SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (“Agreement”) is entered into and effective as of October 17, 2011 (“Effective Date”), by and among Oilsands Quest Inc., a Colorado corporation (“Company”), and Socius CG II, Ltd., a Bermuda exempted company (including its designees, successors and assigns, “Investor”).

 

 

A.            The Company’s board of directors has authorized the creation of the Preferred Shares (as defined below) which consist of a new series of preferred stock of the Company designated as Series C Preferred Stock, par value $0.001 per share, the terms of which are set forth in the Certificate of Designations (as defined below).  

B.            Subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to the Investor, and the Investor desires to purchase from the Company, (i) the Preferred Shares, (ii) the Additional Investment Right (as defined below), (iii) the Additional Investment Shares, (iii) the Warrant (as defined below), and (iv) the Warrant Shares (as defined below), in each case as more fully described in this Agreement.

 

C.             The offer and sale of the Preferred Shares provided for herein are being made without registration under the Act (as defined below), in reliance upon the provisions of Section 4(2) of the Act, Rule 506 of Regulation D promulgated under the Act, and such other exemptions from the registration requirements of the Act as may be available with respect to any or all of the purchases/exchanges of Preferred Shares to be made hereunder.

D.             The offer and sale of the of the Commitment Fee Shares (if any), the Additional Investment Right, the Additional Investment Shares, the Warrant and the Warrant Shares are being made pursuant to the Registration Statement, which Registration Statement has been declared effective in accordance with the Act, by the SEC (as defined below).

 

 

NOW THEREFORE, in consideration of the premises, the mutual provisions of this Agreement, and other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, Company and Investor agree as follows:

 

 

In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Certificate of Designations, and (b) the following terms have the meanings indicated in this Article 1:

 

 

 

“Act” means the Securities Act of 1933, as amended.

 

“Action” has the meaning set forth in Section 4.1(j).

“Additional Investment Right” has the meaning set forth in Section 2.3(c)(ii).

 

“Additional Investment Shares” has the meaning set forth in Section 2.3(c)(ii).

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Act.  With respect to Investor, without limitation, any Person owning, owned by, or under common ownership with Investor, and any investment fund or managed account that is managed on a discretionary basis by the same investment manager as Investor will be deemed to be an Affiliate of Investor.

 

“Agreement” shall have the meaning ascribed to such term in the preamble to this Agreement.

 

“Automatic Termination” has the meaning set forth in Section 3.1.

 

“Bloomberg” means Bloomberg, L.P.

“Certificate of Designations” means the certificate to be filed with the Secretary of State of the State of Colorado, in the form attached hereto as Exhibit B.

 

“Closing” has the meaning set forth in Section 2.2(a).

 

“Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Trading Market, as reported by Bloomberg, or, if the Trading Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00 p.m., New York City time, as reported by Bloomberg, or, if the Trading Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of all of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC).  If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and Investor.  If the Company and Investor are unable to agree upon

 

 

 

 

 

 “Commitment Fee”  means a non-refundable fee payable by the Company to Investor on the earlier of (a) the first Tranche Closing Date, or (b) the six-month anniversary of the Effective Date, which fee, at the option of the Company, shall either be (i) an amount in cash equal to $600,000, delivered by wire transfer of immediately available funds to an account designated by Investor (provided, however, that if a cash Commitment Fee is paid on the first Tranche Closing Date, such payment may be made by offsetting the first Tranche Amount), or (ii) a number of shares of Common Stock, which shall be freely tradable by Investor and legend free, determined by dividing (x) $600,000 by (y) 88% of the VWAP of the Common Stock for the five (5) Trading Day-period immediately preceding the date on which the Commitment Fee is paid.  For the avoidance of doubt, as of the Effective Date, the Commitment Fee shall be fully payable in accordance with the foregoing, whether or not the Closing or any Tranche Closings shall occur hereunder and irrespective of any termination of this Agreement.

“Commitment Fee Shares” means freely tradable and legend free shares of Common Stock issued in payment of the Commitment Fee.

 

“Common Shares” includes the Warrant Shares, the Additional Investment Shares, and any Commitment Fee Shares.

“Common Stock” means the common stock, par value $0.001 per share, of the Company, and any replacement or substitute thereof, or any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

“Company” shall have the meaning ascribed to such term in the preamble to this Agreement.

 

“Company Parties” and “Company Party” have the meanings set forth in Section 5.8(b).

 

“Company Termination” has the meaning set forth in Section 3.2.

 

“Conditions to Closing” has the meaning set forth in Section 2.2(b).

“Disclosure Schedules” means the disclosure schedules of the Company delivered concurrently herewith and attached hereto. The Disclosure Schedules shall contain no material, non-public information.

 

“DTC” means The Depository Trust Company, or any successor performing substantially the same function for Company.

 

“DWAC Shares” means all Common Shares or other shares of Common Stock issued or issuable to Investor or any Affiliate, successor or assign of Investor pursuant to any of the

 

 

 

 

“Effective Date” has the meaning set forth in the preamble to this Agreement.

“Evaluation Date” has the meaning set forth in Section 4.1(r).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exchange Cap” has the meaning set forth in Section 2.3(c)(iii)(C).

“Exercise Notice” shall have the meaning set forth in the Warrant attached hereto as Exhibit A-1.

“Fundamental Transaction” means that (i) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than fifty percent (50%) of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than fifty percent (50%) of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify the Common Stock, (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company, or (iii) any other event which constitutes a Deemed Liquidation Event under the Certificate of Designations.   For the avoidance of doubt, the sale of Wallace Creek assets pursuant to the letter of intent signed by the Company on September 25, 2011 (the “Letter of Intent”), shall not constitute a Fundamental Transaction.

 

 

 

“GAAP” means United States generally accepted accounting principles or Canadian generally accepted accounting principles applied on a consistent basis during the periods involved.

“Greenberg Traurig” means Greenberg Traurig, LLP, counsel to Investor. 

 

“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $100,000 due under leases required to be capitalized in accordance with GAAP.

 

“Intellectual Property Rights” has the meaning set forth in Section 4.1(o).

 

“Investment Right Exercise Notice” means a notice issued by Investor to the Company under this Agreement, in substantially the form attached hereto as Exhibit A-2, to purchase Additional Investment Shares.

“Investor” shall have the meaning ascribed to such term in the preamble to this Agreement.

“Investor Ownership Limit” has the meaning set forth in Section 2.3(c)(iii)(B).

“Investor Parties” and “Investor Party” have the meanings set forth in Section 5.8.

 

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction (excluding restrictions on transfer of securities under applicable U.S. federal or state securities or “blue sky” laws).

 

“Lock-Up Agreements” means an agreement in the form attached as Exhibit D, executed by the Company and each of the Company’s executive officers and the Company’s directors other than Mr. Christopher Hopkins, precluding each such Person from participating in any sale of the Common Stock from the Tranche Notice Date through the Tranche Closing Date.

 

“Losses” has the meaning set forth in Section 5.8.

 

“Material Adverse Effect”  means any effect, change, occurrence, development, condition or event that has had or would reasonable be expected to have a material adverse effect on (i) the ability of the Company to consummate the transactions contemplated hereby or (ii) the results of operations, assets, business or financial condition of the Company and its Subsidiaries, taken as a whole other than, in the case of each of the foregoing: (a) the effects of changes that are generally applicable to the industries and markets in which the Company and its Subsidiaries operate, (b) any change in general economic or political conditions, or in the financial, banking or securities markets in the United States or Canada, (c) changes in the trading volume or market

 

 

 

 

“Material Agreement” means any loan agreement, financing agreement, equity investment agreement or securities instrument to which Company is a party, any agreement or instrument to which Company and the Investor or any Affiliate of the Investor is a party, and any other material agreement listed, or required to be listed, on any of Company’s reports filed or required to be filed with the SEC, including without limitation Forms 10-K, 10-Q or 8-K.

 

“Material Permits” has the meaning set forth in Section 4.1(m).

 

“Maximum Placement” means $12,000,000.00.

 

“Maximum Tranche Amount” means, subject to any other applicable limitations set forth in this Agreement, the Maximum Placement less the amount of any previously noticed and funded Tranches.

“Officer’s Closing Certificate” means a certificate in customary form reasonably acceptable to the Investor, executed by an authorized officer of the Company.

 

“Opinion” means an opinion from the Company’s independent legal counsel in the form attached as Exhibit E, to be delivered in connection with the Closing.

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Preferred Shares” means shares of Series C Preferred Stock of the Company provided for in the Certificate of Designations, to be issued to Investor pursuant to this Agreement.

 

“Prospectus” includes each prospectus and prospectus supplement (within the meaning of the Act) related to the sale or offering of the Additional Investment Right, the Warrant and/or any of the Common Shares, including without limitation any prospectus or prospectus supplement with respect to the Registration Statement.

 

“Registration Statement” means the currently effective shelf registration statement of the Company on Form S-3 (Registration Number 333-168461) or any other registration statement which is acceptable to Investor in its sole discretion.

“Regulation D” means Regulation D promulgated under the Act.

 

“Required Approval” means any approval of the Trading Market and/or the Company’s stockholders required to be obtained by the Company prior to issuing the Securities pursuant to any applicable rules of the Trading Market.

 

 

 

“Required Tranche Deliveries” has the meaning set forth in Section 2.3(e).

“Rule 144” means Rule 144 promulgated by the SEC pursuant to the Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same effect.

  

“SEC” means the United States Securities and Exchange Commission.

