EXHIBIT 10.1
SECURITIES PURCHASE
AGREEMENT
This SECURITIES PURCHASE
AGREEMENT (the “
Agreement ”), dated August 4, 2009, is by and among
Royale Energy, Inc., a California corporation with headquarters
located at 7676 Hazard Center Drive, Suite 1500, San Diego,
California 92108 (the “ Company ”), and the
undersigned buyers (each, a “ Buyer ” and
collectively, the “ Buyers ”).
RECITALS
A. The Company and each Buyer is executing and
delivering this Agreement in reliance upon the exemption from
securities registration afforded by Section 4(2) of the Securities
Act of 1933, as amended (the “ 1933 Act ”), and
Rule 506 of Regulation D (“ Regulation D
”) as promulgated by the United States Securities and
Exchange Commission (the “ SEC ”) under the 1933
Act.
B. Each
Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) the aggregate
number of shares of the common stock, no par value, of the Company
(the “ Common Stock ”), set forth opposite such
Buyer’s name in column (3) on the Schedule of Buyers (which
aggregate amount for all Buyers shall be 552,764 shares of Common
Stock and shall collectively be referred to herein as the “
Common Shares ”), (ii) a warrant to acquire up to that
number of additional shares of Common Stock set forth opposite such
Buyer’s name in column (4) on the Schedule of Buyers, in the
form attached hereto as Exhibit A (the “ Series A Warrants ”)
(as exercised, collectively, the “ Series A
Warrant Shares
”), (iii) a warrant to acquire
up to that number of additional shares of Common Stock set forth
opposite such Buyer’s name in column (5) on the Schedule of
Buyers, in the form attached hereto as Exhibit
A-1 (the “
Series A-1 Warrants ”) (as exercised, collectively,
the “ Series A-1 Warrant Shares ”), (iv) a warrant to acquire up to that
number of additional shares of Common Stock set forth opposite such
Buyer’s name in column (6) on the Schedule of Buyers, in the
form attached hereto as Exhibit B (the “ Series B Warrants ”)
(as exercised, collectively, the “ Series B
Warrant Shares
”), and (iv) a warrant to
acquire up to that number of additional shares of Common Stock set
forth opposite such Buyer’s name in column (7) on the
Schedule of Buyers, in the form attached hereto as Exhibit
C (the “
Series C Warrants ”) (as exercised, collectively, the
“ Series C Warrant Shares ”). The Series A Warrants, the Series A-1
Warrants, the Series B Warrants and the Series C Warrants are
collectively referred to herein as the “ Warrants
.” The Series A Warrant Shares, the Series A-1 Warrant
Shares, the Series B Warrant Shares and the Series C Warrant Shares
are collectively referred to herein as the “ Warrant
Shares .”
C. At
the Closing, the parties hereto shall execute and deliver a
Registration Rights Agreement, in the form attached hereto as
Exhibit D (the
“ Registration Rights Agreement ”), pursuant to
which the Company has agreed to provide certain registration rights
with respect to the Registrable Securities (as defined in the
Registration Rights Agreement), under the 1933 Act and the rules
and regulations promulgated thereunder, and applicable state
securities laws.
D. The
Common Shares, the Warrants and the Warrant Shares are collectively
referred to herein as the “ Securities
.”
AGREEMENT
NOW, THEREFORE, in consideration of
the premises and the mutual covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and each Buyer hereby
agree as follows:
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1.
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PURCHASE AND SALE OF COMMON
SHARES AND WARRANTS.
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(a)
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Common Shares and
Warrants
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. Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 0 and 0 below, the
Company shall issue and sell to each Buyer, and each Buyer
severally, but not jointly, agrees to purchase from the Company on
the Closing Date (as defined below), the number of Common Shares,
as is set forth opposite such Buyer’s name in column (3) on
the Schedule of Buyers,along with (i) the Series A Warrants to
acquire up to that number of Series A Warrant Shares as is set
forth opposite such Buyer’s name in column (4) on the
Schedule of Buyers, (ii) the Series A-1 Warrants to acquire up to
that number of Series A-1 Warrant Shares as is set forth opposite
such Buyer’s name in column (5) on the Schedule of Buyers,
(iii) the Series B Warrants to acquire up to that number of Series
B Warrant Shares as is set forth opposite such Buyer’s name
in column (6) on the Schedule of Buyers and (iv) the Series C
Warrants to acquire up to that number of Series C Warrant Shares as
is set forth opposite such Buyer’s name in column (7) on the
Schedule of Buyers.
