Securities Purchase Agreement----- Provided herewith

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Exhibit 10.3

Securities Purchase Agreement.

 

 

 

 

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of February 6, 2008, by and among Hyperdynamics Corporation, a Delaware corporation (the “Company”), and the Buyers listed on Schedule I attached hereto (individually, a “Buyer” or collectively “Buyers”).

 

 

 

 

 

WHEREAS, the Company and the Buyer(s) are executing and delivering this Agreement in reliance upon an exemption from securities registration pursuant to Section 4(2) and/or Rule 144A as promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”);

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Buyer(s), as provided herein, and the Buyer(s) shall purchase (i) up to Three Million Dollars ($3,000,000) of secured notes in the form attached hereto as “Exhibit A” (the “Notes”), which shall, in certain instances, be convertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (if converted, the “Conversion Shares”) of which Nine Hundred Ten Thousand Five Hundred and Twenty Six Dollars ($910,526) shall be funded on the date hereof (the “First Closing”), One Million Eighty Nine Thousand Four Hundred and Seventy Four Dollars ($1,089,474) of which shall be funded on the fifth (5th) Business Day (as defined herein) following the date on which the conditions set forth in Section 7(b) hereof have been met (the “Second Closing”) and One Million Dollars ($1,000,000) of which may, in certain circumstances, be funded on the one hundred and twentieth (120th) day following the date hereof (the “Third Closing”) (individually referred to as a “Closing” and collectively referred to as the “Closings”) and (ii) warrants substantially in the form attached hereto as “Exhibit B” (the “Warrants”), to acquire up to eight hundred and twenty-five thousand (825,000) shares of Common Stock (as exercised, the “Warrant Shares”), of which five hundred and fifty thousand (550,000) shall be issued at the First Closing and two hundred and seventy five thousand (275,000) shall be issued at the Third Closing;

 

 

WHEREAS, contemporaneously with the First Closing and, if applicable, the Third Closing, the Company will, among other things, issue to the Buyer warrants substantially in the form attached hereto as “Exhibit B” (the “Warrants”), to acquire up to that number of additional shares of Common Stock set forth opposite such Buyer’s name on Schedule I (as exercised, the “Warrant Shares”)

 

WHEREAS, contemporaneously with the execution and delivery of this Agreement, (i) the Buyer, the Company, HYD Resources Corporation, a Texas corporation and a wholly owned subsidiary of the Company (“HYD”) and Trendsetter Production Company, a Mississippi company and a wholly owned subsidiary of HYD (“Trendsetter”), are executing and delivering a Security Agreement (the “Security Agreement”) pursuant to which Trendsetter and HYD agree to provide the Buyer a security interest in Pledged Property (as this term is defined in the Security Agreement) and (ii) Trendsetter and HYD are executing and delivering a Guaranty dated the date hereof (the “Guaranty” and collectively with the Security Agreement and the Mortgage (as defined herein), the “Security Documents”);

 

WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering Irrevocable Transfer Agent Instructions (the “Irrevocable Transfer Agent Instructions”); and

 

WHEREAS, the Notes, the Conversion Shares, the Warrants, and the Warrants Shares collectively are referred to herein as the “Securities”).

 

NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Company and the Buyer(s) hereby agree as follows:

 

PURCHASE AND SALE OF NOTES.

 

Purchase of Notes.  Subject to the satisfaction (or waiver) of the terms and conditions of this Agreement, each Buyer agrees, severally and not jointly, to purchase at the First Closing and the Company agrees to sell and issue to each Buyer, severally and not jointly, at the First Closing, Notes in amounts corresponding with the Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto and Warrants to acquire that number of Warrant Shares as set forth opposite each Buyer’s name in column (5) on Schedule I hereto at an exercise price of Two Dollars ($2.00) per share.  Subject to the satisfaction (or waiver) of the terms and conditions of this Agreement, each Buyer agrees, severally and not jointly, to purchase at the Second Closing and the Company agrees to sell and issue to each Buyer, severally and not jointly, at the Second Closing, Notes in amounts corresponding with the Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto.  The Company may, in its sole discretion, offer to sell and issue to each Buyer severally and not jointly, at the Third Closing, Notes in amounts corresponding with the Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto and Warrants to acquire that number of Warrant Shares as set forth opposite each Buyer’s name in column (6) on Schedule I hereto at an exercise price per share equal to one-hundred and thirty percent (130%) of the Closing Bid Price of the Common Stock on the day prior to the Third Closing.  The Company acknowledges that the purchase at the Third Closing of Notes and Warrants in amounts corresponding with the Subscription Amount set forth opposite each Buyer’s name on Schedule I is in each Buyer’s sole discretion subject to the Company’s right to provide Buyer with fifteen (15) Business Days advance written notice of its election to not offer such Note and Warrants for sale. As used in this Agreement, “Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions are authorized or required by law or other government action to close.  As used in this Agreement, “Closing Bid Price” means the closing bid price of Common Stock as quoted on the American Stock Exchange (as reported by Bloomberg Financial Markets (“Bloomberg”) through its “Volume at Price” function).

 

 

Closing Dates.  The First Closing of the purchase and sale of the Notes and Warrants shall take place on the date hereof  (the “First Closing Date”), the Second Closing of the purchase of the Notes shall take place at 10:00 a.m. Eastern Standard Time on the fifth (5th) business day following the date on which the conditions set forth herein and in Sections 6 and 7 hereof have been met (or such other date as is mutually agreed to by the Company and the Buyer(s)) (the “Second Closing Date”) and if applicable, the Third Closing of the purchase and sale of the Notes shall take place at 10:00 a.m. Eastern Standard Time on the one hundred and twentieth (120th) day following the First Closing (or such later date as is mutually agreed to by the Company and the Buyer(s)) (the “Third Closing Date”) (collectively referred to as the “Closing Dates”), subject to notification of satisfaction of the conditions to the Third Closing set forth herein and in Sections 6 and 7 below.  The Closings shall occur on the respective Closing Dates at the offices of Yorkville Advisors, LLC, 101 Hudson Street, Suite 3700, Jersey City, New Jersey 07302 (or such other place as is mutually agreed to by the Company and the Buyer(s)).