 

“SEC Reports” means all reports required to be filed by the Company under the Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the Effective Date (or such shorter period as the Company was required by law to file such material).

 

“Securities” includes the Warrant, Additional Investment Right, Common Shares and Preferred Shares issuable pursuant to this Agreement.

 

“Subsidiary” means any Person the Company owns or controls, or in which the Company, directly or indirectly, owns a majority of the capital stock or similar interest that would be disclosable pursuant to Regulation S-K, Item 601(b)(21).

 

“Termination Date” means the earlier of (i) the date that is two years after the Effective Date, or (ii) the Tranche Closing Date on which the sum of the aggregate Tranche Purchase Price for all Tranche Shares equals the Maximum Placement.

 

“Termination Notice” has the meaning as set forth in Section 3.2.

 

“Trading Day” means any day on which the Common Stock is traded on the Trading Market; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on the Trading Market (or if the Trading Market does not designate in advance the closing time of trading on the Trading Market, then during the hour ending at 4:00:00 p.m., New York City time) unless such day is otherwise designated as a Trading Day in writing by the Investor. 

 

“Trading Market” means the OTC Bulletin Board, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE Amex, or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock, but does not include the Pink Sheets inter dealer electronic quotation and trading system.

 

“Tranche” has the meaning set forth in Section 2.3(a).

 

“Tranche Amount” means the amount of any individual purchase of a tranche of Preferred Shares, as specified by the Company, and shall not exceed the Maximum Tranche Amount.

 

 

 

“Tranche Closing” has the meaning set forth in Section 2.3(f).

 

“Tranche Closing Date” has the meaning set forth in Section 2.3(f).

“Tranche Limit” has the meaning set forth in Section 2.3(c)(iii)(C).

“Tranche Notice” has the meaning set forth in Section 2.3(b).

“Tranche Notice Date” has the meaning set forth in Section 2.3(b).

 

“Tranche Purchase Price” has the meaning set forth in Section 2.3(b), and shall be specified in writing by the Company.

 

“Tranche Share Price” means $10,000.00 per Preferred Share. The Company may not issue fractional Preferred Shares.

 

“Tranche Shares” means the Preferred Shares that are purchased by Investor pursuant to a Tranche. For the Maximum Placement, the aggregate number of Preferred Shares (not including any Preferred Shares that may be issued as dividend payments) to be issued by the Company to the Investor shall be 1,200 shares.

 

“Transaction Documents” means this Agreement, the other agreements and documents referenced herein, and the exhibits, appendices, and schedules hereto and thereto.

 

“Transfer Agent” means Computershare, or any successor transfer agent for the Common Stock.

 

“USRPHC” has the meaning set forth in Section 4.1(jj).

“Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

 

“VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Trading Market on which the Common Stock is then listed or quoted for trading during the period beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the three (3) highest closing bid prices and the three (3) lowest closing ask prices of all of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC).  If VWAP cannot be calculated for such security on such date on any of the foregoing

 

 

 

 

“Warrant” means the warrant issuable under this Agreement, in the form attached hereto as Exhibit A-1, to initially purchase such number of shares of Common Stock equal to (i) $4,200,000 divided by (ii) the Closing Bid Price of a share of Common Stock on the most recently completed Trading Day prior to the time that the first Tranche Notice is deemed delivered for the first Tranche Notice Date, at an initial exercise price per share equal to the Closing Bid Price of a share of Common Stock on the most recently completed Trading Day prior to the time that the first Tranche Notice is deemed delivered for the first Tranche Notice Date, all subject to adjustment as provided therein. The term “Warrant” as used in this Agreement shall also include any warrants to purchase shares of Common Stock issued in exchange, transfer or replacement of the Warrant.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrant.

 

 

2.1           Agreement to Purchase.  Subject to the terms and conditions herein and the satisfaction of the conditions to Closing set forth in this ARTICLE 2:

 

(a)           Investor hereby agrees to purchase such amounts of Tranche Shares as the Company may, in its sole and absolute discretion, from time to time elect to issue and sell to Investor according to one or more Tranches pursuant to Section 2.3 below; and

 

(b)           The Company agrees to issue the Preferred Shares, Additional Investment Right, Warrant and Common Shares to Investor in accordance with the terms of this Agreement; provided, however, that for clarification purposes and notwithstanding the foregoing, as of the Effective Date, the Commitment Fee shall be fully payable in accordance with the foregoing, whether or not the Closing or any Tranche Closings shall occur hereunder and irrespective of any termination of this Agreement.

 

2.2           Closing.

 

(a)           Closing. The closing of this Agreement (the “Closing”) shall be deemed to occur when this Agreement has been duly executed by both Investor and the Company, and the other Conditions to Closing set forth in Section 2.2(b) have been met.

 

(b)           Conditions to Closing. As a condition precedent to the Closing, all of the following (the “Conditions to Closing”) shall have been satisfied within five (5) Trading Days after the Effective Date:

 

 

 

(i)            the following documents shall have been delivered to Investor: (A) this Agreement, executed by the Company; (B) a Secretary’s Certificate as to (w) the resolutions of the Company’s board of directors authorizing this Agreement and the Transaction Documents, and the transactions contemplated hereby and thereby, (x) a copy of the Company’s current Articles of Incorporation, (y) a copy of the Company’s current Bylaws and (z) the incumbency of the persons executing the Transaction Documents; (C) a certified copy of the Articles of Incorporation as certified by the Secretary of State (or comparable office) of the Company’s jurisdiction of formation within five (5) days of the Effective Date; (D) a certificate evidencing the formation and good standing of the Company in such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction of formation as of a date within five (5) days of the Effective Date; (E) a certificate evidencing the Company’s qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office) of each jurisdiction in which the Company conducts business and is required to so qualify, as of a date within five (5) days of the Effective Date; (F) a copy of the Certificate of Designations filed with the Secretary of State (or comparable office) of the Company’s jurisdiction of formation; (G) the Opinion; (H) a copy of the press release announcing the transactions contemplated by this Agreement and Current Report on Form 8-K of the Company describing the transactions contemplated by, and attaching a complete copy of, the Transaction Documents; (I) the Irrevocable Transfer Agent Instructions (which instructions shall be delivered to the Transfer Agent in accordance with Section 5.1(b)); (J) a letter from the Transfer Agent certifying the number of shares of Common Stock outstanding as of the Effective Date; and (K) such other documents, instruments or certificates relating to the transactions contemplated by this Agreement as Investor or its counsel may reasonably request.

(ii)           other than for losses incurred in the ordinary course of business, there shall have been no Material Adverse Effect since the date of the last SEC Report filed by the Company;

 

(iii)          the representations and warranties of the Company in this Agreement shall be true and correct in all material respects and the Company shall have delivered an Officer’s Closing Certificate to such effect to Investor, signed by an officer of the Company;

(iv)           the Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Securities, including without limitation, the Required Approval, if necessary;

 

(v)            the representations and warranties of Investor in this Agreement shall be true and correct in all material respects; provided however, that Section 4.2(i) need not be true and correct in all material respects at any date after the first Tranche Closing;

(vi)           the Common Stock, and all Common Shares issuable upon consummation of the transactions contemplated hereby, shall be listed for trading or quoted on a Trading Market, the Company is in compliance with all requirements in order to maintain listing or quotation on a Trading Market (including reporting requirements under the Exchange Act, if applicable), and to the Company’s knowledge there is no notice of any suspension or delisting,

 

 

(vii)          none of the Company or any of its Subsidiaries is, or will be as a result of the Closing, in breach or default of any of the Transaction Documents or any Material Agreement;

(viii)        no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or adopted by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents, and no actions, suits or proceedings shall be in progress or pending by any Person that seeks to enjoin, prohibit or otherwise adversely affect any of the transactions contemplated by the Transaction Documents;

(ix)           the Company has a sufficient number of duly authorized shares of Common Stock reserved for issuance in such amount as may be required to fulfill its obligations pursuant to the Transaction Documents and any outstanding agreements with Investor and any Affiliate of Investor, including without limitation all Commitment Fee Shares and all Warrant Shares issuable upon exercise of the Warrant;

(x)            the Company shall have paid all reasonable fees and expenses of Greenberg Traurig in accordance with the provisions of Section 6.1, by wire transfer of immediately available funds to an account designated by Greenberg Traurig within one (1) business day after the Effective Date;

(xi)           the Lock-Up Agreements shall have been executed and delivered; and

(xii)         the Registration Statement shall be effective and the Prospectus contained therein shall be properly available for use in connection with the transactions contemplated by the Transaction Documents, including without limitation the resale of the shares of Common Stock by Investor, subject only to the filing of a prospectus supplement as soon as practicable (but in any event as required by Rule 424 under the Act) to reflect the giving of a Tranche Notice and the issuance and resale of Common Shares in connection therewith.

(c)           Delivery of the Warrant.  Immediately prior to the delivery of the first Tranche Notice, the Company shall deliver the Warrant duly executed on behalf of the Company and registered in the name of Investor or its designee. For the avoidance of doubt, the parties agree and acknowledge that the Warrant (and any Warrant Shares issued or issuable upon exercise of the Warrant) shall be irrevocably issued as of such delivery (or, in the case of the Warrant Shares, at the time specified in the Warrant), whether or not any Tranche Closings shall occur hereunder and irrespective of any termination of this Agreement.

