AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5,
1999
REGISTRATION NO.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_____________________
LAKOTA TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
_____________________
COLORADO 138203 58-2230297
(State or other (Primary Standard (IRS Employer
jurisdiction of Classification Code Identification
incorporation or Number) Number)
_____________________
2849 Paces Ferry Road
Suite 710
Atlanta, Georgia 30339
(770) 433-8250
(Address and telephone number of Registrant's principal
executive offices and principal place of business)
_____________________
R.K. (Ken) Honeyman
2849 Paces Ferry Road
Suite 710
Atlanta, Georgia 30339
(770) 433-8250
(Name, address and telephone number of agent for service)
_____________________
COPIES TO:
Brian A. Lebrecht, Esq.
Cutler Law Group
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
____________________
Approximate Date of Proposed Sale to the Public.
As soon as practicable after this Registration Statement becomes
effective.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule
462(C) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box. [ ]
____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED BEING OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED PER SHARE (1) OFFERING PRICE FEE
Common Stock offered for sale 10,000,000 $0.19 $1,900,000 $528.20
Common Stock issuable upon conversion of 10,000,000 $0.075(2) $750,000 $208.50
Convertible Promissory Note
Common Stock issuable as interest on 1,600,000 $0.075(2) $120,000 $33.36
Convertible Promissory Note (3)
Common Stock issuable upon exercise 5,000,000 $0.085(4) $425,000 $118.15
Warrants
Common Stock issuable upon exercise 2,000,000 $0.10 $200,000 $55.60
of Warrants (5)
Common Stock issuable upon exercise 2,750,000 $0.15 $412,500 $114.68
of Warrants (5)
Common Stock issuable upon exercise 750,000 $0.20 $150,000 $41.70
of Warrants (5)
Common Stock issuable upon exercise 500,000 $0.28 $140,000 $38.92
of Warrants (5)
Common Stock of certain selling shareholders 5,390,000 $0.19 $1,024,100 $284.70
Total Registration Fee $1,423.21
1 ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE PURSUANT TO RULE 457. BASED ON THE
CLOSING PRICE FOR THE REFERENCED COMMON STOCK ON THE NASDAQ OVER-THE-COUNTER BULLETIN BOARD ON OCTOBER 1, 1999.
2 THE CONVERTIBLE PROMISSORY NOTE IS CONVERTIBLE AT A PERCENTAGE OF THE PRICE FOR THE COMPANY'S COMMON STOCK ON THE
NASDAQ OVER-THE-COUNTER BULLETIN BOARD ON THE DAY IMMEDIATELY PRECEDING THE CONVERSION. THE PRICE REFLECTS CONVERSION
IN THE EVENT THAT COMPANY'S COMMON STOCK DROPS TO A PRICE OF $0.10 AT THE STANDARD PERCENTAGE CONV
3 REFLECTS POTENTIAL PAYMENT OF THE 8% INTEREST ON THE CONVERTIBLE PROMISSORY NOTE FOR A PERIOD OF 24 MONTHS FROM
ISSUANCE. THE PRICING IS CALCULATED AS SET FORTH IN FOOTNOTE 2 HEREOF.
4 THE WARRANTS ARE EXERCISABLE AT 50% OF THE LOWER OF (I) THE CLOSING BID PRICE ON THE DAY IMMEDIATELY PRIOR TO THE
EXERCISE, OR (II) THE CLOSING BID PRICE ON AUGUST 24, 1999 (WHICH WAS $0.17). THE PRICE REFLECTS A PRICE OF $0.17
PER SHARE FOR THE COMMON STOCK, PRIOR TO APPLYING THE 50% DISCOUNT.
5 SEE "SELLING SHAREHOLDERS".
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
LAKOTA TECHNOLOGIES, INC.
Cross-Reference Sheet
<TABLE>
<S> <C>
FORM SB-2 ITEM NUMBER AND HEADING CAPTION OR LOCATION IN PROSPECTUS
1. Front of the Registration Statement
and Outside Front Cover of
Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front and Outside Back
Cover Pages
3. Summary Information and Risk Factors Prospectus Summary;
Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not
Applicable
6. Dilution Dilution
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Not Applicable
10. Directors, Executive Officers, Promoters
and Control Persons Management Directors and
Executive Officers
11. Security Ownership of Certain Beneficial
Owners and Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal
Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Management Indemnification
of Directors and Officers
15. Organization Within Last Five Years Certain
Transactions
16. Description of Business Business
<PAGE>
17. Management's Discussion and Analysis or
Plan of Operation Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
18. Description of Property Business Facilities
19. Certain Relationships and Related
Transactions Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters Outside Front Cover
Page; Dividend
Policy; Description
of Securities; Price
Range of Securities
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure Not applicable
</TABLE>
<PAGE>
PROSPECTUS 37,990,000 Shares of Common Stock
LAKOTA TECHNOLOGIES, INC.
[Logo]
Lakota Technologies, Inc. is registering 10,000,000 shares
for sale to investors by the Company. The Shares will be sold at or
below prevailing market prices by the Company.
Lakota Technologies, Inc. is also registering up to
27,990,000 shares for sale by (i) investors in Lakota Technologies
that purchased Convertible Notes, common stock, and warrants (up to
24,100,000 shares), (ii) a member of the Company's Board of
Directors (1,300,000), and (iii) Consulting Firms and the Company's
Legal Counsel (2,590,000 shares). See "Selling Stockholders",
"Description of Securities," "Experts."
Lakota Technologies' Common Stock is traded on the Nasdaq
over-the-counter market under the symbol "LAKO." All of the common
stock registered by this Prospectus will be sold by the selling
shareholders at the prevailing market price when they are sold. On
October 1, 1999, the last reported sale price for the Common Stock
on the Nasdaq over-the-counter market was $0.19 per share. See
"Price Range of Securities."
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
___________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER
REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
There is no underwriter for any of the securities offered.
See "Plan of Distribution."
THE DATE OF THIS PROSPECTUS IS OCTOBER 5, 1999
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the
more detailed information and the financial statements and notes
thereto appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements. The outcome of the events
described in these forward-looking statements is subject to risks
and actual results could differ materially. The sections entitled
"Risk Factors," "Managements Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" contain a
discussion of some of these factors that could contribute to those
differences.
LAKOTA TECHNOLOGIES, INC.
We are a holding company which, through the operations of our
three wholly-owned subsidiaries, is engaged in two very distinct
business sectors. The first, which we have been involved in since
early 1997, is oil and gas exploration and operations. Our
subsidiary, Lakota Oil and Gas, Inc.'s strategy is to invest with
joint partners in oil and gas exploration projects that already
underway. The target joint partners are larger, well-financed
entities that have access to greater pools of resources which we
believe will result in enhanced success rates. This strategy
emphasizes a balanced, risk-spreading approach to create what we
believe to be the maximum return on investment.
We are also involved in the rapidly growing high technology
Internet sector. We recently completed two acquisitions which
provided our means of entry into this exciting arena. Our
subsidiary, 2-Infinity.com, Inc., provides low-cost, high-speed,
dedicated Internet access, focusing on the hotel and multiple
residential markets. Our subsidiary, AirNexus, Inc., is a retail
provider of commercial voice and data services with an emphasis on
wireless, or ethernet, networks. 2-Infinity and AirNexus gave us the
opportunity to diversify from our traditional oil and gas business
into the exciting world of high technology and the Internet.
We maintain an Internet website at http://www.lakotatech.com.
OUR OFFICES
Our offices are located at 2849 Paces Ferry Road, Suite 710,
Atlanta, Georgia 30339. Our telephone number is (770) 433-8250.
<PAGE>
THE OFFERING
SECURITIES OFFERED:
Shares Offered by
The Company We are registering to sell to new
investors up to 10,000,000 shares of
common stock. We intend to sell these
to new investors at prevailing market
prices or at a discount to the
prevailing market prices, but in no
event at a price less than 50% of the
closing bid price for our common stock
on the day immediately preceding a sale.
Shares Offered by
Note Holders Up to 10,000,000 shares of
Common Stock which the holders
(the "Note Holders") of the
Company's 8% Convertible Notes
due August 24, 2001 (the
"Notes") can obtain by
converting $750,000 principal
amount of the Notes into common
stock. The Notes are converted
at 65-75% of the closing bid
price for our common stock on
the day immediately prior to
conversion. If the Notes were
converted today, the Note
Holders could obtain
approximately 5,263,158 shares
of common stock. The number of
shares of common stock we are
registering to potentially give
to the Note Holders when they
convert the Notes reflects a
basic conversion ratio of 75%
and a market price of our stock
of $0.10 (which we think is
very conservative). See
"Selling Stockholders" and
"Price Range of Securities."
We are also registering
1,600,000 shares of common
stock which we may use to pay
the 8% per annum interest
payments on the Notes before
they are converted. We are
also registering 5,000,000
shares of common stock which
the Note Holders may obtain by
exercising warrants which they
received with their investment.
The warrants are exercisable
at a price equal to 50% of the
lower of (i) the closing bid
price for our common stock on
the day immediately prior to
exercise, or (ii) the closing
bid price on August 24, 1999
(which was $0.17).
<PAGE>
Investor Shares 5,500,000 shares of common stock which
two investors may obtain by exercising
warrants which they received with
their investment. 1,250,000 warrants
are exercisable until November 30,
1999 at an exercise price of $0.10 per
share. 1,250,000 warrants are
exercisable until November 30, 2000 at
$0.15 per share. 500,000 warrants are
exercisable until December 10, 1999 at
$0.10 per share. 500,000 warrants are
exercisable until December 10, 2000 at
$0.15 per share. 250,000 warrants are
exercisable until December 17, 1999 at
$0.10 per share. 250,000 warrants are
exercisable until December 17, 2000 at
$0.15 per share. 750,000 warrants are
exercisable until December 22, 1999 at
$0.15 per share. 750,000 warrants are
exercisable until December 22, 2000 at
$0.20 per share.
Jacob International,
Inc. Shares 428,000 shares issued
to Jacob International,
Inc. as compensation
for services rendered.
In addition, up to an
additional 1,287,000
shares of Common Stock
which will be issued to
Jacob International,
Inc., if our common
stock reaches certain
price milestones. See
"Selling Stockholders."
Cutler Law Group Shares 475,000 shares of Common Stock
which we issued to Cutler Law
Group and certain of their
employees. Cutler Law Group is
the Company's legal counsel and
we issued these shares in
exchange for legal services.
See "Selling Stockholders" and
"Experts."
Hayes Shares 1,300,000 shares of Common Stock held
in the name of John Hayes, a member of
our Board of Directors, and his
company, Cactus Petroleum, Inc. See
"Selling Stockholders."
Cavasos Shares 400,000 shares of Common Stock which
we issued to Brent Cavasos, Texas
litigation counsel to the Company.
See "Selling Shareholders."
Hensley Shares 1,500,000 shares of Common Stock
issued to investor Matt Hensley, plus
500,000 shares of common stock which
Hensley may obtain by exercising
warrants, exercisable until September
28, 2001 at an exercise price of $0.28
per share. See "Selling Shareholders."
<PAGE>
COMMON STOCK 41,778,182 shares of common stock are
issued and outstanding as of October
5, 1999.
NASDAQ OVER-THE COUNTER
BULLETIN BOARD SYMBOL LAKO. Pursuant to NASD Eligibility
Rule 6530 (the "Rule") issued on
January 4, 1999, issuers who do not
make current filings pursuant to
Sections 13 and 15(d) of the
Securities Act of 1934 are ineligible
for listing on the NASDAQ
Over-the-Counter Bulletin Board.
Pursuant to the Rule, issuers who are
not current with such filings are
subject to de-listing pursuant to a
phase-in schedule depending on each
issuer's trading symbol as reported on
January 4, 1999. Pursuant to the
phase-in schedule, our common stock is
subject to de-listing on January 19,
2000. On December 20, 1999, if we
have not complied with the Rule, our
common stock will have its trading
symbol changed to LAKOE. When we get
this Registration Statement effective,
we will become eligible to remain on
the Nasdaq over-the-counter bulletin
board or to reapply if we have been
de-listed.
RISK FACTORS All of the shares of common stock
offered hereby involve a high degree
of risk. See "Risk Factors."
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of
risk. You should consider carefully the following information,
together with the other information contained in this prospectus,
before you decide to buy our common stock. If any of the following
events actually occurs, our business, financial condition or results
of operations would likely suffer. In this case, the market price of
our common stock could decline, and you could lose all or part of
your investment in our common stock. Except for historical
information, the discussion in this registration statement contains
forward-looking statements that involve risks and uncertainties.
These statements may refer to the Company's future plans,
objectives, expectations and intentions. These statements may be
identified by the use of the words such as "expect," "anticipate,"
"believe," "intend," "plan" and similar expressions. The Company's
actual results could differ materially from those anticipated in
such forward-looking statements. Factors that could contribute to
these differences include, but are not limited to, the risks below.
RISKS RELATED TO OUR BUSINESS
WE HAVE A SHORT OPERATING HISTORY, HAVE INCURRED NET LOSSES
SINCE INCEPTION AND EXPECT FUTURE LOSSES. We began in the oil and
gas exploration business in 1997, and our Internet and technology
subsidiaries have been in operation since early 1999. As a result,
we have only a limited operating history upon which you may evaluate
our business and prospects. We have incurred net losses in each
year of our existence, and expect to incur net losses as we expend
substantial resources on sales, marketing and administration;
continue to invest significant amounts of capital in oil and gas
exploration projects; continue to invest significant amounts of
capital in technology related businesses; develop new service
offerings; and improve our management teams. We cannot guaranty
that we will be profitable.
WE HAVE NEVER BEEN PROFITABLE AND MAY NOT BE PROFITABLE IN
THE FUTURE. We have incurred losses in our business operation since
inception. We expect to continue to lose money for the foreseeable
future, and we cannot be certain when we will become profitable, if
at all. Failure to achieve and maintain profitability may adversely
affect the market price of our common stock.
WE ARE DEPENDENT UPON CERTAIN KEY PERSONNEL. Our future
success depends in large part on the skills, experience and efforts
of our key marketing and management personnel. The loss of the
continued services of any of these individuals could have a very
significant negative effect on our business. In particular, we rely
upon the experience and historical success of Ken Honeyman and
Howard Wilson, our President and Secretary, respectively.
WE MUST HIRE AND RETAIN SKILLED PERSONNEL IN A TIGHT LABOR
MARKET. Qualified personnel are in great demand throughout the
software and Internet start-up industries. Our success depends in
large part upon our ability to attract, train, motivate and retain
highly skilled sales and marketing personnel, web designers,
software engineers and other senior personnel. Our failure to
attract and retain the highly trained technical personnel that are
integral to our direct sales, product development, service and
support teams may limit the rate at which we can generate sales and
develop new products and services or product and service
enhancements. This could hurt our business, operating results and
financial condition.
<PAGE>
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR TRADEMARKS,
TRADE SECRETS, AND PATENTS. Our success depends to a significant
degree upon the protection of our proprietary technology. The
unauthorized reproduction or other misappropriation of our
proprietary technology could enable third parties to benefit from
our technology without paying us for it. This could have a material
adverse effect on our business, operating results and financial
condition. Although we have taken steps to protect our proprietary
technology, they may be inadequate. We do not know whether we will
be able to defend our proprietary rights because the validity,
enforceability and scope of protection of proprietary rights in
Internet-related industries are uncertain and still evolving.
Moreover, the laws of some foreign countries are uncertain and may
not protect intellectual property rights to the same extent as the
laws of the United States. If we resort to legal proceedings to
enforce our intellectual property rights, the proceedings could be
burdensome and expensive and could involve a high degree of risk.
OTHER COMPANIES MAY CLAIM THAT WE INFRINGE THEIR TRADEMARKS,
TRADE SECRETS, OR PATENTS. Although we attempt to avoid infringing
known proprietary rights of third parties, we are subject to the
risk of claims alleging infringement of third party proprietary
rights. If we were to discover that any of our products violated
third party proprietary rights, there can be no assurance that we
would be able to obtain licenses on commercially reasonable terms to
continue offering the product without substantial reengineering or
that any effort to undertake such reengineering would be successful.
We do not conduct comprehensive searches to determine whether the
technology used in our products infringes patents, trademarks,
tradenames or other protections held by third parties. In addition,
product development is inherently uncertain in a rapidly evolving
technological environment in which there may be numerous patent
applications pending, many of which are confidential when filed,
with regard to similar technologies. Any claim of infringement could
cause us to incur substantial costs defending against the claim,
even if the claim is invalid, and could distract our management from
our business. Furthermore, a party making such a claim could secure
a judgment that requires us to pay substantial damages. A judgment
could also include an injunction or other court order that could
prevent us from selling our products. Any of these events could have
a material adverse effect on our business, operating results and
financial condition.
WE MAY BE UNABLE TO MEET OUR CAPITAL REQUIREMENTS. If our
capital is insufficient to conduct our business and if we are unable
to obtain needed financing, we will be unable to promote our
products and services, engage in and exploit potential business
opportunities and otherwise maintain our competitive position. Since
we intend to grow our business rapidly, it is certain that we will
require additional capital. We have not thoroughly investigated
whether this capital would be available, who would provide it, and
on what terms. If we are unable to raise the capital required to
fund our growth, on acceptable terms, our business may be seriously
harmed or even terminated.