 

Form of Payment.  Subject to the satisfaction of the terms and conditions of this Agreement, on each Closing Date, (i) the Buyers shall deliver to the Company such aggregate proceeds for the Notes and Warrants to be issued and sold to such Buyer at such Closing, minus the fees to be paid directly from the proceeds of such Closing as set forth herein, and (ii) the Company shall deliver to each Buyer, the Notes and Warrants which such Buyer is purchasing at such Closing in amounts indicated opposite such Buyer’s name on Schedule I, duly executed on behalf of the Company.

 

BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer represents and warrants, severally and not jointly, that:

 

Investment Purpose.  Each Buyer is acquiring the Securities for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, such Buyer reserves the right to dispose of the Securities at any time in accordance with or pursuant to an effective registration statement covering such Securities or an available exemption under the Securities Act.  Such Buyer does not presently have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.

 

Qualified Institutional Buyer.  Each Buyer is a “Qualified Institutional Buyer” as that term is defined in Rule 144A of the Securities Act.  Each Buyer has provided to the Company a “Certificate of QIB” in substantially the form attached hereto as Exhibit C.

 

 

Reliance on Exemptions.  Each Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire the Securities.

 

Information.  Each Buyer and its advisors (and his or, its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information he deemed material to making an informed investment decision regarding his purchase of the Securities, which have been requested by such Buyer.  Each Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management.  Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below.  Each Buyer understands that its investment in the Securities involves a high degree of risk.  Each Buyer is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables such Buyer to obtain information from the Company in order to evaluate the merits and risks of this investment.  Each Buyer has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities.

 

No Governmental Review.  Each Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities, or the fairness or suitability of the investment in the Securities, nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

 

Transfer or Resale.  Each Buyer understands that: (i) the Securities have not been and are not being registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration requirements, or (C) such Buyer provides the Company with reasonable assurances (in the form of seller and broker representation letters) that such Securities can be sold, assigned or transferred pursuant to Rule 144, Rule 144(k), or Rule 144A promulgated under the Securities Act, as amended (or a successor rule thereto and as amended) (collectively, “Rule 144”), in each case following the applicable holding period set forth therein; (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register the Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

 

 

Legends.  Each Buyer agrees to the imprinting, so long as is required by this Section 2(g), of a restrictive legend in substantially the following form:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.

 

Certificates evidencing the Conversion Shares or Warrant Shares shall not contain any legend (including the legend set forth above), (i) while a registration statement covering the resale of such security is effective under the Securities Act (such registration statement, the “Registration Statement”), (ii) following any sale of such Conversion Shares or Warrant Shares pursuant to Rule 144, (iii) if such Conversion Shares or Warrant Shares are permanently eligible for sale without restriction under Rule 144, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC).  The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the effective date (the “Effective Date”) of a Registration Statement if required by the Company’s transfer agent to effect the removal of the legend hereunder.  If all or any portion of the Notes or Warrants are exercised by a Buyer that is not an Affiliate of the Company (a “Non-Affiliated Buyer”) at a time when there is an effective registration statement to cover the resale of the Conversion Shares or the Warrant Shares, such Conversion Shares or Warrant Shares shall be issued free of all legends.  The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 2(g), it will, no later than three (3) Trading Days following the delivery by a Non-Affiliated Buyer to the Company or the Company’s transfer agent of a certificate representing Conversion Shares or Warrant Shares, as the case may be, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Non-Affiliated Buyer a certificate representing such shares that is free from all restrictive and other legends.  The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section.  Each Buyer acknowledges that the Company’s agreement hereunder to remove all legends from Conversion Shares or Warrant Shares is not an affirmative statement or representation that such Conversion Shares or Warrant Shares are freely tradable.  Each Buyer, severally and not jointly with the other Buyers, agrees that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 2(g) is predicated upon the Company’s reliance that the buyer will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein.  As used in this Agreement, “Trading Day” means a day on which the shares of Common Stock are quoted on the American Stock Exchange or quoted or traded on such Subsequent Market on which the shares of Common Stock are then quoted or listed; provided, that in the event that the shares of Common Stock are not listed or quoted, then Trading Day shall mean a Business Day.  As used in this Agreement “Subsequent Market” shall mean: (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board (“OTC”) (each, a “Subsequent Market”).

 

 

Authorization, Enforcement.  This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and is a valid and binding agreement of such Buyer enforceable in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

 

Receipt of Documents.  Each Buyer and his or its counsel has received and read in their entirety:  (i) this Agreement and each representation, warranty and covenant set forth herein and the Transaction Documents (as defined herein); (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; (iii) the Company’s Form 10-K for the fiscal year ended December 31, 2006; (iv) the Company’s Form 10-Q for the fiscal quarter ended September 30, 2007 and (v) answers to all questions each Buyer submitted to the Company regarding an investment in the Company; and each Buyer has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus.

 

Due Formation of Corporate and Other Buyers.  If the Buyer(s) is a corporation, trust, partnership or other entity that is not an individual person, it has been formed and validly exists and has not been organized for the specific purpose of purchasing the Securities and is not prohibited from doing so.

 

No Legal Advice From the Company.  Each Buyer acknowledges, that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors.  Each Buyer is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

Except as set forth under the corresponding section of the Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof and to qualify any representation or warranty otherwise made herein to the extent of such disclosure, the Company hereby makes the representations and warranties set forth below to each Buyer:

 

 

Subsidiaries.  All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3(a).  The Company owns, directly or indirectly, all of the capital stock or other equity interests of each subsidiary free and clear of any liens, and all the issued and outstanding shares of capital stock of each subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

 

Organization and Qualification.  The Company and its subsidiaries are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted.  Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business or condition (financial or otherwise) of the Company and the subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