 

(d)           Investor’s Obligation to Purchase. Subject to the prior satisfaction of all conditions set forth in this Agreement, following Investor’s receipt of a validly delivered

 

 

 

 

2.3           Tranches to Investor.

 

(a)           Procedure to Elect a Tranche. Subject to the Maximum Tranche Amount, the Maximum Placement and the other conditions and limitations set forth in this Agreement, at any time following the Closing, the Company may, in its sole and absolute discretion, elect to exercise one or more individual purchases by Investor of Preferred Shares (each a “Tranche”) according to the following procedure, provided that each subsequent Tranche Notice Date (defined below) after the first Tranche Notice Date shall be no sooner than five (5) Trading Days after the Tranche Closing for the prior Tranche has occurred or such Tranche Closing has been cancelled pursuant to the terms hereof.

 

(b)           Delivery of Tranche Notice. The Company shall deliver an irrevocable written notice (the “Tranche Notice”) the form of which is attached hereto as Exhibit F (the date such Tranche Notice is delivered or deemed delivered, as applicable, as set forth below being the “Tranche Notice Date”), to Investor stating that the Company shall exercise a Tranche and stating the number of Preferred Shares which the Company will sell to Investor at the Tranche Share Price, and the aggregate purchase price for such Tranche (the “Tranche Purchase Price”).  A Tranche Notice may be delivered by the Company to Investor before 9:30 a.m., New York City time, on any Trading Day via facsimile or electronic mail, with confirming copy by overnight carrier, in each case, to the address set forth on the page immediately following the signature pages to this Agreement.  A Tranche Notice delivered after such time on a Trading Day or delivered on a non-Trading Day shall be deemed delivered on the following Trading Day.  Except with respect to the delivery of a Tranche Notice on the first Tranche Notice Date, the Company may not give a Tranche Notice until five (5) Trading Days after the Tranche Closing for the prior Tranche has occurred or such Tranche Closing has been cancelled pursuant to the terms hereof.

(c)           Warrant Exercise; Additional Investment Shares.

(i)            Warrant.  On each Tranche Notice Date, that portion of the Warrant equal to 35% of the Tranche Amount shall vest and become exercisable, and shall be automatically exercised, at the price per share set forth in the Warrant, all as more fully set forth in the Warrant.  Investor shall document the automatic exercise of such portion of the Warrant by delivering an Exercise Notice to the Company and shall make payment for the shares issuable upon such exercise in cash, or through the issuance of a recourse note in the form attached as Exhibit G to this Agreement, in each case, as set forth in the Warrant. An Exercise Notice in respect of an automatic exercise of the Warrant, and the payment of the exercise price in respect thereof, shall be delivered on or before 4:00 p.m., New York City time, on the Trading Day immediately following the date on which the Tranche Notice is deemed to have been delivered.

 

(ii)           Additional Investment Shares.   On each Tranche Notice Date, Investor shall become obligated, pursuant to a right automatically vesting and automatically exercised on such Tranche Notice Date (each, an “Additional Investment Right”), to purchase that number of shares of Common Stock (“Additional Investment Shares”) equal in dollar

 

 

 

 

 

(iii)          Tranche Notice Restrictions.

 

 (A)           In no event shall the Company be permitted to deliver a Tranche Notice if the total number of shares covered by an effective Registration Statement and Prospectus is insufficient to cover the number of shares underlying Warrants (including the portion of the Warrant vesting on the applicable Tranche Notice Date) and underlying the Additional Investment Right with respect to the applicable Tranche Notice Date and, if applicable, the Commitment Fee Shares, or any such shares would not be immediately freely tradable by Investor.

 (B)           At no time may the Company deliver a Tranche Notice if the number of Warrant Shares and/or Additional Investment Shares to be received pursuant to the automatic exercise of the Warrant and the exercise of the Additional Investment Right, in each case, triggered by such Tranche Notice (excluding all other shares of Common Stock and other voting securities then owned or deemed beneficially owned by Investor and its Affiliates), would result in Investor and/or its Affiliates owning or being deemed the beneficial owner of more than 9.99% of all of such Common Stock, with such ownership percentage determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder (the “Investor Ownership Limit”); provided, however, that in the case of the first Tranche Notice, the Commitment Fee Shares then owned or deemed beneficially owned by Investor or to be issued to Investor shall be included when determining whether such Tranche would exceed the Investor Ownership Limit.

 (C)           In addition to the restrictions set forth above, at no time may the Company deliver a Tranche Notice if the number of Common Shares to be issued upon the automatic exercise of the Warrant and the exercise of the Additional Investment Right, in each case, triggered by such Tranche Notice  (together with the Commitment Fee Shares (if any) and all Common Shares issued pursuant to previous Tranche Notices) would exceed the aggregate number of Common Shares which the Company may issue without breaching the Company’s obligations under the rules or regulations of the applicable Trading Market (the number of shares which may be issued without violating such rules and regulations, 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 applicable

 

 

 

 

(iv)           Issuance of Warrant Shares and Additional Investment Shares. No later than the Trading Day immediately following the date on which the Company is deemed to have received each of the Exercise Notice or the Investment Right Exercise Notice, as the case may be, and the aggregate exercise price in respect thereof (such date of receipt being the “Exercise Delivery Date”), the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of thereof to the Holder and an electronic copy of its share issuance instructions to the Holder and the Transfer Agent (which such electronic transmissions to comply with the notice provisions of Section 6.2 of this Agreement), and shall instruct, authorize and cause the Transfer Agent to immediately credit such aggregate number of freely tradable Common Shares to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with The Depository Trust Company (DTC) through the Fast Automated Securities Transfer (FAST) Program through its Deposit/Withdrawal at Custodian (DWAC) system, with such credit to occur no later than 12:00 p.m. New York City time on third Trading Day following the Exercise Delivery Date, time being of the essence, all of such shares of Common Stock which shall be immediately freely tradable by Investor and without restrictive legend. 

(v)            Security Agreement. If the Investor elects to pay for the exercise of any portion of the Warrant or the Additional Investment Right with a recourse note in the form attached hereto as Exhibit G, the Investor and the Company shall execute and deliver to each other a security agreement in the form attached hereto as Exhibit H simultaneously with the delivery of the first recourse note in connection with such exercise.

 

(d)           Conditions Precedent to a Tranche Notice.  The right of the Company to deliver a Tranche Notice and the obligation of the Investor to accept a Tranche Notice and to acquire and pay for the Preferred Shares are subject to the satisfaction, on the Tranche Notice Date, of each of the conditions set forth below:

 

(i)            the Common Stock (including without limitation, all Common Shares issued or issuable hereunder) shall be listed for trading or quoted on a Trading Market, the Company is in compliance with all requirements in order to maintain listing or quotation on a Trading Market (including reporting requirements under the Exchange Act, if applicable), and to the Company’s knowledge there is no notice, other than the letter received from the NYSE Amex on September 12, 2011 and reported on the Company’s Form 10-Q filed with the SEC on September 14, 2011 notifying the Company of its failure to satisfy certain continued listing standards, specifically Section 1003(a)(iv) of the Company Guide (the “Below Compliance Letter”), of any suspension or delisting with respect to the trading or quotation of the shares of Common Stock on the then applicable Trading Market;

 

(ii)           the representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as if made on the Tranche Notice Date, except for representations and warranties that are expressly made as of a particular date in which case, such representations and warranties shall be true and correct as of such particular

 

 

 

 

 

(iii)          other than losses incurred in the ordinary course of business, there shall have been no Material Adverse Effect since the Closing or the prior Tranche Notice, if any;

 

(iv)           all Common Shares shall have been timely delivered pursuant to (i) any Exercise Notice delivered to the Company under the terms of the Warrant and (ii) any Investment Right Exercise Notice delivered to the Company under the terms of this Agreement, in each case, prior to the applicable Tranche Notice Date;

(v)            all Preferred Shares shall have been timely delivered pursuant to any previously delivered Tranche Notice prior to the applicable Tranche Notice Date;

 

(vi)           all previously-issued Common Shares are DWAC Shares in electronic form and are then freely tradable by Investor and without restrictive legend;

 

(vii)          there is not then in effect any law, rule or regulation prohibiting or restricting the transactions contemplated in this Agreement or any of the other Transaction Documents, or requiring any consent or approval which shall not have been obtained, nor is there any pending or threatened proceeding or investigation which may have the effect of prohibiting or adversely affecting any of the transactions contemplated by this Agreement or any other Transaction Document; no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or adopted by any court or governmental authority of competent jurisdiction that prohibits the transactions contemplated by this Agreement or any other Transaction Document; and no actions, suits or proceedings shall be in progress, pending or, to the Company’s knowledge, threatened, by any person (other than Investor or any Affiliate of Investor) that seek to enjoin or prohibit the transactions contemplated by this Agreement or any other Transaction Document;

 

(viii)        the Company shall have obtained all governmental, regulatory or third party consents and approvals and shall have made all required filings, in each case, if any, necessary for the sale and resale of the Securities, including without limitation, the Required Approval, if necessary;

(ix)           the Company has a current, valid and effective Registration Statement and the Prospectus shall be properly available for use to permit the lawful sale and resale of all previously-issued and future issuable Common Shares (including without limitation all Warrant Shares issuable upon exercise of the Warrant delivered in connection with such

 

 

 

 

(x)            the Company has a sufficient number of duly authorized shares of Common Stock reserved for issuance as may be required to fulfill its obligations pursuant to the Transaction Documents and any other outstanding agreements between the Company and Investor and any Affiliate of Investor, including without limitation all Commitment Fee Shares, Warrant Shares issuable upon exercise of the Warrant issued in connection with such Tranche and any previous Tranche, and all Additional Investment Shares issuable upon exercise of any Additional Investment Right Exercise Notice delivered in connection with such Tranche and any previous Tranche;