<PAGE>
WE COULD LOSE REVENUE AND INCUR SIGNIFICANT COSTS IF OUR
SYSTEMS OR MATERIAL THIRD-PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT.
Many currently installed computer systems and software products
accept only two digits to identify the year in any date. Thus, the
year 2000 will appear as "00," which a system or software might
consider to be the year 1900 rather than the year 2000. This error
could result in system failures, delays or miscalculations that
disrupt our operations. The failure of our internal systems, or any
material third-party systems, to be year 2000 compliant could result
in significant liabilities and could seriously harm our business. We
have conducted a review of our business systems, including our
computer systems. We have taken steps to remedy potential problems,
but have not yet developed a comprehensive year 2000 contingency
plan. There can be no assurance that we will identify all year 2000
problems in our computer systems before they occur or that we will
be able to remedy any problems that are discovered. We have also
queried many of our customers, vendors and resellers as to their
progress in identifying and addressing problems that their computer
systems may face in correctly interrelating and processing date
information as the year 2000 approaches and is reached. We have
received responses from several of these parties, but there can be
no assurance that we will identify all such year 2000 problems in
the computer systems of our customers, vendors or resellers before
they occur or that we will be able to remedy any problems that are
discovered. Our efforts to identify and address year 2000 problems,
and the expenses we may incur as a result of such problems, could
have a material adverse effect on our business, financial condition
and results of operations. In addition, the revenue stream and
financial stability of existing customers may be adversely impacted
by year 2000 problems, which could cause fluctuations in our
revenue. If we fail to identify and remedy year 2000 problems, we
could also be at a competitive disadvantage relative to companies
that have corrected such problems. Any of these outcomes could have
significant adverse effects on our business, financial condition and
results of operations.
THE DEVELOPMENT OF A MARKET FOR OUR INTERNET RELATED
BUSINESSES IS UNCERTAIN. If the market for the services offered by
2-Infinity.com, Inc. and AirNexus, Inc. do not grow at a significant
rate, our business, operating results and financial condition will
be negatively affected. Our Internet-related services are a
relatively new concept. Future demand for recently introduced
technologies is highly uncertain, and therefore we cannot guaranty
that our business will grow as we expect.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY COMPETITION.
There are numerous competitors offering the services of
2-Infinity.com, Inc. and AirNexus, Inc. Many of our current and
potential competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than we do and may enter
into strategic or commercial relationships with larger, more
established and well-financed companies. Certain of our competitors
may be able to enter into such strategic or commercial relationships
on more favorable terms. In addition, new technologies and the
expansion of existing technologies may increase competitive
pressures on us. Increased competition may result in reduced
operating margins and loss of market share.
<PAGE>
RISKS RELATED TO THE INTERNET INDUSTRY.
THE INTERNET MAY NOT REMAIN A VIABLE COMMERCIAL MARKET. Our
ability to generate revenues is substantially dependent upon
continued growth in the use of the Internet and the infrastructure
for providing Internet access and carrying Internet traffic. We
don't know if the necessary infrastructure or complementary products
will be developed or that the Internet will prove to be a viable
commercial marketplace. To the extent that the Internet continues to
experience significant growth in the level of use and the number of
users, we cannot guaranty that the infrastructure will continue to
be able to support the demands placed upon it by such potential
growth. In addition, delays in the development or adoption of new
standards or protocols required to handle levels of Internet
activity, or increased governmental regulation may restrict the
growth of the Internet. If the necessary infrastructure or
complementary products and services are not developed or if the
Internet does not become a viable commercial marketplace, our
business, operating results and financial condition would be
negatively affected.
OUR BUSINESS MAY BE HARMED BY THE SECURITY RISKS RELATED TO
INTERNET COMMERCE. Internet companies rely on encryption and
authentication technology to provide the security and authentication
necessary to effect secure transmission of confidential information.
There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography or other developments
will not result in a compromise or breach of the algorithms used by
companies to protect consumer's transaction data. If any such
compromise of this security were to occur, it could have a material
adverse effect on our potential clients, business, prospects,
financial condition and results of operations. A party who is able
to circumvent security measures could misappropriate proprietary
information or cause interruptions in operations. We may be required
to expend significant capital and other resources to protect against
such security breaches or to alleviate problems caused by such
breaches. Concerns over the security of transactions conducted on
the Internet and the privacy of users may also hinder the growth of
online services generally. To the extent that our activities or
third-party contractors involve the storage and transmission of
proprietary information, such as credit card numbers, or personal
data information, security breaches could damage our reputation and
expose us to a risk of loss or litigation and possible liability. We
cannot be sure that our security measures will not prevent security
breaches or that failure to prevent such security breaches will not
have a material adverse effect on our business.
RISKS RELATED TO OUR OIL AND GAS EXPLORATION BUSINESS
OIL AND GAS PRICES ARE HIGHLY VOLATILE. A portion of our
future potential revenue is dependent on the prevailing market price
for oil and gas. The prices for oil and gas historically have been
volatile and are subject to wide fluctuations in response to changes
in the supply of and demand for oil and gas, market uncertainties
and a variety of additional factors beyond our control. These
factors include the level of consumer product demand, weather
conditions, domestic and foreign governmental regulation, political
conditions in the Middle East, the foreign supply of oil and gas,
the price and availability of alternative fuels and overall oil and
gas market conditions. It is impossible to predict future oil and
gas price movements with any certainty. Any substantial or extended
decline in the price of oil and gas would have a negative effect on
our financial condition and results of operations, as well as reduce
the amount of our oil and gas that we can produce economically.
<PAGE>
WE ARE DEPENDENT ON LOCAL OPERATORS TO OPERATE OUR
PROPERTIES. None of our oil and gas properties are operated by us.
As a result, we have limited control over the manner in which
operations are conducted on such properties, including the safety
and environmental standards. Under the terms of the operating
agreements governing operations on the properties in which we have
an interest, we do not have any measurable influence or control over
the nature and timing of exploration and development activities. As
a result, the operators of such properties could undertake
exploration or development projects at a time when we and our joint
partners do not have the funds required to finance our share of the
costs of such projects. In such event, pursuant to the operating
agreements relating to properties in which we have an interest, the
other parties to such agreements who fund their shares of the cost
of such a project are generally entitled to receive all cash flow
from such project, subject to rights of third party royalty or other
interest owners, until they have recovered a multiple of the costs
of such project prior to our receipt of any production or revenues
from such project or, in the event drilling is necessary to maintain
certain leasehold interests, we may be required to forfeit our
interests in such projects. Conversely, the operators of such
properties could refuse to initiate exploration or development
projects, in which case we would be required to propose such
activities and may be required to proceed with such activities at
much higher levels of participation than expected and without
receiving any funding from the other interest owners or the
operators may initiate exploration or development projects on a
slower schedule than we prefer. Any of these events could have a
significant effect on our anticipated exploration and development
activities and financing thereof. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
WE ARE SUBJECT TO CERTAIN OPERATING HAZARDS AND UNINSURED
RISKS. Our operations are subject to risks inherent in the oil and
gas industry, such as blowouts, cratering, explosions,
uncontrollable flows of oil, gas or well fluids, fires, pollution
and other environmental risks. These risks could result in
substantial losses to us due to injury and loss of life, severe
damage to and destruction of property and equipment, pollution and
other environmental damage and suspension of operations. In
accordance with customary industry practice, we are not fully
insured against all risks incident to its business. Because of the
nature of industry hazards, it is possible that liabilities for
pollution and other damages arising from a major occurrence could
exceed insurance coverage or policy limits. Any such liabilities
could have a materially adverse effect on our operations and
profitability.
WE ARE SUBJECT TO CERTAIN BUSINESS RISKS. We intend to
continue acquiring oil and gas properties. Although we perform a
review of the properties to be acquired that we believe is
consistent with industry practices, our reviews are inherently
incomplete. Generally, it is not feasible to review in-depth every
individual property involved in each acquisition. Ordinarily, we
will focus its review efforts on the higher-valued properties and
<PAGE>
will sample the remainder. However, even an in-depth review of all
properties and records may not necessarily reveal existing or
potential problems nor will it permit a buyer to become sufficiently
familiar with the properties to assess fully their deficiencies and
capabilities. Inspections may not always be performed on every well,
and environmental problems, such as ground water contamination, are
not necessarily observable even when an inspection is undertaken.
Furthermore, we must rely on information, including financial,
operating and geological information, provided by the seller of the
properties without being able to verify fully all such information
and without the benefit of knowing the history of operations of all
such properties. In addition, a high degree of risk of loss of
invested capital exists in almost all exploration and development
activities which we undertake. No assurance can be given that oil or
gas will be discovered to replace reserves currently being
developed, produced and sold, or that if oil or gas reserves are
found, they will be of a sufficient quantity to enable us to recover
the substantial sums of money incurred in their acquisition,
discovery and development. Drilling activities are subject to
numerous risks, including the risk that no commercially productive
oil or gas reservoirs will be encountered. The cost of drilling,
completing and operating wells is often uncertain. Our operations
may be curtailed, delayed or cancelled as a result of numerous
factors including title problems, weather conditions, compliance
with governmental requirements and shortages or delays in the
delivery of equipment. The availability of a ready market for the
our gas production depends on a number of factors, including,
without limitation, the demand for and supply of natural gas, the
proximity of gas reserves to pipelines, the capacity of such
pipelines and government regulations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Business and Properties."
WE ARE SUBJECT TO STRINGENT GOVERNMENTAL REGULATION. Our oil
and gas business is subject to certain federal, state and local laws
and regulations relating to the exploration for and development and
production of oil and gas, as well as environmental and safety
matters. Such laws and regulations have generally become more
stringent in recent years, often imposing greater liability on a
larger number of potentially responsible parties. Because the
requirements imposed by such laws and regulations are frequently
changed, we are unable to predict the ultimate cost of compliance
with such requirements and their effect on us.
RISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR STOCK.
ISSUANCE OF PREFERRED STOCK MAY NEGATIVELY AFFECT HOLDERS OF
COMMON STOCK OR DELAY OR PREVENT CORPORATE TAKE-OVER. Our Articles
of Incorporation provide that preferred stock may be issued by the
Company from time to time in one or more series. Our Board of
Directors is authorized to determine the rights, preferences,
privileges and restrictions granted to and imposed upon any wholly
unissued series of preferred stock and the designation of any such
shares, without any vote or action by our shareholders. The Board of
Directors may authorize and issue preferred stock with voting power
or other rights that could adversely affect the voting power or
other rights of the holders of common stock. In addition, the
issuance of preferred stock could have the effect of delaying,
deferring or preventing a change in control, because the terms of
preferred stock that might be issued could potentially prohibit the
consummation of any merger, reorganization, sale of substantially
all of its assets, liquidation or other extraordinary corporate
transaction without the approval of the holders of the outstanding
shares of the preferred stock.
<PAGE>
THERE HAS BEEN A LIMITED PREVIOUS TRADING MARKET FOR OUR
STOCK, AND IF SUCH A MARKET DOES DEVELOP, OUR STOCK PRICE COULD
POTENTIALLY BE VOLATILE. Our stock is presently trading on the
Nasdaq over-the-counter market under the symbol "LAKO."
Nevertheless, there has been limited volume in trading in the public
market for the common stock, and there can be no assurance that a
more active trading market will develop or be sustained. The market
price of the shares of common stock is likely to be highly volatile
and may be significantly affected by factors such as fluctuations in
our operating results, announcements of technological innovations or
new products and/or services by us or our competitors, governmental
regulatory action, developments with respect to patents or
proprietary rights and general market conditions.
BECAUSE OF RECENT NASD RULES, OUR COMMON STOCK MAY BE
DELISTED FROM THE NASDAQ OVER-THE-COUNTER MARKET. Pursuant to NASD
Eligibility Rule 6530 (the "Rule") issued on January 4, 1999,
issuers who do not make current filings pursuant to Sections 13 and
15(d) of the Securities Act of 1934 are ineligible for listing on
the NASDAQ Over- the-Counter Bulletin Board. Pursuant to the Rule,
issuers who are not current with such filings are subject to
delisting pursuant to a phase-in schedule depending on each issuer's
trading symbol as reported on January 4, 1999. Our trading symbol
on January 4, 1999 was LAKO. Therefore, pursuant to the phase-in
schedule, our common stock is subject to de-listing on January 19,
2000. One month prior to our potential delisting date, our common
stock will have its trading symbol changed to LAKOE, unless we have
then complied. When we get this Registration Statement effective,
we would become eligible to remain on the Nasdaq over-the-counter
bulletin board. If we had previously been delisted, we could
reapply for listing when we have this Registration Statement effective.
FUTURE SALES OF COMMON STOCK BY OUR EXISTING SHAREHOLDERS
COULD CAUSE OUR STOCK PRICE TO FALL. The market price of our common
stock could decline as a result of sales by our existing
shareholders of shares of common stock in the market after this
offering, or by the perception that these sales could occur. Such
sales could also make it more difficult for us to sell equity
securities at a time and at a price that we deem appropriate. Even
without subsequent registration, these sales could occur pursuant to
Rule 144 of the Securities Act of 1933, which permits sales of
unregistered, or "restricted" securities under certain circumstances.
USE OF PROCEEDS. Most of the shares offered in this
Prospectus are being sold by shareholders who already have our
shares because they invested in our company or helped us as
professionals. The Shares which we are trying to sell for our
Company will result in proceeds to the Company which will be used
mostly for working capital and advertising, but our management will
have wide discretion to use the proceeds as they believe is best for
the Company. The proceeds could therefore be used for items which
Management decides is best rather than as listed.
<PAGE>
PRICE RANGE OF SECURITIES
The following table sets forth the high and low prices for
shares of our common stock for the periods noted, as reported by the
National Daily Quotation Service and the NASDAQ Over-The-Counter
Bulletin Board. Quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions. Our stock began trading on September 25, 1997 under
the symbol "LAKO."
BID PRICES
YEAR PERIOD HIGH LOW
1999 First Quarter. . . . . . . . . . 0.27 0.07
Second Quarter . . . . . . . . . 0.62 0.06
Third Quarter. . . . . . . . . . 0.37 0.14
1998
First Quarter. . . . . . . . . . 1.22 0.31
Second Quarter . . . . . . . . . 0.44 0.06
Third Quarter. . . . . . . . . . 0.38 0.04
Fourth Quarter . . . . . . . . . 0.38 0.02
The number of beneficial holders of record of the Common
Stock of the company as of the close of business on October 1, 1999
was approximately 111. Many of the shares of the Company's Common
Stock are held in "street name" and consequently reflect numerous
additional beneficial owners.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and
do not anticipate paying any cash dividends on our common stock in
the future. Instead, we intend to retain future earnings, if any,
to fund the development and growth of our business.
<PAGE>
DILUTION
The difference between the public offering price per share of
Common Stock and the net tangible book value per share of Common
Stock after this Offering constitutes the dilution to investors in
Shares we are offering to the public in this Offering. The Company
has already realized the dilution from the Shares registered for
selling securityholders. Net tangible book value per share is
determined by dividing the net tangible book value (total assets
less intangible assets and total liabilities) by the number of
outstanding shares of Common Stock. The dilution calculations we
have set forth in this section reflect an offering price of $0.19
per share, although we may sell the Shares at prices above or below
that price.
As of June 30, 1999, the Company had a net tangible book
value of $9,904 or $0.00027 per share of issued and outstanding
Common Stock. After giving effect to the sale of the Shares
proposed to be offered (assuming we are able to sell all of the
10,000,000 Shares), the net tangible book value at that date would
have been $1,909,904 or $0.04069 per share. This represents an
immediate increase in net tangible book value of $0.04042 per share
to existing stockholders and an immediate dilution of $0.14931 per
share to new investors.
The following table illustrates such per share dilution:
Proposed public offering price (per share) . . . . $0.19
Net tangible book value per share at
June 30, 1999. . . . . . . . . . . . . . ($0.00027)
Increase in net tangible book value per
share attributable to the proceeds
of the Offering (1). . . . . . . . . . . $0.04042
Pro forma net tangible book value per share after
the Offering (1). . . . . . . . . . . . . . . . $0.04069
Dilution to new investors. . . . . . . . . . . . . $0.14931
The following table sets forth on a pro forma basis at June
30, 1999, the differences between existing stockholders and new
investors with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid to the
Company and the average price paid per share (assuming a proposed
public offering price of $0.17 per share).
<TABLE>
<S> <C> <C> <C> <C> <C>
SHARES TOTAL AVERAGE
PURCHASED PERCENT CONSIDERATION PERCENT PRICE PER
SHARE
Stockholders 36,932,966 79% $4,955,527 72% $0.13
New investors 10,000,000 21% 1,900,000 28% $0.19
Total 100% $6,855,527 100%
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains certain forward-looking
statements that are subject to business and economic risks and
uncertainties, and the Company's actual results could differ
materially from those forward-looking statements. The following
discussion regarding the financial statements of the Company should
be read in conjunction with the financial statements and notes thereto.