Authorization, Enforcement, Compliance with Other Instruments.  (i) The Company has the requisite corporate power and authority to enter into and perform and to cause HYD and Trendsetter to enter into and perform its obligation under the Security Documents, (ii) the Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Notes, the Warrants, the Irrevocable Transfer Agent Instructions, and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively and together with the Security Documents, the “Transaction Documents”) and to issue the Securities in accordance with the terms hereof and thereof, (ii) the Company has caused the execution and delivery of the Security Documents by Trendsetter to be duly authorized by Trendsetter’s Board of Directors and no further consent or authorization is required by Trendsetter, its Board of Directors or its stockholder, (iii) the Company has caused the execution and delivery of the Security Documents by HYD to be duly authorized by HYD’s Board of Directors and no further consent or authorization is required by HYD, its Board of Directors or its stockholder, (iv) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Securities, the reservation for issuance and the issuance of the Conversion Shares, and the reservation for issuance and the issuance of the Warrant Shares, have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (v) the Company has caused the Security Agreement and Guaranties to be duly executed by and delivered by HYD and Trendsetter and will cause the Mortgage to be duly executed and delivered by Trendsetter, (v) the Transaction Documents have been duly executed and delivered by the Company, (vi) the Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.  The authorized officer of the Company executing the Transaction Documents knows of no reason why the Company, HYD or Trendsetter cannot perform any of their respective obligations under the Transaction Documents.

 

 

Capitalization.  The authorized capital stock of the Company consists of 250,000,000 shares of Common Stock and 20,000,000 shares of Preferred Stock, par value $0.001 per share (“Preferred Stock”) of which 56,376,013 shares of Common Stock, 1,945 shares of the Company’s Series A Preferred Stock, par value $0.001 per share and 2,487 shares of the Company’s Series B Preferred Stock, par value $0.001 per share are issued and outstanding.  All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  Except as disclosed in Schedule 3(d): (i) none of the Company’s capital stock is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing indebtedness of the Company or any of its subsidiaries or by which the Company or any of its subsidiaries is or may become bound; (iv) there are no financing statements securing obligations in any material amounts, either singly or in the aggregate, filed in connection with the Company or any of its subsidiaries; (v) there are no outstanding securities or instruments of the Company or any of its subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to redeem a security of the Company or any of its subsidiaries; (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (vii) the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (viii) the Company and its subsidiaries have no liabilities or obligations required to be disclosed in the SEC Documents but not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company’s or its subsidiaries’ respective businesses and which, individually or in the aggregate, do not or would not have a Material Adverse Effect.  The Company has furnished to the Buyers true, correct and complete copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s Bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all securities convertible into, or exercisable or exchangeable for, shares of Common Stock and the material rights of the holders thereof in respect thereto.  No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the Securities.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

 

Issuance of Securities.  The issuance of the Notes and the Warrants is duly authorized and free from all taxes, liens and charges with respect to the issue thereof.  Upon conversion in accordance with the terms of the Notes or exercise in accordance with the Warrants, as the case may be, the Conversion Shares and Warrant Shares, respectively, when issued will be fully paid and nonassessable, free from all taxes, liens and charges with respect to the issue thereof and, to the extent possible in accordance with Section 4(f) hereof, validly issued.  The Company has reserved from its duly authorized capital stock eleven million (11,000,000) shares of Common Stock as set forth in this Agreement.

 

No Conflicts.   The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Notes and the Warrants, and reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) will not (i) result in a violation of any certificate of incorporation, certificate of formation, any certificate of designations or other constituent documents of the Company or any of its subsidiaries, any capital stock of the Company or any of its subsidiaries or bylaws of the Company or any of its subsidiaries or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) in any respect under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and state securities laws and regulations and the rules and regulations of the American Stock Exchange) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.  The business of the Company and its subsidiaries is not being conducted, and shall not be conducted in violation of any material law, ordinance, or regulation of any governmental entity.  Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.  The Company and its subsidiaries are unaware of any facts or circumstance, which might give rise to any of the foregoing.

 

 

SEC Documents; Financial Statements.  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (all of the foregoing filed prior to the date hereof or amended after the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the “SEC Documents”) on timely basis or has received a valid extension of such time of filing and has filed any such SEC Document prior to the expiration of any such extension.  The Company has delivered to the Buyers or their representatives, or made available through the SEC’s website at http://www.sec.gov., true and complete copies of the SEC Documents.  As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  No other information provided by or on behalf of the Company to the Buyers which is not included in the SEC Documents, including, without limitation, information referred to in Section 2(i) of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made and not misleading.

 

Oil and Gas Properties.  The leases attached hereto as Annex A are (i) complete and accurate and are the only documents pursuant to which Trendsetter has acquired Oil and Gas Properties and (ii) all of the Oil and Gas Properties reflected on the Reserve Report of Rabb Contracting Company, LLC, dated May 12, 2007 and prepared by Clifton S. Partridge, P.E. are reflected in the leases attached hereto as Annex A.  As used herein, “Oil and Gas Properties” means all of Trendsetter’s rights, title, interest and estates now owned or hereafter acquired in and to all leases, oil, gas, coal seam gas, casinghead gas, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons or mineral fee or lease interests, farm-ins, overriding royalty and royalty interests, including any reserved or residual interest of whatever nature.

 

Absence of Litigation.  There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect.

 

 

Acknowledgment Regarding Buyer’s Purchase of the Notes.  The Company acknowledges and agrees that (i) each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby, (ii) each Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by each Buyer or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Buyer’s purchase of the Securities, and (iii) the purchase at the Third Closing of the Notes and Warrants in amounts corresponding with the Subscription Amount set forth opposite each Buyer’s name on Schedule I is in each Buyer’s sole discretion and in no circumstances will any such Buyer be obligated to purchase such Notes and Warrants.  The Company further represents to each Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation by the Company and its representatives.

 

No General Solicitation.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Securities.

 

No Integrated Offering.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the Securities under the Securities Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act.

 

Employee Relations.  Neither the Company nor any of its subsidiaries is involved in any labor dispute or, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened.  None of the Company’s or its subsidiaries’ employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good.

 

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, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted.  The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, and, to the knowledge of the Company there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

 

Environmental Laws.  The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval.

 

Title.  All real property and facilities held under lease by the Company and 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 and its subsidiaries.

 

Insurance.  The Company and each of its subsidiaries is 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 not be able 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 materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole.

