SUBSCRIPTION AGREEMENT BETWEEN CRIMSON EXPLORATION INC. AND AMERICA CAPITAL ENERGY CORPORATION DATED AS OF SEPTEMBER 24, 2010 TABLE OF CONTENTS

 

                                                                                Section 2.02 Authorization; No Conflict; No Violation.  The Company’s execution and delivery of each Transaction Document to which it is a party and performance of its obligations thereunder, and the issuance, sale and delivery of the Common Shares, the Option and the Preferred Shares, have been duly authorized by all requisite corporate action and will not (a) result in a violation of the Certificate of Incorporation of the Company filed with the Delaware Secretary of State on June 13, 2005, as amended by (i) the Certificate of Designation of Series D Preferred Stock of the Company, par value US$0.01 per share (the “D Shares”), filed with the Delaware Secretary of State on June 27, 2005, (ii) the Certificate of Designation of Series E Cumulative Convertible Preferred Stock of the Company, par value US$0.01 per share (the “E Shares”),  filed with the Delaware Secretary of State on June 27,

 

2005, (iii) the Certificate of Designation of Series G Convertible Preferred Stock of the Company, par value US$0.01 per share (the “G Shares”), filed with the Delaware Secretary of State on June 27, 2005, as amended and restated in its entirety by that certain Certificate of Amendment filed with the Delaware Secretary of State on December 8, 2009, (iv) the Certificate of Designation of Series H Convertible Preferred Stock of the Company, par value US$0.01 per share (the “H Shares”), filed with the Delaware Secretary of State on June 27, 2005, (v) the Certificate of Ownership and Merger Merging GulfWest Energy Inc., a Texas corporation, into the Company, filed with the Delaware Secretary of State on June 28, 2005, and (vi) the Certificate of Amendment of Certificate of Incorporation of the Company filed with the Delaware Secretary of State on September 15, 2006 (as amended, the “Charter”) or the Company’s Bylaws, as amended to the date of this Agreement (the “Bylaws”), (b) result in a violation of any applicable law, rule or regulation, or any order, injunction, judgment or decree of any court or other agency of government, (c) conflict with, result in a breach of, or constitute (or, with due notice or lapse of time or both, would constitute) a default under, or give rise to any right of termination, acceleration or cancellation under, any material indenture, agreement, contract, evidence of indebtedness, note, lease or other instrument to which the Company or any of its properties or assets is bound and filed as an exhibit to any of the Company SEC Documents, (d) result in the creation or imposition of any Lien upon the Company or any of the Company’s properties or assets or (e) require any consent, approval, notification, waiver or other similar action from any third party, except as such violation, conflict, breach, default, right, Lien or failure would not, individually or in the aggregate, in the case of (b), (c), (d) or (e), be reasonably expected to cause a Material Adverse Change and as would not, individually or in the aggregate, prevent consummation of any of the transactions contemplated hereby or otherwise prevent the Company from performing its obligations under the Transaction Documents to which it is a party.

 

                                                                               Section 2.03 Consents and Approvals. & #160;Subject to the accuracy of Purchaser’s representations and warranties set forth in Article III, no registration or filing with, or consent or approval of or other action by, any federal, state or other governmental agency or instrumentality or any third party is or will be necessary for the Company’s valid execution, delivery and performance of the Transaction Documents to which it is a party and the issuance, sale and delivery of the Common Shares, the Option or the Preferred Shares, other than (a) those which have previously been obtained or made, (b) those which are required to be made under federal or state securities laws, which will be obtained or made, and will be effective within the time periods required by law, and (c) as would no t, individually or in the aggregate, prevent consummation of any of the transactions contemplated hereby or otherwise prevent the Company from performing its obligations under the Transaction Documents to which it is a party.

 

                                                                               Section 2.04 Validity.  Each Transaction Document to which the Company is a party has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms except as may be limited by (a) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and (b) the effect of rules of law governing the availability of equitable remedies.

 

Section 2.05 Authorized Capital Stock.