OVERVIEW
We are a holding company which, through the operations of our
three wholly-owned subsidiaries, is engaged in two very distinct
business sectors. The first, which we have been involved in since
early 1997, is oil and gas exploration and operations. Our
subsidiary, Lakota Oil and Gas, Inc.'s strategy is to invest with
joint partners in oil and gas exploration projects that already
underway. The target joint partners are larger, well-financed
entities that have access to greater pools of resources which we
believe will result in enhanced success rates. This strategy
emphasizes a balanced, risk-spreading approach to create what we
believe to be the maximum return on investment.
We are also involved in the rapidly growing high technology
Internet sector. We recently completed two acquisitions which
provided our means of entry into this exciting arena. Our
subsidiary, 2-Infinity.com, Inc., provides low-cost, high-speed,
dedicated Internet access, focusing on the hotel and multiple
residential markets. Our subsidiary, AirNexus, Inc., is a retail
provider of commercial voice and data services with an emphasis on
wireless, or ethernet, networks. 2-Infinity and AirNexus gave us the
opportunity to diversify from our traditional oil and gas business
into the exciting world of high technology and the Internet.
On November 14, 1995, our founders formed Lakota Energy, Inc.
(known herein as "Lakota-Private") in the State of Colorado for the
purpose of engaging in oil and gas exploration and operations. On
November 6, 1996, Lakota-Private was merged with and into another
Colorado corporation named Chancellor Trading Group, Inc. (known
herein as "Chancellor"). Chancellor was a publicly traded
corporation which was incorporated on July 14, 1995 and had no
significant operations prior to their merger with us. Immediately
following the merger, the shareholders of Chancellor voted to change
its name to Lakota Energy, Inc., and at that point the separate
existence of Lakota-Private ceased.
RESULTS OF OPERATIONS
In early 1999 the Company commenced a change in its business
operations to an internet and technology business. This included
the acquisition of the Air Nexus, Inc. and 2-Infinity.com, Inc.
Accordingly, the historical operating results of the Company do not
reflect the present business strategy of the Company and
consequently are not indicative of the probability of future success
or failures of the Company.
<PAGE>
Six Months Ended June 30, 1999 Compared to Year Ended December 31, 1999
The Company had no revenues during the year ended December
31, 1998, and revenues of $13,276 for the six months ended June 30,
1999. These revenues were derived from the Company's AirNexus and
Lakota Oil and Gas subsidiaries.
For the six months ended June 30, 1999, the Company had
amortization expense of $2,159,000, which is a one-time write off of
goodwill arising out of the acquisitions of AirNexus, Inc. and
2-Infinity.com, Inc.
General and administrative expenses increased from $351,139
for year ended December 31, 1999 to $942,618 for the six months
ended June 30, 1999, primarily as a result of salaries and other
overhead assumed in the acquisitions of AirNexus and 2-Infinity.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The Company had no revenues in either the year ended December
31, 1998 or the year ended December 31, 1997.
For the year ended December 31, 1997, the Company had
interest expense of $436,061 which is accrued interest on 812,500
shares of its Series A redeemable convertible preferred stock. The
accrued interest was satisfied with common stock upon conversion of
the preferred stock in 1997.
FINANCIAL CONDITION
As of June 30, 1999, the Company had assets of $204,329
consisting primarily of cash of $152,037, oil and gas properties of
$32,064, and property and equipment of $15,982.
Liabilities as of June 30, 1999 were 194,425, consisting
primarily of notes to related parties of $90,315, accounts payable
of $36,487, and other notes payable of $30,000.
At June 30, 1999, the Company had an accumulated deficit of
$4,776,384 and total stockholders equity of $9,904. The accumulated
deficit and the stockholders equity are derived primarily from the
Company's oil and gas operations, which now constitute a minority of
their overall business interests.
LIQUIDITY AND CAPITAL RESOURCES
From inception, the Company has financed substantially all of
its operations from private investment and an insignificant portion
has been financed with cash generated from operations.
The Company had cash of $152,037 as of June 30, 1999.
The Company believes that the net proceeds from this
offering, together with funds on hand and any cash flow from
operations, will be sufficient for the next 12 months. Depending on
the Company's rate of growth and cash requirements, it may require
additional equity or debt financing to meet future working capital
or capital expenditure needs. There can be assurance that such
additional financing will be available or, if available, that such
financing can be obtained on terms satisfactory to the Company.
<PAGE>
YEAR 2000 DISCLOSURE
The Company has completed a review of its computer systems to
identify all software applications and hardware that could be
affected by the inability of many existing computer systems to
process time-sensitive data accurately beyond the year 1999,
referred to as the Year 2000 or Y2K issue. The Company purchased
virtually all of its presently existing systems during 1999 and
consequently believes that those systems and the operating software
on those systems in Y2K compliant. The Company may be dependent for
some functions on third-party computer systems and applications.
The Company also relies on its own computer systems. As a result of
its review, the Company has discovered no problems with its computer
systems relating to the Y2K issue. Although the Company believes
that its computer systems are Y2K compliant, the Company is
continuing to monitor its computer systems in a continual effort to
insure that its systems are Y2K compliant. The Company has not
obtained written assurances from its major suppliers and the
developers of its web site indicating that they have completed a
review of their respective computer systems and that such systems
are Y2K compliant. Costs associated with the Company's review were
not material to its results of operations.
While the Company believes that its procedures have been
designed to be successful, because of the complexity of the Y2K
issue and the interdependence of organizations using computer
systems, there can be no assurances that the Company's efforts, or
those of third parties with whom the Company interacts, have fully
resolved all possible Y2K issues. Failure to satisfactorily address
the Y2K issue could have a material adverse effect on the Company.
The most likely worst case Y2K scenario which management has
identified to date is that, due to unanticipated Y2K compliance
problems, the Company's Web site may not function at all or not
function as expected, and that the Company may be unable to bill its
customers, in full or in part, for services used. Should this
occur, it would result in a material loss of some or all gross
revenue to the Company for an indeterminable amount of time, which
could cause the Company to cease operations. The Company has not
yet developed a contingency plan to address this worse case Y2K
scenario, and does not intend to develop such a plan in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is not exposed to material risk based on interest
rate fluctuation, exchange rate fluctuation, or commodity price
fluctuation.
<PAGE>
BUSINESS OF THE COMPANY
COMPANY OVERVIEW
We are a holding company which, through the operations of our
three wholly-owned subsidiaries, is engaged in two very distinct
business sectors. The first, which we have been involved in since
early 1997, is oil and gas exploration and operations. Our
subsidiary, Lakota Oil and Gas, Inc.'s strategy is to invest with
joint partners in oil and gas exploration projects that already
underway. The target joint partners are larger, well-financed
entities that have access to greater pools of resources which we
believe will result in enhanced success rates. This strategy
emphasizes a balanced, risk-spreading approach to create what we
believe to be the maximum return on investment.
We are also involved in the rapidly growing high technology
Internet sector. We recently completed two acquisitions which
provided our means of entry into this exciting arena. Our
subsidiary, 2-Infinity.com, Inc., provides low-cost, high-speed,
dedicated Internet access, focusing on the hotel and multiple
residential markets. Our subsidiary, AirNexus, Inc., is a retail
provider of commercial voice and data services with an emphasis on
wireless, or ethernet, networks. 2-Infinity and AirNexus gave us the
opportunity to diversify from our traditional oil and gas business
into the exciting world of high technology and the Internet.
We maintain an Internet website at http://www.lakotatech.com.
ORGANIZATIONAL HISTORY
On November 14, 1995, our founders formed Lakota Energy, Inc.
(known herein as "Lakota-Private") in the State of Colorado for the
purpose of engaging in oil and gas exploration and operations. On
November 6, 1996, Lakota-Private was merged with and into another
Colorado corporation named Chancellor Trading Group, Inc. (known
herein as "Chancellor"). Chancellor was a publicly traded
corporation which was incorporated on July 14, 1995 and had no
significant operations prior to their merger with us. Immediately
following the merger, the shareholders of Chancellor voted to change
its name to Lakota Energy, Inc., and at that point the separate
existence of Lakota-Private ceased.
Immediately prior to the acquisition, Chancellor had
1,801,000 shares of common stock outstanding. As part of the
merger, and in exchange for all of the outstanding common stock of
Lakota-Private, Chancellor issued 9,187,500 shares to the
shareholders of Lakota-Private and an additional 118,000 shares were
issued to certain third parties. Therefore, on November 6, 1996,
immediately following the acquisition transaction, we had 11,106,500
shares of common stock outstanding, and no shares of preferred stock
outstanding. Our common stock is currently traded on the Over the
Counter Bulletin Board under the symbol "LAKO".
<PAGE>
LAKOTA OIL AND GAS, INC.
On June 9, 1999, we incorporated a Texas corporation named
Lakota Oil and Gas, Inc. ("Lakota Oil"), which is our wholly-owned
subsidiary. Subsequently, on June 14, 1999, we transferred our
interest in two oil exploration projects, which constituted all of
our oil-and-gas-related assets at the time, to Lakota Oil. The
purpose of the transactions was to organize our oil and gas related
business into one operating subsidiary, separate and distinct from
our other operating subsidiaries, in order to more accurately
reflect our diversified operations.
The strategic plan of Lakota Oil is to participate in
projects that have been developed by other successful, well financed
companies. The specific areas of interest to Lakota Oil are Texas
and Louisiana. We are adopting the philosophy of several highly
successful companies, both private and public, that do not have
large or expensive exploration and operating staffs. These
companies utilize the capital they would normally pay in salaries
and benefits to participate in a greater number of sound drilling
prospects. We have found, through experience, that it is more
advantageous to use outside consultants who have worked in a
confined geologic area that are familiar with the nuances of the
prospect's geological province. This plan will allow us to operate
and finance the growth of Lakota Oil through cash flow and optional
debt financing.
Currently, we are partners with, among others, Panaco, Tribow
Exploration, Cummins and Walker Oil Company, York Resources, and
other large private investors. Our partners have the necessary
technical, engineering, data acquisition and land procurement
resources already in place, making an affiliation with them
attractive.
In general, we are seeking projects with the following criteria:
2D and 3D seismic interpretation
Analog production data
Reasonable lease terms
Infrastructure must be in place and accessible
Risked economic model must fit the following profile:
pay out less than one year, minimum of 3:1 PV10
return on investment
Prospect must have multi-pay potential with minimum
of 10 BCF (billion cubic feet) potential
Once we have screened projects using the above criteria, we
generally acquire an interest in the project ranging from 7.5% to
12.5%, depending on its cost and our available capital.
Lakota Oil currently has one employee, its President John Hayes.
We own an 99.9% interest in another Texas corporation, West
Bolt Energy, Inc., which previously owned and operated certain oil
and gas properties. West Bolt Energy, Inc. is not engaged in any
significant operations and has not been for several years, and does
not represent a measurable percentage of the assets or revenues of
the Company.
<PAGE>
2-INFINITY.COM, INC.
On May 28, 1999, we acquired all of the outstanding stock of
2-Infinity.com, Inc., a Texas corporation ("2-Infinity"). 2-Infinity
offers high-speed, dedicated Internet access, focusing initially on
the Houston, Texas residential area with plans to expand world-wide
in the near future. As part of the acquisition, 2-Infinity entered
into a three (3) year employment agreement with Majed Jalali,
President of 2-Infinity. See "Executive Compensation."
Tut Systems, Inc.
2-Infinity has entered into a Value Added ReSeller Agreement
("VAR Agreement") with Tut Systems, Inc. ("Tuts") which gives them
the non-exclusive right to sell Tuts products. Tuts is the industry
leader in delivering plug-and-play network solutions for local loop,
enterprise, and residential environments. Tuts' products deliver
high-speed data over normal telephone wires using their FastCopper
(tm) technology. Tuts products are easy to install and use,
providing customers with a dedicated (i.e., always online, no need
to "dial up" for Internet access) connection 24 hours a day, while
still allowing full use of the telephone line for voice use. More
importantly, Tuts' products require no additional wiring or
modifications to the telephone lines. Through the VAR Agreement,
2-Infinity can offer its clients Tuts-enhanced Internet access at a
very reasonable price. 2-Infinity is seeking to enter into
agreements with the owners and managers of multi dwelling units
("MDU's"), such as apartment complexes, hotels, high rise apartment
buildings, and residential developers to become the Internet service
provider for the entire MDU.
At the present time, given 2-Infinity's exclusive focus on
the Houston area, there are no direct competitors. However, there
are many competitors offering traditional dial-up Internet service,
both in the Houston area and worldwide. In addition to traditional
dial-up Internet access, many other companies are offering
alternative forms of Internet access, such as through cable and
wireless via satellite. There can be no assurance that 2-Infinity's
current method of technology will be accepted on a widespread basis,
nor can there be any assurance that it will be able to compete with
larger, well-financed competitors within their marketplace.
2-Infinity offers its products in two different packages.
The first option allows the subscriber to rent equipment monthly on
a low cost-per-unit basis. The second option allows the subscriber
to purchase the equipment. In either case, in addition to the
rental or purchase of the equipment, subscribers will pay a monthly
subscription fee expected to be approximately $50.00 per subscriber.
In addition to the basic Internet access, subscribers will receive
a value-added package including:
A guarantee of over 1Mbps dedicated access for each
resident
Creation and maintenance of a web site for each
specific complex, property, or community
Community pages and chat rooms
Technical support
On-site hardware support
Software updates
Complete billing services
<PAGE>
Multimedia and videoconferencing capabilities and
assistance
Advertising and merchandising support
Static IP addresses
Multiple email accounts
Internet training programs
2-Infinity currently has 10 employees, all of which are
located at the Company's offices at 4828 Loop Central Drive, Suite
150, Houston, Texas 77081.
AIRNEXUS, INC.
On June 8, 1999, we acquired all of the outstanding stock of
Voice Design, Inc., a Texas corporation which later changed its name
to AirNexus, Inc. ("AirNexus"). As part of the acquisition,
AirNexus entered into three (3) year employment agreements with each
of Patrick Cody Morgan and Charles H. Downey, their Chief Executive
Officer and President, respectively. See "Executive Compensation."
AirNexus is a Houston based provider of business telephone
and voice mail systems. As part of these services, AirNexus is a
reseller of equipment manufactured by third parties such as 3Com,
Panasonic, ESI, Vodavi, Maisoft, and Cortelco.
Strategic Alliances
AirNexus, Inc. has formed a number of significant alliances
with major corporations to deliver these products to the
telecommunications marketplace. AirNexus has developed a
relationship with 3COM Corporation to deliver their new NBX 100
product to the Houston market. This "Product of the Year/Best of
Show in 1998" (as awarded by Computer Telephony Magazine at the
Computer Telephony Expo 1998), along with wireless Ethernet
technology enables the NBX 100 to give businesses the ability to
consolidate voice, video and data on one single cable. This creates
an unprecedented integration between computers, telephone networks
and the Internet.
AirNexus also can, and in the near future intends to, deliver
the Tuts system to commercial properties as well as school and small
to medium sized businesses as a target market. Recently, AirNexus
has signed an agreement to become a re-seller of Cortelco Systems'
(previously known as ITT, or International Telephone and Telegraph
Corporation), Millennium PBX, a communication platform that offers
state of the art switching and call routing.
Target Markets
The target market for AirNexus is businesses with between
20-100 employees. This sector of the market typically does not have
a systems manager or network administrator on staff, and due to
this, AirNexus believes they are an excellent target candidate for
their integrated services. A high percentage of these companies
have a network in place and are receptive to new advancements and
technology. AirNexus intends to provide this sector with a
<PAGE>
convenient and easily acceptable avenue to outsource voice, data and
Internet services by utilizing the referenced product line and by
continually seeking further business solutions that fit the customer
profile.
AirNexus obtains leads for potential customers in a variety
of ways:
Manufacturers provide leads from their customers
Outside telemarketers are utilized
Referrals from existing customers
Marketing lists are purchased
Yellow Pages advertising, and
Print advertising.
All leads are given to individual account managers to
follow-up with each customer. Once a customer has agreed to
purchase the equipment and services, AirNexus does the installation
and provides all the follow-up customer support.
Sales Strategy
AirNexus has designed a strategy intended to make them a
leader in the telephony marketplace.
Develop product lines which give clients the latest
features at a discount over competing systems.
Waive activation fees and hardware costs in return
for long term contracts.
Lease-to-own all wireless equipment required to build
the network, with terms up to 60 months.
Develop contracts with commercial management
companies to deliver the services to their tenants.
This value-added approach allows these management
companies the ability to maintain long term occupancy
and generate new tenants.
Commence an advertising campaign that targets
technology buyers.
Build an interactive demonstration room that provides
potential clients a "hands-on" approach to the
products and services.
AirNexus currently employs 6 employees, all located at their
offices at 333 N. Sam Houston Parkway East, Suite 870, Houston,
Texas 77060.
INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, trade
secrets and similar intellectual property as critical to our
success, and rely on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our
employees, customers, partners and others to protect our proprietary
rights. We have no registered trademarks or service marks to date.
