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Exhibit
10.3
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Securities
Purchase Agreement.
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SECURITIES PURCHASE
AGREEMENT
THIS SECURITIES PURCHASE
AGREEMENT (this “ Agreement
”), dated as of February 6, 2008, by and among Hyperdynamics
Corporation, a Delaware corporation (the “ Company
”), and the Buyers listed on Schedule I attached
hereto (individually, a “ Buyer ”
or collectively “ Buyers
”).
WITNESSETH
WHEREAS , the Company and the Buyer(s) are executing and
delivering this Agreement in reliance upon an exemption from
securities registration pursuant to Section 4(2) and/or
Rule 144A as promulgated by the U.S. Securities and Exchange
Commission (the “ SEC ”)
under the Securities Act of 1933, as amended (the “
Securities Act
”);
WHEREAS , the parties desire that, upon the terms and
subject to the conditions contained herein, the Company shall issue
and sell to the Buyer(s), as provided herein, and the Buyer(s)
shall purchase (i) up to Three Million Dollars ($3,000,000) of
secured notes in the form attached hereto as “ Exhibit A
” (the “ Notes
”), which shall, in certain instances, be convertible into
shares of the Company’s common stock, par value $0.001 per
share (the “ Common Stock
”) (if converted, the “ Conversion
Shares ”) of which Nine Hundred Ten Thousand Five
Hundred and Twenty Six Dollars ($910,526) shall be funded on the
date hereof (the “ First Closing
”), One Million Eighty Nine Thousand Four Hundred and Seventy
Four Dollars ($1,089,474) of which shall be funded on the fifth (5
th
) Business Day (as defined herein) following the date on which the
conditions set forth in Section 7(b) hereof have been met (the
“ Second Closing
”) and One Million Dollars ($1,000,000) of which may, in
certain circumstances, be funded on the one hundred and twentieth
(120 th
) day following the date hereof (the “ Third Closing
”) (individually referred to as a “ Closing
” and collectively referred to as the “ Closings
”) and (ii) warrants substantially in the form attached
hereto as “ Exhibit B
” (the “ Warrants
”), to acquire up to eight hundred and twenty-five thousand
(825,000) shares of Common Stock (as exercised, the “
Warrant
Shares ”), of which five hundred and fifty thousand
(550,000) shall be issued at the First Closing and two hundred and
seventy five thousand (275,000) shall be issued at the Third
Closing;
WHEREAS , contemporaneously with the First Closing and, if
applicable, the Third Closing, the Company will, among other
things, issue to the Buyer warrants substantially in the form
attached hereto as “ Exhibit B
” (the “ Warrants
”), to acquire up to that number of additional shares of
Common Stock set forth opposite such Buyer’s name on Schedule
I (as exercised, the “ Warrant Shares
”)
WHEREAS , contemporaneously with the execution and delivery
of this Agreement, (i) the Buyer, the Company, HYD Resources
Corporation, a Texas corporation and a wholly owned subsidiary of
the Company (“ HYD ”)
and Trendsetter Production Company, a Mississippi company and a
wholly owned subsidiary of HYD (“ Trendsetter
”), are executing and delivering a Security Agreement (the
“ Security
Agreement ”) pursuant to which Trendsetter and HYD
agree to provide the Buyer a security interest in Pledged Property
(as this term is defined in the Security Agreement) and (ii)
Trendsetter and HYD are executing and delivering a Guaranty dated
the date hereof (the “ Guaranty
” and collectively with the Security Agreement and the
Mortgage (as defined herein), the “ Security
Documents ”);
WHEREAS , contemporaneously with the execution and delivery
of this Agreement, the parties hereto are executing and delivering
Irrevocable Transfer Agent Instructions (the “ Irrevocable Transfer
Agent Instructions ”); and
WHEREAS , the Notes, the Conversion Shares, the Warrants,
and the Warrants Shares collectively are referred to herein as the
“ Securities
”).
NOW, THEREFORE , in consideration of the mutual covenants
and other agreements contained in this Agreement the Company and
the Buyer(s) hereby agree as follows:
PURCHASE AND SALE OF NOTES .