 

(a) As of the date hereof, the Company’s authorized capital stock consists of 200,000,000 shares of Common Stock, 38,822,859 shares of which were outstanding on July 30, 2010, and 10,000,000 shares of Preferred Stock, par value US$0.01 per share, (i) 12,000 shares of which have been designated D Shares, none of which are outstanding, (ii) 9,000 shares of which have been designated E Shares, none of which are outstanding, (iii) 81,000 shares of which have been designated G Shares, none of which are outstanding, and (iv) 6,500 shares of which have been designated H Shares, none of which ar e outstanding.  Except as disclosed in the Company SEC Documents, all the shares of capital stock of each Subsidiary of the Company are owned directly by the Company or a wholly owned Subsidiary of the Company.  Except as set forth in the Company SEC Documents or the Charter: (i) no subscription, warrant, option, convertible security, or other right (contingent or other) to purchase or otherwise acquire equity securities of the Company is authorized or outstanding and (ii) there is no commitment by the Company to issue shares, subscriptions, warrants, options, convertible or exchangeable securities, or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset.  Except as set forth in the Company SEC Documents, the Company has no obligation (contingent or other) to purchase, repurchase, redeem, retire or otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribu tion in respect thereof.  To the Company’s knowledge, except as set forth in the Company SEC Documents, there are no voting trusts or agreements, shareholders’ agreements, pledge agreements, buy-sell agreements, rights of first refusal, preemptive rights or other similar rights or proxies relating to any of the Company’s securities, or agreements relating to the issuance, sale, redemption, transfer or other disposition of the Company’s securities.  All of the outstanding securities of the Company were issued in compliance with all applicable federal and state securities laws.

 

(b) The Common Shares and the Preferred Shares have been duly authorized and, when issued in accordance with this Agreement and the Option Agreement, will be duly and validly issued, fully paid and nonassessable shares of the applicable sort and will be free and clear of all Liens, other than Liens that were created by Purchaser and restrictions on transfer imposed by the Transaction Documents, the Securities Act of 1933, as amended (the “Securities Act”), and applicable state securities laws.  The issuance, sale and delivery of the Common Shares and the Preferred Shares is not subject to any preemptive right of the Company’s shareholders or to any right of first refusal or other right in favor of any Person.

 

                                                                               Section 2.06 Reports and Financial Statements.  As of their respective filing dates, the reports, registration statements and other documents the Company has filed with the Securities and Exchange Commission (the “SEC”) under the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for all periods subsequent to December 31, 2005, all in the form so filed (collectively the “Company SEC Documents”) complied in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable, and no Company SEC Document filed under the Exchange Act contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the cir cumstances in which they were made, not misleading, except to the extent corrected by a subsequently filed document with the SEC.  No Company SEC Document filed under the Securities Act contained an untrue

 

 

 

statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading at the time such Company SEC Documents became effective under the Securities Act.  The Company’s financial statements, including the notes thereto, included in the Company SEC Documents (the “Financial Statements”) comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles consistently applied (“GAAP”) and present f airly the Company’s consolidated financial position at the dates thereof and of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal audit adjustments). Since the date of the most recent Company SEC Document, the Company has not effected any change in any method of accounting or accounting practice, except for any such change required because of a concurrent change in GAAP.  Since January 1, 2009, the Company has timely filed all material reports, registration statements and other filings required by the SEC.  Notwithstanding the foregoing, the Company makes no representations or warranties with respect to any information provided by Purchaser for inclusion in any Company SEC Documents.

 

                                                                                Section 2.07 No Undisclosed Liabilities.  Except as set forth in the Company SEC Documents, the Company has no liabilities (whether accrued, absolute, contingent or otherwise, known or unknown, and whether due or to become due or asserted or unasserted), except (a) liabilities provided for in the Financial Statements, (b) liabilities (including accounts payable) incurred since December 31, 2009 (the “Audited Balance Sheet Date”) in the ordinary course of business consistent with past practice and (c) such other liabilities that would not reasonably be expected to cause a Material Adverse Change.

 

                                                                                Section 2.08 Subsequent Events.   Since June 30, 2010 and except as disclosed in the Company SEC Documents, there has been no Material Adverse Change nor, to the Company’s knowledge, has any event occurred which could reasonably be expected to result in any Material Adverse Change.

 

Section 2.09 Litigation; Compliance with Law.

 

(a) Except as set forth in the Company SEC Documents, there is no (i) action, suit, claim, proceeding or investigation pending or, to the Company’s knowledge, threatened, against or affecting the Company or its properties or assets, at law or in equity, or before or by any federal, state, municipal or other governmental body, department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding pending or, to the Company’s knowledge, threatened, against or affecting the Company or its properties or assets or (iii) governmental inquiry pending or, to the Company’s knowledge, threatened, against or affecting the Company or its properties or assets, and to the Company’s knowledge, there is no basis for any of the foregoing, except for such proceedings, investigations or inquiries as would not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Change.  The Company is not in default with respect to any order, writ, judgment, injunction or decree known to or served upon the Company of any court or of any federal, state, municipal or other governmental body, department, commission, board, bureau, agency or instrumentality, domestic or foreign, except for such defaults as would not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Change.  There is no action, suit, proceeding

 

 

 

or investigation by the Company pending, threatened or contemplated against others, except for such actions, suits, proceedings or investigations as would not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Change.