(xi)           the Company has provided notice of its delivery of the Tranche Notice to all signatories of a Lock-Up Agreement as required under the Lock-Up Agreement;

 

(xii)         the aggregate number of Common Shares issuable to Investor would not cause Investor to exceed the Investor Ownership Limit;

(xiii)        except in connection with the first Tranche Notice (unless such first Tranche Notice is after the six-month anniversary of the Effective Date), Investor shall have previously received the Commitment Fee;

(xiv)         the Certificate of Designations shall have been duly filed with, and accepted by, the Secretary of State of the State of Colorado and shall be in full force and effect;

(xv)          all deliverables specified in Section 2.3(e) of this Agreement which are required to be delivered at or prior to the Tranche Notice Date shall have been delivered;
 

(xvi)         following any applicable notice and opportunity to cure, the Company is not, and will not be as a result of the applicable Tranche, in default of this Agreement, any other agreement between the Company and Investor or any Affiliate of Investor, or any other Material Agreement, and the Company shall deliver to Investor an Officer’s Closing Certificate, signed by an authorized officer of the Company, certifying as to the foregoing;

(xvii)        the Opinion, dated as of the Tranche Notice Date, shall be delivered to Investor;

(xviii)      the Warrant shall have been delivered to Investor; and

(xix)         if any of the Common Shares cease to be a “covered security” pursuant to Section 18 of the Act, Investor shall have received appropriate and customary assurances from the Company’s independent legal counsel with respect to compliance with

 

 

 

(e)           Deliveries at Tranche Closing. The closing of any Tranche and the parties’ obligations hereunder shall additionally be conditioned upon the delivery of each of the following (the “Required Tranche Deliveries”), except as otherwise indicated, on or before the applicable Tranche Closing Date:

 

(i)            a number of Preferred Shares equal to the Tranche Purchase Price divided by the Tranche Share Price shall have been delivered to Investor or an account specified by Investor for the Tranche Shares;

 

(ii)           the Tranche Purchase Price shall have been paid by the Investor to the Company by wire transfer of immediately available funds to an account designated by the Company prior to the applicable Tranche Closing Date;

 

(iii)          Investor shall have received the Commitment Fee, if any, that is payable as set forth in the definition of Commitment Fee set forth in Article I hereof;

 

(iv)           the following executed documents shall have been delivered to Investor: the Opinion and the Officer’s Closing Certificate, in each case, dated and delivered as of the Tranche Notice Date and the Tranche Closing Date; provided, however, that the Opinion delivered on the Tranche Closing Date shall only be required to cover such matters from the Opinion as are applicable to such Tranche Closing as the Investor may reasonably request;

  

(v)            a “Use of Proceeds” certificate, signed by an officer of the Company, and setting forth how the Tranche Purchase Price will be applied by the Company, shall have been delivered to Investor;

 

(vi)           all Warrant Shares and Additional Investment Shares shall have been timely delivered to Investor in accordance with any exercise notice properly delivered to Company on or before the applicable Tranche Closing Date;

(vii)          all documents, instruments and other writings required to be delivered by the parties on or before the Tranche Closing Date pursuant to any provision of this Agreement in order to implement and effect the transactions contemplated herein;

 

(viii)        payment of a $10,000.00 non-refundable administrative fee to Greenberg Traurig, by offset against the Tranche Amount, or by wire transfer of immediately available funds;

(ix)          on each Tranche Closing Date (other than the first Tranche Closing Date), a “bring-down” certificate relating to the good standing of the Company; and

 

 

 

(x)           an opinion from Company’s independent legal counsel, which shall only be required to cover such matters from the Opinion as are applicable to such Tranche Closing as the Investor may reasonably request.

(f)            Mechanics of Tranche Closing.  Each of the Company and Investor shall deliver all Required Tranche Deliveries required to be delivered by either of them pursuant to Sections 2.3(d) and 2.3(e) of this Agreement, as applicable on or prior to each Tranche Closing Date.  Subject to such delivery and the satisfaction (or where legally permissible, the waiver) of the conditions set forth in Section 2.3(d) as of such date, the closing (a “Tranche Closing”) of the purchase by Investor of Preferred Shares shall occur by 5:00 p.m., New York City time, on the date which is ten (10) Trading Days following the Tranche Notice Date (each a “Tranche Closing Date”) at the offices of Investor or its counsel; provided, however, that if any Warrant Shares or Additional Investment Shares, with respect to any portion of the Warrant or Additional Investment Right exercised before the Tranche Closing Date have not been timely delivered in accordance with the Transaction Documents, then the Tranche Closing and Tranche Closing Date shall be extended one (1) Trading Day for each Trading Day that such delivery is not made; and provided, further, that if any Warrant Shares or Additional Investment Shares are not DWAC Shares upon delivery, then the Tranche Closing Date shall be extended one (1) Trading Day for each Trading Day that such shares are not DWAC Shares.  On or before each Tranche Closing Date, Investor shall pay to the Company the Tranche Purchase Price to be paid for such Tranche Shares by wire transfer of immediately available funds to an account designated by the Company prior to the applicable Tranche Closing Date.

(g)           Limitation on Obligations to Purchase and Sell.  Notwithstanding anything herein to the contrary, in the event the Closing Bid Price of the Common Stock during any one or more of the nine (9) Trading Days on or immediately following the Tranche Notice Date falls below 75.0% of the Closing Bid Price of the Common Stock on the Trading Day immediately prior to the Tranche Notice Date, the Company shall not issue any Tranche Shares on the Tranche Closing Date, Investor shall not purchase any of the Tranche Shares, and the Tranche shall be cancelled; provided, however, that upon such cancellation, the Investor shall redeem any outstanding recourse note tendered by Investor in lieu of cash payment for Additional Investment Shares or Warrant Shares issued in connection with the applicable Tranche Notice for the principal amount of the recourse note plus accrued interest in exchange for, at the option of Investor, (i) cash or (ii) (a) 92% of any gross proceeds received by the Investor upon the sale of such Additional Investment Shares or Warrant Shares issued to Investor in connection with such Tranche Notice and (b) the return to the Company of any unsold Additional Investment Shares or Warrant Shares issued to Investor in connection with such Tranche Notice.

 

2.4           Maximum Placement.  Investor shall not be obligated to purchase any additional Tranche Shares once the aggregate Tranche Purchase Price paid by Investor equals the Maximum Placement.

2.5           Share Sufficiency.  The Company shall have a sufficient number of duly authorized shares of Common Stock for issuance in such amount as may be required to fulfill its obligations pursuant to the Transaction Documents and any outstanding agreements with

 

 

 

 

 

3.1           Automatic Termination.  This Agreement shall terminate automatically (each, an “Automatic Termination”) upon the occurrence of any of the following:

 

(a)            if, at any time after the Effective Date, either the Company or the Investor, or any director or executive officer of the Company or the Investor, has engaged in a transaction or conduct related to the Company or the Investor, as applicable, that has resulted in (i) a SEC enforcement action, or (ii) a civil judgment or criminal conviction for fraud or misrepresentation, or for any other offense that, if prosecuted criminally, would constitute a felony under applicable law;

 

(b)            if the Company or the Common Stock or any Common Shares shall cease or fail to be listed for trading or quoted on a Trading Market (a “Trading Market Event”) if such Trading Market event continues for five consecutive days or more; 

(c)            if at any time the Company has filed for and/or is subject to any bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors instituted by or against the Company or any subsidiary of the Company;

 

(d)           upon the occurrence of a Fundamental Transaction;

  

(e)           so long as any Preferred Shares are outstanding, the Company (i) creates or publicly announces its intention to create a class of stock senior to the Series C Preferred Stock with respect to dividend or liquidation rights or (ii) substantially alters or publicly announces its intention to substantially alter the capital structure of the Company in a manner that materially adversely effects the rights or preferences of the Series C Preferred Stock, in each case without the prior approval of the holders or a majority of the Preferred Shares then outstanding; and

(f)            on the Termination Date.

 

3.2           Company Termination.  The Company may at any time in its sole discretion terminate (a “Company Termination”) this Agreement by providing 30 days’ advance written notice (“Termination Notice”) to Investor; provided the Company shall not have the right to terminate this Agreement if the Company is in breach or default of this Agreement.

 

3.3           Other Termination.  The Investor may terminate this Agreement by providing three days’ advance written notice to the Company, if the Company is in breach or default of any Material Agreement which has or would reasonably be expected to have a Material Adverse

 

 

 

 

 

3.4           Effect of Termination.  In the event of termination by the Company or the Investor pursuant to Section 3.2 or 3.3, as applicable, written notice thereof shall forthwith be given to the other party as provided in Section 6.2 (unless termination is automatic) and this Agreement shall be terminated without further action by either party. If this Agreement is terminated as provided in Section 3.1, 3.2 or 3.3 herein, this Agreement shall thereafter be of no further force and effect, except as provided in Section 6.8 hereof and in this Section 3.4. Nothing in this Section 3.4 shall be deemed to release the Company or the Investor from any liability for any breach or default under this Agreement or any of the other Transaction Documents occurring prior to such termination, or to impair the rights of the Company and the Investor to compel specific performance by the other party of its obligations under this Agreement arising prior to such termination, or to impair rights of indemnification under this Agreement or any other Transaction Document. The termination of this Agreement will have no effect on any Preferred Shares, Warrant, Warrant Shares or Additional Investment Shares previously issued or delivered, or on any rights of any holder thereof.  For the avoidance of doubt and notwithstanding anything contained in this Agreement to the contrary, (a) all cash fees paid to Investor (including, without limitation, the Commitment Fee) or its counsel’s fees are non-refundable, and (b) all of the Commitment Fee Shares, if any, shall be deemed fully earned as of the Effective Date whether or not the Closing or any Tranche Closings shall occur hereunder and irrespective of any termination of this Agreement, and the Warrant (and any Warrant Shares received pursuant to the Warrant) shall be irrevocably issued as of the date delivered (or, in the case of the Warrant Shares, at the time specified in the Warrant), whether or not any Tranche Closings shall occur hereunder and irrespective of any termination of this Agreement. 