Purchase of Notes . Subject to the satisfaction
(or waiver) of the terms and conditions of this Agreement, each
Buyer agrees, severally and not jointly, to purchase at the First
Closing and the Company agrees to sell and issue to each Buyer,
severally and not jointly, at the First Closing, Notes in amounts
corresponding with the Subscription Amount set forth opposite each
Buyer’s name on Schedule I hereto and Warrants to acquire
that number of Warrant Shares as set forth opposite each
Buyer’s name in column (5) on Schedule I hereto at an
exercise price of Two Dollars ($2.00) per share. Subject
to the satisfaction (or waiver) of the terms and conditions of this
Agreement, each Buyer agrees, severally and not jointly, to
purchase at the Second Closing and the Company agrees to sell and
issue to each Buyer, severally and not jointly, at the Second
Closing, Notes in amounts corresponding with the Subscription
Amount set forth opposite each Buyer’s name on Schedule I
hereto. The Company may, in its sole discretion, offer
to sell and issue to each Buyer severally and not jointly, at the
Third Closing, Notes in amounts corresponding with the Subscription
Amount set forth opposite each Buyer’s name on Schedule I
hereto and Warrants to acquire that number of Warrant Shares as set
forth opposite each Buyer’s name in column (6) on Schedule I
hereto at an exercise price per share equal to one-hundred and
thirty percent (130%) of the Closing Bid Price of the Common Stock
on the day prior to the Third Closing. The Company
acknowledges that the purchase at the Third Closing of Notes and
Warrants in amounts corresponding with the Subscription Amount set
forth opposite each Buyer’s name on Schedule I is in each
Buyer’s sole discretion subject to the Company’s right
to provide Buyer with fifteen (15) Business Days advance written
notice of its election to not offer such Note and Warrants for
sale. As used in this Agreement, “Business Day” means
any day except Saturday, Sunday and any day which shall be a
federal legal holiday in the United States or a day on which
banking institutions are authorized or required by law or other
government action to close. As used in this Agreement,
“ Closing Bid
Price ” means the closing bid price of Common Stock as
quoted on the American Stock Exchange (as reported by Bloomberg
Financial Markets (“ Bloomberg
”) through its “Volume at Price”
function).
Closing Dates . The First Closing of the purchase
and sale of the Notes and Warrants shall take place on the date
hereof (the “ First Closing
Date ”), the Second Closing of the purchase of the
Notes shall take place at 10:00 a.m. Eastern Standard Time on the
fifth (5 th
) business day following the date on which the conditions set forth
herein and in Sections 6 and 7 hereof have been met (or such other
date as is mutually agreed to by the Company and the Buyer(s)) (the
“ Second Closing
Date ”) and if applicable, the Third Closing of the
purchase and sale of the Notes shall take place at 10:00 a.m.
Eastern Standard Time on the one hundred and twentieth (120
th
) day following the First Closing (or such later date as is
mutually agreed to by the Company and the Buyer(s)) (the “
Third
Closing Date ”) (collectively referred to as the
“ Closing Dates
”), subject to notification of satisfaction of the conditions
to the Third Closing set forth herein and in Sections 6 and 7
below. The Closings shall occur on the respective
Closing Dates at the offices of Yorkville Advisors, LLC, 101 Hudson
Street, Suite 3700, Jersey City, New Jersey 07302 (or such other
place as is mutually agreed to by the Company and the
Buyer(s)).
Form of Payment . Subject to the satisfaction of
the terms and conditions of this Agreement, on each Closing Date,
(i) the Buyers shall deliver to the Company such aggregate proceeds
for the Notes and Warrants to be issued and sold to such Buyer at
such Closing, minus the fees to be paid directly from the proceeds
of such Closing as set forth herein, and (ii) the Company
shall deliver to each Buyer, the Notes and Warrants which such
Buyer is purchasing at such Closing in amounts indicated opposite
such Buyer’s name on Schedule I, duly executed on behalf of
the Company.
BUYER’S REPRESENTATIONS AND WARRANTIES .
Each
Buyer represents and warrants, severally and not jointly,
that:
Investment Purpose . Each Buyer is acquiring the
Securities for its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by
making the representations herein, such Buyer reserves the right to
dispose of the Securities at any time in accordance with or
pursuant to an effective registration statement covering such
Securities or an available exemption under the Securities
Act. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to
distribute any of the Securities.
