally binding obligation
of the Company, enforceable against the
Company in accordance with its terms,
except that such enforceability may be
limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, and
similar laws affecting creditors'
rights generally, and (ii) general
equitable principles (regardless of whether
such enforceability is considered in a
proceeding in equity or at law).
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3.4 Noncontravention. The execution, delivery, and performance by
the
Company of this Agreement and the
execution, delivery, and where applicable, the
performance by it of Ancillary Documents to
which it is a party and the
consummation by it of the transactions
contemplated hereby and thereby do not
and will not (i) conflict with or result in
a violation of any provision of the
Company's Certificate of Incorporation, as
amended, or the Company's Bylaws, as
amended, or the charter, bylaws or other
governing instruments of any
Subsidiary, (ii) conflict with or result in
a violation of any provision of, or
constitute (with or without the giving of
notice or the passage of time or both)
a default under, or give rise (with or
without the giving of notice or the
passage of time or both) to any loss of
material benefit, or of any right of
termination, cancellation, or acceleration
under, any Material Agreement, (iii)
result in the creation or imposition of any
Encumbrance upon the properties of
the Company or any Subsidiary or (iv)
assuming compliance with the matters
referred to in Section 3.5, violate any
Applicable Law binding upon the Company
or any Subsidiary, except, in the case of
clauses (ii), (iii) and (iv) above,
for any such conflicts, violations,
defaults, terminations, cancellations,
accelerations, or Encumbrances which would
not, or would not reasonably be
likely to, individually or in the
aggregate, have a Material Adverse Effect on
the Company.
3.5 Consents and Approvals. No consent, approval, order, or
authorization of, or declaration, filing,
or registration with, any Governmental
Entity is required to be obtained or made
by the Company or any Subsidiary in
connection with the execution, delivery, or
performance by the Company of this
Agreement and the execution, delivery, and
where applicable, performance of
Ancillary Documents to which it is a party
or the consummation of the
transactions contemplated hereby and
thereby, other than (i) compliance with any
applicable requirements of the Securities
Act, (ii) compliance with any
applicable requirements of the Exchange
Act, (iii) compliance with any
applicable state securities laws; (iv)
compliance with any applicable rules,
regulations, interpretations or other
requirements of Nasdaq; (v) compliance
with any applicable requirements of the HSR
Act as a result of the exercise of
any of the Warrants, and (vi) with respect
to the Additional Warrants, filing of
the Amended and Restated Certificate of
Incorporation. Except for stockholder
approval required (1) by Nasdaq related to
the Issuance of the Additional
Warrants and (ii) to approve the amendment
and restatement of the Certificate of
Incorporation, no consent or approval of
any person other than the Company, the
Investors or any Governmental Entity is
required to be obtained or made by the
Company or any Subsidiary in connection
with the execution, delivery, or
performance by the Company of this
Agreement and execution, delivery and, where
applicable, performance of the Ancillary
Documents to which it is a party or the
consummation of the transactions
contemplated hereby and thereby, other than
such consents, approvals, orders, or
authorizations which, if not obtained, and
such declarations, filings, or
registrations which, if not made, would not,
individually or in the aggregate, have a
Material Adverse Effect on the Company.
3.6 Authorization of Issuance; Reservation of Shares. The
issuance,
sale and delivery of the Notes and the
Warrants in accordance with this
Agreement, and the issuance and delivery of
the Warrant Shares upon exercise of
the Warrants, have been duly authorized by
all necessary corporate action on the
part of the Company. Subject to the Company
obtaining the Stockholder Approval,
the Warrant Shares issuable upon exercise
of an Additional Warrant have been
duly and validly reserved and, when issued
upon exercise of an Additional
Warrant, will be duly and validly issued,
fully paid and nonassessable. The
issuances of the Warrants are not subject
to any preemptive or similar rights.