 

4.1           Representations and Warranties of the Company.  Except as set forth below as being qualified by the corresponding section of the Disclosure Schedules (as the same may be updated or deemed updated pursuant to Section 2.3(d)(ii)), which shall be deemed a part hereof, or as set forth below as being qualified by the SEC Reports, which, in each case, shall qualify

 

 

 

 

(a)           [INTENTIONALLY OMITTED].  

(b)           Organization and Qualification.  Except as disclosed in Schedule 4.1(b) of the Disclosure Schedules, the Company is an entity duly incorporated, validly existing and in good standing under the laws of the State of Colorado, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.   The Company is not in violation or default of any of the provisions of its Articles of Incorporation or bylaws as currently in effect, except where such violation or default would not, individually or in the aggregate, constitute a Material Adverse Effect. The Company is duly qualified to conduct business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not have or reasonably be expected to result in 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, except as would not have or reasonably be expected to result in a Material Adverse Effect.

 

(c)           Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder or thereunder.  The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby or thereby have been duly authorized by all necessary corporate action on the part of the Company and no further consent or authorization of the Company or its board of directors or stockholders is required.  Each of the Transaction Documents has been, or upon delivery will be, duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies.

(d)           No Conflicts.  Assuming each of the filings, consents and approvals referred to in Section 4.1(e) are obtained, given or made on a timely basis, as applicable, the execution, delivery and performance of the Transaction Documents by the Company, the issuance and sale of the Securities and the consummation by the Company of the other transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company’s Articles of Incorporation or bylaws as currently in effect, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other understanding to which the Company is a party or by which any property or asset of the Company is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or

 

 

 

 

(e)           Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) the filing of the Certificate of Designations, (ii) such as may be required under the Act (including, without limitation, the filing of a Form D with the SEC and the filing with the SEC of the Prospectus supplement pursuant to Rule 424(b) under the Act supplementing the base prospectus forming part of the Registration Statement) or the Exchange Act (including, without limitation, the filing of a Current Report on Form 8-K of the Company describing the transactions contemplated by, and attaching a complete copy of, the Transaction Documents), (iii) such as may be required under applicable state securities or “blue sky” laws, (iv) such as may be required under the rules and regulations of the Trading Market or the Financial Industry Regulatory Authority (the “FINRA”) and (v) such consents, waivers, authorizations, order, notices, filings or registrations, the failure of which to obtain, give or make would not, individually or in the aggregate, result in a Material Adverse Effect; provided, that, for purposes of the representation made in this Section 4.1(e), the Company is assuming and relying upon the accuracy of the representations and warranties of the Investor contained in Sections 4.2(d) through and including 4.2(k), and the full performance of and compliance with the covenants and agreements of the Investor contained in Section 5.1 of this Agreement.

 

(f)            Issuance of the Securities.  The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, and subject to, and in reliance on, the representations, warranties, covenants and agreements made herein by the Investor, will be duly and validly issued, fully paid and nonassessable, and subject to Section 5.14, free and clear of all Liens.  The Company has reserved from its duly authorized capital stock a number of shares of Common Stock and Preferred Stock for issuance of the Securities at least equal to the number of Securities which could be issued pursuant to the terms of this Agreement based on the then-current anticipated exercise price(s) of the Warrant.

 

(h)           SEC Reports; Financial Statements.  Except as set forth in Schedule 4.1(h) of the Disclosure Schedules, the Company has filed all required SEC Reports for the two years preceding the Effective Date (or such shorter period as the Company was required by law to file such material) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.   As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Act and the Exchange Act and the rules and regulations of the SEC promulgated thereunder, as applicable, and none of the SEC Reports, when filed, 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 light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

(i)            Material Changes.  Since the date of the latest audited financial statements included within the SEC Reports, except as disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that would reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the SEC, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company equity incentive plans.  The Company does not have pending before the SEC any request for confidential treatment of information.

 

 

 

 

(j)            Litigation.  Except as set forth in Schedule 4.1(j) of the Disclosure Schedules or as set forth in the SEC Reports, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”), which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities, or (ii) would, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect.  Neither the Company, nor to the knowledge of the Company any director or officer of the Company, is or has been during the past five years the subject of any Action involving a claim of violation of or liability under U.S. federal or state securities laws or a claim of breach of fiduciary duty.  During the past five years, there has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company or any current or former director or officer of the Company in their capacity as a director or officer of the Company.  During the past five years, the SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Exchange Act or the Act.

 

(k)           Labor Relations.  Except as set forth in Schedule 4.1(k) of the Disclosure Schedules or in the SEC Reports, no material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which would reasonably be expected to result in a Material Adverse Effect.

 

(l)            Compliance.  Except as set forth in Schedule 4.1(l), the Company (i) is not in default under or in violation of (and, to the Company’s knowledge, no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company under), nor has the Company received written notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other similar agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body applicable to the Company, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority applicable to the Company, including without limitation all foreign, federal, state and local laws applicable to its business, except in each of the cases referenced in clauses (i), (ii) and (iii) above as would not have a Material Adverse Effect.

 

(m)          Regulatory Permits.  The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any written notice of proceedings relating to the revocation or modification of any Material Permit.

 

 

 

(n)           Title to Assets.  Except as set forth in Schedule 4.1(n), the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties.  Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance.

 

(o)           Patents and Trademarks.  Except as set forth in Schedule 4.1(o), the Company has, or has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have would have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  The Company has not received a written notice that the Intellectual Property Rights used by the Company violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights of the Company.

 

(p)           Insurance.  The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company is engaged.  Except as set forth in the SEC Reports, the Company has no 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 without a significant increase in cost.

 

(q)           Transactions With Affiliates and Employees.  Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (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 entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any equity incentive plan of the Company.

 

(r)           Sarbanes-Oxley; Internal Accounting Controls.  The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 that are applicable to it. The Company and the Subsidiaries maintain a system of internal accounting controls

 

 

 

 

  

(s)           Certain Fees.  Except for the payment of the Commitment Fee and except as set forth in Schedule 4.1(s) of the Disclosure Schedules, no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement and no broker, finder, financial advisor placement agent or investment banker has been retained in connection with the transactions contemplated by this Agreement.  Except as a result of any agreements or arrangements made by the Investor or its representatives or Affiliates, to the Company’s knowledge, Investor shall have no obligation with respect to any such fees or commissions of a type contemplated in this Section 4.1(s) that may be due in connection with the transactions contemplated by this Agreement.

 

(t)            Private Placement; Compliance. Assuming the accuracy of Investor representations and warranties set forth in Section 4.2, no registration under the Act is required for the offer and sale of the Preferred Share by the Company to Investor as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

 

(u)           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.

 

 

 

(v)           Registration Rights.  Except as set forth in Schedule 4.1(v) of the Disclosure Schedules, no Person has any right to cause the Company to effect the registration under the Act of any securities of the Company that have not been registered.

 

(w)           Listing and Maintenance Requirements.  The Common Stock is registered pursuant to Section 12 of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor, to the Company’s knowledge, is the SEC contemplating terminating such registration.  Except as set forth in Schedule 4.1(w) of the Disclosure Schedules or as set forth in the SEC Reports or the Below Compliance Letter, the Company has not in the 12 months preceding the Effective Date, received notice from any Trading 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 Trading Market. Except as set forth in the SEC Reports, the Company is in compliance with all such listing and maintenance requirements. 

  

(x)           Application of Takeover Protections.  The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti takeover provision under the Company’s Articles of Incorporation or the laws of its state of incorporation that is or could become applicable to Investor as a result of Investor and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company’s issuance of the Securities and Investor’s ownership of the Securities.

 

(y)           Disclosure.  Except with respect to (i) the transactions contemplated by the Transaction Documents and (ii) the information that will be publicly disclosed by the Company pursuant to Section 2.2(b)(i)(H) and Section 5.4, the Company confirms that neither the Company nor any other Person acting on its behalf has provided Investor or its agents or counsel with any information that constitutes material, non-public information. The Company understands and confirms that Investor will rely on the foregoing representations and covenants in effecting transactions in securities of the Company.  All disclosure provided to Investor regarding the Company, its business and the transactions contemplated hereby, furnished by or on behalf of the Company with respect to the representations and warranties made herein are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Each press release issued by the Company or any of its Subsidiaries during the twelve (12) months preceding the Effective Date did not at the time of release (or, if amended or superseded by a later dated press release issued by the Company or any of its Subsidiaries prior to the Effective Date or by a later dated SEC Report filed with or furnished to the SEC by the Company prior to the Effective Date, at the time of issuance of such later dated press release or filing or furnishing of such SEC Report, as applicable) contain any untrue statement of a material fact or omit 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 are made, not misleading.  From and after the Effective Date, the Company understands and confirms that neither Investor nor any Affiliate of Investor

 

 

 

 

 

(z)           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 cause the offering of any of the Securities in connection herewith to be integrated with prior offerings by the Company for purposes of the Act or which could violate any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of the applicable Trading Market.