Qualified Institutional Buyer . Each Buyer is a
“ Qualified
Institutional Buyer ” as that term is defined in Rule
144A of the Securities Act. Each Buyer has provided to
the Company a “Certificate of QIB” in substantially the
form attached hereto as Exhibit C.
Reliance on Exemptions . Each Buyer understands
that the Securities are being offered and sold to it in reliance on
specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and such
Buyer’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set
forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the
Securities.
Information . Each Buyer and its advisors (and
his or, its counsel), if any, have been furnished with all
materials relating to the business, finances and operations of the
Company and information he deemed material to making an informed
investment decision regarding his purchase of the Securities, which
have been requested by such Buyer. Each Buyer and its
advisors, if any, have been afforded the opportunity to ask
questions of the Company and its management. Neither
such inquiries nor any other due diligence investigations conducted
by such Buyer or its advisors, if any, or its representatives shall
modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained in Section
3 below. Each Buyer understands that its investment in
the Securities involves a high degree of risk. Each
Buyer is in a position regarding the Company, which, based upon
employment, family relationship or economic bargaining power,
enabled and enables such Buyer to obtain information from the
Company in order to evaluate the merits and risks of this
investment. Each Buyer 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.
No Governmental Review . Each Buyer understands
that no United States federal or state agency or any other
government or governmental agency has passed on or made any
recommendation or endorsement of the Securities, or the fairness or
suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of
the Securities.
Transfer or Resale . Each Buyer understands that:
(i) the Securities have not been and are not being registered under
the Securities Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer 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 requirements, or
(C) such Buyer provides the Company with reasonable assurances (in
the form of seller and broker representation letters) that such
Securities can be sold, assigned or transferred pursuant to Rule
144, Rule 144(k), or Rule 144A promulgated under the Securities
Act, as amended (or a successor rule thereto and as amended)
(collectively, “ Rule 144
”), in each case following the applicable holding period set
forth therein; (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 Securities Act) may
require compliance with some other exemption under the Securities
Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to
register the Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any
exemption thereunder.
Legends . Each Buyer agrees to the imprinting, so
long as is required by this Section 2(g), of a restrictive legend
in substantially the following form:
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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
HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.
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Certificates
evidencing the Conversion Shares or Warrant Shares shall not
contain any legend (including the legend set forth above), (i)
while a registration statement covering the resale of such
security is effective under the Securities Act (such
registration statement, the “ Registration
Statement ”), (ii) following any sale of such
Conversion Shares or Warrant Shares pursuant to Rule 144,
(iii) if such Conversion Shares or Warrant Shares are
permanently eligible for sale without restriction under Rule
144, or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
SEC). The Company shall cause its counsel to issue
a legal opinion to the Company’s transfer agent promptly
after the effective date (the “ Effective
Date ”) of a Registration Statement if required
by the Company’s transfer agent to effect the removal of
the legend hereunder. If all or any portion of the
Notes or Warrants are exercised by a Buyer that is not an
Affiliate of the Company (a “ Non-Affiliated
Buyer ”) at a time when there is an effective
registration statement to cover the resale of the Conversion
Shares or the Warrant Shares, such Conversion Shares or
Warrant Shares shall be issued free of all
legends. The Company agrees that following the
Effective Date or at such time as such legend is no longer
required under this Section 2(g), it will, no later than three
(3) Trading Days following the delivery by a Non-Affiliated
Buyer to the Company or the Company’s transfer agent of
a certificate representing Conversion Shares or Warrant
Shares, as the case may be, issued with a restrictive legend
(such third Trading Day, the “ Legend Removal
Date ”), deliver or cause to be delivered to such
Non-Affiliated Buyer a certificate representing such shares
that is free from all restrictive and other
legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in
this Section. Each Buyer acknowledges that the
Company’s agreement hereunder to remove all legends from
Conversion Shares or Warrant Shares is not an affirmative
statement or representation that such Conversion Shares or
Warrant Shares are freely tradable. Each Buyer,
severally and not jointly with the other Buyers, agrees that
the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 2(g) is
predicated upon the Company’s reliance that the buyer
will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom,
and that if Securities are sold pursuant to a Registration
Statement, they will be sold in compliance with the plan of
distribution set forth therein. As used in this
Agreement, “ Trading
Day ” means a day on which the shares of Common
Stock are quoted on the American Stock Exchange or quoted or
traded on such Subsequent Market on which the shares of Common
Stock are then quoted or listed; provided, that in the event
that the shares of Common Stock are not listed or quoted, then
Trading Day shall mean a Business Day. As used in
this Agreement “Subsequent Market” shall mean: (a)
the American Stock Exchange, (b) New York Stock Exchange, (c)
the Nasdaq National Market, (d) the Nasdaq Capital Market, or
(e) the Nasdaq OTC Bulletin Board (“ OTC
”) (each, a “ Subsequent
Market ”).