 

Regulatory Permits.  The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, 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.

 

Internal Accounting Controls.  The Company and each of its subsidiaries maintains a system of internal accounting controls as set forth in the Company’s public filings.

 

No Material Adverse Breaches, etc.  Neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.  Neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.

 

Tax Status.  The Company and each of its subsidiaries has made and filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

 

Certain Transactions.  Except for arm’s length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and 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 officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

 

Fees and Rights of First Refusal.  The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties.

 

Investment Company. The Company is not, and is not an affiliate of, and immediately after receipt of payment for the Securities, will not be or be an affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act.

 

Private Placement. Assuming the accuracy of the Buyers’ representations and warranties set forth in Section 2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Buyers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Primary Market.

 

Listing and Maintenance Requirements.  The Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to terminate, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the SEC is contemplating terminating such registration.  The Company has not, in the twelve (12) months preceding the date hereof, received notice from any Primary Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Primary Market.  The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

 

Manipulation of Price.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

 

Dilutive Effect.  The Company understands and acknowledges that under pursuant to their terms, the Notes, under certain circumstances, will be convertible into shares of Common Stock and the Company agrees to honor any such conversion of the Notes. The Company understands and acknowledges that the Warrant Shares issuable upon exercise of the Warrants and, in the event that the Notes become convertible, the number of Conversion Shares issuable upon conversion of the Notes will increase in certain circumstances.  The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Notes in accordance with this Agreement and the Notes and its obligation to issue the Warrant Shares upon exercise of the Warrants in accordance with this Agreement and the Warrants, in each case, is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company; provided, however, that the Company will not be required to issue any such Conversion Shares or Warrant Shares until such Conversion Shares or Warrant Shares, as applicable, have been listed for trading on the American Stock Exchange.

 

Dutchess Equity Line. The equity line of credit entered into with Dutchess in August 2005 that expires in February 2009 (the “Dutchess Equity Line”) is currently available for draw downs or “puts” by the Company and the Company knows of no reason why such equity line would be unavailable to the Company.  The Company shall take all steps necessary in its control to maintain the effectiveness and availability of the equity line and shall not terminate the equity line without the prior consent of the Buyer.  The Company may only issue and sell Common Stock through puts under the Dutchess Equity Line for aggregate gross proceeds of up to $500,000 per sixty (60) day period, provided however, if (a) no Event of Default (as defined in the Notes) has occurred, (b) the Closing Bid Price of the Common Stock is above $4.00 for five consecutive Trading Days, and (c) the Closing Bid Price remains above $4.00 on the day a put is made, then the Company may exceed the limitation set forth above and instead make up to two puts under the Dutchess Equity Line per 30 day period for aggregate gross proceeds of the greater of: (i) $500,000 for of the two puts, or, (ii) no more than the amount determined under the volume matrix formula set forth in Section 2(b) of the Dutchess Equity Line for each of the two puts. 

 

Registration Statement.  The Company has filed with the SEC a Registration Statement on Form S-3 (Registration No. 333-148287) (the “Form S-3 Registration Statement”).  The Company represents that the Form S-3 Registration Statement encompasses the potential issuance of Conversion Shares or Warrant Shares if such Conversion Shares or Warrant Shares are new issue shares from the Form S-3 Registration Statement shelf offering and not previously issued restricted stock.

 

Holding Period.  The Company acknowledges and agrees that for purposes of Rule 144, in the event the Notes become convertible in accordance with their terms, the first day of the holding period of the Conversion Shares underlying each of the Notes will be the date that the Buyer pays the full purchase price for such Note.  The Company agrees not to take a position contrary to this Section 4(ee).    

 

COVENANTS.

 

Best Efforts.  Each party shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement.

 

Reporting Status.  Until the earlier of (i) the date as of which the Buyer(s) may sell all of the Securities without restriction pursuant to Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii) the date on which (A) the Buyers shall have sold all the Securities and (B) none of the Notes or Warrants are outstanding (the “Registration Period”), the Company shall file in a timely manner all reports required to be filed with the SEC pursuant to the Exchange Act and the regulations of the SEC   thereunder, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would otherwise permit such termination.

 

Registration Statement.  If (x) the Conversion Shares issuable upon conversion of the Notes, and (y) the Warrant Shares issuable upon exercise of the Warrant, (collectively, the “Registrable Securities”) are issued prior to the date on which the Buyer may sell such Registrable Securities without restriction pursuant to Rule 144 and on such date the Form S-3 Registration Statement is effective, the Company shall issue such Registrable Securities pursuant to the Form S-3 Registration Statement; provided, that  the number of shares registered and available for issuance pursuant to the Form S-3 Registration Statement is greater than or equal to the number of Registrable Securities to be issued at such time.

 

Use of Proceeds.  The Company will use the proceeds from the sale of the Notes for general corporate and working capital purposes.

 

Reservation of Shares.  On the date hereof, the Company shall reserve for issuance to the Buyers eleven million (11,000,000) shares for issuance upon conversions of the Notes and exercise of the Warrants (collectively, the “Share Reserve”).  The Company represents that it has sufficient authorized and unissued shares of Common Stock available to create the Share Reserve after considering all other commitments that may require the issuance of Common Stock.  The Company shall take all action reasonably necessary to at all times have authorized, and reserved for the purpose of issuance, such number of shares of Common Stock as shall be necessary to effect the full conversion of the Notes and the full exercise of the Warrants.  If at any time the Share Reserve is insufficient to effect the full conversion of the Notes or the full exercise of the Warrants, the Company shall increase the Share Reserve accordingly.  If the Company does not have sufficient authorized and unissued shares of Common Stock available to increase the Share Reserve, the Company shall call and hold a special meeting of the shareholders within thirty (30) days of such occurrence, for the sole purpose of increasing the number of shares authorized.  The Company’s management shall recommend to the shareholders to vote in favor of increasing the number of shares of Common Stock authorized.  Management shall also vote all of its shares in favor of increasing the number of authorized shares of Common Stock.