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3.7 Financial Condition. Each of the consolidated balance
sheets
included in or incorporated by reference
into the Company Reports (including the
related notes and schedules) fairly
presents in all material respects the
consolidated financial position of the
Company and its Subsidiaries as of its
date, and each of the consolidated
statements of income, cash flows and changes
in shareholders' equity included in or
incorporated by reference into the
Company Reports (including any related
notes and schedules) fairly presents in
all material respects the results of
operations, stockholders' equity, and cash
flow of the Company for the periods set
forth therein (subject, in the case of
unaudited statements, to (x) such
exceptions as may be permitted by Form 10-QSB
and Regulation S-B of the SEC and (y)
normal year end audit adjustments), in
each case in accordance with generally
accepted accounting principles
consistently applied during the periods
involved, except as may be noted
therein. Except as and to the extent set
forth on the most recent consolidated
balance sheet of the Company and its
Subsidiaries included in the Company
Reports, including all notes thereto, as of
the date of such balance sheet,
neither the Company nor any of its
Subsidiaries has any liabilities or
obligations of any nature (whether accrued,
absolute, contingent or otherwise)
that would be required to be reflected on,
or reserved against in, a balance
sheet of the Company or in the notes
thereto prepared in accordance with
generally accepted accounting principles
consistently applied, other than
liabilities or obligations which do not and
are not reasonably likely to have,
individually or in the aggregate, a
Material Adverse Effect on the Company.
Since June 30, 2004, there has been no
change or event having or reasonably
likely to have a Material Adverse Effect on
the Company, except as set forth in
the Disclosure Letter delivered by the
Company to the Investors
contemporaneously with the execution and
delivery of this Agreement (the
"Disclosure Letter").
3.8 Litigation. Except as disclosed in the Company's annual report
on
Form 10-KSB for the fiscal year ended
December 31, 2003, or quarterly reports on
Form 10-QSB for the quarters ended March
31, 2004 and June 30, 2004, filed with
the SEC (collectively, the "Company
Reports") or as set forth in the Disclosure
Letter, as of the date hereof there is no
Proceeding or other action of any
nature pending or, to the knowledge of the
Company, threatened against or
affecting the Company or any Subsidiary
which may reasonably have a Material
Adverse Effect on the Company.
3.9 ERISA.
(a) The Company and each ERISA Affiliate have complied in all
material
respects with ERISA and, where applicable,
the Code regarding each Plan. Each
Plan is, and has been, maintained in
substantial compliance with ERISA and,
where applicable, the Code.
(b) No act, omission or transaction has occurred which could result
in
imposition on the Company or any ERISA
Affiliate (whether directly or
indirectly) of an amount of $10,000 or more
as (i) either a civil penalty
assessed pursuant to section 502(c), (i) or
(1) of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the
Code or (ii) breach of fiduciary
duty liability damages under section 409 of
ERISA.
(c) No Plan that is subject to Title IV of ERISA or any trust
created
under any such Plan has been terminated
since September 2, 1974. No liability to
the Pension Benefit Guaranty Corporation in
excess of $10,000 (other than for
the payment of current premiums which are
not
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past due) by the Company or any ERISA
Affiliate has been or is expected by the
Company or any ERISA Affiliate to be
incurred with respect to any Plan.
(d) Full payment when due has been made of all amounts which
the
Company or any ERISA Affiliate is required
under the terms of each Plan or
applicable law to have paid as
contributions to such Plan, and no accumulated
funding deficiency in an amount of $10,000
or more (as defined in section 302 of
ERISA and section 412 of the Code), whether
or not waived, exists with respect
to any Plan.
(e) The actuarial present value of the benefit liabilities under
each
Plan which is subject to Title IV of ERISA
does not, as of the end of the
Company's most recently ended fiscal year,
exceed the current value of the
assets (computed on a plan termination
basis in accordance with Title IV of
ERISA) of such Plan allocable to such
benefit liabilities by $10,000 or more.
The term "actuarial present value of the
benefit liabilities" shall have the
meaning specified in section 4041 of
ERISA.
(f) None of the Company or any ERISA Affiliate sponsors, maintains,
or
contributes to an employee welfare benefit
plan, as defined in section 3(1) of
ERISA, including, without limitation, any
such plan maintained to provide
benefits to former employees of such
entities, that may not be terminated by the
Company or any ERISA Affiliate in its sole
discretion at any time without any
material liability (other than run off
liability in the ordinary course of
payment of benefits or as mandated by
Applicable Law).
(g) None of the Company or any ERISA Affiliate sponsors, maintains
or
contributes to, or has at any time in the
preceding six calendar years,
sponsored, maintained or contributed to,
any Multiemployer Plan.
(h) None of the Company or any ERISA Affiliate is required to
provide
security under section 401(a)(29) of the
Code due to a Plan amendment that
results in an increase in current liability
for the Plan.