Authorization, Enforcement . This Agreement has
been duly and validly authorized, executed and delivered on behalf
of such Buyer and is a valid and binding agreement of such Buyer
enforceable in accordance with its terms, except as such
enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights
and remedies.
Receipt of Documents . Each Buyer and his or its
counsel has received and read in their entirety: (i)
this Agreement and each representation, warranty and covenant set
forth herein and the Transaction Documents (as defined herein);
(ii) all due diligence and other information necessary to verify
the accuracy and completeness of such representations, warranties
and covenants; (iii) the Company’s Form 10-K for the fiscal
year ended December 31, 2006; (iv) the Company’s Form 10-Q
for the fiscal quarter ended September 30, 2007 and (v) answers to
all questions each Buyer submitted to the Company regarding an
investment in the Company; and each Buyer has relied on the
information contained therein and has not been furnished any other
documents, literature, memorandum or prospectus.
Due Formation of Corporate and Other Buyers . If
the Buyer(s) is a corporation, trust, partnership or other entity
that is not an individual person, it has been formed and validly
exists and has not been organized for the specific purpose of
purchasing the Securities and is not prohibited from doing
so.
No Legal Advice From the Company . Each Buyer
acknowledges, that it had the opportunity to review this Agreement
and the transactions contemplated by this Agreement with his or its
own legal counsel and investment and tax advisors. Each
Buyer is relying solely on such counsel and advisors and not on any
statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with
respect to this investment, the transactions contemplated by this
Agreement or the securities laws of any jurisdiction.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY .
Except
as set forth under the corresponding section of the Disclosure
Schedules which Disclosure Schedules shall be deemed a part
hereof and to qualify any representation or warranty otherwise
made herein to the extent of such disclosure, the Company
hereby makes the representations and warranties set forth
below to each Buyer:
Subsidiaries . All of the direct and indirect
subsidiaries of the Company are set forth on Schedule 3(a)
. The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each subsidiary free and
clear of any liens, and all the issued and outstanding shares of
capital stock of each subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
Organization and Qualification . The Company and
its subsidiaries are corporations duly organized and validly
existing in good standing under the laws of the jurisdiction in
which they are incorporated, and have the requisite corporate power
to own their properties and to carry on their business as now being
conducted. Each of the Company and its subsidiaries is
duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the
business conducted by it makes such qualification necessary, except
to the extent that the failure to be so qualified or be in good
standing would not have or reasonably be expected to result in (i)
a material adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material adverse
effect on the results of operations, assets, business or condition
(financial or otherwise) of the Company and the subsidiaries, taken
as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a
timely basis its obligations under any Transaction Document (any of
(i), (ii) or (iii), a “ Material Adverse
Effect ”) and no proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to
revoke, limit or curtail such power and authority or
qualification.