 

(b) The Company has complied, in all material respects, with all material laws, rules, regulations and orders applicable to its business, operations, properties, assets, products and services, the Company has all necessary permits, licenses and other authorizations required to conduct its business as conducted and as proposed to be conducted and the Company has been operating its business pursuant to and in compliance with the terms of all such permits, licenses and other authorizations in all material respects, except, in each case, as such failures would not, individually or in the aggregate, be reasonably be expected to cause a Material Adverse Change.

 

                                                                                Section 2.10 Intellectual Property.&# 160; The Company owns, or possesses adequate rights to use, all material patents and patent rights, seismic data, well log data, inventions, processes, formulae, copyrights and copyright rights, trade dress, business and product names, logos, slogans, trade secrets, industrial models, processes, designs, methodologies, computer programs (including all source codes) and related documentation, technical information, manufacturing, engineering and technical drawings, know-how, concepts and all pending applications for and registrations of patents, trademarks, service marks and copyrights (together, “Intellectual Property”) used in its business as currently conducted.  To the Company’s knowledge, the Company’s use of such Intellectual Property in its business as currently conducted does not infringe upon any rights any other Person owns or holds.

 

                                                                                Section 2.11 Real Property.  0;Except for interests in Oil and Gas Properties and incidental real property interests held in connection with its oil and gas operations, the Company owns no real property.

 

                                                                                Section 2.12 Insurance.  Al l material policies of insurance of any kind or nature of the Company, including policies of fire, theft, product liability, public liability, property damage, other casualty, employee fidelity, workers’ compensation and employee health and welfare insurance, are in full force and effect and are of a nature and provide such coverage as is customarily carried by businesses of the size and character of the Company.  The Company has not been refused insurance for any material coverage for which it had applied or had any policy of insurance terminated (other than at its request).

 

                                                                                Section 2.13 Taxes.  The Co mpany has accurately and timely filed all material federal, state, county and local tax returns and reports required to be filed by it within the applicable period, and the Company has paid all taxes shown to be due by such returns.  Such returns and reports are true and correct in all material respects.  The Company has established adequate reserves on the Financial Statements for all taxes accrued but not yet payable with respect to the periods covered by such Financial Statements.  All material tax elections of any type that the Company has made as of the date hereof are set forth in the Financial Statements.

 

                                                                                Section 2.14 Agreements.  E xcept as set forth in the Company SEC Documents, the Company has received no notice of default and is not in default (or, with due notice or lapse of time or both, would be in default) under any material agreement to which it is a party filed as an exhibit to the Company SEC Documents, except such defaults under such

 

 

 

agreements which, individually or in the aggregate, would not be reasonably be expected to cause a Material Adverse Change.

 

                                                                                Section 2.15 Offering of the Common Shares, Option and Preferre d Shares. Assuming, with respect to the Common Shares and the Preferred Shares, the accuracy of Purchaser’s representations and warranties set forth in Article III, the Company has complied with all applicable federal and state securities laws in connection with the offer, issuance and sale of the Common Shares, the Option and the Preferred Shares.  Neither the Company nor any Person acting on its behalf has taken any other action (including any offer, issuance or sale of any security of the Company under circumstances which might require the integration of such security with the Common Shares, the Option or the Preferred Shares under the Securities Ac t or the rules and regulations of the SEC promulgated thereunder), in either case so as to subject the offering, issuance or sale of the Common Shares, the Option or the Preferred Shares to the registration provisions of the Securities Act.  Neither the Company nor any Person acting on its behalf has offered the Common Shares, the Option or the Preferred Shares to any Person by means of general or public solicitation or general or public advertising, such as by newspaper or magazine advertisements, by broadcast media, or at any seminar or meeting whose attendees were solicited by such means.

 

                                                                                Section 2.16 Brokers; Financial Advisors.  No agent, broker, investment banker, finder, financial advisor or other Person is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee from the Company, directly or indirectly, in connection with the transactions contemplated by the Transaction Documents to which it is party, and no Person is entitled to any fee or commission or like payment from the Company in respect thereof based in any way on agreements, arrangements or understandings made by or on the Company’s behalf.