. The closing (the “
Closing ”) of the purchase of the Common Shares and
the Warrants by the Buyers shall occur at the offices of Greenberg
Traurig, LLP, 77 W. Wacker Drive, Suite 3100, Chicago, Illinois
60601. The date and time of the Closing (the “ Closing
Date ”) shall be 10:00 a.m., New York time, on the first
(1 st ) Business Day on which the conditions to the
Closing set forth in Sections 0 and 0 below are satisfied or waived
(or such later date as is mutually agreed to by the Company and
each Buyer). As used herein “ Business Day ”
means any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are authorized or required
by law to remain closed.
. The aggregate purchase price for
the Common Shares and the Warrants to be purchased by each Buyer
(the “ Purchase Price ”) shall be the amount set
forth opposite such Buyer’s name in column (8) on the
Schedule of Buyers. Each Buyer shall pay its respective Purchase
Price for its Common Shares and related Warrants to be purchased by
such Buyer at the Closing.
. On the Closing Date, (i) each
Buyer shall pay its respective Purchase Price to the Company for
the Common Shares and the Warrants to be issued and sold to such
Buyer at the
Closing, by wire transfer of
immediately available funds in accordance with the Company’s
written wire instructions and (ii) the Company shall deliver
to each Buyer (A) one or more stock certificates, free and clear of
all restrictive and other legends (except as expressly provided in
Section 0 hereof), evidencing the number of Common Shares such
Buyer is purchasing as is set forth opposite such Buyer’s
name in column (3) of the Schedule of Buyers, (B) a Series A
Warrant pursuant to which such Buyer shall have the right to
acquire up to such number of Series A Warrant Shares as is set
forth opposite such Buyer’s name in column (4) of the
Schedule of Buyers, (C) a Series A-1 Warrant pursuant to which such
Buyer shall have the right to acquire up to such number of Series
A-1 Warrant Shares as is set forth opposite such Buyer’s name
in column (5) of the Schedule of Buyers, (D) a Series B Warrant
pursuant to which such Buyer shall have the right to acquire up to
such number of Series B Warrant Shares as is set forth opposite
such Buyer’s name in column (6) of the Schedule of Buyers and
(E) a Series C Warrant pursuant to which such Buyer shall have the
right to acquire up to such number of Series C Warrant Shares as is
set forth opposite such Buyer’s name in column (7) of the
Schedule of Buyers, in all cases, duly executed on behalf of the
Company and registered in the name of such Buyer or its
designee.
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2.
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BUYER’S REPRESENTATIONS AND
WARRANTIES.
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Each Buyer, severally and not
jointly, represents and warrants to the Company with respect to
only itself that:
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(a)
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Organization;
Authority
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. Such Buyer is an entity duly
organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with the requisite power and
authority to enter into and to consummate the transactions
contemplated by the Transaction Documents (as defined below) to
which it is a party and otherwise to carry out its obligations
hereunder and thereunder.
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(b)
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No Public Sale or
Distribution
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. Such Buyer is (i) acquiring the
Common Shares and the Warrants and (ii) upon exercise of its
Warrants will acquire the Warrant Shares issuable upon exercise
thereof, in each case, for its own account 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 1933 Act; provided, however, by making the
representations herein, such Buyer does not agree, or make any
representation or warranty, to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of
the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. Such
Buyer is acquiring the Securities hereunder in the ordinary course
of its business. Such Buyer does not presently have any agreement
or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
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(c)
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Accredited Investor
Status
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. Such Buyer is an “accredited
investor” as that term is defined in Rule 501(a) of
Regulation D.