 

(bb)         Tax Status.  Except as set forth in Schedule 4.1(bb) to the Disclosure Schedules, the Company and each of its Subsidiaries has made or filed all material federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (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) and 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 provisions 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.  The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, statue or local tax.  None of the Company’s tax returns is presently being audited by any taxing authority.

  

(cc)         Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any corrupt funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is  in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

(dd)         Acknowledgment Regarding Investor’s Purchase of Securities.  The Company acknowledges and agrees that Investor is acting solely in the capacity of arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby.  The Company further acknowledges that Investor 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

 

 

 

 

(ee)         Accountants.  The Company’s accountants are set forth in the SEC Reports.  To the Company’s knowledge, such accountants are an independent registered public accounting firm as required by the Act.

 

(ff)          No Disagreements with Accountants and Lawyers.  There are no material disagreements presently existing, or reasonably anticipated by the Company to arise, between the accountants and lawyers formerly or presently employed by the Company.

 

(gg)         Registration Statements and Prospectuses.

 

(i)            The Registration Statement is effective and covers, and is available for use, in compliance with the Act and the rules and regulations thereunder for the offering and sale of the Additional Investment Right, the Warrant and the Common Shares (including, as applicable, any resale of the Common Shares), including, without limitation, as to the “Plan of Distribution” set forth therein. The Company has not received any notice that the SEC has issued or intends to issue a stop-order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened in writing to do so.  The Registration Statement meets, and the offering and sale of the Common Shares as contemplated hereby will comply with, the requirements of Rule 415 under the Act.  The Company currently meets the requirements for the use of Form S-3 under the Act with respect to the foregoing (including, without limitation, as to General Instruction I.B.6 of Form S-3, as applicable). The Company will use its commercially reasonable best efforts to maintain the effectiveness of the Registration Statement until all Common Shares have been sold (including, as applicable, any resale of the Common Shares).  The Company will file all required prospectus supplements in connection with the foregoing, all in compliance with the provisions of the Act and the rules and regulations thereunder. 

(ii)           The Registration Statement when it became effective (and since such time has) complied, and hereafter, as amended or supplemented, shall at the time of any Tranche Notice Date, Tranche Closing Date, or sale (and, as applicable, resale) of any Common Shares, and at all times during which the Registration Statement is deemed effective under the Act and at all times during which a Prospectus is required by the Act to be delivered in connection therewith, comply, in all material respects, with the requirements of the Act, and did not and shall not at any such time contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 

 

(iii)          Each Prospectus did comply, as of its date and the date it was filed with the SEC and thereafter,  and hereafter shall, at the time of any Tranche Notice Date, Tranche Closing Date, or sale (and, as applicable, resale) of any Common Shares, and at all

 

 

 

(iv)           The Company has not and will not, directly or indirectly, use or refer to any “free writing prospectus” (as defined in Rule 405 under the Act) except in compliance with Rules 164 and 433 under the Act.  The Company is not and will not be an “ineligible issuer” (as defined in Rule 405 under the Act).

(hh)        Dilutive Effect.  The Company understands and acknowledges that the number of Warrant Shares will increase in certain circumstances. The Company further acknowledges that its obligation to issue the Warrant Shares upon exercise of the Warrant in accordance with the Warrant is absolute and unconditional, regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

(ii)           Manipulation of Price.  Neither the Company nor any of its Subsidiaries has, and, to the knowledge of the Company, no Person acting on their behalf has, directly or indirectly, (i) taken any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company or any of its Subsidiaries 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 or any of its Subsidiaries.

(jj)           U.S. Real Property Holding Corporation.  Neither the Company nor any of its Subsidiaries is, or has ever been, a U.S. real property holding corporation (“USRPHC”)  within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company and each Subsidiary shall so certify upon Investor’s request.  The Company shall use reasonable best efforts not to become, and not cause any of its Subsidiaries to become, a USRPHC so long as the Common Shares are held by Investor; provided, however, that in the event that the Company or any of its Subsidiaries shall become a USRPHC, the Company shall not deliver a Tranche Notice to Investor and no Tranche Closings shall occur without the prior written consent of Investor.

(kk)        Securities Law Compliance; Shell Company Status.  The Company has complied and shall comply with all applicable federal and state securities laws in connection with the offer, issuance and sale of the Securities hereunder (and, as applicable, the resale of the Common Shares by Investor), including, without limitation, the applicable requirements of the Act. The Company is not, and has not been, an issuer identified in subsection (i) of Rule 144.

(ll)           Public Utility Holding Act.  None of the Company nor any of its Subsidiaries is a “holding company,” or an “affiliate” of a “holding company,” as such terms are defined in the Public Utility Holding Act of 2005.

 

 

(mm)       Federal Power Act.  None of the Company nor any of its Subsidiaries is subject to regulation as a “public utility” under the Federal Power Act, as amended.

(nn)         Money Laundering.  The Company and its Subsidiaries are in compliance with, and have not previously violated, the USA Patriot Act of 2001 and all other applicable U.S. and non-U.S. anti-money laundering laws and regulations, including, without limitation, the laws, regulations and Executive Orders and sanctions programs administered by the U.S. Office of Foreign Assets Control, including, without limitation, (i) Executive Order 13224 of September 23, 2001 entitled, “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

(oo)         Officers, Directors and Beneficial Owners.  Schedule 4.1(oo) sets forth the identities of all officers and directors of the company, along with the number of shares of Common Stock beneficially owned by each such Person.

 

4.2           Representations and Warranties of Investor. Investor hereby represents and warrants to, and as applicable covenants with, the Company as follows:

 

(a)           Organization; Authority.  Investor is an entity duly formed, validly existing and in good standing under the laws of the jurisdiction of its organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Investor has the requisite company power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder.  The execution and delivery of the Transaction Documents to which Investor is a party and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary company action on the part of Investor and no further consent or authorization of Investor or its members is required.  Each Transaction Document to which Investor is a party has been (or will be) duly executed by Investor, and when delivered by Investor in accordance with the terms hereof or thereof, will constitute the valid and legally binding obligation of Investor, enforceable against Investor in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies.

 

(b)           No Conflicts.  The execution, delivery and performance of the Transaction Documents to which Investor is a party do not and will not conflict with or violate any provision of Investor’s memorandum of association or bye-laws (or similar organizational documents) as currently in effect.

 

(c)           Investor Status.  At the time Investor was offered the Securities, it was, and it is: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Act.

 

(d)           Experience of Investor.  Investor, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the

 

 

 

(e)           General Solicitation.  Investor is not purchasing the Preferred Shares as a result of any advertisement, article, notice or other communication regarding the Preferred Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

(f)            No Public Sale or Distribution.  Investor is acquiring the Preferred Shares for its own account, and not as a nominee or agent, for investment purposes, and not with a view towards, or for resale in connection with, the public sale or distribution of any part thereof, all except pursuant to transactions registered under the Act or exempt from such registration; provided, however, that the disposition of its property shall at all times be within its control.

 

(g)           Acknowledgement of Private Placement.  Investor understands that the offer and sale of the Preferred Shares provided for herein is being made without registration under the Act, in reliance upon the provisions of Section 4(2) of the Act, Regulation D promulgated under the Act, and such other exemptions from the registration requirements of the Act as may be available with respect to any or all of the purchases of Preferred Shares to be made hereunder, and that the Company is relying in part upon the truth and accuracy of, and such Investor’s compliance with, the representations, warranties, agreements, covenants, acknowledgments and understandings of such Investor set forth herein in order to determine the availability of such exemptions and the eligibility of such Investor to acquire the Preferred Shares.

 

(h)           Transfer or Resale. Investor understands that (i) the Preferred Shares have not been and are not being registered under the Act or any state securities or “blue sky” laws and (ii) neither the Company nor any other Person is under any obligation to register the Preferred Shares under the Act or any state securities or “blue sky” laws or to comply with the terms and conditions of any exemption thereunder with respect to the Preferred Shares.

 

(i)            Not an Affiliate.  The Investor is not an officer, director or Affiliate of the Company and does not beneficially own any Common Stock.

 

(j)            No Governmental Review. Investor 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.

(k)           Manipulation of Price.  Neither the Investor nor any of its Affiliates has, and, to the knowledge of the Investor, no Person acting on their behalf has, directly or indirectly, (i) taken any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company or any of its Subsidiaries to facilitate the sale or resale of any of

 

 

 

 

(l)            Trading Restrictions; Compliance with Securities Laws.  Investor covenants and agrees that during the period beginning on the Trading Day immediately preceding the Effective Date and ending on the Trading Day immediately following the termination of this Agreement, neither the Investor nor any of its Affiliates nor any entity managed or controlled by the Investor will, directly or indirectly, enter into or execute or cause or assist any Person to enter into or execute any “short sale” (as such term is defined in Rule 200 of Regulation SHO, or any successor regulation, promulgated by the SEC under the Exchange Act) of the Common Stock or trading derivative securities to the same effect.

The Company acknowledges and agrees that Investor does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 4.2.