It may be possible for unauthorized third parties to copy certain
portions of our products or reverse engineer or obtain and use
information that we regard as proprietary. In addition, the laws of
some foreign countries do not protect proprietary rights to the same
extent as do the laws of the United States. There can be no
assurance that our means of protecting our proprietary rights in the
United States or abroad will be adequate.
<PAGE>
Other parties may assert, from time to time, infringement
claims against us. We may also be subject to legal proceedings and
claims from time to time in the ordinary course of our business,
including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties by us and our
licensees, if any. Such claims, even if not meritorious, could
result in the expenditure of significant financial and managerial
resources.
GOVERNMENTAL REGULATION
Although there are currently few laws and regulations
directly applicable to the Internet and e-commerce, it is possible
that a number of laws and regulations may be adopted with respect to
the Internet or e-commerce covering issues such as user privacy,
pricing, content, copyrights, distribution, antitrust and
characteristics and quality of products and services. Further, the
growth and development of the market for Internet services may
prompt calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting business
online. The adoption of any additional laws or regulations may
impair the growth of the Internet or commercial online services,
which could, in turn, decrease the demand for our products and
services and increase our cost of doing business, or otherwise have
a material adverse effect on our business, operating results and
financial condition. Moreover, the applicability to the Internet of
existing laws in various jurisdictions governing issues such as
property ownership, sales and other taxes, libel and personal
privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations
from jurisdictions whose laws do not currently apply to our business
or the application of existing laws and regulations to the Internet
could have a material adverse effect on our business, operating
results and financial condition.
RESEARCH AND DEVELOPMENT
We have not spent any measurable amount of time on research
and development activities.
EMPLOYEES
As of October 1, 1999, Lakota Technologies, Inc. had 3
full-time employees, 2-Infinity had 10 full-time employees, AirNexus
had 6 full-time employees, and Lakota Oil had 1 full-time employee.
None of our employees is covered by any collective bargaining
agreement. We believe that our relations with our employees are good.
FACILITIES
Our principal executive offices are located at 2849 Paces
Ferry Road, Suite 710, Atlanta, Georgia 30339, which we occupy under
a lease ending January 14, 2000 for $2,261.86 per month. At the end
of such term, we believe that we can lease the same or comparable
offices at approximately the same monthly rate, however, we can make
no guarantees or assurances of that fact.
<PAGE>
2-Infinity.com maintains executive offices located at 4828
Loop Central Drive, Suite 150, Houston, Texas 77081, which they
occupy under a lease ending June 30, 2002 for $1,668.94 per month.
At the end of such term, we believe that we can lease the same or
comparable offices at approximately the same monthly rate, however,
we can make no guarantees or assurances of that fact.
AirNexus maintains executive offices located at 333 N. Sam
Houston Parkway East, Suite 870, Houston, Texas 77060, which they
occupy under a lease ending October 1, 2004 for $5,621.00 per month.
At the end of such term, we believe that we can lease the same or
comparable offices at approximately the same monthly rate, however,
we can make no guarantees or assurances of that fact.
Lakota Oil maintains executive offices located at 3303 FM
1960 West Suite F, Houston, Texas 77068, which they occupy under a
lease ending July 31, 2000 for $495.00 per month. At the end of
such term, we believe that we can lease the same or comparable
offices at approximately the same monthly rate, however, we can make
no guarantees or assurances of that fact.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of our
current directors and executive officers, their principal offices
and positions and the date each such person became a director or
executive officer of the Company. Our executive officers are
elected annually by the Board of Directors. Our directors serve one
year terms until their successors are elected. The executive
officers serve terms of one year or until their death, resignation
or removal by the Board of Directors. There are no family
relationships between any of the directors and executive officers.
In addition, there was no arrangement or understanding between any
executive officer and any other person pursuant to which any person
was selected as an executive officer.
The directors and executive officers of the Company are as
follows:
Name Age Positions
R.K. ("Ken") Honeyman 45 President, Director
Howard N. Wilson 51 Vice President and
Secretary, Director
Nicholas R. Athens 40 Director
John B. Hayes 57 Director, President of Lakota
Oil and Gas, Inc.
Majed M. Jalali 25 Director, President of
2-Infinity.com, Inc.
Patrick ("Cody") Morgan 32 Director, President of
AirNexus, Inc.
R.K. ("KEN") HONEYMAN brings to us significant oil and gas
experience as well as experience in the fields of retail brokerage
and investment banking. Prior to founding the Company over three
years ago, Mr. Honeyman started Can Am Resources, Inc., an
independent oil and gas exploration company headquartered in
Atlanta, Georgia, which he operated for 8 years. Can Am Resources
drilled over 33 wells in various oil and gas provinces in the United
States. In addition, Can Am re-worked existing oil-producing
properties, mineral interest purchases, and the contributed to the
building of two pipelines to transport natural gas from its wells in
the Appalachian Basin. Prior to founding Can Am, Mr. Honeyman was
an executive/principal and stockbroker at three brokerage firms over
a period of 12 years, dealing primarily in mergers and acquisitions
and oil and gas evaluations. Mr. Honeyman graduated from Mount
Royal College with a degree in Business Administration.
HOWARD N. WILSON has been with us since our inception, and
was previously with Can Am Resources, Inc. for a period of 3 years
serving as its head of marketing and finance. His experience in oil
and gas economics has allowed us to uncover projects that we
<PAGE>
anticipate will be financially beneficial by providing for past
pay-outs while managing the accompanying risk. Prior to joining Can
Am, Mr. Wilson was employed in the field of advertising, marketing
design, and corporate communications. Mr. Wilson graduated from Cal
State University, Long Beach, with a Bachelor of Arts degree.
NICHOLAS R. ATHENS brings to us over 12 years of petroleum
geology experience. Prior to joining us upon inception in 1996, he
was involved in land acquisition and geologic investigations on
behalf of Can Am Resources, Inc. for over 2 years. He has
supervised numerous oil well re-completions and work-overs, and has
served as exploration manager for a number of oil companies in
Texas. Mr. Athens graduated from Valparaiso State University.
JOHN B. HAYES is the President of our subsidiary, Lakota Oil
and Gas, Inc., as well as a member of our Board of Directors. Mr.
Hayes has over 35 years of experience in the areas of petroleum
engineering and exploration. Prior to joining us in 1998, he was
the owner of a private engineering and consulting firm, Cactus
Petroleum, Inc., for over 24 years, working for such industry
leaders as Conoco, Superior Oil Co., Humble Oil and Gulf Oil, all in
the Texas/Gulf Coast areas. He began his career with EXXON after
graduating from Texas A&M University with a degree in Petroleum
Engineering.
MAJED M. JALALI is the President of our subsidiary,
2-Infinity.com, Inc., as well as a member of our Board of Directors.
Mr. Jalali has an extensive entrepreneurial background as the
founder of numerous companies, including Infinity Communications,
which offers a fully interactive, virtual high school learning
environment called Infinity International School. Mr. Jalali's past
credits include involvement in bringing Internet access to the
Middle East through Bahrain Online and Arablink.
PATRICK "CODY" MORGAN is the President of our subsidiary,
AirNexus, Inc., as well as a member of our Board of Directors. Mr.
Morgan has an extensive background in the telecommunications field
dating back to 1988. From 1988 to 1990, he was the top sales
representative for Celltech, a cellular service provider in the
Houston area. From 1990 to 1994, Mr. Morgan was the founder and
operator of Mobiltel, a Houston based provider of cellular
telephones and car alarms. In 1994, Mr. Morgan became the General
Manager of Digitec Business Systems in Houston, a provider of
business telephones and voicemail systems. In October of 1996, when
the owner of Digitec filed bankruptcy, Mr. Morgan and a partner
formed Digiphone, which reached $170,000 in annual sales before the
partners dissolved the business. Since May of 1998, Mr. Morgan was
owned and operated Data and Voice Design, Inc., now known as
AirNexus, Inc.
Disclosure of Commission Position on Indemnification for Securities
Act Liabilities
Our articles of incorporation limit the liability of
directors to the maximum extent permitted by Colorado law. This
limitation of liability is subject to exceptions including
intentional misconduct, obtaining an improper personal benefit and
abdication or reckless disregard of director duties. Our articles
of incorporation and bylaws provide that we may indemnify its
directors, officer, employees and other agents to the fullest extent
permitted by law. Our bylaws also permit us to secure insurance on
behalf of any officer, director, employee or other agent for any
<PAGE>
liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit indemnification. We
currently do not have such an insurance policy.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as express in the Act and is, therefore, unenforceable.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The Summary Compensation Table shows certain compensation
information for services rendered in all capacities for the fiscal
year ended December 31, 1998 and the six months ended June 30, 1999.
Other than as set forth herein, no executive officer's salary and
bonus exceeded $100,000 in any of the applicable years. The
following information includes the dollar value of base salaries,
bonus awards, the number of stock options granted and certain other
compensation, if any, whether paid or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation Long Term Compensation
Awards Payouts
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Stock Awards Options Payouts($) Compensation
Position Year ($) ($) ($) ($) SARs(#) ($)
R.K. (Ken) 1998 96,240 -0- -0- -0- -0- -0- -0-
Honeyman (12/31)
(President)
1999 245,861 -0- -0- -0- -0- -0- -0-
(6/30)
Howard N. Wilson 1998 46,250 -0- -0- -0- -0- -0- -0-
(VP, Secretary) (12/31)
1999 171,114 -0- -0- -0- -0- -0- -0-
(6/30)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR'S OPTIONS/SAR'S GRANTED TO
GRANTED (#) EMPLOYEES IN FISCAL YEAR EXERCISE OF BASE PRICE
($/SH) EXPIRATION DATE
NAME
R.K. (Ken) Honeyman - 0 - N/A N/A N/A
Howard N. Wilson - 0 - N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Unexercised
Securities Underlying Value of Unexercised In-The
Options/SARs At FY-END (#) Money Options/SARs
Shares Acquired On Exercisable/Unexercisable At FY-End ($)
Name Exercise (#) Value Realized($) Exercisable/Unexercisable
R.K. (Ken) Honeyman -0- -0- - 0 - --
Howard N. Wilson -0- -0- - 0 - --
</TABLE>
Employment Agreements
In June 1999, Voice Design, Inc., now known as AirNexus,
Inc., entered into an employment agreement with its President,
Charles Downey, Jr. The contract is for a term of three (3) years
at an annual salary of $75,000 and may be terminated at any time for
Cause or Good Reason, as defined therein.
In June 1999, Voice Design, Inc., now known as AirNexus,
Inc., entered into an employment agreement with its Chief Executive
Officer, Patrick "Cody" Morgan. The contract is for a term of three
(3) years at an annual salary of $75,000 and may be terminated at
any time for Cause or Good Reason, as defined therein.
In June 1999, 2-Infinity entered into an employment agreement
with its President and Chief Executive Officer, Majed Jalali. The
contract is for a term of three (3) years at an annual salary of
$96,000 and may be terminated at any time for Cause or Good Reason,
as defined therein.
Restricted Stock Issuances
In February 1999, the Company issued 1,000,000 shares of
restricted common stock to Cactus Petroleum, Inc., an entity
controlled by John B. Hayes, as consideration for services related
to the negotiation and consummation of a transaction with Optima
Investments.
In April 1999, the Company issued 1,676,429 and 1,229,643
shares of restricted common stock to Ken Honeyman and Howard Wilson,
respectively, as consideration for accrued compensation for past
services rendered.
In July 1999, the Company issued 300,000 shares of restricted
common stock to John B. Hayes as consideration for accrued
compensation for past services rendered.
Stock Option Plan
Effective August 1, 1999, our Directors and Shareholders
approved the Lakota Energy, Inc. Omnibus Stock Option Plan. Under
the terms of the Option Plan, the Board of Directors has the sole
<PAGE>
authority to determine which of the eligible persons shall receive
options, the number of shares which may be issued upon exercise of
an option, and other terms and conditions of the options granted
under the Plan to the extent they don't conflict with the terms of
the Plan. An aggregate of 3,000,000 shares of common stock are
reserved for issuance under the Plan during the year August 1, 1999
to July 31, 2000. For each subsequent year beginning August 1,
2000, there shall be reserved for issuance under the Plan that
number of shares equal to 10% of the outstanding shares of common
stock on August 1 of that year. The exercise price for all options
granted under the Plan shall be 100% of the fair market value of the
Company's common stock on the date of grant, unless the recipient is
the holder of more than 10% of the already outstanding securities of
the Company, in which case the exercise price shall be 110% of the
fair market value of the Company's common stock on the date of
grant. All options shall vest equally over a period of five years
from the date of issuance. On August 11, 1999, the Board of
Directors approved the grant of an aggregate of 2,000,000 options
under the Plan as follows: Ken Honeyman, 775,000 options; Howard
Wilson, 775,000 options; John Hayes, 400,000 options; Simone
Robinson, 50,000 options.
Compensation of Directors
The Directors have not received any compensation for serving
in such capacity, and the Company does not currently contemplate
compensating its Directors in the future for serving in such capacity.
<PAGE>
SELLING STOCKHOLDERS
The following tables provide certain information with respect
to:
Shares Offered by Note Holders
The holders (the "Note Holders") of the Company's 8%
Convertible Notes due August 24, 2001 (the "Notes") are offering up
to 10,000,000 shares of Common Stock which the Note Holders can
obtain by converting $750,000 principal amount of the Notes into
common stock. The Notes are converted at 75% (65% in the event we
default on the Notes) of the closing bid price for our common stock
on the day immediately prior to conversion. If the Notes were
converted today, the Note Holders could obtain approximately
5,263,158 shares of common stock. The number of shares of common
stock we are registering to potentially give to the Note Holders
when they convert the Notes reflects the basic conversion ratio and
a market price of our stock of $0.10 (which we think is very
conservative). See "Selling Stockholders" and "Price Range of
Securities." We are also registering 1,600,000 shares of common
stock which we may use to pay the 8% per annum interest payments on
the Notes before it is converted. We are also registering 5,000,000
shares of common stock which the Note Holders may obtain by
exercising warrants which they received with their investment. The
warrants are exercisable at a price equal to 50% of the lower of (i)
the closing bid price for our common stock on the day immediately
prior to exercise, or (ii) the closing bid price on August 24, 1999
(which was $0.17).
Investor Shares
We are registering 4,000,000 shares of common stock which may
be obtained by Dipak Bhatt by exercising warrants which he received
as part of a prior investment. Bhatt is the holder of the
following: (i)a warrant expiring November 30, 1999 to acquire
1,250,000 shares at $0.10 per share; (ii) a warrant expiring
November 30, 2000 to acquire 1,250,000 shares at $0.15 per share;
(iii) a warrant expiring December 22, 1999 to acquire 750,000 shares
at $0.15 per share; and (iv) a warrant expiring December 22, 2000 to
acquire 750,000 shares at $0.20 per share.
We are also registering 1,500,000 shares of common stock
which may be obtained by Michael A. Hancock and Steven D. Morrison
by exercising warrants which they received as part of a prior
investment. Morrison and Hancock are the holders of the following:
(i)a warrant expiring December 10, 1999 to acquire 500,000 shares at
$0.10 per share; (ii) a warrant expiring December 10, 2000 to
acquire 500,000 shares at $0.15 per share; (iii) a warrant expiring
December 17, 1999 to acquire 250,000 shares at $0.10 per share; and
(iv) a warrant expiring December 17, 2000 to acquire 250,000 shares
at $0.15 per share.
Jacob International, Inc. Shares
We are registering 428,000 shares of common stock previously
issued to Jacob International, Inc. and up to 1,287,000 shares of
common stock which will be issued to Jacob International, Inc. if
our common stock reaches certain milestones. More specifically,
Jacob will receive 428,000 shares if the closing price of our stock
is $0.50 or higher for 5 consecutive trading days. Jacob will also
receive 857,000 shares if the closing price of our stock is $1.00 or
higher for 5 consecutive trading days.
<PAGE>
Cutler Law Group Shares
We are registering for potential sale by MRC Legal Services
Corporation and its employees a total of 475,000 shares of Common
Stock. MRC Legal Services Corporation does business as Cutler Law
Group, which is our legal counsel. We issued these shares to Cutler
Law Group in consideration for legal services. The Cutler Law Group
shares were issued as follows:
MRC Legal Services Corporation 356,250 shares
Brian A. Lebrecht 118,750 shares
Hayes Shares
We are registering for potential sale by John Hayes and
Cactus Petroleum, Inc., his affiliated entity, a total of 1,300,000
shares of Common Stock.
Cavasos Shares
We are registering for potential sale by Brent Cavasos, Texas
litigation counsel to the Company, a total of 400,000 shares of
Common Stock.
Hensley Shares
We are registering for potential sale by investor Matt
Hensley 1,500,000 shares of common stock. In addition, we are
registering for potential sale by Hensley an additional 500,000
shares which he may acquire by exercising a warrant at $0.28 per
share until September 28, 2001.
This Prospectus relates to the potential sale by the Selling
Securityholders of the securities described above. These shares of
common stock may be sold as set forth under "Plan of Distribution".