(i) The Disclosure Letter lists all Plans that the Company or any
ERISA
Affiliate has had at any time in the prior
six (6) years.
3.10 Taxes. Except as described in the Disclosure Letter, the
Company
has filed all United States Federal income
tax returns and all other tax returns
which are required to be filed by it and
has paid all taxes due pursuant to such
returns or pursuant to any assessment
received by the Company, except for any
taxes which are being contested in good
faith and by proper proceedings and
against which adequate reserves are being
maintained. The charges, accruals and
reserves in respect of taxes and other
governmental charges set forth on the
face of the most recent balance sheet
included in the most recent Company Report
are, in the opinion of the Company,
adequate. No tax lien has been filed and, to
the knowledge of the Company, no claim is
being asserted with respect to any
such tax, fee or other charge, except for
any taxes, fees or other charges which
are being contested in good faith and by
proper proceedings and against which
adequate reserves are being maintained.
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3.11 Titles, etc.
(a) Except as set forth in the Company Reports or in the
Disclosure
Letter, each of the Company and the
Subsidiaries has good and defensible title,
or valid leasehold interests to its assets
and Properties, including, without
limitation, the Oil and Gas Properties,
free and clear of all Liens, other than
Excepted Liens, except for minor defects
and irregularities in title that are
not substantial in character, amount, or
extent. Except for immaterial
divergences, after giving full effect to
the Excepted Liens, the Company owns,
in all material respects, the net interests
in production attributable to the
Hydrocarbon Interests, and the ownership of
such Hydrocarbon Interests shall not
in any material respect obligate the
Company to bear the costs and expenses
relating to the maintenance, development
and operations of each such Hydrocarbon
Interest in an amount in excess of the
working interest of such Hydrocarbon
Interest (without a corresponding increase
in net revenue interest).
(b) All leases, licenses, permits, authorizations and
agreements
necessary for the conduct of the business
of the Company and the Subsidiaries
are valid and subsisting, in full force and
effect and there exists no default
or event or circumstance which with the
giving of notice or the passage of time
or both would give rise to a default under
any such leases, licenses, permits,
authorizations and agreements, which would
have a Material Adverse Effect on the
conduct of the business of the Company or
its Subsidiaries.
(c) The Properties, including, without limitation, the Oil and
Gas
Properties, presently owned, leased or
licensed by the Company and the
Subsidiaries, including, without
limitation, all easements, licenses, permits,
authorizations and rights of way, include
all Properties necessary to permit the
Company and the Subsidiaries to conduct
their business in all material respects
in the same manner as its business has been
conducted prior to the Closing Date.
(d) Except as described in the Disclosure Letter, all of the
Properties
of the Company and the Subsidiaries which
are reasonably necessary for the
operation of their business are in good
working condition in all material
respects and are maintained in accordance
with prudent business standards.
3.12 No Material Misstatements. Taken as a whole, the written
information, statements, exhibits,
certificates, documents and reports furnished
to the Investors by the Company or any
Subsidiary in connection with the
negotiation of this Agreement do not
contain any material misstatement of fact
or omit to state a material fact or any
fact necessary to make the statements
contained therein not materially misleading
in the light of the circumstances in
which made and with respect to the Company
or any Subsidiary. The Company does
not represent or warrant that any
occurrences, developments or facts, including,
without limitation, projections and
forecasts, will in fact occur or eventuate
after such date, but the Company represents
and warrants that such occurrences,
developments or facts, including, without
limitation, such projections and
forecasts, were prepared by the Company in
good faith based on its best
knowledge, information and belief. There is
no fact peculiar to the Company or
Subsidiary which has a Material Adverse
Effect relative to the Company or in the
future may reasonably have a Material
Adverse Effect and which has not been
disclosed in this Agreement or the other
documents, certificates and statements
furnished to the Investors by or on behalf
of
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the Company or any Subsidiary prior to, or
on, each Closing Date in connection
with the transactions contemplated
hereby.
3.13 Investment Company Act. Neither the Company nor any Subsidiary
is
an "investment company" or a company
"controlled" by an "investment company,"
within the meaning of the Investment
Company Act of 1940, as amended.