 

                                                                                Section 2.17 Environmental and Safety Laws.  The Company, the operation of its business, and any real property that the Company owns, leases or otherwise occupies or uses (the “Premises”) are in compliance with all applicable Environmental Laws, except as such non-compliance would not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Change. The Company has obtained and is maintaining in full force and effect all material permits, licenses and approvals required by all Environmental Laws applicable to the Premises and the business operations conducted thereon and is in compliance with all such permits, licenses and approvals, except as such non-compliance would not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Change.  Except as permitted by all Environmental Laws, the Company has not caused or allowed a release, or a threat of release, of any Hazardous Substance onto, at or near the Premises, except as such event would not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Change.  The term “Environmental Laws” means any federal, state or local law or ordinance or regulation pertaining to the protection of human health or the environment. The term “Hazardous Substances” includes oil, gas and other hydrocarbons, asbestos, polychlorinated biphenyls, urea formaldehyde and any materials classified as hazardous or toxic under any Environmental Laws.

 

                                                                               Section 2.18 Employee Benefits. & #160;For each employment agreement, consulting agreement with individuals, deferred compensation, incentive compensation, stock

 

 

option or other equity-based stock award, pension, or retirement welfare benefit (including group insurance) plan or agreement whether or not subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or bonus, incentive or profit-sharing plan or arrangement, other than oral at-will employment agreements that is intended to satisfy the provisions of Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”), (i) the Company has obtained a favorable determination letter from the Internal Revenue Service to such effect, (ii) to the knowledge of the Company, none of the determination letters has been revoked by the Internal Revenue Service, (iii) no such employee pension benefit plan is subject to Title IV of ERISA or Section 412 of the Code, and (iv) no prohibited transaction within the meaning of Section 406 of ERISA has occurred with respect to any employee pension benefit plan and no tax has been imposed pursuant to Section 4975 of the Code in respect thereof, except in each case as would not reasonably be expected to cause a Material Adverse Change.

 

                                                                                Section 2.19 Oil and Gas Properties.& #160; The Company has defensible title to all of the oil, gas and other mineral properties owned, or otherwise held in the name of, the Company (collectively, the “Oil and Gas Properties”), free and clear of all Liens and defects other than Permitted Encumbrances or as such failures would not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Change.  All proceeds from the sale of the Company’s share of the hydrocarbons being produced from its oil and gas properties are currently being paid in full to such party by the purchasers thereof on a timely basis and none of such proceeds are currently being held in suspense by such purchaser or any other party other than in immaterial amounts.

 

                                                                                Section 2.20 Marketing of Production.   There exist no material agreements for the sale of production from the leasehold and other interests in the Oil and Gas Properties (including calls on, or other rights to purchase, production, whether or not the same are currently being exercised) other than (i) agreements or arrangements pertaining to the sale of production at a price equal to or greater than a price that is the market price from time to time existing in the areas where the Oil and Gas Properties subject to such agreement or arrangement are located and (ii) agreements or arrangements that are cancelable on 90 days notice or less without penalty or detriment.

 

Purchaser represents and warrants to the Company that, as of the Closing Date:

 

Section 3.01 Investment Representations and Warranties.

 

(a) Purchaser is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act.

 

(b) Purchaser has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company’s stage of development so as to be able to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof.

 

(c) Based on the terms of this Agreement and in reliance on the representations and warranties of the Company herein, Purchaser has received all the information it considers necessary or appropriate for deciding whether to purchase the Common Shares, the Option and the Preferred Shares.  Purchaser has conducted all due diligence and has received or has had full access to all the information it considers necessary or appropriate to enter into this Agreement and consummate the transactions contemplated hereby, and to make an informed investment decision with respect to the Common Shares, the Option and the Preferred Shares to be issued to Purchaser.  Purchaser further has had an opportunity to a sk questions and receive answers from the Company regarding the terms and conditions of the offering of the Common Shares, the granting of the Option and the offering of the Preferred Shares and to obtain additional information necessary to verify any information furnished to Purchaser or to which Purchaser had access.  The foregoing, however, does not in any way limit or modify the representations and warranties made by the Company in Article II.

 

(d) The Common Shares and the Preferred Shares to be issued to Purchaser, and the Option to be granted to Purchaser, are being acquired for its own account for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act.  There are no other agreements, arrangements or understandings pursuant to which Purchaser has agreed to purchase shares of the Company’s Common Stock.