The securities offered by this Prospectus by the Selling
Stockholders may be offered from time to time by the Selling
Stockholders named below or their nominees, and this Prospectus will
be required to be delivered by persons who may be deemed to be
underwriters in connection with the offer or sale of such
securities. No Selling Stockholder has had any position, office or
other material relationship with the Company since its inception,
except that (i) shares issued to John Hayes and Cactus Petroleum,
Inc. are held beneficially and of record by an employee, officer and
director as set forth above and (ii) Cutler Law Group is legal
counsel for the Company.
The table below sets forth with respect to the Selling
Shareholders, based upon information available to the Company as of
October 1, 1999, the number of shares owned, the number of shares
registered by this Prospectus and the number and percent of
outstanding shares that will be owned after the sale of the
registered shares assuming the sale of all of the registered shares.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Number of Shares No. of Shares Number of Shares % of Shares
Selling Owned Before Sale Registered in Owned After Sale Owned After
Shareholders Prospectus Sale
Note Holders(1) - 16,600,000 - -
Dipak Bhatt(2) 6,000,000 4,000,000 2,000,000 -
Michael A. Hancock and
Steven D. Morrison(3) 2,250,000 1,500,000 750,000 -
Jacob International, 428,000 1,715,000 - -
Inc.(4)
Cutler Law Group(5) 475,000 475,000 - -
John Hayes(6) 1,300,000 1,300,000 - -
Brent Cavasos 400,000 400,000 - -
Matt Hensley 1,500,000 2,000,000 - -
</TABLE>
(1) The Note Holders are Y.L. Hirsch, Sholem Liebenthal, Avram
Rothman, Joshua Heimlich, and Zvi Y. Zelikovitz. To the best
knowledge of the Company, none of the Note Holders are the
owner of any shares of common stock prior to the conversion
of the Notes.
(2) Mr. Bhatt is the owner of 2,000,000 shares of common stock in
addition to the warrants to acquire 4,000,000 shares as
described herein.
(3) Mr. Hancock and Mr. Morrison are the owners of 750,000 shares
of common stock in addition to the warrants to acquire
1,500,000 shares as described herein.
(4) Jacob International, Inc. was issued 428,000 shares of common
stock and has the right to acquire an additional 1,287,000 if
certain milestones are met as described above.
(5) Includes 356,250 shares issued to MRC Legal Services
Corporation, which does business as Cutler Law Group, and
118,750 shares issued to Brian A. Lebrecht, an employee of
Cutler Law Group.
(6) Includes 300,000 shares owned by Mr. Hayes and 1,000,000
shares owned by Cactus Petroleum, Inc.
<PAGE>
PLAN OF DISTRIBUTION
The Company intends to offer up to 10,000,000 shares to
potential investors by officers and directors of the Corporation, as
well as broker/dealers licensed by the National Association of
Securities Dealers, Inc. The Company does not presently have an
underwriter for these shares.
The Company will sell the shares at prevailing market prices
or a discount from prevailing market prices of up to 50%.
All securities referenced above under "Selling Stockholders"
will be offered by the Selling Stockholders from time to time on the
Nasdaq over-the-counter market, in privately negotiated sales or on
other markets. The Company believes that virtually all of such
sales will occur on the Nasdaq over-the-counter market in
transactions at prevailing market rates. Any securities sold in
brokerage transactions will involve customary brokers' commissions.
No underwriters will participate in any such sales on behalf of the
Selling Stockholders.
<PAGE>
PRINCIPAL STOCKHOLDERS
Common Stock
The following table sets forth certain information regarding
beneficial ownership of common stock as of October 1, 1999 by:
- each person or entity known to Lakota to own
beneficially more than 5% of Lakota's common stock;
- each of Lakota's directors;
- each of Lakota's named executive officers; and
- all executive officers and directors as a group.
<TABLE>
<S> <C> <C> <C>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class
Common Stock R.K. (Ken) Honeyman (1)(2) 3,606,429 8.6 %
Common Stock Howard N. Wilson (1)(2) 1,329,643 3.2%
Common Stock Nicholas R. Athens (1) 50,000 <1%
Common Stock John B. Hayes (1)(2) 1,300,000 3.1%
Common Stock Majed Jalali (1) 3,000,000 7.2%
Common Stock Patrick (Cody) Morgan (1)(3) 2,000,000 4.8%
Common Stock Dipak Bhatt (3)(4) 6,000,000 13.1%
4107 Vaughn Creek Court
Sugarland, Texas 77479
All Officers and
Directors as a
Group
(6 Persons) (2) 11,286,072 27.0%
</TABLE>
(1) The address for each of these shareholders is c/o Lakota
Technologies, Inc., 2849 Paces Ferry Road, Suite 710,
Atlanta, Georgia 30339.
(2) Does not include shares issued under Lakota's Omnibus Stock
Option Plan because they cannot be exercised within sixty
days. See "Executive Compensation."
<PAGE>
(3) Includes shares held as joint tenants with spouse, or
directly in spouse's name.
(4) Includes warrants to purchase an aggregate of 4,000,000
shares of common stock, 1,250,000 of which are exercisable
until November 30, 1999 at $0.10 per share, 1,250,000 of
which are exercisable until November 30, 2000 at $0.15 per
share, 750,000 of which are exercisable until December 22,
1999 at $0.15 per share, and 750,000 of which are exercisable
until December 22, 2000 at $0.20 per share.
<PAGE>
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 100,000,000 shares
of common stock, no par value, and 25,000,000 shares of preferred
stock, no par value. The following summary of certain provisions of
our common stock, preferred stock, and warrants is qualified in its
entirety by reference to our articles of incorporation, as amended,
and bylaws, which have been filed as exhibits to the registration
statement of which this prospectus is a part.
Common Stock
As of October 1, 1999, there were 41,778,182 shares of common
stock outstanding, held by approximately 111 shareholders of record.
Holders of our common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the
shareholders, including the election of directors, and do not have
cumulative voting rights. Subject to preferences that may be
applicable to any then outstanding preferred stock, holders of
common stock are entitled to receive ratably such dividends, if any,
as may be declared by the board of directors out of funds legally
available therefor. See "Dividend Policy." Upon a liquidation,
dissolution or winding up of Lakota, the holders of common stock
will be entitled to share ratably in the net assets legally
available for distribution to shareholders after the payment of all
debts and other liabilities of Lakota, subject to the prior rights
of any preferred stock then outstanding. Holders of common stock
have no preemptive or conversion rights or other subscription rights
and there are no redemption or sinking funds provisions applicable
too the common stock. All outstanding shares of common stock are,
and the common stock to be outstanding upon completion of this
offering will be, fully paid and nonassessable.
Preferred Stock
Our board of directors has the authority, without further
action by the shareholders, to issue from time to time the preferred
stock in one or more series and to fix the number of shares,
designations, preferences, powers and relative, participating,
optional or other special rights and the qualifications or
restrictions thereof. The preferences, powers, rights and
restrictions of different series of preferred stock may differ with
respect to dividend rates, amounts payable on liquidation, voting
rights, conversion rights, redemption provisions, sinking fund
provisions and purchase funds and other matters. The issuance of
preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect
adversely the rights and powers, including voting rights, of the
holders of common stock, and may have the effect of delaying,
deferring or preventing a change in control of Lakota. No shares
of Preferred Stock have been authorized, issued, or are outstanding.
Convertible Notes
On August 24, 1999, we issued a $150,000 face value
convertible promissory note to each of five (5) individuals (the
"Notes"). The Notes pay interest at the rate of 8% per annum, and
are convertible by the holders thereof into shares of our common
stock at a price equal to 75% (65% in the event we default on the
<PAGE>
Notes) of the closing bid price for our common stock on the day
immediately prior to conversion. If the Notes were converted today,
the Note Holders could obtain approximately 5,882,353 shares of
common stock. Our President, Ken Honeyman, personally guaranteed
repayment of the Notes and pledged 1,958,000 shares of common stock
held in his name as collateral.
Warrants
The Company currently has outstanding warrants to acquire an
aggregate of 13,342,800 shares of its common stock, at exercise
prices ranging from $0.10 per share to $3.00 per share. The Company
is registering herein an aggregate of 11,000,000 shares of common
stock underlying the exercise of warrants. See "Selling Shareholders."
Transfer Agent
The transfer agent for the common stock is American Securities
Transfer, 12039 West Alameda Parkway, Z-2, Lakewood, Colorado 80228.
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed
upon for the Company by Cutler Law Group, Newport Beach, California.
MRC Legal Services Corporation, a California corporation which does
business as Cutler Law Group, is presently the beneficial owner of
an aggregate of 356,250 shares of the Company's Common Stock.
Employees of Cutler Law Group own an additional 118,750 shares of
the Company's Common Stock. These shares of common stock are being
registered in this registration statement.
AVAILABLE INFORMATION
The Company is not subject to the reporting requirements of
the Securities Exchange Act of 1934. The Company has filed with the
Securities and Exchange Commission a Registration Statement on Form
SB-2, together with all amendments and exhibits thereto, under the
Securities Act of 1933 with respect to the common stock offered
hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules
thereto. Statements contained in this prospectus as to the contents
of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by
such reference.
A copy of the Registration Statement may be inspected by
anyone without charge at the public reference facilities maintained
by the Commission in Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and its
public reference facilities in New York, New York and Chicago,
Illinois, upon the payment of the fees prescribed by the Commission.
The Registration Statement is also available through the
Commission's World Wide Web site at the following address:
http://www.sec.gov.
EXPERTS
The consolidated financial statements of Lakota as of June
30, 1999 included in this Prospectus have been so included in
reliance on the report of Jones, Jensen and Company, independent
accountants, given on the authority of said firm as experts in
auditing and accounting.
<PAGE>
YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED
IN THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR SALE OF COMMON STOCK MEANS THAT
INFORMATION CONTAINED IN THIS PROSPECTUS IS
37,990,000 SHARES OF COMMON STOCK
CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THESE SHARES OF
THE COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
_____________________ LAKOTA
TABLE OF CONTENTS TECHNOLOGIES, INC.
Page
Prospectus Summary 2
Risk Factors 6
Price Range of Securities 13
Dividend Policy 13
Dilution 14 [Logo]
Management's Discussions
and Analysis of
Financial Condition
and Results
of Operations 15
Business 18
Management 25
Executive Compensation 28
Selling Securityholders 31
Plan of Distribution 34
Principal Stockholders 35
Description of Securities 37 _________________
Legal Matters 39
Experts 39 PROSPECTUS
Index to Consolidated
Financial Statements F-1 _________________
Dealer Prospectus Delivery Obligation Until
___________, 19__; all dealers that effect OCTOBER 5, 1999
transactions in these securities, whether or not
participating in this offering, may be required to
deliver a Prospectus. This is in addition to the
dealers' obligation to deliver a Prospectus when
acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The laws of the State of Colorado and our corporate bylaws
provide for indemnification of our directors and officers for
liabilities and expenses that they may incur while acting in such
capacities. In general, our directors and officers are indemnified
for actions they take in good faith and in a manner reasonably
believed to be in, or not opposed to, our best interests. With
respect to criminal actions or proceeds, they are indemnified if
they had no reasonable cause to believe their actions were unlawful.
In addition, their liability is limited by our Articles of
Incorporation.
We do not currently have a policy of directors and officers
insurance.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth our estimated expenses in
connection with the distribution of the securities being registered.
None of the expenses will be paid by selling securityholders.
Except for SEC filing fees, all expenses have been estimated and are
subject to future contingencies.
SEC registration fee. . . . . . . . . . $ 1,423.21
Legal fees and expenses . . . . . . . . 60,000.00
Printing and engraving expenses . . . . 10,000.00
Accounting fees and expenses. . . . . . 25,000.00
Blue sky fees and expenses. . . . . . . 8,000.00
Transfer agent registration fees and expenses . . 1,000.00
Miscellaneous Expenses. . . . . . . . . 2,576.79
Total . . . . . . . . . . . . . . . . . $ 108,000.00
RECENT SALES OF UNREGISTERED SECURITIES
Effective November 6, 1996, Lakota Energy, Inc., a Colorado
corporation ("Lakota Energy") merged with and into Chancellor
Trading Group, Inc., a Colorado corporation ("Chancellor") in a
business combination described as a "reverse acquisition", with
Chancellor being the surviving corporation. For accounting
purposes, the transaction has been treated as the acquisition of
Chancellor (the Registrant) by Lakota Energy. As part of the
transaction, Chancellor changed its name to Lakota Energy.
Immediately prior to the transaction, Chancellor had 1,801,000
shares of Common Stock outstanding. As part of Chancellor's
reorganization with Lakota Energy, Chancellor issued 9,187,500
shares of its Common Stock to the shareholders of Lakota Energy in
exchange for 4,593,750 shares of Lakota Energy Common Stock, and an
additional 118,000 shares to third parties, so that subsequent to
the transaction, there were 11,106,500 shares of common stock issued
and outstanding. All of the issuances were exempt under Section
4(2) of the Securities Act of 1933.
<PAGE>
In January 1997, the Company issued an aggregate of 812,500 shares
of Series A Preferred Stock to Pilares Oil & Gas, Inc. in exchange
for certain oil and gas leasehold interests. The issuance was
exempt under Section 4(2) of the Securities Act of 1933.
Subsequently, in March 1997, Pilares Oil & Gas converted all of the
shares of Series A Preferred Stock into 812,500 restricted shares of
common stock.
From March 1997 through June 1998, the Company issued an aggregate
of 216,100 shares of restricted common stock under Rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933 to
approximately twenty three (23) accredited investors at a price of
$1.00 per share, resulting in gross proceeds to the Company of
$216,100.
From May 1997 through January 1999, and once in April 1999, the
Company sold an aggregate of 5,075,200 Units in a private placement
under Rule 506 of Regulation D and Section 4(2) of the Securities
Act of 1933 to a total of thirty seven (37) accredited investors.
Each Unit consisted of one share of restricted common stock, one
warrant to acquire one share of common stock within twelve (12)
months from the date of purchase, and one warrant to acquire one
share of common stock within twenty four (24) months of the date of
purchase. The prices paid for the Units, as well as the exercise
price of the warrants, varied depending on the market price of the
Company's common stock at the time of each transaction.
In November 1998, the Company issued an aggregate of 4,528,433
shares of restricted common stock to five entities in connection
with purchase of two leasehold interests through Optima Investments.
In June 1999, pursuant to a settlement agreement with Optima, all
of the shares were retired.
In February 1999, the Company issued an aggregate of 1,000,000
shares of restricted common stock under Rule 506 of Regulation D and
Section 4(2) of the Securities Act of 1933 to Cactus Petroleum,
Inc., an entity controlled by John B. Hayes, a Director of the
Company, as consideration for certain services rendered in
connection with the Optima Investments transaction. Mr. Hayes was
also issued 300,000 shares of restricted common stock in July 1999
as consideration under a verbal employment agreement with the Company.
In March 1999, the Company issued an aggregate of 18,520 shares of
common stock under Rule 504 of Regulation D to MRC Legal Services
Corporation, an accredited entity acting as securities counsel to
the Company, in exchange for services rendered. In July 1999, an
aggregate of 75,000 shares of restricted common stock was issued to
MRC Legal Services Corporation under Section 4(2) of the Securities
Act of 1933 for services rendered. In September 1999, an aggregate
of 400,000 shares of restricted common stock was issued to MRC Legal
Services Corporation and its employee under Section 4(2) of the
Securities Act of 1933 for services rendered, including services in
connection with the preparation and filing of our SB-2 Registration
Statement of which this Prospectus is a part.
In March and April 1999, the Company issued an aggregate of 260,000
shares of common stock under Rule 504 of Regulation D to PMR &
Associates, an accredited entity providing public relations services
to the Company, in exchange for services rendered.
<PAGE>
In March 1999, the Company sold an aggregate of $550,000 face value
convertible debentures to three (3) individuals located outside the
United States under Rule 504 of Regulation D. The debentures were
convertible into shares of common stock of the Company at the
discretion of the holder thereof. All of the debentures have been
converted into an aggregate of 7,685,581 shares of common stock.
In April 1999, the Company issued 1,676,429 and 1,229,643 shares of
common stock to Robert Kent Honeyman and Howard Wilson,
respectively, in exchange for deferred compensation due to them
under verbal employment agreements with the Company. The issuance
was exempt under Section 4(2) of the Securities Act of 1933.
In June 1999, the Company issued an aggregate of 3,000,000 shares of
restricted common stock to Majed Jalali, the sole shareholder of
2-Infinity.com, Inc., pursuant to the acquisition agreement between
the Company and Jalali. The issuance was exempt under Section 4(2)
of the Securities Act of 1933.
In June and August 1999, the Company issued an aggregate of 355,000
restricted shares to six existing shareholders who exercised
warrants acquired in the previous unit offering. As a result of the
exercise, the Company received $70,500. The issuance was exempt
under Rule 506 and Section 4(2) of the Securities Act of 1933.
In June 1999, the Company issued an aggregate of 3,000,000 shares of
restricted common stock to three (3) individuals in connection with
the acquisition of Voice Design, Inc. The issuance was exempt under
Section 4(2) of the Securities Act of 1933.