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(d)
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Reliance on
Exemptions
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. Such 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.
. Such Buyer and its advisors, if
any, have been furnished with all materials relating to the
business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which have been
requested by such Buyer. Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company.
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 herein or any representations and warranties contained in
any other Transaction Document or any other document or instrument
executed and/or delivered in connection with this Agreement or the
consummation of the transaction contemplated hereby. Such Buyer
understands that its investment in the Securities involves a high
degree of risk. Such 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.
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(f)
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No Governmental
Review
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. Such 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.
. Such Buyer understands that except
as provided in the Registration Rights Agreement and Section 0
hereof: (i) the Securities have not been and are not being
registered under the 1933 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 (if requested by the Company) an opinion
of counsel to such Buyer, in a form reasonably acceptable to the
Company, 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) such Buyer provides the
Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the 1933 Act (or a successor rule thereto)
(collectively, “ 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 (as defined below) through whom the
sale is made) may be deemed to be an
underwriter (as that term is defined
in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC
promulgated thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the
1933 Act or any state securities laws or to comply with the terms
and conditions of any exemption thereunder.
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(h)
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Validity;
Enforcement
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. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer
and constitutes the legal, valid and binding obligations of such
Buyer enforceable against such Buyer in accordance with their
respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement
of applicable creditors’ rights and remedies.
. The execution, delivery and
performance by such Buyer of this Agreement and the Registration
Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in
a violation of the organizational documents of such Buyer 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 to which
such Buyer is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and
state securities laws) applicable to such Buyer, except in the case
of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect
on the ability of such Buyer to perform its obligations
hereunder.
. Such Buyer is a resident of that
jurisdiction specified below its address on the Schedule of
Buyers.
(k)
Certain Trading Activities . Such Buyer has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Buyer, engaged in any transactions in
the securities of the Company (including, without limitation, any
Short Sales involving the Company’s securities) since the
time such Buyer was first contacted by the Placement Agent in July
2009 regarding the transaction contemplated by this Agreement
through the date hereof. “ Short Sales ”
include, without limitation, all “short sales” as
defined in Rule 200 promulgated under Regulation SHO under the 1934
Act and all types of direct and indirect stock pledges, forward
sale contracts, options, puts, calls, swaps and similar
arrangements (including on a total return basis), and sales and
other transactions through non-U.S. broker dealers or foreign
regulated brokers (but shall not be deemed to include the location
and/or reservation of borrowable shares of Common Stock). Such
Buyer does not as of the date hereof, and will not immediately
following the Closing, own 10% or more of the Company’s
issued and outstanding shares of Common Stock (calculated based on
the assumption that all Equivalents
(as defined below) owned by such
Buyer, whether or not presently exercisable or convertible, have
been fully exercised or converted (as the case may be) but taking
into account any limitations on exercise or conversion (including
“blockers”) contained therein).
. Such Buyer is not purchasing the
Securities as a result of any advertisement, article, notice or
other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television
or radio or presented at any seminar.
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3.
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REPRESENTATIONS AND WARRANTIES OF
THE COMPANY.
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The Company represents and warrants
to each of the Buyers that:
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(a)
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Organization and
Qualification
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. Each of the Company and its
“ Subsidiaries ” (which for purposes of this
Agreement means any Person in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar
interest) are entities duly organized and validly existing and in
good standing under the laws of the jurisdiction in which they are
formed, and have the requisite power and authorization to own their
properties and to carry on their business as now being conducted
and as presently proposed to be conducted. Each of the Company and
its Subsidiaries is duly qualified as a foreign entity to do
business and is in good standing in every jurisdiction in which its
ownership of property or 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 a
Material Adverse Effect. As used in this Agreement, “
Material Adverse Effect ” means any material adverse
effect on (i) the business, properties, assets, liabilities,
operations (including results thereof), condition (financial or
otherwise) or prospects of the Company and its Subsidiaries,
individually or taken as a whole, (ii) the transactions
contemplated hereby or in the other Transaction Documents or (iii)
the authority or ability of the Company to perform any of its
obligations under the Transaction Documents (as defined below). The
Company has no Subsidiaries. The Company owns various contractual
economic interests in oil and gas well drilling programs and joint
working interest contractual arrangements in oil and gas well
drilling programs, and none of such interests could be considered a
Subsidiary hereunder.