 

Listings or Quotation.  The Company’s Common Stock shall be listed or quoted for trading on any of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board (which does not include the Pink Sheets LLC) (“OTCBB”) (each, a “Primary Market”).  As promptly as possible, but in no event later than 5 p.m. New York City time on February 12, 2008, the Company shall file an application for the listing of two million, two hundred forty-four thousand eight hundred and ninety-nine (2,244,899) shares of Common Stock (the “Listed Shares”) upon the American Stock Exchange and upon notification that such shares have been listed will use its best efforts to secure and maintain such listing.  The Listed Shares shall be comprised of: the ninety four thousand eight hundred and ninety-nine (94,899) shares of Common Stock representing the First Closing Commitment Shares (as defined herein) to be issued in respect of the First Closing, five hundred fifty thousand (550,000) Warrant Shares and one million six hundred (1,600,000) Conversion Shares; provided, however, that any Listed Shares that have not been issued may be issued to the Buyers upon exercise of the Warrants or conversion of the Notes notwithstanding any designation in the listing application or this Section 4(f) as Warrant Shares or Conversion Shares.  If upon exercise of the Warrants or exchange of the Notes there are an insufficient number of unissued Listed Shares for the Company to satisfy such exercise or exchange, the Company shall as promptly as possible secure the listing of an additional number of shares of Common Stock necessary to satisfy such exercise or conversion.

 

Fees and Expenses.

 

The Company shall pay all of its costs and expenses incurred by it connection with the negotiation, investigation, preparation, execution and delivery of the Transaction Documents.

 

The Company shall place into escrow Eighty Thousand Dollars ($80,000) upon the First Closing, and, an additional Forty Thousand Dollars ($40,000) upon the Third Closing directly from the proceeds of each Closing (collectively, the “Monitoring Fees,” and as deposited into escrow, the “Escrow Funds”) which shall be used to compensate Yorkville Advisors LLC (“Investment Manager”) for monitoring and managing the purchase and investment made by YA Global Investments, L.P. (“YA Global”) described herein, pursuant to the Investment Manager’s existing advisory obligations to YA Global.  The Company, Investment Manager, and YA Global shall enter into an Escrow Agreement of even date herewith in the form attached hereto as Exhibit D (the “Escrow Agreement”) appointing David Gonzalez, Esq. as escrow agent (the “Escrow Agent”) to hold the Escrow Funds and to periodically disburse portions of such Escrow Funds to the Investment Manager from escrow in accordance with the terms of the Escrow Agreement.  The Investment Manager shall periodically receive portions of the Escrow Funds in accordance with the Escrow Agreement until either: (1) the Escrow Funds shall have been fully disbursed pursuant the Escrow Agreement or (2) the Securities shall have been Fully Retired.  “Fully Retired” shall mean that the Buyer shall have fully disposed of all the Securities issued or issuable hereunder, shall no longer have any investment in, or ownership of, any of the Securities, all amounts owed to YA Global under the Transaction Documents shall have been paid, and the Transaction Documents shall have been terminated.  When the Securities are Fully Retired, the remaining Escrow Funds shall be returned to the Company or otherwise disbursed in accordance with the Escrow Agreement.

 

The Company shall pay a structuring and due diligence  fee to the Investment Manager of Thirty-Five Thousand Dollars ($35,000) which shall be paid directly from the proceeds of the First Closing.  The structuring and due diligence fee shall be nonrefundable and payable whether or not any Closing occurs.

 

As promptly as possible, but in no event later than two (2) Business Days following the Company’s receipt of notification that the Listed Shares have been listed on the American Stock Exchange, the Company shall issue to the Buyer ninety four thousand eight hundred and ninety-nine (94,899) shares of Common Stock (the “First Closing Commitment Shares”).  As promptly as possible, but in no event later than two (2) Business Days after the Third Closing, the Company shall file an application for the listing upon the American Stock Exchange of Sixty Thousand Dollars ($60,000) of Common Stock, calculated based on the volume weighted average price of the Common Stock over the five (5) trading days prior to the Third Closing (the “Third Closing Commitment Shares” and together with the First Closing Commitment Shares, the “Commitment Shares”) and upon notification that such shares have been listed will use its best efforts to secure and maintain such listing.  As promptly as possible, but in no event later than two (2) Business Day following the Company’s receipt of notification that the Third Closing Commitment Shares have been listed on the American Stock Exchange, the Company shall issue the Buyer the Third Closing Commitment Shares.

 

Reserved.

 

Transactions With Affiliates.  So long as any Notes are outstanding, the Company shall not, and shall cause each of its subsidiaries not to, enter into, amend, modify or supplement, or permit any subsidiary to enter into, amend, modify or supplement any agreement, transaction, commitment, or arrangement with any of its or any subsidiary’s officers, directors, person who were officers or directors at any time during the previous two (2) years, stockholders who beneficially own five percent (5%) or more of the Common Stock, or Affiliates (as defined below) or with any individual related by blood, marriage, or adoption to any such individual or with any entity in which any such entity or individual owns a five percent (5%) or more beneficial interest (each a “Related Party”), except for (a) customary employment arrangements and benefit programs on reasonable terms, (b) any investment in an Affiliate of the Company,  (c) any agreement, transaction, commitment, or arrangement on an arms-length basis on terms no less favorable than terms which would have been obtainable from a person other than such Related Party, (d) any agreement, transaction, commitment, or arrangement which is approved by a majority of the disinterested directors of the Company; for purposes hereof, any director who is also an officer of the Company or any subsidiary of the Company shall not be a disinterested director with respect to any such agreement, transaction, commitment, or arrangement.  “Affiliate” for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a ten percent (10%) or more equity interest in that person or entity, (ii) has ten percent (10%) or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity.  “Control” or “controls” for purposes hereof means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity.

 

Transfer Agent.  The Company covenants and agrees that, in the event that the Company’s agency relationship with the transfer agent should be terminated for any reason prior to a date which is two (2) years after the Closing Date, the Company shall immediately appoint a new transfer agent and shall require that the new transfer agent execute and agree to be bound by the terms of the Irrevocable Transfer Agent Instructions (as defined herein).