 

(e) Purchaser understands that (i) neither of the Common Shares, the Option nor the Preferred Shares have not been registered under the Securities Act because of their issuance in a transaction exempt from the registration requirements of the Securities Act, (iii) the Common Shares, the Preferred Shares and the shares of Common Stock issuable upon conversion of the Preferred Shares can only be disposed of if such disposition is either registered under the Securities Act or is exempt from such registration, (iv) the Common Shares, the Preferred Shares and the shares of Common Stock issuable upon the conversion of the Preferred Shares will bear the legends to such effect set forth or described in Section 3.09, and (v) Purchaser may be, as a result of its due diligence investigations and negotiations for this Agreement, in possession of material non-public information concerning the Company and its subsidiary, their assets, operations and financial condition, and accordingly may be subject to liabilities under the Exchange Act if Purchaser, its officers, directors, affiliates and controlling persons engage in trading in securities of the Company while in possession of such material non-public information.

 

                                                                                Section 3.02 Organization, Qualifications and Corporate Power. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of New York.  Purchaser is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification, except as such failures, individually or in the aggregate, would not reasonably be expected to cause a material adverse change in the business, operations, assets, liabilities, properties or condition (financial or otherwise) or results of operations of Purchaser.  Purchaser has full corporate power and authority to own and hold its properties and to carry on its business as now conducted, except as such failures, individually or in the aggregate, would not reasonably be expected to cause a material adverse change in the business, operations, assets,

 

 

 

liabilities, properties or condition (financial or otherwise) or results of operations of Purchaser, and to execute, deliver and perform each Transaction Document to which it is a party.

 

                                                                                Section 3.03 Authorization; No Conflict; No Violation.  Purchaser’s execution and delivery of each Transaction Document to which it is a party and performance of its obligations thereunder has been duly authorized by all requisite corporate action and, assuming the registrations, approvals, filings, consents and other actions contemplated by Section 3.04 are obtained or made, will not (v) result in a violation of Purchaser’s organizational documents, (w) result in a violation of any applicable law, rule or regulation, or any order, injunction, judgment or decree of any court or other agency of government, (x) conflict with, result in a breach of, or constitute (or, with due notice or lapse of time or both, would constitute) a default under, or give rise to any right of termination, acceleration or cancellation under, any material indenture, agree ment, contract, license, arrangement, understanding, evidence of indebtedness, note, lease or other instrument to which Purchaser or any of its properties or assets is bound, (y) result in the creation or imposition of any Lien upon Purchaser or any of Purchaser’s properties or assets or (z) require any consent, approval, notification, waiver or other similar action from any third party, except as such violation, conflict, breach, default, right, Lien or failure would not, individually or in the aggregate, in the case of (w), (x), (y) or (z), be reasonably expected to cause a material adverse change in the business, operations, assets, liabilities, properties or condition (financial or otherwise) or results of operations of Purchaser and as would not, individually or in the aggregate, prevent consummation of any of the transactions contemplated hereby or otherwise prevent Purchaser from performing its obligations under the Transaction Documents to which it is a party.

 

                                                                                Section 3.04 Consents and Approvals.& #160; No registration or filing with, or consent or approval of or other action by, any federal, state or other governmental agency or instrumentality or any third party is or will be necessary for Purchaser’s valid execution, delivery and performance of the Transaction Documents to which it is a party other than (a) those which have previously been obtained or made, (b) those which are required to be made under federal or state securities laws, which will be obtained or made, and will be effective within the time periods required by law, and (c) as would not, individually or in the aggregate, prevent consummation of any of the transactions contemplated hereby or otherwise prevent Purchaser from performing its obligations under the Transaction Documents to which it is a party.

 

                                                                                Section 3.05 Validity.  Eac h Transaction Document to which Purchaser is a party has been duly executed and delivered by Purchaser and constitutes the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms except as may be limited by (a) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and (b) the effect of rules of law governing the availability of equitable remedies.

 

                                                                                Section 3.06 Financing.  Pu rchaser has sufficient cash, available lines of credit or other sources of immediately available funds (in United States dollars), exclusive of any cash, lines of credit or other sources related directly or indirectly to, or associated or affiliated with, the People’s Republic of China or any Person or Governmental Entity related directly or indirectly to, or associated or affiliated with, the People’s Republic of China, to enable it to pay the applicable portion of the Purchase Price in good funds at the Closing if, as and when payable.