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(b)
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Authorization; Enforcement;
Validity
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. The Company has the requisite
power and authority to enter into and perform its obligations under
this Agreement and the other Transaction Documents and to issue the
Securities in accordance with the terms hereof and thereof. The
execution and delivery of this Agreement and the other 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 Common Shares, the issuance of the
Warrants and the reservation for issuance and issuance of the
Warrant Shares issuable upon exercise of the Warrants) have been
duly authorized by the Company’s board of directors and
(other than the filing with the SEC of one or more Registration
Statements in accordance with the requirements of the Registration
Rights Agreement, a Form D with the SEC and any other filings as
may be required by any state securities agencies) no further
filing, consent or authorization is required by the Company,
its
board of directors or its
stockholders or other governing body. This Agreement and the other
Transaction Documents have been duly executed and delivered by the
Company, and constitutes the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with
their respective 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 applicable
creditors’ rights and remedies and except as rights to
indemnification and to contribution may be limited by federal or
state securities law. “ Transaction Documents ”
means, collectively, this Agreement, the Warrants, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions (as
defined below) and each of the other agreements and instruments
entered into by the parties hereto in connection with the
transactions contemplated hereby and thereby.
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(c)
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Issuance of
Securities
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. The issuance of the Common Shares
and the Warrants are duly authorized and upon issuance in
accordance with the terms of the Transaction Documents shall be
validly issued, fully paid and non-assessable and free from all
taxes, liens, charges and other encumbrances with respect to the
issue thereof. As of the Closing, the Company shall have reserved
from its duly authorized capital stock not less than 120% of the
maximum number of shares of Common Stock issuable upon exercise of
the Warrants (without regard to any limitations on the exercise of
the Warrants set forth therein). The issuance of the Warrant Shares
is duly authorized, and upon exercise in accordance with the
Warrants, the Warrant Shares will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights,
taxes, liens, charges and other encumbrances with respect to the
issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. Subject to the accuracy of
the representations and warranties of the Buyers in this Agreement,
the offer and issuance by the Company of the Securities is exempt
from registration under the 1933 Act.
. 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
Common Shares, the Warrants and Warrant Shares and the reservation
for issuance of the Warrant Shares) will not (i) result in a
violation of the Articles of Incorporation (as defined below)
(including, without limitation, any certificates of designation
contained therein) or other organizational documents of the Company
or any of its Subsidiaries or Bylaws (as defined below), (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 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, without limitation, foreign, federal and state
securities laws and regulations and the rules and regulations of
the Nasdaq Capital Market (the “Principal Market
”)) 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 clause
(ii) or (iii) above, to the extent such violations that could not
reasonably be expected to have a Material Adverse
Effect.
. The Company is not required to
obtain any consent, authorization or order of, or make any filing
or registration (other than the filing with the SEC of one or more
Registration Statements in accordance with the requirements of the
Registration Rights Agreement, a Form D with the SEC and any other
filings as may be required by any state securities agencies) with,
any court, governmental agency or any regulatory or self-regulatory
agency or any other Person in order for it to execute, deliver or
perform any of its obligations under the Transaction Documents, in
each case, in accordance with the terms thereof. All consents,
authorizations, orders, filings and registrations which the Company
is required to obtain pursuant to the Transaction Documents at or
prior to the Closing have been obtained or effected on or prior to
the Closing Date, and neither the Company nor any of its
Subsidiaries are aware of any facts or circumstances which might
prevent the Company from obtaining or effecting any of the
registration, application or filings contemplated by the
Transaction Documents. The Company is not in violation of the
requirements of the Principal Market and has no knowledge of any
facts or circumstances which could reasonably lead to delisting or
suspension of the Common Stock in the foreseeable
future.