 

Oil and Gas Properties.  Within (i) sixty (60) days following the date hereof, the Company shall (a) cause to be filed of record, in the applicable real property records of each jurisdiction in which the Oil and Gas Properties are located, a fee or leasehold mortgage, deed of trust or deed to secure debt, which shall be prepared by Buyer and its counsel in form and substance reasonably satisfactory to the Company and its counsel, in favor of the Buyer, securing the Notes and covering all of the Oil and Gas Properties (each, a “Mortgage”); and (ii) sixty (60) days following the date hereof, the Company shall furnish title opinions (each a “Title Opinion”), dated and reflecting the state of title as of a date no earlier than the date of filing of the applicable Mortgages in form and substance and issued by counsel reasonably satisfactory to the Buyer and its counsel, confirming to the Buyer’s reasonable satisfaction that (a) the Company has good and defensible title to the quantity of interest represented herein in and to all of the Oil and Gas Properties, and (b) all of such Company's interest in all of the Oil and Gas Properties is subject to a valid, perfected and enforceable Mortgage lien in favor of the Buyer; (iii) upon request the Company will provide to the Buyer copies from its files of all contracts and documents affecting the Oil and Gas Properties, and at the Buyer’s option, upon reasonable notice and during normal business hours, the Company shall  make its files and personnel available in the Company's offices and otherwise cooperate with the Buyer in the title verification and due diligence program to be conducted by the Buyer, which shall be at the Company's expense, to confirm the ownership and value of the Oil and Gas Properties.  The title opinions provided by the Company may be based on such records and prior title certificates, abstracts, runsheets, title policy plant records and opinions as are customarily relied upon by providers of mortgage financing to purchasers of properties similar to the Oil and Gas Properties.

 

At such time as the Mortgages have been filed and the Title Opinions furnished, each in accordance with Section 4(k) hereof, the Buyer(s) shall terminate or agree to terminate the Deposit Account Agreements (as defined in the Security Agreement).

 

Neither the Buyer(s) nor any of its affiliates have an open short position in the Common Stock of the Company, and the Buyer(s) agrees that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging transactions with respect to the Common Stock as long as any Notes shall remain outstanding.

 

Review of Public Disclosures.  All SEC filings (including, without limitation, all filings required under the Exchange Act, which include Forms 10-Q and 10-QSB, 10-K and 10K-SB, 8-K, etc.) and other public disclosures made by the Company, including, without limitation, all press releases, investor relations materials, and scripts of analysts meetings and calls, shall be reviewed and approved for release by the Company’s attorneys and, if containing financial information, the Company’s independent certified public accountants.

 

Disclosure of Transaction.  Within four Business Day following the date of this Agreement, the Company shall file a Current Report on Form 8-K describing the terms of the transactions contemplated by the Transaction Documents in the form required by the Exchange Act and attaching the material Transaction Documents (including, without limitation, this Agreement, the form of the Note and the form of Warrant) as exhibits to such filing.

 

TRANSFER AGENT INSTRUCTIONS.

 

The Company shall issue the Irrevocable Transfer Agent Instructions to its transfer agent, and any subsequent transfer agent, irrevocably appointing David Gonzalez, Esq. as the Company’s agent for purpose instructing its transfer agent to issue certificates or credit shares to the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of each Buyer or its respective nominee(s), for the Conversion Shares issued, following an Event of Default, upon conversion of the Notes and the Warrant Shares issued upon exercise of the Warrants as specified from time to time by each Buyer to the Company upon conversion of the Notes (following an Event of Default) or exercise of the Warrants.  The Company shall not change its transfer agent without the express written consent of the Buyers, which may be withheld by the Buyers in their sole discretion.  The Company warrants that with respect to the Warrant Shares and, upon an Event of Default, the Conversion Shares, no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the Conversion Shares or Warrant Shares prior to registration of such shares under the Securities Act) will be given by the Company to its transfer agent, and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the other Transaction Documents.  If a Buyer effects a sale, assignment or transfer of the Securities in accordance with Section 2(f), the Company shall promptly instruct its transfer agent to issue one or more certificates or credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment and, with respect to any transfer, shall permit the transfer.  In the event that such sale, assignment or transfer involves Conversion Shares or Warrant Shares sold, assigned or transferred pursuant to an effective registration statement or pursuant to Rule 144, the transfer agent shall issue such Securities to the Buyer, assignee or transferee, as the case may be, without any restrictive legend.    Nothing in this Section 5 shall affect in any way the Buyer’s obligations and agreement to comply with all applicable securities laws upon resale of Conversion Shares.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Buyer(s) shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.

 

CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Notes and Warrants to the Buyer(s) at the First Closing is subject to the satisfaction, at or before the First Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

 

Each Buyer shall have executed the Transaction Documents and delivered them to the Company.

 

The Buyer(s) shall have delivered to the Company the Purchase Price for the Notes in the amount as set forth next to each Buyer as set forth on Schedule I attached hereto, minus any fees to be paid directly from the proceeds at the Closings as set forth herein, by wire transfer of immediately available U.S. funds pursuant to the wire instructions provided by the Company.

 

The representations and warranties of the Buyer(s) shall be true and correct in all material respects as of the date when made and as of the Closing Dates as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer(s) shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer(s) at or prior to the Closing Dates.

 

The obligation of the Company hereunder to issue and sell the Notes to the Buyer(s) at the Second Closing is subject to the satisfaction, at or before the Second Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

 

The Buyer(s) shall have delivered to the Company the Purchase Price for the Notes in the amount as set forth next to each Buyer as set forth on Schedule I attached hereto, minus any fees to be paid directly from the proceeds the Closings as set forth herein, by wire transfer of immediately available U.S. funds pursuant to the wire instructions provided by the Company.

 

The representations and warranties of the Buyer(s) shall be true and correct in all material respects as of the date when made and as of the Second Closing Dates as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer(s) shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer(s) at or prior to the Closing Dates.