 

 

5.1           Certain Transfer Restrictions.

 

(a)           The Preferred Shares constitute “restricted securities” as such term is defined in Rule 144(a)(3) and may only be disposed of in compliance with U.S. federal securities laws and applicable state securities or “Blue Sky” laws.  Without limiting the generality of the foregoing, except for a transfer to an Affiliate of Investor or a bona fide pledge of the Preferred Shares, the Preferred Shares may not be offered for sale, sold, transferred, assigned, pledged or otherwise distributed unless (i) such offer, sale, transfer, assignment, pledge or distribution is subsequently registered under the Act, (ii) Investor shall have delivered to the Company an opinion of counsel reasonably acceptable to the Company (which may be Greenberg Traurig), in a form generally acceptable to the Company, to the effect that such Preferred Shares to be offered for sale, sold, transferred, assigned, pledged or otherwise distributed may be offered for sale, sold, transferred, assigned, pledged or otherwise distributed pursuant to an exemption from such registration, or (iii) such Preferred Shares can be offered for sale, sold, transferred, assigned, pledged or otherwise distributed pursuant to Rule 144 or Rule 144A promulgated under the Act, as applicable. In furtherance of the foregoing, certificates for the Preferred Shares shall bear the following restrictive legend:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE

 

 

 

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The foregoing legend shall be removed if and when no longer required in the opinion of counsel to Investor or other holder of the Preferred Shares in the form and substance reasonably satisfactory to the Company. Certificates and any other instruments evidencing the Warrant and the Common Shares shall not bear any restrictive or other legend.

 

(b)           At the Closing, the Company shall issue irrevocable instructions to the Transfer Agent in the form attached hereto as Exhibit C (the “Irrevocable Transfer Agent Instructions”) to issue certificates or credit shares to the applicable balance accounts at DTC, registered in the name of Investor or its respective nominee(s), for the Securities in such amounts as specified from time to time by Investor to the Company upon delivery of the Common Shares or Preferred Shares (as the case may be). The Company represents, warrants and covenants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5.1(b) will be given by the Company to the Transfer Agent with respect to the Securities, and that the Securities shall otherwise be freely transferable on the books and records of the Company, as applicable, to the extent contemplated in this Agreement and the other Transaction Documents. The Company shall take all necessary action to give effect to the foregoing.  Any fees (with respect to the transfer agent, counsel to the Company or otherwise) associated with the issuance of such opinion or the removal of any legends on any of the Securities shall be borne by the Company.

5.2           Furnishing of Information.  As long as Investor owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the Effective Date pursuant to the Exchange Act.  Upon the request of Investor, the Company shall deliver to Investor a written certification of a duly authorized officer as to whether it has complied with the preceding sentence. As long as Investor owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to Investor and make publicly available in accordance with Rule 144(c) such information as is required for Investor to sell the Securities under Rule 144 until such time as Investor may sell all such Securities without restriction under Rule 144.  The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell Securities without registration under the Act within the limitation of the exemptions provided by Rule 144.

 

5.3           Integration.  The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Act) that would be

 

 

 

 

5.4           Securities Laws Disclosure; Publicity.  The Company shall (i) by 8:30 a.m., New York City time, on the Trading Day immediately following the Effective Date issue a press release and (ii) within the time required by applicable law (but in no event later than the second business day following the execution of this Agreement) file a Current Report on Form 8-K and a prospectus supplement under Rule 424(b), in each case, describing the transactions contemplated by, and in the case of the Current Report on Form 8-K, attaching a complete copy of, the Transaction Documents. Such press release and Current Report on Form 8-K and such prospectus supplement shall be reasonably acceptable to Investor; and the prospectus supplement shall also include such information relating to the offering, the securities, the plan of distribution, the selling security holders for the securities, the sale and resale of the Common Shares, and otherwise with respect to matters related to the Registration Statement as required and also as Investor may reasonably request, all so that such information is  immediately part of the current Prospectus forming part of the Registration Statement in accordance with applicable securities laws and the rules and regulations thereunder. The Company and Investor shall consult with each other in issuing any additional press releases with respect to the transactions contemplated hereby, and neither the Company nor Investor shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any such press release of Investor, or without the prior consent of Investor, with respect to any such press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, Trading Market regulations or judicial process, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.  The Company shall provide Investor with prior notice of any public disclosure of the name of Investor or contemplated inclusion of the name of Investor in any filing with the SEC or any regulatory agency or Trading Market (it being hereby acknowledged and agreed by Investor that Investor’s name may be disclosed, to the extent required, in a supplemental listing application with the Trading Market, any Current Report on Form 8-K of the Company describing the transactions contemplated by the Transaction Documents, in any Registration Statement and Prospectus covering any Common Shares, and in other reports of the Company required to be filed by the Company under the Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof). 

5.5           Shareholders Rights Plan.  No claim will be made or enforced by the Company or, to the knowledge of the Company, any other Person that Investor is an “Acquiring Person” under any shareholders rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that Investor could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and Investor. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act of 1940, as amended.

 

5.6           Non-Public Information.  The Company covenants and agrees that neither it nor any Person acting on its behalf will provide Investor or its agents or counsel with any

 

 

 

 

5.7           [INTENTIONALLY OMITTED].

5.8           Indemnification.

 

(a)           Indemnification by Company.  Subject to the provisions of this Section 5.8(a), the Company will indemnify and hold Investor, its Affiliates and attorneys, and each of their directors, officers, shareholders, partners, employees, agents, and any Person who controls Investor within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (collectively, the “Investor Parties” and each an “Investor Party”), harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation (collectively, “Losses”) that any Investor Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents, (b) any action instituted against any Investor Party, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of an Investor Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of Investor’s representation, warranties or covenants or agreements under the Transaction Documents or any agreements or understandings Investor may have with any such stockholder or any violations by Investor of state or federal securities laws or any conduct by Investor which constitutes fraud, gross negligence, willful misconduct or malfeasance), (c)  any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement (or in a Registration Statement as amended by any post-effective amendment thereof by the Company) or arising out of or based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and/or (d) any untrue statement or alleged untrue statement of a material fact included in any Prospectus (or any amendments or supplements to any Prospectus), or arising out of or based upon any omission or alleged omission to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that (i) the Company shall not be obligated to indemnify any Investor Party for any

 

 

 

(b)           Indemnification by Investor.  Subject to the provisions of this Section 5.8(b), the Investor will indemnify and hold Company, its Affiliates and attorneys, and each of their directors, officers, shareholders, partners, employees, agents, and any Person who controls Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (collectively, the “Company Parties” and each a “Company Party”) harmless from all Losses that any Company Party may suffer or incur as a result of or relating to any breach of the representations, warranties, covenants, or agreements made by the Investor in this Agreement or in other Transactional Documents.  The parties intend that any Losses subject to indemnification under this Section 5.8(b) will be net of insurance proceeds (which Company agrees to use commercially reasonable efforts to recover or cause any Company Party to recover).  Accordingly, the amount which the Investor is required to pay any Company Party under this Section 5.8(b) will be reduced by any insurance proceeds actually recovered by or on behalf of any Company Party in reduction of the related Losses.  In addition, if a Company Party receives indemnification from the Investor under this Section 5.8(b) in respect of any Losses and subsequently receives any such insurance proceeds, then Company will pay, or will cause such other Company Party to pay, to the Investor an amount equal to the indemnification payment received under this Section 5.8(b) less the amount of the indemnification payment that would have been due if the insurance proceeds had been received, realized or recovered before such

 

 

 

 

(c)           Procedure for Indemnification Claims.  Promptly after a Person receives notice of a claim or the commencement of an action for which the Person intends to seek indemnification under this Section 5.8, the Person will notify the indemnifying party in writing of the claim or commencement of the action, suit or proceeding; provided, however, that failure to notify the indemnifying party will not relieve the indemnifying party from liability under this Section 5.8, except to the extent it has been materially prejudiced by the failure to give notice.  The indemnifying party will be entitled to participate in the defense of any claim, action, suit or proceeding as to which indemnification is being sought. No indemnifying party will be liable to any indemnified party under this Agreement for any settlement by such indemnified party of any action effected by such indemnified party without the indemnifying party’s prior written consent, which shall not be unreasonably withheld or delayed.

 

5.9           Reservation of Securities.  The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents.

 

5.10        Standstill Enforcement.  The Company will use its commercially reasonable efforts to honor and enforce the provisions of the Lock-Up Agreements with the Company’s executive officers and the Company’s directors other than Mr. Christopher Hopkins.

 

5.11        Issuance of Additional Securities.  The Company agrees that for the period commencing on each Tranche Notice Date and ending on the Tranche Closing Date, neither the Company nor any of its Subsidiaries shall, without the prior written consent of the Investor, (i) directly or indirectly, issue, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the Act (other than a Registration Statement on Form S-8) with respect to any of the foregoing, or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise.  The provisions of this Section 5.11 shall not apply to (A) the Securities to be issued and sold hereunder or issuable upon conversion or exercise of the Securities, (B) issuances of shares of Common Stock issuable upon conversion or exchange of currently outstanding convertible securities, (C) granting options or other securities under the Company’s incentive compensation plans existing on the date hereof or issuances of shares of Common Stock issuable in connection with outstanding awards thereunder as of the date hereof, (D) issuances of shares of Common Stock issuable pursuant to agreements in effect as of the date hereof or amendments related thereto, (E) issuances of shares of Common Stock in connection with strategic acquisitions, or (F) issuances of shares of Common Stock subject to shareholder approval; provided, however, that in the case of clause (B) above, no shares of Common Stock shall be issued as a result of an amendment to such securities after the date hereof and prior to the expiration of the restricted period.