Authorization, Enforcement, Compliance with Other
Instruments . (i) The Company has the
requisite corporate power and authority to enter into and perform
and to cause HYD and Trendsetter to enter into and perform its
obligation under the Security Documents, (ii) the Company has the
requisite corporate power and authority to enter into and perform
its obligations under this Agreement, the Notes, the Warrants, the
Irrevocable Transfer Agent Instructions, and each of the other
agreements entered into by the parties hereto in connection with
the transactions contemplated by this Agreement (collectively and
together with the Security Documents, the “ Transaction
Documents ”) and to issue the Securities in accordance
with the terms hereof and thereof, (ii) the Company has caused the
execution and delivery of the Security Documents by Trendsetter to
be duly authorized by Trendsetter’s Board of Directors and no
further consent or authorization is required by Trendsetter, its
Board of Directors or its stockholder, (iii) the Company has caused
the execution and delivery of the Security Documents by HYD to be
duly authorized by HYD’s Board of Directors and no further
consent or authorization is required by HYD, its Board of Directors
or its stockholder, (iv) the execution and delivery of the
Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby, including,
without limitation, the issuance of the Securities, the reservation
for issuance and the issuance of the Conversion Shares, and the
reservation for issuance and the issuance of the Warrant Shares,
have been duly authorized by the Company’s Board of Directors
and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (v) the Company has
caused the Security Agreement and Guaranties to be duly executed by
and delivered by HYD and Trendsetter and will cause the Mortgage to
be duly executed and delivered by Trendsetter, (v) the Transaction
Documents have been duly executed and delivered by the Company,
(vi) the Transaction Documents constitute the valid and binding
obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of
creditors’ rights and remedies. The authorized
officer of the Company executing the Transaction Documents knows of
no reason why the Company, HYD or Trendsetter cannot perform any of
their respective obligations under the Transaction
Documents.
Capitalization . The authorized capital stock of
the Company consists of 250,000,000 shares of Common Stock and
20,000,000 shares of Preferred Stock, par value $0.001 per share
(“ Preferred
Stock ”) of which 56,376,013 shares of Common
Stock, 1,945 shares of the Company’s Series A Preferred
Stock, par value $0.001 per share and 2,487 shares of the
Company’s Series B Preferred Stock, par value $0.001 per
share are issued and outstanding. All of the outstanding
shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and none of such outstanding
shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. Except
as disclosed in Schedule 3(d): (i) none of the Company’s
capital stock is subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into,
or exercisable or exchangeable for, any capital stock of the
Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional capital
stock of the Company or any of its subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital
stock of the Company or any of its subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing
indebtedness of the Company or any of its subsidiaries or by which
the Company or any of its subsidiaries is or may become bound; (iv)
there are no financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in
connection with the Company or any of its subsidiaries; (v) there
are no outstanding securities or instruments of the Company or any
of its subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings
or arrangements by which the Company or any of its subsidiaries is
or may become bound to redeem a security of the Company or any of
its subsidiaries; (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (vii) the Company does
not have any stock appreciation rights or “phantom
stock” plans or agreements or any similar plan or agreement;
and (viii) the Company and its subsidiaries have no liabilities or
obligations required to be disclosed in the SEC Documents but not
so disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company’s or its subsidiaries’
respective businesses and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect. The
Company has furnished to the Buyers true, correct and complete
copies of the Company’s Certificate of Incorporation, as
amended and as in effect on the date hereof (the “
Certificate of
Incorporation ”), and the Company’s Bylaws, as
amended and as in effect on the date hereof (the “
Bylaws
”), and the terms of all securities convertible into, or
exercisable or exchangeable for, shares of Common Stock and the
material rights of the holders thereof in respect
thereto. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is
required for the issuance and sale of the
Securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or,
to the knowledge of the Company, between or among any of the
Company’s stockholders.
Issuance of Securities . The issuance of the
Notes and the Warrants is duly authorized and free from all taxes,
liens and charges with respect to the issue
thereof. Upon conversion in accordance with the terms of
the Notes or exercise in accordance with the Warrants, as the case
may be, the Conversion Shares and Warrant Shares, respectively,
when issued will be fully paid and nonassessable, free from all
taxes, liens and charges with respect to the issue thereof and, to
the extent possible in accordance with Section 4(f) hereof, validly
issued. The Company has reserved from its duly
authorized capital stock eleven million (11,000,000) shares of
Common Stock as set forth in this Agreement.