 

Provided the Company has filed the Mortgages and provided the Title Opinions in accordance with Section 4(k) hereof, the Buyer(s) shall have terminated or agreed to terminate (a) the Control Account Agreement entered into on the date hereof among The Frost National Bank, a national banking association (“Bank”), Trendsetter and Buyer(s) and (b) the Control Account Agreement entered into on the date hereof among the Bank, HDY and Buyer(s).

 

The obligation of the Company hereunder to issue and sell the Notes and Warrants to the Buyer(s) at the Third Closing is in the Company’s sole discretion and subject to the satisfaction, at or before the Third Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

 

Each Buyer shall have provided the Company with written notice of its intent to purchase the Notes at the Third Closing.

 

The Buyer(s) shall have delivered to the Company the Purchase Price for the Notes in the amount as set forth next to each Buyer as set forth on Schedule I attached hereto, minus any fees to be paid directly from the proceeds the Closings as set forth herein, by wire transfer of immediately available U.S. funds pursuant to the wire instructions provided by the Company.

 

The representations and warranties of the Buyer(s) shall be true and correct in all material respects as of the date when made and as of the Closing Dates as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer(s) shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer(s) at or prior to the Closing Dates.

 

CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.

 

The obligation of the Buyer(s) hereunder to purchase the Notes and accept the Warrants at the First Closing is subject to the satisfaction, at or before the First Closing Date, of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:

 

The Company shall have executed the Transaction Documents, HDY and Trendsetter shall have executed the Security Agreement and the Guaranties and the Transaction Documents shall have been delivered to the Buyers.

 

The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the First Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the First Closing Date

 

The Company shall have executed and delivered to the Buyer(s) the Notes and Warrants in the respective amounts set forth opposite each Buyer’s name on Schedule I attached hereto.

 

The Buyers shall have received an opinion of counsel from counsel to the Company in a form satisfactory to the Buyers stating (x) that the Securities, when issued, will be duly issued, fully paid and nonassessable and free of any all liens and charges and preemptive or similar rights and (y) that the Conversion Shares have been duly and validly authorized and reserved for issuance by all proper corporate action.

 

The Company shall have provided to the Buyers a true copy of a certificate of good standing evidencing the formation and good standing of the Company from the secretary of state (or comparable office) from the jurisdiction in which the Company is incorporated, as of a date within 10 days of the First Closing Date.

 

The Company shall have delivered to the Buyers a certificate, executed by the Secretary of the Company and dated as of the First Closing Date, as to (i) the resolutions consistent with Section 3(c) as adopted by the Company’s Board of Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the First Closing.

 

The Buyer shall have filed a form UCC-1 or such other forms as may be required to perfect the Buyer’s interest in the Pledged Property as detailed in the Security Agreement dated the date hereof, including the perfection of the security interest in the Pledged Property and provided proof of such filing to the Buyer(s).

 

The Company shall have created the Share Reserve.

 

The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company’s transfer agent.

 

The Company shall have certified, in a certificate executed by two officers of the Company and dated as of the First Closing Date, that all conditions to the First Closing have been satisfied.

 

The obligation of the Buyer(s) hereunder to purchase the Notes at the Second Closing is subject to the satisfaction, at or before the Second Closing Date, of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:

 

The Common Stock shall be authorized for quotation or trading on the Primary Market, trading in the Common Stock shall not have been suspended for any reason, and the Listed Shares shall be approved for listing or trading on the Primary Market.

 

The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the Second Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Second Closing Date

 

The Company shall have executed and delivered to the Buyer(s) the Notes in the respective amounts set forth opposite each Buyer’s name on Schedule I attached hereto.

 

The Buyers shall have received an opinion of counsel from counsel to the Company in a form satisfactory to the Buyers stating (i) that the Securities, when issued, will be duly issued, fully paid and nonassessable and free of any all liens and charges and preemptive or similar rights and (ii) that the Conversion Shares have been duly and validly authorized and reserved for issuance by all proper corporate action.

 

The Company shall have provided to the Buyers a true copy of a certificate of good standing evidencing the formation and good standing of the Company from the secretary of state (or comparable office) from the jurisdiction in which the Company is incorporated, as of a date within 10 days of the Second Closing Date.

 

The Company shall have delivered to the Buyers a certificate, executed by the Secretary of the Company and dated as of the Second Closing Date, as to (i) the resolutions consistent with Section 3(c) as adopted by the Company’s Board of Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the Second Closing.

 

The Company shall have filed the Mortgages and furnished the Title Opinions in accordance with Section 4(k) of this Agreement.

 

The Company shall have certified, in a certificate executed by two officers of the Company and dated as of the Second Closing Date, that all conditions to the Second Closing (other than the condition set forth in Section 7(b)(viii)) have been satisfied.

 

The obligation of the Buyer(s) hereunder to purchase the Notes at the Third Closing is in each Buyer’s sole discretion and is subject to the satisfaction, at or before the Third Closing Date, of any conditions imposed by each Buyer including, without limitation, of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:

 

Within fifteen (15) business days of the Third Closing Date, the Company shall have notified each Buyer in writing of its desire to issue and sell the Notes to the Buyer(s) on the Third Closing Date.

 

The Common Stock and the Listed Shares shall be authorized for quotation or trading on the Primary Market and trading in the Common Stock shall not have been suspended for any reason.

 

The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the Third Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Third Closing Date.

 

The Company shall have executed and delivered to the Buyers the Notes and the Warrants in the respective amounts set forth opposite each Buyers name on Schedule I attached hereto.

 

The Company shall have certified, in a certificate executed by two officers of the Company and dated as of the Third Closing Date, that all conditions to the Third Closing have been satisfied.

 

The Buyers shall have completed further due diligence in its sole satisfaction.

 

INDEMNIFICATION.