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(f)
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Acknowledgment Regarding
Buyer’s Purchase of Securities
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. The Company acknowledges and
agrees that each Buyer is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and
that no Buyer is (i) an officer or director of the Company or any
of its Subsidiaries, (ii) an “affiliate” (as defined in
Rule 144) of the Company or any of its Subsidiaries or (iii) to its
knowledge, a “beneficial owner” of more than 10% of the
shares of Common Stock (as defined for purposes of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended (the “
1934 Act ”)). The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company
or any of its Subsidiaries (or in any similar capacity) with
respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Buyer or
any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and
thereby is merely incidental to such Buyer’s purchase of the
Securities. The Company further represents to each Buyer that the
Company’s decision to enter into the Transaction Documents
has been based solely on the independent evaluation by the Company
and its representatives.
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(g)
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No General Solicitation;
Placement Agent’s Fees
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. Neither the Company, nor any of
its Subsidiaries or 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) in
connection with the offer or sale of the Securities. The Company
shall be responsible for the payment of any placement agent’s
fees, financial advisory fees, or brokers’ commissions (other
than for persons engaged by any Buyer or its investment advisor)
relating to or arising out of the transactions contemplated hereby.
Other than JP Turner & Company, L.L.C. (the “
Placement Agent ”), neither the Company nor any of its
Subsidiaries has engaged any placement agent or other agent in
connection with the sale of the Securities.
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(h)
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No Integrated
Offering
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. None of the Company, its
Subsidiaries or any of their affiliates, nor any Person acting on
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 issuance of
any of the Securities under the 1933 Act, whether through
integration with prior offerings or otherwise, or cause this
offering of the Securities to require approval of stockholders of
the Company under any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the
securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates nor any Person acting
on their behalf will take any action or steps referred to in the
preceding sentence that would require registration of the issuance
of any of the Securities under the 1933 Act or cause the offering
of any of the Securities to be integrated with other
offerings.
. The Company understands and
acknowledges that the number of Warrant Shares will increase in
certain circumstances. The Company further acknowledges that its
obligation to issue the Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Warrants is,
absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other
stockholders of the Company.
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(j)
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Application of Takeover
Protections; Rights Agreement
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. The Company and its board of
directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the
Articles of Incorporation, Bylaws or other organizational documents
or the laws of the jurisdiction of its incorporation or otherwise
which is or could become applicable to any Buyer as a result of the
transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Securities and any
Buyer’s ownership of the Securities. The Company and its
board of directors have taken all necessary action, if any, in
order to render inapplicable any stockholder rights plan or similar
arrangement relating to accumulations of beneficial ownership of
shares of Common Stock or a change in control of the Company or any
of its Subsidiaries.
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(k)
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SEC Documents; Financial
Statements
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. During the two (2) years prior to
the date hereof, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of
the 1934 Act (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements, notes
and schedules thereto and documents incorporated by reference
therein being hereinafter referred to as the “ SEC
Documents ”). The Company has delivered to the Buyers or
their respective representatives true, correct and complete copies
of each of the SEC Documents not available on the EDGAR system. As
of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 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 as in effect
as of the time of filing. 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 which will not be
material, either individually or in the aggregate). 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 0 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
not misleading, in the light of the circumstance under which they
are or were made.