In July 1999, the Company sold an aggregate of $74,000 face value
convertible debenture to an accredited Colorado limited liability
company under Rule 504 of Regulation D. The debenture was
convertible into shares of common stock of the Company at the
discretion of the holder thereof. The entire debenture was
converted into an aggregate of 793,966 shares of common stock.
In July 1999, the Company issued an aggregate of 495,385 shares of
restricted common stock to Brent Cavazos, an accredited investor and
litigation counsel to the Company, in exchange for services
rendered. The issuance was exempt under Rule 506 and Section 4(2)
of the Securities Act of 1933.
In August 1999, the Company sold an aggregate of $23,500 face value
convertible debenture to an accredited Colorado limited liability
company under Rule 504 of Regulation D. The debenture was
convertible into shares of common stock of the Company at the
discretion of the holder thereof. The entire debenture was
converted into an aggregate of 391,250 shares of common stock.
In August 1999, the Company issued an aggregate of 1,715,000 shares
in the name of Jacob International, Inc. pursuant to a public
relations agreement. Of the shares issued, 428,000 have been
delivered to Jacob, and the balance are held in escrow to be
delivered when the closing bid price of the Company's common stock
reaches certain milestones. See "Selling Shareholders."
<PAGE>
In August 1999, the Company executed five promissory notes in the
aggregate face amount of $750,000 under Rule 506 of Regulation D.
Each of the notes is convertible into shares of common stock at the
discretion of the holder thereof. In addition, as part of the
transaction, the Company issued an aggregate of 5,000,000 warrants
to acquire common stock to the holders of the notes. See
"Description of Securities."
In September 1999, the Company issued 1,500,000 shares of restricted
common stock to one accredited investor for $210,000. The investor
also received warrants to acquire 500,000 shares of common stock at
$0.28 per share, exercisable until September 28, 2001. Both the
common stock issued to the investor and the common stock underlying
the exercise of the warrants are being registered in the
registration statement of which this is a part. The issuance was
pursuant to an exemption under Rule 506 of Regulation D.
EXHIBITS
Exhibit No. Description
2.1 Agreement and Plan of Reorganization dated
November 6, 1996 between Lakota Energy, Inc. and
Chancellor Trading Group, Inc.
2.2 Reorganization and Stock Purchase Agreement
dated May 28, 1999 between Lakota Energy, Inc.,
2-Infinity.com, Inc., and Majed Jalali.
2.3 Reorganization and Stock Purchase Agreement
dated June 8, 1999 between Lakota Energy, Inc.
and Voice Design, Inc. and its shareholders.
2.4 Stock Transfer Agreement dated June 14, 1999
between Lakota Energy, Inc. and Lakota Oil and
Gas, Inc.
3.1 Articles of Incorporation of Chancellor Trading
Group, Inc. filed July 14, 1995.
3.2 Articles of Merger between Lakota Energy, Inc.
and Chancellor Trading Group, Inc. filed
December 27, 1996.
3.3 Articles of Amendment to the Articles of
Incorporation of Lakota Energy, Inc. filed
August 4, 1999.
3.4 Bylaws of Lakota Energy, Inc., as amended.
5 Opinion of Cutler Law Group with respect to
legality of the securities of the Registrant
begin registered
10.1 Oil and Gas Lease dated October 21, 1995.
10.2 Assignment of Oil, Gas and Mineral Lease
dated March 15, 1996.
10.3 Oil, Gas and Mineral Lease dated April 26,
1996.
10.4 Lease Agreement dated December 17, 1996 for
the premises located at 2849 Paces Ferry
Road, Suite 710, Atlanta, Georgia.
10.5 Employment Agreement between
2-Infinity.com, Inc. and Majed Jalali
effective June 1, 1999.
10.6 Employment Agreement between Voice Design,
Inc. and Charles Downey, Jr., effective
June 14, 1999.
10.7 Employment Agreement between Voice Design,
Inc. and Patrick "Cody" Morgan effective
June 14, 1999.
<PAGE>
10.8 Lakota Energy, Inc. Omnibus Stock Option Plan
effective August 1, 1999.
10.9 Agreement for investor relations services
with PMR and Associates dated January 27,
1999, as amended.
10.10 Agreement for investor relations services
with Market Strategies dated June 4, 1999.
10.11 Consulting Agreement with Rapid Release
Research, LLC effective August 9, 1999.
10.12 Escrow Agreement dated August 11, 1999
between Lakota Technologies, Inc., Rapid
Release Research, LLC, and MRC Legal
Services Corporation, as escrow agent.
10.13 Promissory Note payable to Paras Chokshi
dated February 12, 1999.
10.14 Promissory Note payable to Dipak Bhatt
dated February 12, 1999.
10.15 Promissory Note payable to Lakota Energy,
Inc. from Robert Kent Honeyman dated April
29, 1999.
10.16 Securities Subscription Agreement dated as
of March 16, 1999 between Lakota Energy,
Inc. and Y.L. Hirsch.
10.17 Securities Subscription Agreement dated as
of March 16, 1999 between Lakota Energy,
Inc. and Amram Rothman.
10.18 Securities Subscription Agreement dated as
of March 16, 1999 between Lakota Energy,
Inc. and Joshua Heimlich.
10.19 8% Series A Senior Subordinated Convertible
Redeemable Debenture due March 15, 2000,
executed in favor of Y.L. Hirsch.
10.20 8% Series A Senior Subordinated Convertible
Redeemable Debenture due March 15, 2000,
executed in favor of Amram Rothman.
10.21 8% Series A Senior Subordinated Convertible
Redeemable Debenture due March 15, 2000,
executed in favor of Joshua Heimlich.
10.22 Escrow Agreement dated as of March 16, 1999
between Lakota Energy, Inc., Y.L. Hirsch,
Amram Rothman, Joshua Heimlich, and Edward
H. Burnbaum, Esq., as escrow agent.
10.23 Securities Subscription Agreement dated as
of July 23, 1999 between Lakota Energy,
Inc. and HLKT Holdings, LLC.
10.24 1% Series B Senior Subordinated Convertible
Redeemable Debenture Due July 23, 2001,
executed in favor of HLKT Holdings, LLC.
10.25 Escrow Agreement dated as of July 23, 1999
between Lakota Energy, Inc., HLKT Holdings,
LLC, and Edward H. Burnbaum, Esq. as escrow
agent.
10.26 Subscription Agreement dated August 27,
1999 between Lakota Technologies, Inc. and
HLKT Holdings, LLC.
10.27 3% Convertible Debenture due August 27,
2000 dated as of August 27, 1999 and
executed in favor of HLKT Holdings, LLC.
10.28 Securities Purchase Agreement dated as of
August 24, 1999 by and among Lakota
Technologies, Inc., Y.L. Hirsch, Sholem
Liebenthal, Avram Rothman, Joshua Heimlich,
and Zvi Y. Zelikovitz.
10.29 8% Convertible Note due August 24, 2001,
dated August 24, 1999, and executed in
favor of Y.L. Hirsch.
<PAGE>
10.30 8% Convertible Note due August 24, 2001,
dated August 24, 1999, and executed in
favor of Sholem Liebenthal.
10.31 8% Convertible Note due August 24, 2001,
dated August 24, 1999, and executed in
favor of Amram Rothman.
10.32 8% Convertible Note due August 24, 2001,
dated August 24, 1999, and executed in
favor of Joshua Heimlich.
10.33 8% Convertible Note due August 24, 2001,
dated August 24, 1999, and executed in
favor of Zvi Y. Zelikovitz.
10.34 Common Stock Purchase Warrant dated August
24, 1999, and executed in favor of Y.L.
Hirsch.
10.35 Common Stock Purchase Warrant dated August
24, 1999, and executed in favor of Sholem
Liebenthal.
10.36 Common Stock Purchase Warrant dated August
24, 1999, and executed in favor of Amram
Rothman.
10.37 Common Stock Purchase Warrant dated August
24, 1999, and executed in favor of Joshua
Heimlich.
10.38 Common Stock Purchase Warrant dated August
24, 1999, and executed in favor of Zvi Y.
Zelikovitz.
10.39 Escrow Agreement dated as of August 24,
1999 between Lakota Technologies, Inc.,
Y.L. Hirsch, Sholem Liebenthal, Avram
Rothman, Joshua Heimlich,, Zvi Y.
Zelikovitz, and Edward H. Burnbaum, Esq.,
as escrow agent.
10.40 Registration Rights Agreement dated as of
August 24, 1999 between Lakota
Technologies, Inc., Y.L. Hirsch, Sholem
Liebenthal, Avram Rothman, Joshua
Heimlich,, and Zvi Y. Zelikovitz.
10.41 Guaranty dated as of August 24, 1999 by
Robert Ken Honeyman and for the benefit
Y.L. Hirsch, Sholem Liebenthal, Avram
Rothman, Joshua Heimlich,, and Zvi Y.
Zelikovitz.
10.42 Stock Pledge and Security Agreement dated
as of August 24, 1999 by Robert Ken
Honeyman and for the benefit Y.L. Hirsch,
Sholem Liebenthal, Avram Rothman, Joshua
Heimlich,, and Zvi Y. Zelikovitz.
10.43 Tut Systems, Inc. Value Added Reseller
Agreement dated May 20, 1999.
10.44 Warrant executed in favor of Dipak Bhatt to
purchase 1,250,000 shares, expiring
November 30, 1999.
10.45 Warrant executed in favor of Dipak Bhatt to
purchase 1,250,000 shares, expiring
November 30, 2000.
10.46 Warrant executed in favor of Dipak Bhatt to
purchase 750,000 shares, expiring December
22, 1999.
10.47 Warrant executed in favor of Dipak Bhatt to
purchase 750,000 shares, expiring December
22, 2000.
10.48 Warrant executed in favor of Michael A.
Hancock and Steven D. Morrison to purchase
500,000 shares, expiring December 10, 1999.
10.49 Warrant executed in favor of Michael A.
Hancock and Steven D. Morrison to purchase
500,000 shares, expiring December 10, 2000.
<PAGE>
10.50 Warrant executed in favor of Michael A.
Hancock and Steven D. Morrison to purchase
250,000 shares, expiring December 17, 1999.
10.51 Warrant executed in favor of Michael A.
Hancock and Steven D. Morrison to purchase
250,000 shares, expiring December 17, 2000.
10.52 Stock Purchase Agreement dated September
28, 1999 by and between the Company and
Matt Hensley.
10.53 Warrant dated September 28, 1999 by and
between the Company and Matt Hensley.
23.1 Consent of Jones, Jensen & Company, Certified
Public Accountants
23.3 Consent of the Law Offices of M. Richard Cutler
(contained in opinion to be filed as Exhibit 5)
24 Power of Attorney
27 Financial Data Schedule
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3)
of the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of
the offering.
(4) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
<PAGE>
public policy as express in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer
or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication such issue.
(5) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the small business issuer
under Rule 424(b)(1), or (4) or 497(h) under the Securities Act as
part of this registration statement as of the time the Commission
declared it effective.
(6) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of those
securities.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
SB-2 and authorized this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the
Atlanta, State of Georgia, on October 5, 1999.
Lakota Technologies, Inc.
By: /s/ Robert (Ken) Honeyman
Robert (Ken) Honeyman
President
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below under the heading "Signature" constitutes
and appoints Robert (Ken) Honeyman his true and lawful
attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and
all capacities to sign any or all amendments to this registration
statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully for all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting
alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
In accordance with the requirements of the Securities Act of
1933, this Registration Statement or Amendment thereto has been
signed by the following persons in the capacities and on the dates
stated.
SIGNATURE TITLE
/s/ Howard N. Wilson Vice President and
Howard N. Wilson Secretary, Director
/s/ Nicholas R. Athens Director
Nicholas R. Athens
/s/ John B. Hayes Director
John B. Hayes
/s/ Patrick "Cody" Morgan Director
Patrick "Cody" Morgan
<PAGE>
LAKOTA TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
<PAGE>
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets. . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations. . . . . . . . . . . 6
Consolidated Statements of Stockholders' Equity . . . . . 7
Consolidated Statements of Cash Flows. . . . . . . . . . . 9
Notes to the Consolidated Financial Statements . . . . . 11
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Lakota Technologies, Inc. and Subsidiaries
(A Development Stage Company)
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Lakota
Technologies, Inc. and Subsidiaries (a development stage company) as
of June 30, 1999 and December 31, 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the
six months ended June 30, 1999, and for the years ended December 31,
1998 and 1997, and from inception on November 14, 1995 through June
30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Lakota Technologies, Inc. and Subsidiaries (a development stage
company) as of June 30, 1999 and December 31, 1998 and the results of
their operations and their cash flows for the six months ended June
30, 1999 and for the years ended December 31, 1998 and 1997 and from
inception on November 14, 1995 through June 30, 1999 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 3 to the financial statements, the Company is a
development stage company with no significant operating results to
date, which raises substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are
also described in Note 3. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
September 15, 1999
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
<TABLE>
<S> <C> <C>
June 30, December 31,
1999 1998
CURRENT ASSETS
Cash $ 152,037 $ 92,090
Security deposit 4,246 2,077
Total Current Assets 156,283 94,167
PROPERTY AND EQUIPMENT (Note 2)
Leasehold improvements 673 673
Furniture and fixtures 4,382 4,382
Equipment 14,184 2,745
Less: accumulated depreciation (3,257) (2,400)
Total Property and Equipment 15,982 5,400
OIL AND GAS PROPERTIES (Notes 1, 2 and 5)
32,064 32,064
TOTAL ASSETS $ 204,329 $ 131,631
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
June 30, December 31,
1999 1998
CURRENT LIABILITIES
Accounts payable $ 36,487 $ 2,104
Line of credit 1,800 -
Notes payable (Note 9) 30,000 -
Notes payable - related party(Note 4 and 9) 90,315 54,914
Accrued interest - related party(Note 4) 15,708 13,193
Accrued expenses 20,115 6,622
Total Current Liabilities 194,425 76,833
STOCKHOLDERS' EQUITY
Preferred stock 25,000,000 shares authorized,
no par value; no shares outstanding - -
Common stock 100,000,000 shares authorized, no par
value; 36,932,966 shares issued and outstanding
4,955,527 1,650,389
Loan receivable - related party (161,022) (36,507)
Interest receivable - related party (8,217) (1,763)
Deficit accumulated during the
development stage (4,776,384) (1,557,321)
Total Stockholders' Equity 9,904 54,798
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
$ 204,329 $ 131,631
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<S> <C> <C> <C> <C>
From
For the Inception on
Six Months For the November 14,
Ended Years Ended 1995 Through
June 30, December 31, June 30,
1999 1998 1997 1999
REVENUES $ 13,276 $ - $ - $ 13,276
EXPENSES
Depreciation expense 857 1,200 - 3,257
Amortization expense 2,159,000 - - 2,159,000
Oil and gas properties expenditures 133,071 - 1,200 133,071
General and administrative 942,618 351,139 303,897 1,705,673
Total Expenses 3,235,546 352,339 305,097 4,001,001
Loss from Operations (3,222,270) (352,339) (305,097) (3,987,725)
OTHER INCOME (EXPENSE)
Interest expense (3,247) (5,491) (436,061) (796,875)
Interest income 6,454 1,362 400 8,216
Total Other Income (Expense) 3,207 (4,129) (435,661) (788,659)
NET LOSS $ (3,219,063) $ (356,468) $(740,758) $ (4,776,384)
BASIC LOSS PER SHARE $ (0.14) $ (0.03) $ (0.06)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 23,012,307 13,371,602 11,983,904
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<S> <C> <C> <C>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
Balance at inception on
November 14, 1995 - $ - $ -
Net loss for the period ended
December 31, 1995 - - (1,683)
Balance, December 31, 1995 - - (1,683)
Issuance of common stock to founders
at approximately $0.00 per share 9,187,500 1,250 -
Issuance of common stock in merger with
Chancellor Trading Group, Inc. at
approximately $0.002 1,801,000 3,908 -
Issuance of common stock for cash 108,000 108,000 -
at $1.00 per share
Issuance of common stock for services 20,000 20,000 -
at $1.00 per share
Net loss for the year ended
December 31, 1996 - - (458,412)
Balance, December 31, 1996 11,116,500 133,158 (460,095)
Common stock issued for cash at $1.00
per share 212,500 212,500 -
Conversion of preferred stock to common
stock at $1.00 per share 812,500 812,500 -
Net loss for the year ended
December 31, 1997 - - (740,758)
Balance, December 31, 1997 12,141,500 $ 1,158,158 $ (1,200,853)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<S> <C> <C> <C>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
Balance, December 31, 1997 12,141,500 $ 1,158,158 $ (1,200,853)
Common stock issued for cash at
approximately $0.10 per share 3,608,800 344,378 -
Common stock issued for services
at approximately $0.03 per share 4,928,433 147,853 -
Net loss for the year ended
December 31, 1998 - - (356,468)
Balance, December 31, 1998 20,678,733 1,650,389 (1,557,321)
Common stock issued for cash
at approximately $0.05 per share 1,520,000 77,600 -
Common stock issued for debt
at approximately $0.07 per share 7,685,581 550,000 -
Common stock issued in business
combination at $0.35 per share 6,000,000 2,100,000 -
Common stock issued for services
at approximately $0.08 per share 4,894,977 507,538 -
Options issued for cash at approximately
$0.02 per share - 70,000 -
Common stock canceled (Note 12) (3,846,325) - -
Net loss for the six months ended
June 30, 1999 - - (3,219,063)
Balance, June 30, 1999 36,932,966 $ 4,955,527 $ (4,776,384)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C> <C> <C>
From
For the Inception on
Six Months For the November 14,
Ended Years Ended 1995 Through
June 30, December 31, June 30,
1999 1998 1997 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (3,219,063) $ (356,468) $ (740,758) $ (4,776,384)
Adjustments to reconcile net (loss to net
cash flows from operating activities:
Depreciation expense 857 1,200 1,200 3,257
Amortization expense 2,159,000 - - 2,159,000
Common stock issued for services 508,538 147,853 - 676,391
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable 34,383 2,104 (14,511) 36,487
Increase (decrease) in accrued expenses 16,008 6,476 (370,801) 20,115
Increase (decrease) in other assets (2,169) - 6,693 (4,246)
Increase in related party receivable (130,969) (33,870) (400) (169,239)
Net Cash (Used) by Operating Activities (633,415) (232,705) (1,118,577) (2,054,619)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (11,439) - (7,800) (16,121)
Net Cash (Used) by Investing Activities (11,439) - (7,800) (16,121)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on notes payable (24,599) (22,098) - (46,697)
Proceeds from notes payable/debenture 581,800 - 77,012 335,264
Conversion of preferred stock to common stock - - 812,500 812,500
Issuance of common stock 147,600 344,378 212,500 817,636
Net Cash Provided by
Financing Activities 704,801 322,280 1,102,012 1,918,703
NET INCREASE (DECREASE) IN CASH 59,947 89,575 (24,365) 152,037
CASH AT BEGINNING OF PERIOD 92,090 2,515 26,880 -
CASH AT END OF PERIOD $ 152,037 $ 92,090 $ 2,515 $ 152,037
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<S> <C> <C> <C> <C>
From
For the Inception on
Six Months For the November 14,
Ended Years Ended 1995 Through
June 30, December 31, June 30,
1999 1998 1997 1999
CASH PAID DURING THE PERIOD FOR:
Interest $ 731 $ - $ - $ 731
Income taxes $ - $ - $ - $ -
NON-CASH TRANSACTIONS
Common stock issued for services $ 507,538 $ 147,853 $ - $ 555,391
Organization costs paid by related party $ - $ - $ - $ 5,472
Issuance of preferred stock for oil and
gas properties $ - $ - $ - $ 812,500
Common stock issued for business
acquisitions $2,100,000 $ - $ - $ 2,100,000
Common stock issued for debt $ 550,000 $ - $ - $ 550,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999
NOTE 1 - HISTORY AND ORGANIZATION
The consolidated financial statements presented are
those of Lakota Technologies, Inc. (formerly
Chancellor Trading Group, Inc.) (the Company) (a
development stage company) and its wholly owned
subsidiaries Lakota Energy, Inc. (Lakota), Air
Nexus, Inc., Lakota Oil and Gas, Inc. and
2-Infinity.com, Inc. The Company was incorporated
in the State of Colorado on July 14, 1995.