3.14 Public Utility Holding Company Act. The Company and its
affiliates
and Subsidiaries are not, and after giving
effect to the performance of the
terms of this Agreement will not be,
subject to regulation (i) as a "holding
company," a "subsidiary company" of a
"holding company," an "affiliate" of a
"holding company," an "affiliate" of a
"subsidiary company" of a "holding
company," or an "associate company" of a
"holding company," in each case as such
terms are defined in PUHCA or (ii) under
any state law or regulation with
respect to rates or the financial or
organizational regulation of a
"public-utility company," as defined in
PUHCA. Neither the Company, nor any
"subsidiary company" (as defined in PUHCA)
of the Company, directly or
indirectly owns, controls or holds with
power to vote, five percent (5%) or more
of the outstanding voting securities of (A)
any "holding company," (B) any "gas
utility company," or (C) any "electric
utility company" (as such terms are
defined in PUHCA).
3.15 Subsidiaries. Except as set forth in the Company Reports or
the
Disclosure Letter, the Company has no
Subsidiaries. Each Subsidiary is a
corporation or limited liability company,
duly incorporated or organized,
validly existing and in good standing under
the laws of its jurisdiction of
incorporation or organization, as
applicable, and has all requisite corporate or
other power and authority in all material
respects to own, lease, and operate
its properties and to carry on its business
as now being conducted. Each
Subsidiary is duly qualified to do business
as a foreign corporation or limited
liability company, as applicable, and is in
good standing in each jurisdiction
where such qualification is necessary,
except where the failure to so qualify or
to be in good standing would not reasonably
be expected to have a Material
Adverse Effect on the Company or such
Subsidiary. Except as set forth in the
Disclosure Letter, there are outstanding
(i) no securities of any Subsidiary
convertible into or exchangeable for shares
of capital stock or other voting
securities of any Subsidiary and (ii) no
options or other rights to acquire from
any Subsidiary, and no obligation of any
Subsidiary to issue or sell, any shares
of capital stock or other voting securities
of any Subsidiary or any securities
of any Subsidiary convertible into or
exchangeable for such capital stock or
voting securities.
3.16 Defaults. Neither the Company nor any Subsidiary is in default
nor
has any event or circumstance occurred
which, but for the expiration of any
applicable grace period or the giving of
notice, or both, would constitute a
default under any Material Agreement to
which the Company is a party or by which
the Company is bound.
3.17 Environmental Matters.
(a) No Property owned, leased or operated by the Company or any of
its
Subsidiaries, including, without
limitation, any Oil and Gas Property of the
Company or any of its Subsidiaries, and no
operations conducted thereon violate
any applicable order or requirement of any
court or Governmental Entity or any
Environmental Laws;
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(b) Without limitation of clause (a) above, no Property owned,
leased
or operated by the Company or any of its
Subsidiaries, including, without
limitation, any Oil and Gas Property of the
Company or any of its Subsidiaries,
nor the operations currently conducted
thereon or, to the best knowledge of the
Company, by any prior owner or operator of
such Property or operation, are in
violation of or subject to any existing,
pending or threatened Proceeding by or
before any court or Governmental Entity or
the subject of any remedial
obligations under applicable Environmental
Laws;
(c) All notices, permits, licenses or similar authorizations, if
any,
required to be obtained or filed by the
Company or any of its Subsidiaries in
connection with the operation or use of any
and all Property of the Company and
each of its Subsidiaries, including without
limitation present, or to the best
of Company's knowledge, past treatment,
storage, disposal or release of a
hazardous substance or solid waste into the
environment, have been duly obtained
or filed, and the Company and each
Subsidiary are in substantial compliance with
the terms and conditions of all such
applicable notices, permits, licenses and
similar authorizations;
(d) All hazardous substances, solid waste, and oil and gas
exploration
and production wastes, if any, generated at
any and all Properties, including,
without limitation, Oil and Gas Properties,
owned, leased or operated by the
Company and each of its Subsidiaries have
in the past, during the tenure of
ownership of the Company and its
Subsidiaries and, to the best of the Company's
knowledge, prior thereto, been transported,
treated and disposed of in
accordance with applicable Environmental
Laws and so as not to pose an imminent
and substantial endangerment to public
health or welfare or the environment,
and, to the best knowledge of the Company,
all such transport carriers and
treatment and disposal facilities have been
and are operating in compliance with
applicable Environmental Laws and so as not
to pose an imminent and substantial
endangerment to public health or welfare or
the environment, and are not the
subject of any existing, pending or
threatened action, investigation or inquiry
by any Governmental Entity in connection
with any applicable Environmental Laws;
(e) The Company has taken all steps reasonably necessary to
determine
and has determined that no hazardous
substances, solid waste, or oil and gas
exploration and production wastes, have
been disposed of or otherwise released,
and there has been no threatened release of
any hazardous substances, on or to
any Properties, including, without
limitation, Oil and Gas Properties, owned,
leased or operated by the Company or any of
its Subsidiaries, except in
compliance with applicable Environmental
Laws and so as not to pose an imminent
and substantial endangerment to public
health or welfare or the environment;
(f) To the extent applicable, all Oil and Gas Property of the
Company
and each of its Subsidiaries currently
satisfies all design, operation, and
equipment requirements imposed by the OPA;
and
(g) Neither the Company nor any of its Subsidiaries has any
known
contingent liability in connection with any
release or threatened release of any
oil, hazardous substance or solid waste
into the environment.