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(l)
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Absence of Certain
Changes
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. Since the date of the
Company’s most recent audited or reviewed financial
statements contained in a Form 10-K, there has been no material
adverse change and no material adverse development in the business,
assets, liabilities, properties, operations (including results
thereof), condition (financial or otherwise) or prospects of the
Company or any of its Subsidiaries. Since the date of the
Company’s most recent audited financial statements contained
in a Form 10-K, neither the Company nor any of its Subsidiaries has
(i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, outside of the ordinary course of
business or (iii) made any material capital expenditures,
individually or in the aggregate, outside of the ordinary course of
business. Neither the Company nor any of its Subsidiaries has taken
any steps to seek protection pursuant to any law or statute
relating to bankruptcy, insolvency, reorganization, liquidation or
winding up, nor does the Company or any Subsidiary have any
knowledge or reason to believe that any of their respective
creditors intend to initiate involuntary bankruptcy proceedings or
any actual knowledge of any fact which would reasonably lead a
creditor to do so. The Company and its Subsidiaries, individually
and on a consolidated basis, after giving effect to the
transactions contemplated hereby to occur at the Closing and the
exercise of all Warrants for cash, will not be Insolvent (as
defined below). For purposes of this Section 0, “
Insolvent ” means, (I) with respect to the Company and
its Subsidiaries, on a consolidated basis, (i) the present fair
saleable value of the Company’s and its Subsidiaries’
assets is less than the amount required to pay the Company’s
and its Subsidiaries’ total Indebtedness (as defined below),
(ii) the Company and its Subsidiaries are unable to pay their debts
and liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured or (iii) the
Company and its Subsidiaries intend to incur or believe that they
will incur debts that would be beyond their ability to pay as such
debts mature; and (II) with respect to the Company and each
Subsidiary, individually, (i) the present fair saleable value of
the Company’s or any of its Subsidiaries’ assets is
less than the amount required to pay each of their respective total
Indebtedness, (ii) the Company or any of its Subsidiaries are
unable to pay their respective debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities
become
absolute and matured or (iii) the
Company or any of its Subsidiaries intend to incur or believe that
they will incur debts that would be beyond their respective ability
to pay as such debts mature. Neither the Company nor any of its
Subsidiaries has engaged in business or in any transaction, and is
not about to engage in business or in any transaction, for which
the Company’s or such Subsidiary’s remaining assets
constitute unreasonably small capital.
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(m)
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No Undisclosed Events,
Liabilities, Developments or Circumstances
|
. No event, liability, development
or circumstance has occurred or exists, or is reasonably expected
to exist or occur with respect to the Company, any of its
Subsidiaries or their respective business, properties, liabilities,
prospects, operations (including results thereof) or condition
(financial or otherwise), that (i) except as disclosed in Schedule
3(m), would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1
filed with the SEC relating to an issuance and sale by the Company
of its Common Stock and which has not been publicly announced or
(ii) could have a Material Adverse Effect.
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(n)
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Conduct of Business; Regulatory
Permits
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. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under its
Articles of Incorporation, any certificate of designation,
preferences or rights of any other outstanding series of preferred
stock of the Company or any of its Subsidiaries or Bylaws or their
organizational charter, certificate of formation or certificate of
incorporation or bylaws, respectively. Neither the Company nor any
of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to
the Company or any of its Subsidiaries, and neither the Company nor
any of its Subsidiaries will conduct its business in violation of
any of the foregoing, except in all cases for possible violations
which could not, individually or in the aggregate, have a Material
Adverse Effect. Without limiting the generality of the foregoing,
the Company is not in violation of any of the rules, regulations or
requirements of the Principal Market and has no knowledge of any
facts or circumstances that could reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the
foreseeable future. Since January 1, 2007, (i) the Common Stock has
been listed or designated for quotation on the Nasdaq Global Market
or the Principal Market, (ii) trading in the Common Stock has not
been suspended by the SEC, the Nasdaq Global Market or the
Principal Market and (iii) except as disclosed in Schedule 3(n),
the Company has received no communication, written or oral, from
the SEC, the Nasdaq Global Market or the Principal Market regarding
the suspension or delisting of the Common Stock from the Nasdaq
Global Market or the Principal Market. The Company and each of its
Subsidiaries possess all certificates, authorizations and permits
issued by the appropriate regulatory authorities necessary to
conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not
have, individually or in the aggregate, a Material Adverse Effect,
and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
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(o)
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Foreign Corrupt
Practices
|
. Neither the Company nor any of its
Subsidiaries nor any director, officer, nor to the Company’s
knowledge, any agent, employee or other Person acting on behalf of
the Company or
any of its Subsidiaries has, in the
course of its actions for, or on behalf of, the Company or any of
its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses
relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of
any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any unlawful bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
. The Company and each Subsidiary is
in material compliance with all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date
hereof, and all applicable rules and regulations promulgated by the
SEC thereunder that are effective as of the date hereof.