No Conflicts . The execution, delivery and
performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby
and thereby (including, without limitation, the issuance of the
Notes and the Warrants, and reservation for issuance and issuance
of the Conversion Shares and the Warrant Shares) will not (i)
result in a violation of any certificate of incorporation,
certificate of formation, any certificate of designations or other
constituent documents of the Company or any of its subsidiaries,
any capital stock of the Company or any of its subsidiaries or
bylaws of the Company or any of its subsidiaries or (ii) conflict
with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) in any respect under,
or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation,
order, judgment or decree (including foreign, federal and state
securities laws and regulations and the rules and regulations of
the American Stock Exchange) applicable to the Company or any of
its subsidiaries or by which any property or asset of the Company
or any of its subsidiaries is bound or affected; except in the case
of each of clauses (ii) and (iii), such as could not, individually
or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect. The business of the Company and
its subsidiaries is not being conducted, and shall not be conducted
in violation of any material law, ordinance, or regulation of any
governmental entity. Except as specifically contemplated
by this Agreement and as required under the Securities Act and any
applicable state securities laws, the Company 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 or
contemplated by this Agreement in accordance with the terms hereof
or thereof. All consents, authorizations, orders,
filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected
on or prior to the date hereof. The Company and its
subsidiaries are unaware of any facts or circumstance, which might
give rise to any of the foregoing.
SEC Documents; Financial Statements . The Company
has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under the
Securities Exchange Act of 1934, as amended (the “
Exchange
Act ”), for the two years preceding the date hereof
(or such shorter period as the Company was required by law or
regulation to file such material) (all of the foregoing filed prior
to the date hereof or amended after the date hereof and all
exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein, being
hereinafter referred to as the “ SEC Documents
”) on timely basis or has received a valid extension of such
time of filing and has filed any such SEC Document prior to the
expiration of any such extension. The Company has
delivered to the Buyers or their representatives, or made available
through the SEC’s website at http://www.sec.gov., true and
complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were
filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as
to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC
with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). No
other information provided by or on behalf of the Company to the
Buyers which is not included in the SEC Documents, including,
without limitation, information referred to in Section 2(i) of this
Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which
they are or were made and not misleading.
Oil and Gas Properties . The leases attached
hereto as Annex A are (i) complete and accurate and are the only
documents pursuant to which Trendsetter has acquired Oil and Gas
Properties and (ii) all of the Oil and Gas Properties reflected on
the Reserve Report of Rabb Contracting Company, LLC, dated May 12,
2007 and prepared by Clifton S. Partridge, P.E. are reflected in
the leases attached hereto as Annex A. As used herein,
“ Oil and Gas
Properties ” means all of Trendsetter’s rights,
title, interest and estates now owned or hereafter acquired in and
to all leases, oil, gas, coal seam gas, casinghead gas, condensate,
distillate, liquid hydrocarbons, gaseous hydrocarbons or mineral
fee or lease interests, farm-ins, overriding royalty and royalty
interests, including any reserved or residual interest of whatever
nature.
Absence of Litigation . There is no action, suit,
proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body
pending against or affecting the Company, the Common Stock or any
of the Company’s subsidiaries, wherein an unfavorable
decision, ruling or finding would have a Material Adverse
Effect.
Acknowledgment Regarding Buyer’s Purchase of the Notes
. The Company acknowledges and agrees that (i) each
Buyer is acting solely in the capacity of an arm’s length
purchaser with respect to this Agreement and the transactions
contemplated hereby, (ii) each Buyer is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated
hereby and any advice given by each Buyer or any of their
respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely
incidental to such Buyer’s purchase of the Securities, and
(iii) the purchase at the Third Closing of the Notes and Warrants
in amounts corresponding with the Subscription Amount set forth
opposite each Buyer’s name on Schedule I is in each
Buyer’s sole discretion and in no circumstances will any such
Buyer be obligated to purchase such Notes and
Warrants. The Company further represents to each Buyer
that the Company’s decision to enter into this Agreement has
been based solely on the independent evaluation by the Company and
its representatives.
No General Solicitation . Neither the Company,
nor any of its affiliates, nor 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
Securities Act) in connection with the offer or sale of the
Securities.
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 require registration of the Securities
under the Securities Act or cause this offering of the Securities
to be integrated with prior offerings by the Company for purposes
of the Securities Act.
Employee Relations . Neither the Company nor any
of its subsidiaries is involved in any labor dispute or, to the
knowledge of the Company or any of its
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