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(h) Notwithstanding anything in this Section 3.17 to the contrary,
the
representations and warranties in this
Section 3.17 regarding the Oil and Gas
Properties of the Company and the
Subsidiaries shall be limited to the knowledge
of the Company and its Subsidiaries.
3.18 Compliance with the Law. Neither the Company nor any
Subsidiary
has violated any Governmental Requirement
or failed to obtain any license,
permit, franchise or other governmental
authorization necessary for the
ownership of any of its Properties,
including, without limitation, its Oil and
Gas Properties, or the conduct of its
business, which violation or failure would
have (in the event such violation or
failure were asserted by any Person through
appropriate action) a Material Adverse
Effect. Except for such acts or failures
to act as would not have a Material Adverse
Effect, the Properties, including,
without limitation, the Oil and Gas
Properties (and properties unitized
therewith), have been maintained, operated
and developed in a good and
workmanlike manner and in conformity with
all applicable laws and all rules,
regulations and orders of all duly
constituted authorities having jurisdiction
and in conformity with the provisions of
agreements and other instruments
comprising a part of the Properties,
including, without limitation, all leases,
subleases or other contracts comprising a
part of the Hydrocarbon Interests and
other contracts and agreements forming a
part of the Oil and Gas Properties;
specifically in this connection, but
subject to the Material Adverse Effect
qualification set forth above, (i) after
the date hereof, no Oil and Gas
Property is subject to having allowable
production reduced below the full and
regular allowable (including the maximum
permissible tolerance) because of any
overproduction (whether or not the same was
permissible at the time) prior to
the date hereof, and (ii) none of the wells
comprising a part of the Oil and Gas
Properties (or properties unitized
therewith) are deviated from the vertical
more than the maximum permitted by
applicable laws, regulations, rules and
orders, and such wells are, in fact,
bottomed under and are producing from, and
the well bores are wholly within, the Oil
and Gas Properties (or in the case of
wells located on properties unitized
therewith, such unitized properties). This
Section 3.18 does not apply to compliance
with ERISA or applicable Environmental
Laws, which are instead subject to Section
3.9 and Section 3.17, respectively.
3.19 Insurance. The Disclosure Letter contains an accurate and
complete
description of all material policies of
fire, liability, workmen's compensation
and other forms of insurance owned or held
by the Company and each Subsidiary as
of the date hereof. Except as set forth in
the Disclosure Letter, all such
policies are in full force and effect, all
premiums with respect thereto
covering all periods up to and including
the date hereof and the Additional
Closing Date have been, or will be, paid,
and no notice of cancellation or
termination has been received with respect
to any such policy. Such policies are
sufficient for compliance with all
requirements of law and of all agreements to
which the Company or any Subsidiary is a
party; are valid, outstanding and
enforceable policies; provide adequate
insurance coverage in at least such
amounts and against at least such risks
(but including in any event public
liability) as are usually insured against
in the same general area by companies
engaged in the same or a similar business
for the assets and operations of the
Company and each Subsidiary; will remain in
full force and effect through the
respective dates set forth in the
Disclosure Letter with the payment of
additional premiums; and, except as set
forth in the Disclosure Letter, will not
in any way be affected by, or terminate or
lapse by reason of, the transactions
contemplated by this Agreement. There are
no material risks that the Company,
the Subsidiaries or their respective Board
of Directors or officers have
designated as being self-insured. Neither
the Company nor any Subsidiary has
been refused any insurance with respect to
its assets or operations, nor has its
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coverage been limited below usual and
customary policy limits, by an insurance
carrier to which it has applied for any
such insurance or with which it has
carried insurance during the last three
years. Without limiting the foregoing,
the Company has in effect directors and
officers insurance coverage in an annual
aggregate amount of not less than $5
million.