Effective November 6, 1996, the Company and
(Lakota) completed an Agreement and Plan of
Reorganization whereby the Company issued 9,187,500
shares of its common stock in exchange for 100% of
the issued and outstanding common stock of
(Lakota). The Company also changed its name on
this date from Chancellor Trading Group, Inc. to
Lakota Energy, Inc. (the same name as its
subsidiary). In 1999, the Company changed its name
to Lakota Technologies, Inc.
Lakota was incorporated in the State of Colorado on
November 14, 1995. Lakota was incorporated to
engage in the acquisition and exploration of oil
and gas properties.
On November 11, 1996, Lakota exercised its option
agreements and acquired 399,999 shares of common
stock or 99.9% of the issued and outstanding shares
of West Bolt Energy, Inc. (West Bolt) for 812,500
of its series A redeemable convertible preferred
stock valued at $36,716,560. The acquisition was
accounted for as a combination under the purchase
method of accounting with acquired oil and gas
properties were recorded at their cost to the
Company (see Note 4).
At the time of reorganization, the Company had very
little activity with minimal operations and assets.
Additionally, the exchange of the Company's common
stock for the common stock of Lakota resulted in
the former stockholders of Lakota obtaining control
of the Company. Accordingly, Lakota became the
continuing entity for accounting purpose, and the
transaction was accounted for as a recapitalization
of Lakota with no adjustment to the basis or assets
acquired or liabilities assumed by the Company.
The two companies merged into a single entity
"Lakota Energy, Inc." on December 27, 1996.
On June 9, 1999, the Company formed Lakota Oil &
Gas, Inc., a 100% owned subsidiary. The Company
transferred their interest in two oil exploration
projects into Lakota Oil and Gas, Inc. As of June
30, 1999, Lakota Oil & Gas, Inc. had no significant
operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared
using the accrual method of accounting. The
Company has elected a December 31 year end.
The Company uses the successful efforts method of
accounting for oil and gas producing activities.
Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells
that find proved reserves, and to drill and equip
development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves,
geological and geophysical costs, and costs of
carrying and retaining unproved properties are
expensed.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b. Provision for Taxes
At June 30, 1999, the Company had net operating loss
carryforwards of approximately $4,776,000 that may
be offset against future taxable income through
2014. No tax benefit has been reported in the
financial statements because the Company believes
that there is a 50% chance the net operating loss
carryforwards will expire unused, therefore the
potential tax benefits of the loss carryforwards are
offset by a valuation allowance of the same amount.
c. Cash Equivalents
The Company considers all highly liquid investments
with a maturity of three months or less when
purchased to be cash equivalents.
d. Basic Loss Per Share
The computation of income basic loss per share of
common stock is based on the weighted average number
of shares outstanding at the date of the financial
statements. Fully diluted net loss per common share
is not materially different from basic loss per share.
e. Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reported period. Actual results
could differ from those estimates.
Significant estimates include the valuation of
proved, undeveloped reserves related to the oil and
gas properties. The ultimate recovery of proved,
undeveloped reserves is dependent on the success of
future development of the properties and in the
Company's ability to complete the development.
f. Amortization
Fixed assets are stated at cost. Oil and gas wells
will be amortized using the units-of-production
method on the basis of total estimated units of
proven reserves. Amortization will not be recorded
until reserves are extracted.
g. Consolidation
The consolidated financial statements are those of
the Lakota Energy, Inc.(formerly Chancellor Trading
Group, Inc.), its wholly owned subsidiaries, Air
Nexus, Inc, 2-Infinity.com, Inc. and Lakota Energy,
Inc. and its 99.9% owned subsidiary West Bolt
Energy, Inc. (West Bolt). All intercompany accounts
have been eliminated in the consolidation.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h. Property and Equipment
Property and equipment are stated at cost.
Expenditures for small tools, ordinary maintenance
and repairs are charged to operations as incurred.
Major additions and improvements are capitalized.
Depreciation is computed using the straight-line
method over estimated useful lives as follows
Leasehold improvements 7 years
Furniture and fixtures 7 years
Equipment 5 years
Depreciation expense for the periods ended June 30,
1999 and December 31, 1998 was $857 and $1,200,
respectively.
i. Advertising
The Company follows the policy of charging the costs
of advertising to expense as incurred.
j. New Accounting Pronouncements
The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" and Statement of
Financial Accounting Standards No. 129 "Disclosures
of Information About an Entity's Capital Structure."
SFAS No. 128 provides a different method of
calculating earnings per share than was previously
used in accordance with APB Opinion No. 15, "Earnings
Per Share." SFAS No. 128 provides for the
calculation of "Basic" and "Dilutive" earnings per
share. Basic earnings per share includes no dilution
and is computed by dividing income available to
common shareholders by the weighted average number of
common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of
securities that could share in the earnings of an
entity, similar to fully diluted earnings per share.
SFAS No. 129 establishes standards for disclosing
information about an entity's capital structure.
SFAS No. 128 and SFAS No. 129 are effective for
financial statements issued for periods ended after
December 15, 1997. In fiscal 1998, the Company
adopted SFAS No. 128, which did not have a material
impact on the Company's financial statements. The
implementation of SFAS No. 129 did not have a
material effect on the Company's financial statements.
k. Goodwill
The Company assesses long-lived assets for impairment
under FASB Statement No. 121, Accounting for the
Impairment of long-Lived Assets. Under those rules,
goodwill associated with assets acquired in a
purchase business combination where determined to be
impaired because circumstances exist that indicate
the carrying amount of those assets may not be
recoverable. The total goodwill was amortized
because of the impairment.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using
generally accepted accounting principles applicable
to a going concern which contemplates the realization
of assets and liquidation of liabilities in the
normal course of business. The Company has not
established revenues sufficient to cover its
operating costs and allow it to continue as a going
concern. Management believes that the Company will
soon be able to generate revenues sufficient to cover
its operating costs. Currently shareholders are
committed to pay all operating and other costs until
sufficient revenues are generated.
NOTE 4 - RELATED PARTY TRANSACTIONS
Can Am Resources, Inc. signed two notes receivable to
the Company in 1996 and one additional note in 1997
and 1998. The total of the notes was $148,585 and
they bear 10% interest. The president of the Company
is the president of Can Am Resources, Inc. The notes
are unsecured and due on demand.
The Company had signed notes payable to related
companies totaling $90,315 at June 30, 1999. The
notes bear interest at 10% per annum. Accrued
interest at June 30, 1999 was $15,708. The notes are
unsecured and are due on demand.
NOTE 5 - CONVERSION OF PREFERRED STOCK
On February 26, 1997, the Board of Directors
authorized the conversion of 812,500 shares of
convertible preferred restricted stock into 812,500
shares of the Company's restricted common shares.
In 1997, the preferred shareholders converted their
shares to common stock on a conversion rate of one
share of preferred stock for one share of common
stock. At the time the stock was redeemed the
Company was issuing stock for cash at $1.00 per
share. The more readily available market price of
the common stock cause the valuation of the oil and
gas properties to be revalued using the common share
price. In addition, the preferred shareholders
forgave the accrued interest associated with the
preferred shares which also reduced the value of the
common shares received. The revaluation caused the
oil and gas properties to be valued at $32,064.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its offices under a lease
agreements accounted for as operating leases. Real
estate taxes, insurance and maintenance expenses are
obligations of the Company.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
Minimum rental payments under the non-cancelable
operating lease is as follows:
Periods Ended
June 30,
2000 $ 35,707
2001 20,318
2002 26,608
2003 -
All other years -
Rent expense was approximately $15,144 for the period
ended June 30, 1999. It is expected that expiring
leases will be renewed in the ordinary course of
business.
NOTE 7 - WARRANTS
A summary of the status of the Company's warrants as
of June 30, 1999 and changes during the period ending
June 30, 1999:
Average
Exercise
Shares Price
Outstanding, December 31, 1998 - $ -
Granted 9,005,600 0.30
Expired (278,800) 0.30
Exercised (310,000) 0.15
Outstanding, June 30, 1999 8,416,800 0.50
Exercisable, June 30, 1999 3,920,000 0.30
NOTE 8 - SUBSEQUENT EVENTS
Subsequent to June 30, 1999, the Company issued
convertible notes for approximately $100,000
convertible to approximately 700,000 shares of common
stock. In addition, the Company issued five
promissory notes of $150,000 each. Each promissory
note could be converted to common stock at 25% of
trading value of the stock on the day the conversion
was exercised. Also, each note holder received
warrants to acquire one million shares of stock at
50% of the trading value of the stock when exercised.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999
NOTE 9 - LONG-TERM DEBT
Notes payable as of June 30, 1999 are detailed in the
following summary:
Notes payable to individuals; convertible to stock
within three years; interest at 9.75%,
paid quarterly until converted, unsecured. $30,000
Note payable to an individual; due in 90 days,
unsecured. 40,000
Notes payable to related party at 10% interest,
due on demand, unsecured. 50,315
Total long-term debt 120,315
Less: current portion (120,315)
Long-term portion $ -
Maturities of long term debt are summarized below:
Period ending June 30, 2000 $ 120,315
2001 -
2002 -
2003 -
2004 -
Total $ 120,315
NOTE 10 - DEBENTURES
In March 1999, the Company issued $550,000 of
convertible debentures and incurred a fee of $44,000
on the issuance. All the debentures were converted
prior to June 30, 1999 into 7,685,581 shares of
common stock.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999
NOTE 11 - INCOME TAXES
The income tax benefit differs from the amount
computed at federal statutory rates as follows:
For the
Period Ended
June 30,
1999
Income tax benefit at statutory rate $ 1,053,600
Change in valuation allowance (1,053,600)
$ -
Deferred tax assetse (liabilities)
at June 30, 1999 are comprised of the following:
Net operating loss carryforward $ 1,583,170
Valuation allowance (1,583,170)
$ -
NOTE 12 - COMMON STOCK TRANSACTIONS
In 1997, the Company issued approximately 4,500,000
shares for services. In 1998, the Company
renegotiated the number of shares due to the fact
that the services had not been performed as
anticipated. The Company received back and canceled
3,846,325 shares.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999
NOTE 13 - BUSINESS COMBINATION
On June 9, 1999, the Company acquired all of the
outstanding shares of Air Nexus, Inc., a retail
provider of commercial voice and data services.
The Company issued 3,000,000 shares of common stock
for all of the outstanding shares of Air Nexus, Inc.
The acquisition has been accounted for as a purchase
and results of operations of Air Nexus, Inc. since
the date of acquisition are included in the
consolidated financial statements.
Unaudited pro forma consolidated results of
operations for the six months ended June 30, 1999
and for the year ended December 31, 1998 as though
Air Nexus, Inc. had been acquired as of January 1,
1998 follows:
For the
Six Months For the
Ended Year Ended
June 30, December 31,
1999 1998
Sales $ 112,186 $ 92,714
Net Income (loss) (987,491) (349,397)
Earnings per common and
common equivalent share $ (0.04) $ (0.03)
In addition, the Company acquired all of the
outstanding shares of 2-Infinity.com, Inc. through
issuance of 3,000,000 shares of common stock.
2-Infinity.com, Inc. had only been in existence for
a short period of time and had no prior operation,
and, accordingly, no proforma financial statements
are presented.
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999
NOTE 14 - OPERATING SEGMENTS
Effective June 30, 1999, the Company adopted SFAS
No. 131, "Disclosure about Segments of an Enterprise
and Related Information." The Company conducts its
operations principally in the oil and gas industry
through Lakota Energy, Inc., in the high speed
internet access industry with 2-Infinity.com, Inc.
and in the commercial voice and data services
industry with Air Nexus, Inc.
Certain financial information concerning the
Company's operations in different industries is as
follows:
<TABLE>
<S> <C> <C> <C>
For the Six Months
Ended June 30, 1999
Lakota Air 2-Infinity.
Energy, Inc. Nexus, Inc. Com, Inc.
Net sales $ 5,255 $ 8,021 $ -
Operating loss applicable to
industry segment 905,268 17,378 33,900
Writedown of goodwill - (1,020,000) (1,139,000)
Interest expense (3,247) - -
Other income (expenses) - interest income 6,454 - -
Assets 77,476 9,753 117,100
Depreciation and amortization 671 - 186
Property and equipment acquisitions - 301 11,138
</TABLE>
Prior to 1999, the Company only operated in the oil
and gas industry.
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (herein, together with all
Exhibits, "Agreement") is entered in to as of November 6, 1996 by and
between Lakota Energy, Inc., a Colorado corporation, ("Lakota"): and
Chancellor Trading Group, Inc., a Colorado corporation ("Chancellor").
This Agreement sets forth the terms and conditions upon which Lakota will
merge with and into Chancellor (the "Merger"), pursuant to an Agreement and
Plan of Merger (the "Merger Agreement") in substantially the form attached
hereto as Exhibit A, which provides, among other things, for the conversion
and exchange of all Common Shares outstanding of Lakota ("Lakota Common
Shares") into 9,187,500 shares of voting, no par value common stock of
Chancellor ("Chancellor Common Stock").
In consideration of the mutual promises. and covenants contained herein,
Lakota and Chancellor agree as follows:
ARTICLE 1
Definitions
As used in this Agreement, the following terms (whether used in singular or
plural forms) shall have the following meanings:
"Contract" means any written contract, mortgage, deed of trust, bond,
indenture, lease, license, note, franchise, certificate, option, warrant,
right, or other instrument, document or agreement, and any oral obligation,
right or agreement.
"GAAP" means generally accepted accounting principles, as that term is
defined by the American Institute of certified public accountants under the
first standard of reporting under its generallyaccepted accounting standards.