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(q)
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Transactions With
Affiliates
|
. Other than the grant of stock
options disclosed on Schedule 00 and other than as disclosed in the
SEC Documents, none of the officers, directors or employees of the
Company or any of its Subsidiaries is presently a party to any
transaction with the Company or any of its Subsidiaries (other than
for ordinary course services as employees, officers or directors),
including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring
payments to or from any such officer, director or employee or, to
the knowledge of the Company or any of its Subsidiaries, any
corporation, partnership, trust or other entity in which any such
officer, director, or employee has a substantial interest or is an
officer, director, trustee or partner.
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(r)
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Equity
Capitalization
|
. As of the date hereof, the
authorized capital stock of the Company consists of (i) 20,000,000
shares of Common Stock, of which 8,506,098 are issued and
outstanding and 418,173 shares are reserved for issuance pursuant
to securities (other than the Common Shares and the Warrants)
exercisable or exchangeable for, or convertible into, shares of
Common Stock and (ii) 147,500 shares of Series AA preferred stock,
52,784 of which are issued and outstanding. 32,619 shares of Common
Stock are held in treasury. All of such outstanding shares are duly
authorized and have been, or upon issuance will be, validly issued
and are fully paid and nonassessable. 3,238,692 shares of the
Company’s issued and outstanding Common Stock on the date
hereof are as of the date hereof owned by Persons who are
“affiliates” (as defined in Rule 405 of the 1933 Act
and calculated based on the assumption that only officers,
directors and holders of at least 10% of the Company’s issued
and outstanding Common Stock are “affiliates” without
conceding that any such Persons are “affiliates” for
purposes of federal securities laws) of the Company or any of its
Subsidiaries. To the Company’s knowledge, except as disclosed
in the SEC Documents, no Person owns 10% or more of the
Company’s issued and outstanding shares of Common Stock
(calculated based on the assumption that all Equivalents, whether
or not presently exercisable or convertible, have been fully
exercised or converted (as the case may be) taking
account of any limitations on exercise or conversion
(including
“blockers”) contained
therein without conceding that such identified Person is a 10%
stockholder for purposes of federal securities laws). Except as
disclosed in Schedule 00: (i) none of the Company’s or any
Subsidiary’s capital stock is subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or
permitted by the Company or any Subsidiary; (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 individually or in the aggregate, filed in connection with
the Company or any of its Subsidiaries; (v) there are no agreements
or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under
the 1933 Act (except pursuant to the Registration Rights
Agreement); (vi) 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; (vii) there are no
securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the
Securities; (viii) neither the Company nor any Subsidiary has any
stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (ix) neither the
Company nor any of its Subsidiaries have any liabilities or
obligations required to be disclosed in the SEC Documents which are
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 could not have a Material Adverse
Effect. The Company has furnished to the Buyers true, correct and
complete copies of the Company’s Articles of Incorporation,
as amended and as in effect on the date hereof (the “
Articles 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 that have not been disclosed in the SEC
Documents.
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(s)
|
Indebtedness and Other
Contracts
|
. Except as disclosed on Schedule 00
or in the SEC Documents, neither the Company nor any of its
Subsidiaries (i) has any outstanding Indebtedness (as defined
below), (ii) is a party to any contract, agreement or instrument,
the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could
reasonably be expected to result in a Material Adverse Effect,
(iii) is in violation of any term of or in default under any
contract, agreement or instrument relating to any Indebtedness,
except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or
(iv) is a party
to any contract, agreement or
instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company’s officers, has or is expected
to have a Material Adverse Effect. For purposes of this Agreement:
(x) “ Indebtedness ” of any Person means,
without duplication (A) all indebtedness for borrowed money, (B)
all obligations issued, undertaken or assumed as the deferred
purchase price of property or services (including, without
limitation, “capital leases” in accordance with
generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business), (C) all
reimbursement or payment obligations with respect to letters of
credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in
either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of
default are limited to repossession or sale of such property), (F)
all monetary obligations under any leasing or similar arrangement
which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified
as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any mortgage, lien, pledge, charge, security interest
or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (G) above; (y) “
Contingent Obligation ” means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of
the Person incurring such liability, or the primary effect thereof,
is to provide assurance to the obligee of such liability that such
liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with
respect thereto; and (z) “ Person ” means an
individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization,
any other entity and a government or any department or agency
thereof.