 

 

 

                                                                                Section 3.07 Solvency.  Pur chaser is not entering into the transaction contemplated hereby with the actual intent to hinder, delay or defraud either present or future creditors.  Assuming that the representations and warranties of the Company contained in this Agreement are true and correct in all material respects, on the Closing Date and after giving effect to the transactions contemplated by this Agreement, each of the representations in the following clauses (a)-(d) will be true and correct:  (a) the sum of the Company’s debts, including contingent and unliquidated debts, will not be greater than the Company’s property, at a fair valuation; (b) the present fair salable value of the Company’s assets will not be less than the amount required to pay its probable liability on its existing debts, including contingent and unliquidated debts, as they become absolute and matured; (c) the Company will not have unreasonably small capital with which to conduct any business in which it is or is about to b ecome engaged; and (d) the Company will not intend to incur, and will not believe and should not reasonably believe that it will incur, debts beyond its ability to pay as they mature.

 

                                                                                Section 3.08 Brokers; Financial Advisors.  No agent, broker, investment banker, finder, financial advisor or other Person is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee from Purchaser, directly or indirectly, in connection with the transactions contemplated by the Transaction Documents to which it is a party, and no Person is entitled to any fee or commission or like payment from Purchaser in respect thereof based in any way on agreements, arrangements or understandings made by or on Purchaser’s behalf.

Section 3.09 Certain Covenants of Purchaser.

 

(a) Without in any way limiting the representations set forth in Section 3.01, Purchaser agrees not to make any disposition of all or any portion of the Common Shares, the Preferred Shares or any shares of Common Stock issuable upon the conversion of the Preferred Shares unless and until:

 

                      (i) there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

 

                      (ii) Purchaser has notified the Company of the proposed disposition and has furnished the Company with (A) a statement of the circumstances surrounding the proposed disposition and (B) an opinion of counsel that such security can be freely transferred without such registration statement being in effect and that such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Company issued the Common Shares and the Preferred Shares.

 

(b) Accordingly, Purchaser acknowledges that the certificates evidencing the Common Shares, the Preferred Shares and any shares of Common Stock issuable upon conversion of the Preferred Shares will bear the following legend:

 

The securities represented hereby have not been registered under the securities act of 1933, as amended (the “act”), or under the securities laws of certain states. These securities are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the act and the applicable state securities laws, pursuant to registration or exemption therefrom.  The issuer of these securities may require an opinion of counsel (which may be counsel for the company) in form and substance satisfactory to the issuer to the effect that any proposed transfer or resale is in compliance with the act and any applicable state securities laws.

 

 

                                Section 4.01 Confidentiality.  Purchaser shall, and shall cause its Affiliates and their respective directors, officers, employees and agents to, keep confidential, not disclose in any manner and use only i n connection with the transactions contemplated by this Agreement all data and information obtained by them from the Company and the Subsidiaries and their respective directors, officers, employees, auditors and agents (other than data or information that is or becomes ascertainable from public or published information or trade sources, except as a result of disclosure by Purchaser in violation of this Section 4.01) (“Confidential Information”) and shall insure that such Affiliates, directors, officers, employees and agents do not disclose Confidential Information to third parties, other than in connection with the transactions contemplated by this A greement, or make any public release or announcement containing any Confidential Information, without the prior written consent of the Company, unless disclosure of Confidential Information is required by law or any order, decree or ruling by a Governmental Entity.

 

                                                                                Section 4.02 Notification of Certain Matters.  The Company shall give prompt notice to Purchaser, and Purchaser shall give prompt notice to the Company, of any failure of the Company or Purchaser, as the case may be, to comply with or satisfy any covenant or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 4.02 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.

 

                                                                                Section 4.03 Regulatory and Other Authorizations; Notices and Consents.  Each of Purchaser and the Company shall use its reasonable best efforts to obtain all authorizations, consents, orders and approvals of all Governmental Entities and officials or other third parties that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, the Transaction Documents to which it is a party and will cooperate fully with the other party in promptly seeking to obtain all such authorizations, consents, orders and approvals.

 

                                                                               Section 4.04 Public Announcements. 0; Purchaser and the Company agree that no public release or announcement concerning the transactions contemplated by this Agreement shall be issued by any party or any of such party’s Affiliates without the prior consent of the Company or Purchaser, as the case may be, (which consent shall not be unreasonably withheld), except as such release or announcement may be required by law, in which case the party required to make the release or announcement shall use its reasonable best efforts to allow the other party reasonable time to comment on such release or announcement in advance of such issuance.

 

                                                                                Section 4.05 IRS Forms. 
60;On the Closing Date, Purchaser shall execute and deliver to the Company (i) if it is not a “United States person” (as such term is defined in Section 7701(a)(30) of the Code), two original copies of the applicable Internal Revenue Service Form W-8 or other applicable form, certificate or document prescribed by the United States Internal Revenue Service certifying as to such Purchaser’s entitlement to an exemption from or entitlement to a reduced rate of withholding or deduction of taxes and (ii) if it is a “United States person” (as such term is defined in Section 7701(a)(30) of the Code), two original copies of Internal Revenue Service Form W-9 (or substitute or successor form).