 

 

 

5.12        Registration Statement and Prospectus; Availability and Changes.  The Company covenants that it will comply with the matters set forth in Section 4.1(gg) without giving effect to any exceptions contained in or contemplated by this Agreement.  The Company will make available to Investor upon request, and thereafter from time to time will furnish Investor, as many copies of any Prospectus (or of the Prospectus as amended or supplemented if the Company shall have made any amendments or supplements thereto after the effective date of the applicable Registration Statement) as Investor may request for the purposes contemplated by the Act; and in case Investor is required to deliver a prospectus after the nine-month period referred to in Section 10(a)(3) of the Act in connection with the sale of the Common Shares, or after the time a post-effective amendment to the applicable Registration Statement is required pursuant to Item 512(a) of Regulation S-K under the Act, the Company will prepare, at its expense, promptly upon request such amendment or amendments to the Registration Statement and the Prospectus as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Act or Item 512(a) of Regulation S-K under the Act, as the case may be.  The Company will advise Investor promptly of the happening of any event within the time during which a Prospectus is required to be delivered by Investor under the Act which, in the good faith judgment of the Company, following consultation with its independent legal counsel, would require the making of any change in the Prospectus then being used so that the Prospectus would not include an untrue statement of material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading, and to advise Investor promptly if, during such period, in the good faith judgment of the Company, following consultation with its independent legal counsel, it shall become necessary to amend or supplement any Prospectus to cause such Prospectus to comply with the requirements of the Act, and in each case, during such time, to prepare and furnish, at the Company’s expense, to Investor promptly such amendments or supplements to such Prospectus as may be necessary to reflect any such change or to effect such compliance.  The Company shall take such other action as requested by Investor with respect to compliance with any applicable securities laws (including, without limitation, “blue-sky” laws) in connection with the offer, sale and resale of the Common Shares or the Securities.  Each Prospectus (including all prospectus supplements) shall be in the form and substance satisfactory to Investor. In furtherance of the foregoing and for clarification, in the event that the Registration Statement and/or the Prospectus is not effective and/or properly available for use in accordance with the Act for the offer and sale (and as applicable, the resale by Investor) of the Warrant, the Additional Investment Right, and the Common Shares at any time from a Tranche Notice Date  through the related Tranche Closing Date, in both cases inclusive, Investor shall not be required to accept such Tranche Notice, fund or close such Tranche, or automatically exercise the Warrant or the Additional Investment Right with respect to such Tranche.

5.13        Required Approval.  No transactions contemplated under this Agreement or the Transaction Documents shall be consummated for an amount that would require approval by the Company’s stockholders under any approval provisions, rules or regulations of any Trading Market applicable to the Company, unless and until such approval is obtained.  Company shall use its reasonable best efforts to obtain any required approval as soon as possible.

 

 

 

5.14        Activity Restrictions.  For so long as Investor or any of its Affiliates holds any Securities, neither Investor nor any Affiliate will:  (i) vote any shares of Common Stock owned or controlled by it, solicit any proxies, or seek to advise or influence any Person with respect to any voting securities of the Company; (ii) engage or participate in any actions, plans or proposals which relate to or would result in (a) acquiring additional securities of the Company, alone or together with any other Person, which would result in beneficially owning or controlling, or being deemed to beneficially own or control, more than 9.99% of the total outstanding Common Stock or other voting securities of the Company, (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving Company or any of its subsidiaries, (c) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries, (d) any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board, (e) any material change in the present capitalization or dividend policy of the Company, (f) any other material change in the Company’s business or corporate structure, including but not limited to, if the Company is a registered closed-end investment company, any plans or proposals to make any changes in its investment policy for which a vote is required by Section 13 of the Investment Company Act of 1940, (g) changes in the Company’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any Person, (h) causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, (i) a class of equity securities of the Company becoming eligible for termination of registration pursuant  to Section 12(g)(4) of the Act, or (j) any action, intention, plan or arrangement similar to any of those enumerated above; or (iii) request the Company or its directors, officers, employees, agents or representatives to amend or waive any provision of this Section 5.14.

5.15        Investor Information.  The Company shall notify Investor in writing of the information that the Company requires from Investor with respect to the Registration Statement and/or Prospectus in connection with the transactions contemplated by this Agreement and Investor shall, as soon as practicable after being so notified, furnish to the Company such information regarding itself, the Securities held by it and the intended method of disposition of the Securities held by it, as shall be reasonably required to effect and/or maintain the effectiveness of the registration of such Securities.

 

6.1           Fees and Expenses.  Except for a $40,000.00 non-refundable and non-accountable document preparation fee payable to Greenberg Traurig which shall be paid within one (1) business day after the Effective Date, as to which a $20,000.00 non-refundable document preparation fee previously paid by the Company shall be applied, and the $10,000.00 non-refundable administrative fee payable to counsel for Investor at each Tranche Closing, and as may be otherwise provided in this Agreement and any of the other Transaction Documents, each party shall pay the fees and expenses of its own advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents. The Company

 

 

 

 

6.2           Notices.  Unless a different time of day or method of delivery is set forth in the Transaction Documents, any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of:  (a) the date of transmission, if such notice or communication is delivered via facsimile or electronic mail prior to 5:30 p.m., New York City time, on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered later than 5:30 p.m., New York City time, or on a day that is not a Trading Day, or (c) otherwise upon actual receipt by the party to whom such notice is required to be given.  The addresses for such notices and communications are those set forth following the signature page hereof, or such other address as may be designated in writing hereafter, in the same manner, by such Person.

 

6.3           Amendments; Waivers.  No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and Investor or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

 

6.4           Headings.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

6.5           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of Investor, which consent will not be unreasonably withheld or delayed.  Investor may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed. Notwithstanding anything to the contrary contained herein, the Investor shall not transfer any Preferred Shares purchased by it except to an Affiliate of Investor or except pursuant to a redemption of the

 

 

 

 

 

6.6           No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise expressly set forth in Section 5.8 hereof.

6.7           Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law that would require or permit the application of the laws of any other jurisdiction.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  The parties hereby waive all rights to a trial by jury.  If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses reasonably incurred in connection with the investigation, preparation and prosecution of such action or proceeding.

 

6.8           Survival.  The representations, warranties, covenants and agreements of the Company and the Investor contained in this Agreement shall survive the Closing and the delivery and/or exercise of the Securities, as applicable, until the termination of this Agreement; provided, however, that (i) the provisions of Section 3.4 (Effect of Termination), Article 4 (Representations and Warranties), Section 5.8 (Indemnification), this Article 6 (Miscellaneous) and all fees and expenses provisions contained in this Agreement (including, without limitation, provisions relating to the issuance of the Commitment Shares and the payment of the fees and expenses in accordance with Section 6.1) shall remain in full force and effect indefinitely notwithstanding such termination, and, (ii) so long as the Investor owns any Securities, the covenants and agreements of the Company contained in  Article 5 (Other Agreements of the Parties) shall remain in full force and effect notwithstanding such termination.  Notwithstanding anything to

 

 

 

 

6.9           Execution.  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 that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.

 

6.10        Severability.  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

 

6.11        Replacement of Securities.  If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested.  The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities.

6.12        Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of Investor and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations under the Transaction Documents and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate, the necessity of showing economic loss and without any bond or other security being required.  Neither the Company nor Investor shall be liable for special, indirect, consequential or punitive damages suffered or alleged to be suffered by the other party or any third party, whether arising from or related to the Transaction Documents or otherwise.

 

6.13        Payment Set Aside.  To the extent that the Company makes a payment or payments to Investor pursuant to any Transaction Document or Investor enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or

 

 

 

 

 

6.14        Partial Damages.  If the Company’s obligations to pay any partial damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company, then such obligation shall not terminate until all unpaid partial damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial damages or other amounts are due and payable shall have been canceled.

 

6.15        Time of the Essence.  Time is of the essence with respect to all provisions of this Agreement that specify a time for performance.

 

6.16        Construction.  The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. 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. Each and every reference to share prices, shares of Common Stock and any other numbers in this Agreement that relate to the Common Stock (excluding percentages) shall be automatically appropriately adjusted for stock splits, stock combinations and other similar transactions that occur with respect to the Common Stock after the date of this Agreement.

 

6.17        Entire Agreement.  The Transaction Documents contain the entire agreement and understanding of the parties, and supersede all prior and contemporaneous agreements, term sheets, letters, discussions, communications and understandings, both oral and written, which the parties acknowledge have been merged into the Transaction Documents.  Neither party has relied upon any agreement, assurance, promise, understanding or representation not expressly set forth in the Transaction Documents and each party agrees that it may only rely on the agreements, assurances, promises, understandings and representations set forth therein; provided, however, Investor shall be entitled to the protections with respect to, and to rely on statements contained in, the Registration Statement and Prospectus in accordance with federal and state securities laws.

 

6.18        Further Assurances.  From and after the Effective Date, upon the request of Investor or the Company, each of the Company and Investor shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.

[Signature Page Follows]

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

 

OILSANDS QUEST, INC.
By:	/s/ Garth A. Wong
Name:	Garth Wong
Title:	President and Chief Executive Officer

 

SOCIUS CG II, LTD.
By:	/s/ Terren Peizer
Name:	Terren Peizer
Title:	Managing Director