 

In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the Notes and, if applicable, the Conversion Shares hereunder, and in addition to all of the Company’s other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Buyer(s) and each other holder of the Notes and, if applicable, the Conversion Shares, and all of their officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Buyer Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Buyer Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by the Buyer Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, the Notes or the other Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, or the other Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Buyer Indemnitee and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the parties hereto, any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Notes or the status of the Buyer or holder of the Notes  the Conversion Shares,  as a Buyer of Notes in the Company.  To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

 

In consideration of the Company’s execution and delivery of this Agreement, and in addition to all of the Buyer’s other obligations under this Agreement, the Buyer shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Company Indemnitees”) from and against any and all Indemnified Liabilities incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Buyer(s) in this Agreement, instrument or document contemplated hereby or thereby executed by the Buyer, (b) any breach of any covenant, agreement or obligation of the Buyer(s) contained in this Agreement,  the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby executed by the Buyer, or (c) any cause of action, suit or claim brought or made against such Company Indemnitee based on material misrepresentations or due to a material breach and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement, the Transaction Documents or any other instrument, document or agreement executed pursuant hereto by any of the parties hereto.  To the extent that the foregoing undertaking by each Buyer may be unenforceable for any reason, each Buyer shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

 

GOVERNING LAW: MISCELLANEOUS.

 

Governing Law.  This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws.  The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph.

 

Counterparts.  This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.  In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause four (4) additional original executed signature pages to be physically delivered to the other party within five (5) days of the execution and delivery hereof.

 

Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

 

Severability.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

 

Entire Agreement, Amendments.  This Agreement supersedes all other prior oral or written agreements between the Buyer(s), the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.

 

Notices.  Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon confirmation of receipt, when sent by facsimile; (iii) three (3) days after being sent by U.S. certified mail, return receipt requested, or (iv) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

 

If to the Company, to:	Hyperdynamics Corporation
	One Sugar Creek Center Boulevard, Suite 125
	Sugar Land, Texas 77478
	Attention:                      Kent P. Watts
	Telephone:                     ###-###-####
	Facsimile:                       ###-###-####
With a copy to:	Joel Seidner, Esq.
	880 Tully Road #50
	Houston, TX 77079
	Telephone:                    (281) 493-1311
	Facsimile:                       ###-###-####

 

If to the Buyer(s), to its address and facsimile number on Schedule I, with copies to the Buyer’s counsel as set forth on Schedule I.  Each party shall provide five (5) days’ prior written notice to the other party of any change in address or facsimile number.

 

Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns.  Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party hereto.

 

No Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

Survival.  Unless this Agreement is terminated under Section 9(l), the representations and warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8, shall survive the Closing for a period of two (2) years following the date on which the Notes are converted in full.  The Buyer(s) shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

 

Publicity.  The Company and the Buyer(s) shall have the right to approve, before issuance any press release or any other public statement with respect to the transactions contemplated hereby made by any party; provided, however, that the Company shall be entitled, without the prior approval of the Buyer(s), to issue any press release or other public disclosure with respect to such transactions required under applicable securities or other laws or regulations (the Company shall use its best efforts to consult the Buyer(s) in connection with any such press release or other public disclosure prior to its release and Buyer(s) shall be provided with a copy thereof upon release thereof).

 

Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

Termination.  In the event that the First Closing shall not have occurred with respect to the Buyers on or before five (5) business days from the date hereof due to the Company’s or the Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the non-breaching party’s failure to waive such unsatisfied condition(s)), the non-breaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party; provided, however, that if this Agreement is terminated by the Company pursuant to this Section 9(l), the Company shall remain obligated to reimburse the Buyer(s) for the fees and expenses of Yorkville Advisors LLC described in Section 4(g) above (other than the amounts set forth in Section 4(g)(ii)).

 

Brokerage.  The Company represents that no broker, agent, finder or other party has been retained by it in connection with the transactions contemplated hereby and that no other fee or commission has been agreed by the Company to be paid for or on account of the transactions contemplated hereby.

 

No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

Limitations on Issuance of Common Stock.

 

Principal Market Regulation.  The Company shall not be obligated to issue any shares of Common Stock upon conversion of the Notes or exercise of the Warrants if the issuance of such shares of Common Stock would cause the Company to breach its obligations under the rules or regulations of the American Stock Exchange (the “Exchange Cap”), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its stockholders as required by the applicable rules of the American Stock Exchange for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Buyer.  Until such approval or written opinion is obtained, the Company shall not issue to the Buyer in the aggregate, upon conversion or exercise or otherwise, as applicable, of Notes or Warrants, or Commitment Shares, shares of Common Stock in an amount greater than the Exchange Cap.

 

Stockholders Approval.  The Buyer shall provide written notice (“Exchange Cap Notice”) to the Company if at any time the total number of shares issuable upon full conversion of the Notes and full exercise of the Warrants would exceed the Exchange Cap.  Within sixty (60) days of receipt of an Exchange Cap Notice, the Company shall use its best efforts to call and hold a special meeting of the shareholders, for the purpose of approving the transactions contemplated herein (such affirmative approval being referred to herein as the “Stockholder Approval”).  The Company’s Board shall recommend to the shareholders to vote in favor of approving the transactions contemplated herein.

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above.

 

	COMPANY:
	Hyperdynamics Corporation
	By: /s/  Kent Watts
	Name:   Kent Watts
	Title:     President and CEO

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above.

 

	BUYERS:
	YA GLOBAL INVESTMENTS, L.P.
	By:	Yorkville Advisors, LLC
	Its:	Investment Manager
	By:	/s/ Mark Angelo
	Name:	Mark Angelo
	Its:	Portfolio Manager

 

 

(1)		(2)				(3)				(4)				(5)			(6)		(7)			(8)
Buyer		Subscription Amount												Number of Warrant Shares								Legal Representative’s Address and Facsimile Number
		First Closing				Second Closing				Third Closing				First Closing			Second Closing		Third Closing
YA Global Investments, L.P.		$	910,526			$	1,089,474			$	1,000,000				550,000		none			275,000		David Gonzalez, Esq.
101 Hudson Street, Suite 3700																						101 Hudson Street, Suite 3700
Jersey City, NJ  07302																						Jersey City, New Jersey 07302
Attention: Mark Angelo																						Telephone: (201) 985-8300
Telephone: (201) 985-8300																						Facsimile: (201) 985-8266
Facsimile: (201) 985-8266
Residence:  Cayman Islands

 

Disclosure Schedule

Exhibit A – Form of Notes

Exhibit B – Form of Warrant

Exhibit C – Form QIB Certification