3.20 Hedging Agreements. As of the date hereof, there are no
Hedging
Agreements (including commodity price swap
agreements, forward agreements or
contracts of sale which provide for
prepayment for deferred shipment or delivery
of oil, gas or other commodities) of the
Company or any Subsidiary.
3.21 Material Agreements. Set forth on the Disclosure Letter hereto
is
a complete and correct list of all Material
Agreements, purchase agreements,
obligations in respect of letters of
credit, guarantees, joint venture
agreements, and other instruments in effect
or to be in effect as of the date
hereof (other than Hedging Agreements)
providing for, evidencing, securing or
otherwise relating to any material Debt of
the Company or any Subsidiary, and
all obligations of the Company or any
Subsidiary to issuers of surety or appeal
bonds (excluding operator's bonds, plugging
and abandonment bonds, and similar
surety obligations obtained in the ordinary
course of business) issued for
account of the Company or any such
Subsidiary.
3.22
Gas Imbalances. As of the date hereof, on a net basis there are
no
gas imbalances, take or pay or other
prepayments with respect to the Company's
or any Subsidiary's Hydrocarbon Interests
which would require the Company or
such Subsidiary to deliver five percent
(5%) or more of the monthly production
from the Company's and its Subsidiaries'
Hydrocarbons produced on a monthly
basis from the Hydrocarbon Interests, at
some future time without then or
thereafter receiving full payment
therefor.
3.23
Brokerage Fees. The Company has not retained any financial
advisor, broker, agent, or finder or paid
or agreed to pay any financial
advisor, broker, agent, or finder on
account of the sale by the Company and the
purchase by the Investors of the Notes and
the Warrants pursuant to this
Agreement, except for Sanders Morris
Harris, Inc. ("SMH").
3.24 SEC Filings. During the preceding three (3) years, the Company
has
complied in all material respects with its
obligations to file with the SEC all
forms, reports, schedules, statements and
other documents required to be filed
by it under the Securities Act and the
Exchange Act. All forms, reports,
schedules, statements, and other documents
(including all amendments thereto)
filed by the Company with the SEC since
such date are herein collectively
referred to as the "SEC Filings." The SEC
Filings, at the time filed, complied
in all material respects with all
applicable requirements of federal securities
laws. None of the SEC Filings, including,
without limitation, any financial
statements or schedules included therein,
at the time filed or as same may have
been amended, contained any untrue
statement of a material fact or omitted to
state any material fact required to be
stated therein or necessary in order to
make the statements contained therein, in
light of the circumstances under which
they were made, not misleading.
3.25 NASDAQ Listing. The Common Stock is listed on the Nasdaq
Smallcap
Market and the Company has taken no action
designed to, or likely to have the
effect of, de-listing the Common Stock from
the Nasdaq Smallcap Market. Except
as set forth in the Disclosure Letter,
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the Company has not been contacted
regarding any listing qualification issues
within the twelve (12) month period
preceding the date of this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF INVESTORS
Each Investor, severally but not jointly, represents and warrants
to
the Company that:
4.1 Organization. If such Investor is a corporation or limited
partnership, such Investor (i) is duly
organized, validly existing and in good
standing under the laws of the state of its
formation, (ii) has all requisite
corporate or partnership power and
authority in all material respects to own,
lease, and operate its properties and to
carry on its business as now being
conducted, and (iii) no actions or
proceedings to dissolve such Investor are
pending or, to the best knowledge of such
Investor, threatened.
4.2 Authority Relative to This Agreement. Such Investor has all
requisite power, authority and capacity to
execute, deliver, and perform this
Agreement and execute, deliver and, where
applicable, perform the Ancillary
Documents to which it is a party and to
consummate the transactions contemplated
hereby and thereby. The execution,
delivery, and performance by such Investor of
this Agreement and execution, delivery,
and, where applicable, performance of
the Ancillary Documents to which it is a
party, and the consummation by it of
the transactions contemplated hereby and
thereby, have been duly authorized by
all necessa