Section 4.06 Certain Approvals.

 

(a) In the event any Governmental Entity determines to conduct an investigation of the transactions contemplated by this Agreement at any time, including after the Closing, each of the Company and Purchaser shall use their respective reasonable best efforts to comply with any reasonable requests of such Governmental Entity, include providing in accordance with relevant regulatory timeframes any information requested by such Governmental Entity in connection with its review of the transactions contemplated hereby.  With respect to the Company, such reasonable best efforts shall include compliance with any reasonable request from any Governmental Entity or Purchaser, including assistance in Purchaser̵ 7;s compliance with any mitigation or remediation requirements that may be imposed by such Governmental Entity, provided that such compliance and assistance is in the best interest of the Company and consistent with the fiduciary duties of the Company’s officers and Board of Directors. Furthermore, such reasonable best efforts solely with respect Purchaser shall include Purchaser or Parent agreeing to any remediation or mitigation agreement with the Governmental Entity, if any, on such reasonable terms and conditions as may be required by such Governmental Entity, or to any other terms and conditions that may be imposed by such Governmental Entity, including the waiver or modification of, or amendment to, any conditions under Section 5.01 or other provisions of this Agreement for the benefit of Purchaser under this Agreement.

 

(b) In no event will any failure to make any necessary or voluntary filings with, or obtain any required or requested clearance or approval from, any Governmental Entity, or any consequences resulting from any of such failures, including, but not limited to, action by any Governmental Entity to suspend, modify or prohibit, or require divestment of, the transactions contemplated by this Agreement, or any remediation or mitigation agreement or other terms or conditions that  may be required by any Governmental Entity referred to in Section 4.06(a), require the Company to return any of the Purchase Price once paid to the Company.

 

(c) Purchaser will bear the cost of, and reimburse the Company for, any fees, expenses or other Losses associated with making any filing or obtaining any clearance or approval from any Governmental Entity or any of the other matters arising out of or referred to in this Section 4.06, including the expenses incurred necessary to implement a mitigation agreement or any other terms and conditions that may be imposed by such Governmental Entity.

                                                                                Section 4.07 Fees and Expenses.   Except as otherwise provided in the Deposit Agreement, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses.

 

                                                                                Section 4.08 Registration Rights Agreement.  Upon valid exercise of the Option by Purchaser, the Company and Purchaser agree to mutually execute and deliver a mutually acceptable registration rights agreement including the rights, covenants and terms set forth on Exhibit B attached hereto.

 

 

                                                                                Section 5.01 Conditions to Purchaser’s Obligations at the  Closing.  Purchaser’s obligation to purchase and pay for the Common Shares and the Option being purchased by it is, at its option, subject to the satisfaction, on or before the  Closing Date, of the following conditions, any of which may be waived in whole or in part by Purchaser:

 

(a) Performance.  The Company shall have performed and complied in all material respects with all agreements and covenants contained herein required to be performed or complied with by it prior to the Closing Date.

 

(b) Registration Rights Agreement.  The Company and Purchaser shall have approved a final form of definitive registration rights agreement pursuant to Section 4.08.

 

(c) Option.  The Company and Purchaser shall have executed and delivered a definitive Option Agreement (the “Option Agreement”) setting forth the terms of the Option consistent with the terms described herein.

 

(d) Approvals.  The Company shall have obtained any and all consents, waivers, registrations, approvals or authorizations necessary for the Company’s valid execution and delivery of this Agreement and the other Transaction Documents to which it is a party and the Company’s performance of the transactions contemplated hereby and thereby.

 

(e) No Injunction.  Subject to compliance by Purchaser with its obligations under Section 4.06, no Governmental Entity or any other Person shall have issued an order, injunction, judgment, decree, ruling or assessment which shall then be in effect restraining or prohibiting the completion of the transactions contemplated hereby or under any of the other Transaction Documents, nor, shall any such order, injunction, judgment, decree, ruling or assessment be pending or, to the Company’s knowledge, threatened.

 

(f) Filing of the Certificate of Designations. A Certificate of Designations evidencing the terms of the Preferred Stock, including the director designation right associated therewith, as set forth on Exhibit A attached hereto and authorizing sufficient shares to issue the Preferred Shares shall have been filed with the Delaware Secretary of State.