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(t)
|
Absence of
Litigation
|
. Except as disclosed in the SEC
Documents, there is no action, suit, proceeding, inquiry or
investigation before or by the Nasdaq Global Market or the
Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge
of the Company, threatened against or affecting the Company or any
of its Subsidiaries, the Common Stock or any of the Company’s
or its Subsidiaries’ officers or directors which is outside
of the ordinary course of business or individually or in the
aggregate material to the Company. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the SEC involving the Company, any of its
Subsidiaries or any current of former director or officer of the
Company or any of its Subsidiaries. The SEC has not issued any stop
order or other order suspending the effectiveness of any
registration statement filed by the Company under the 1933 Act or
the 1934 Act.
. The Company and each of its
Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in
the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for, and neither
the Company nor any such Subsidiary has any reason to believe that
it will be unable to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a
cost that would not have a Material Adverse Effect.
. Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or
employs any member of a union. The Company believes that its and
its Subsidiaries’ relations with their respective employees
are good. No executive officer (as defined in Rule 501(f)
promulgated under the 1933 Act) or other key employee of the
Company or any of its Subsidiaries has notified the Company or any
such Subsidiary that such officer intends to leave the Company or
any such Subsidiary or otherwise terminate such officer’s
employment with the Company or any such Subsidiary. No executive
officer or other key employee of the Company or any of its
Subsidiaries is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition
agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive
officer or other key employee (as the case may be) does not subject
the Company or any of its Subsidiaries to any liability with
respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all federal, state, local and
foreign laws and regulations respecting labor, employment and
employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in
compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse
Effect.
. Except with respect to oil, gas
and mineral leases, working interests, royalties, production
payments and similar oil, gas and mineral interests (“ Oil
& Gas Interests ”), the Company and its Subsidiaries
have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by
them which is material to the business of the Company and its
Subsidiaries, in each case, free and clear of all liens,
encumbrances and defects except such as do not materially affect
the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease
by the Company or any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company
or any of its Subsidiaries. The Company and its Subsidiaries have
legal, valid and binding and enforceable rights with respect to all
their Oil & Gas Interests, free and clear of all liens,
encumbrances and defects except such as (i) are normal and
customary in the oil and gas drilling and development business and
(ii) do not materially
affect the value of such Oil &
Gas Interests and do not interfere with the use made and proposed
to be made of such Oil & Gas Interests by the Company or any of
its Subsidiaries
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(x)
|
Intellectual Property
Rights
|
. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, original works,
inventions, licenses, approvals, governmental authorizations, trade
secrets and other intellectual property rights and all applications
and registrations therefor (“ Intellectual Property
Rights ”) necessary to conduct their respective
businesses as now conducted and as presently proposed to be
conducted. None of the Company’s or its Subsidiaries’
Intellectual Property Rights have expired, terminated or been
abandoned, or are expected to expire, terminate or be abandoned,
within three years from the date of this Agreement. The Company has
no knowledge of any infringement by the Company or any of its
Subsidiaries of Intellectual Property Rights of others. There is no
claim, action or proceeding being made or brought, or to the
knowledge of the Company or any of its Subsidiaries, being
threatened, against the Company or any of its Subsidiaries
regarding their Intellectual Property Rights. The Company is not
aware of any facts or circumstances which might give rise to any of
the foregoing infringements or claims, actions or proceedings. The
Company and each of its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all
of their Intellectual Property Rights.
. The Company and its Subsidiaries
(i) to t