 

(g) Supporting Documents.  As of the Closing Date, Purchaser and its counsel shall have received copies of the following documents:

 

                      (i) (A) the Charter, certified as of a recent date by the Secretary of State of Delaware, and (B) a certificate of said Secretary dated as of a recent date as to the Company’s due incorporation and listing all documents of the Company on file with said Secretary and a certificate of said Secretary as to the good standing of the Company; and

 

                      (ii) a certificate of the Company’s Secretary dated as of the  Closing Date, certifying:  (A) that attached thereto is a true, correct and complete copy of the Bylaws as in effect on the date of such certification and that no amendments or modifications to such Bylaws have been authorized; (B) that attached thereto is a true, correct and complete copy of all resolutions adopted by the Board of Directors authorizing the execution, delivery and performance of each of the Transaction Documents, the issuance, sale and delivery of the Common Shares, and that all such resolutions are in full force and effect, have not been amended, modified or rescinded and are the only resolutions adopted in connection with the transactions contemplated by the Transaction Documents; (C) that the Charter has not been amended since the date of the last amendment referred to in the certificate delivered pursuant to clause (i)(A) above; and (D) to the incumbency and specimen signature of each officer of the Company executing any of the Transaction Documents, the stock certificates representing the Common Shares and any certificate or instrument furnished pursuant thereto, and a certification by another authorized officer of the Company as to the incumbency and signature of the officer signing the certificate referred to in this clause (ii).

                                                                                Section 5.02 Conditions to the Company’s Obligations at the  Closing.  The Company’s obligation to sell and issue the Common Shares and the Option being sold and issued by it on the Closing Date is, at its option, subject to the satisfaction, on or before the Closing Date, of the following conditions (unless such condition is required by its terms to be satisfied at or prior to the  Closing Date), any of which may be waived in whole or in part by the Company:

 

(a) Performance.  Purchaser shall have performed and complied in all material respects with all agreements and covenants contained herein required to be performed or complied with by it prior to or at the Closing Date.

 

(b) Option. The Company and Purchaser shall have executed and delivered the Option Agreement setting forth the terms of the Option.

 

(c) Approvals.  Purchaser shall have obtained any and all consents, waivers, registrations, approvals or authorizations necessary for Purchaser’s valid execution and delivery

 

of this Agreement and the other Transaction Documents to which it is a party and Purchaser’s performance of the transactions contemplated hereby and thereby.

 

(d) No Injunction.  No Governmental Entity or any other Person shall have issued an order, injunction, judgment, decree, ruling or assessment which shall then be in effect restraining or prohibiting the completion of the transactions contemplated hereby, nor shall any such order, injunction, judgment, decree, ruling or assessment be pending or, to the Company’s knowledge, threatened.

 

(e) Purchase Price Paid.  Purchaser shall have paid the Purchase Price for the Common Shares and the Option to be purchased on the Closing Date to the Company as set forth in Section 1.01.

 

The Company covenants and agrees with Purchaser that:

 

                                                                                Section 6.01 Survival.  The representations and warranties of the Company and Purchaser made in this Agreement shall survive for one year from the Closing Date; provided, however, the representations and warranties of the Company set forth in Section 2.01, Section 2.02 and Section 2.05 and the representations of Purchaser set forth in Section 3.01, Section 3.02 and Section 3.03 shall survive indefinitely.  All of the covenants of the parties hereto that are intended to be performed after Closing, including Section 4.01 and Section 4.04, shall survive the Closing.

 

Section 6.02 Indemnity.

 

(a) The Company agrees to indemnify, defend and hold harmless Purchaser (and its partners (and each officer and director thereof), directors, managers, officers, members, shareholders, employees, Affiliates, agents and permitted assigns) (collectively, “Indemnified Parties”) from and against any and all losses, claims, liabilities, damages, deficiencies, costs or expenses (including interest, penalties, reasonable attorneys’ fees, disbursements and related charges and any costs or expenses that an Indemnified Party incurs to enforce its right to indemnification) (collectively, “Losses”) based upon, arising out of or otherwise in respect of any inaccuracy in or breach of any representations, warranties, covenants or agreements of the Company contained in this Agreement or any of the other Transaction Documents.  Notwithstanding the above provisions, the Company shall have no obligation to indemnify the Indemnified Parties under this Section 6.02, unless and until the Indemnified Parties incur Losses in excess of US$1,500,000 in the aggregate, at which time the Company shall be obligated to the Indemnified Parties for all such Losses in the aggregate, in excess of such aggregate, but not to exceed the Purchase Price paid to the Company, up to US$21,250,000 in total.< /div>