"Knowledge" of Lakota of or with respect to -any matter means that any of
the executive officers, directors or senior managers of Lakota has, or after
due inquiry and investigation would have, actual awareness or knowledge of
such matter, and "Knowledge" of Chancellor of or with respect to any matter
means that any of the executive officers, directors or senior managers of
Chancellor has, or after due inquiry and investigation would have, actual
awareness or knowledge of such matter.
"Legal Requirements" means applicable common law and any statute, ordinance,
code or other law, rule, regulation, order, technical or other standard,
requirement, judgment, or procedure enacted, adopted, promulgated, applied
or followed by any governmental authority, including judgments.
"Lien" means any security agreement, financing statement filed with any
governmental authority, conditional sale statement filed with any
governmental authority, conditional sale or other tide retention agreement,
any lease, consignment or bailment given for purposes of security, any lien,
mortgage, indenture, pledge, option, encumbrance, adverse interest,
constructive trust or other trust, claim, attachment, exception to or defect
in title or other ownership interest (including but not limited to
reservations, rights of entry, possibilities of reverter, encroachments,
easement, rights-ofway, restrictive covenants leases and licenses) of any
kind, which otherwise constitutes an interest in or claim against property,
whether arising pursuant to any Legal Requirement, Contract or otherwise.
<PAGE>
"Transaction Document" means any Contract or other written report or record
required to be provided pursuant to this Agreement.
ARTICLE 2
Merger
Section 2.1 Merger. Subject to the terms and conditions contained in this
Agreement, Lakota will be merged by statutory merger with and into
Chancellor pursuant to the Merger Agreement at a Closing at the Effective
Tune of the Merger as defined in the Merger Agreement. In the Merger, the
shares of Lakota outstanding immediately prior to the effective time of the
merger (excluding shares as to which statutory dissenters' rights have been
exercise) will be converted into and exchanged for 9,187,500 shares of
Chancellor Common Stock, subject to adjustments as provided in Section 2.2.
Section 2.2 Mechanics for Closing Merger. Upon the approval of the
respective shareholders, the executed Articles of Merger shall be filed with
the Colorado Secretary of State.
Section 2.3 Further Assurances. At or after Closing, Lakota, at the request
of Chancellor, shall promptly execute and deliver, or cause to be executed
and delivered, to Chancellor all such documents and instruments, in form and
substance satisfactory to Chancellor, as Chancellor reasonably may request
in order to carry out or evidence the terms of this Agreement.
ARTICLE 3
Representations and Warranties of Lakota
Lakota represents and warrants to Chancellor, as of the date of this
Agreement and as of Closing, as follows:
Section 3. 1 Organization and Qualification of Lakota. Lakota is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Colorado and has all requisite power to conduct its
activities as such activities are currently conducted.
Section 3.2 Authority. Lakota. has all requisite power and authority to
execute, deliver and perform this Agreement. The execution, delivery and
performance of this Agreement by Lakota have been duly and validly
authorized by all necessary action on the part of Lakota. This Agreement has
been duly and validly executed and delivered by Lakota, and is a valid and
binding obligation of Lakota, enforceable against Lakota in accordance with
its terms.
Section 3.3 Ownership and Number of Common Shares of Lakota. The
shareholders set forth on Exhibit 3.3 own the Lakota Common Shares shown
thereon, beneficially and of record, free and clear of all liens. The Lakota
Common Shares are not subject to, or bound or affected by, any proxies,
voting agreements, or other restrictions on the incidents of ownership
hereof. There are not, and will not at Closing, be more than 4,593,750
outstanding Lakota Common Shares.
Section 3.4 No Subsidiaries. Lakota does not control or hold direct or
indirect equity interests in, or hold rights to control or acquire direct or
indirect equity interests in, any corporation except that Lakota has the
option to purchase 399,999 Common Shares of West Bolt Energy, Inc., a Texas
Corporation.
<PAGE>
Section 3.12 Absence of Certain Changes or Events. Since the date of the
balance sheet there has not occurred:
(a) any material and adverse change in the financial condition or
operations of Lakota,
(b) any damage, destruction or loss to or of any of the material
assets or properties owned or leased by Lakota;
(c) the creation or attachment of any Lien against the Common Shares
of Lakota,
(d) any waiver, release, discharge, transfer, or cancellation by
Lakota of any rights or claims of material value;
(e) any issuance by Lakota of any Common Shares, or any merger or
consolidation of Lakota with any other Person, or any acquisition by Lakota
of the business of any other Person;
(f) any incurrence, assumption or guarantee by Lakota of any
indebtedness or liability;
(g) any declaration, setting aside or payment by Lakota of any dividends on,
or any other distribution with respect to, any Common Shares of Lakota or
any repurchase, redemption, or other acquisition of any Common Shares of
Lakota;
(h) (A) any payment of any bonus, profit sharing, pension or similar payment
or arrangement or special compensation to any employee of Lakota, except in
the ordinary course of the administration of Lakota, or (B) any increase in
the compensation payable or to become payable to any employee of Lakota; or
(i) the entry by Lakota into any Contract to do any of the foregoing.
Section 3.13 Material Lakota Contracts. As of the date of this Plan of
Reorganization, Lakota does not have except as discussed in Exhibit 3.13,
(i) contracts evidence or evidencing or relating to any liabilities or
obligations of Lakota, whether absolute, accrued, contingent or otherwise,
or granting any Person a Lien or against any properties or assets owned or
leased by Lakota; (ii) joint venture or partnership Contracts between Lakota
and any other person; (iii) Contracts limiting the freedom of Lakota to
engage in or to compete in any activity, or to use or disclose any
information in its possession; and (iv) any other Contracts to which Lakota
is a party or by which it or the assets or properties owned or leased by it
are bound or affected that are not set forth on other Exhibits hereto, which
in the aggregate contemplate payments to or by Lakota exceeding $50,000 in
any twelvemonth period (collectively herein as the "Material Lakota
Contract"). Lakota has delivered to Chancellor true and complete copies of
each of the Material Lakota Contracts, including any amendments thereto (or,
in the case of oral Material Lakota Contracts is valid, in full force and
effect and enforceable in accordance with its terms against the parties
thereto other than Lakota, and Lakota has fulfilled when due, or has taken
all action necessary to enable it to fulfill. when due, all. of its
obligations thereunder; (ii) there has not occurred any default (without
regard to lapse of time, the giving of notice, or the election of any person
other than Lakota, or any combination thereof) by Lakota, nor, to the
knowledge of Lakota, has there occurred any default (without regard to lapse
of time, the giving of notice, or the election of Lakota, or any combination
thereof) by any other person, under any of the Material Lakota Contracts;
and (iii) neither Lakota nor, to the knowledge of Lakota, any other person
is in arrears in the performance or satisfaction of its obligations under
any of the Material Lakota Contracts, and no waiver has been granted by any
of the parties thereto.
Section 3.14 Real Property. As of the date of this Plan of Reorganization,
Lakota does not own any real property.
<PAGE>
Section 4.2 Authority. Chancellor has all requisite corporate power and
authority to execute, deliver and perform this Agreement. The execution,
delivery, and performance of this Agreement by Chancellor have been duly and
validly authorized by all necessary action on the part of Chancellor. This
Agreement has been duly and validly executed and delivered by Chancellor,
and is the valid and binding obligation of Chancellor, enforceable against
Chancellor in accordance with its terms.
Section 4.3 Validity and Ownership of Chancellor Common Stock. The
Chancellor Common Stock received by the shareholders of Lakota at Closing
will be validly issued and outstanding, fully paid and nonassessable. The
Chancellor Common Stock will not be subject to, nor bound or affected by,
any proxies, voting agreements, or other restrictions on the ownership thereof.
Section 4.4 No Subsidiaries. Chancellor does not control or hold direct or
indirect equity interests in, or hold rights to control or acquire direct or
indirect equity interests in, any corporation.
Section 4.5 Capitalization of Chancellor. The authorized capital stock of
Chancellor consists of 50,000,000 duly authorized shares of common stock, no
par value, of which 1,801,000 are validly issued and outstanding, fully paid
and nonassessable. There are 5,000,000 shares of non-voting preferred stock,
no par value per share authorized, of which there are no preferred shares
issued and outstanding. There are no other authorized or outstanding
subscriptions, options, convertible securities, warrants, calls or other
rights of any kind issued or granted by, or binding upon, Chancellor to
purchase or otherwise acquire any securities of or equity interest in
Chancellor.
Section 4.6 No Conflicts; Required Consents. The execution, delivery and
performance by Chancellor of this Agreement does not and win not: (i)
conflict with or violate any provisions of the articles or certificate of
incorporation or bylaws of Chancellor; (ii) violate any provision of any
Legal Requirements; or (iii) conflict with, violate, result in a breach of,
constitute a default under (without regard to requirements of notice, lapse
of time, or elections of other persons, or any combination thereof) or
accelerate or pen-nit the acceleration of the performance required by, any
Contract or Lien to which Chancellor is a party or by which Chancellor or
the assets or properties owned or leased by it are bound or affected.
Section 4.7 Resignation of Directors and Officers. Chancellor shall deliver
to Lakota the resignation of the directors and officers of Chancellor.
Section 4.8 Litigation. Other than disclosed in Exhibit 4.8, there is no
litigation pending or, to Chancellor's knowledge, threatened, by or before
any governmental authority or private arbitration tribunal, against
Chancellor or its operations, nor, to Chancellor's knowledge, is there any
basis for any such litigation.
Section 4.9 Compliance with Applicable Legal Requirements. Conduct by
Chancellor of its activities as currently conducted does not violate or
infringe upon any Legal Requirements currently in effect, or, to the
knowledge of Chancellor, proposed to become effective; and Chancellor has
received no notice of any violation by Chancellor of any Legal Requirements
applicable to Chancellor or its activities as currently conducted; and
Chancellor knows of no basis for the allegation of any such violation.
<PAGE>
Section 4.10 Financial Statements. Chancellor is a development stage
corporation with no assets and shareholder equity. Chancellor has delivered
to Lakota the audited financial statements for the period July 14, 1995
(inception) through February 22, 1996 and the unaudited balance sheet and
statement of operations of Chancellor as of September 30, 1996. The
unaudited financial statements were prepared in accordance with GAAP and
present fairly the financial position of Chancellor as of the date indicated
and the results of operations of Chancellor for the period ended September
30, 1996.
Section 4. 11 Liabilities. Chancellor has no liabilities or obligations,
whether absolute, accrued, contingent or otherwise, that are not reflected
in the balance sheet or nondelinquent obligations for ordinary and recurring
expenses, including in the ordinary course of business of Chancellor since
the date of the balance sheet.
Section 4.12 Tax Returns and Payments. Chancellor has filed all federal,
state, local and foreign tax returns required to be filed, and has timely
paid all taxes that have become due and payable, whether or not so shown on
any such tax returns. Chancellor has not received any notice of, nor does
Chancellor have any knowledge of, any deficiency or assessment of proposed
any knowledge of, any deficiency or assessment of proposed deficiency or
assessment from any taxing governmental authority. There are no tax audits
pending with respect to Chancellor, and there are no outstanding agreements
or waivers by or with respect to Chancellor that extend the statutory period
of limitations applicable to any federal, state, local or foreign tax
returns for any period.
Section 4.13 Absence of Certain Changes or Events. Since the date of the
Balance Sheet there has not occurred:
(a) any material and adverse chance in the financial condition or
operations of Chancellor;
(b) any damage, destruction or loss to or of any of the material
assets or properties owned or leased by Chancellor;
(c) the creation or attachment of any Lien against the Common Stock of
Chancellor;
(d) any waiver, release, discharge, transfer, or cancellation by
Chancellor of any rights or claims of material value;
(e) any issuance by Chancellor of any securities, or any merger or
consolidation of Chancellor with any other Person, or any acquisition by
Chancellor of the business of any other Person;
(f) any incurrence, assumption or guarantee by Chancellor of any
indebtedness or liability;
(g) any declaration, setting aside or payment by Chancellor of any dividends
on, or any other distribution with respect to, any capital stock of
Chancellor or any repurchase, redemption, or other acquisition of any
capital stock of Chancellor;
(h) (A) any payment of any bonus, profit sharing, pension or similar payment
or arrangement or special compensation to any employee of Chancellor, except
in the ordinary course of the administration of Chancellor, or (B) any
increase in the compensation payable or to become payable to any employee of
Chancellor; or
(i) the entry by Chancellor into any Contract to do any of the foregoing.
Section 4.14 Material Chancellor Contracts. As of the date of this Plan of
Reorganization, Chancellor does not have (i) contracts evidence or
evidencing or relating to any liabilities or obligations of Chancellor,
whether absolute, accrued, contingent or otherwise, or granting any Person a
Lien or against any properties or assets owned or leased by Chancellor; (ii)
joint venture or partnership Contracts between Chancellor and any other
person; (iii) Contracts limiting the freedom of Chancellor to engage in or to
<PAGE>
compete in any activity, or to use or disclose any information in its
possession; and (iv) any other Contracts to which Chancellor is a party or
by which it or the assets or properties owned or leased by it are bound or
affected that are not set forth on other Exhibits hereto, which in the
aggregate contemplate payments to or by Chancellor exceeding $50,000 in any
twelve-month period (collectively herein as the "Material Chancellor
Contract"). Chancellor has delivered to Lakota true and complete copies of
each of the Material Chancellor Contracts, including any amendments thereto
(or, in the case of oral Material Chancellor Contracts is valid, in full
force and effect and enforceable in accordance with its terms against the
parties thereto other than Chancellor, and Chancellor has fulfilled when
due, or has taken all action necessary to enable it to fulfill when due, all
of its obligations thereunder; (ii) there has not occurred any default
(without regard to lapse of time, the giving of notice, or the election of
any person other than Chancellor, or any combination thereof) by Chancellor,
nor, to the knowledge of Chancellor, has there occurred any default (without
regard to lapse of time, the giving of notice, or the election of
Chancellor, or any combination thereof) by any other person, under any of
the Material Chancellor Contracts; and (iii) neither Chancellor nor, to the
knowledge of Chancellor, any other person is in arrears in the performance
or satisfaction of its obligations under any of the Material Chancellor
Contracts, and no waiver has been granted by any of the parties thereto.
Section 4.15 Real Property. As of the date of this Plan of Reorganization,
Chancellor does not own any real property.
Section 4.16 Employees. As of the date of this Plan of Reorganization,
Chancellor does not have any employees.
Section 4.17 Books and Records. All of the books, records and accounts of
Chancellor are in all material respects true and complete, are maintained in
accordance with good business practice and all applicable Legal
Requirements, accurately present and reflect in all material respects all of
the transactions therein described, and are reflected accurately in the
Financial Statements. Chancellor has previously delivered to Lakota the
complete stock record book of Chancellor and true and complete copies of all
of the minutes of meetings and all other corporate actions of the
stockholders, Board of Directors and committees of the Board of Directors of
Chancellor since the date of its incorporation.
Section 4.18 Certain Interests. None of Chancellor or its officers,
directors, or holders of 10% or more of Chancellor Common Stock, directly or
indirectly is, or owns any interest in, or controls, or is an employee,
officer, director or partner of or participant in, or consultant to, any
person which is a competitor, supplier or customer of Chancellor.
Section 4.19 Bank Accounts. Exhibit 4.19 sets forth all bank accounts,
brokerage accounts, and safe deposit boxes of any kind maintained by
Chancellor and, in each case, identifies the persons that are authorized
signatories for, or which are authorized to have access to, each of them.
Section 4.20 Changes in Circumstances. Chancellor has no knowledge of (i)
any current or future condition or state of facts or circumstances which
could reasonably be expected to result in a material and adverse change in
the financial condition of operations of Chancellor, or (ii) any Legal
Requirements currently in effect from which Chancellor currently is, or any
currently proposed Legal Requirements from which Chancellor would be, exempt
by reason of any "grandfather" clauses or provisions contained therein, but
which would be applicable to Lakota following closing.
<PAGE>
SECTION 4.21 ACCURACY of Information. None of the written information and
documents which have been or will be furnished by Chancellor or any
representatives of Chancellor to Lakota or any of the representatives of
Chancellor in connection with the transactions contemplated by this
Agreement contains or will contain, as the case may be, any untrue statement
of a material fact, or omits or will omit to state a material fact necessary
in order to make the statements therein not misleading in light of the
circumstances in which made. To the knowledge of Chancellor, Chancellor has
disclosed to Lakota all material information relating to Chancellor and its
activities as currently conducted.
ARTICLE 5
Covenants of Lakota and Chancellor
Section 5. 1 Affirmative Covenants of Lakota. Except as Chancellor may
otherwise consent in writing, between the date of this Agreement and
Closing, Lakota shall:
(a) conduct its business only in the usual, regular, and ordinary
course and in accordance with past practices;
(b) (1) duly comply with all applicable Legal Requirements; (2) perform all
of its obligations under all Lakota Contracts without default; and (3)
maintain its books, records, and accounts on a basis consistent with past
practices;
(c) (1) give to Chancellor and its counsel, accountants and other
representatives reasonable access, dcuring a normal business hours to the
premises of Lakota, all of the assets and properties owned or leased by
Lakota, Lakota'ds books and records, and Lakota's personnel; (2) furnish to
Chancellor and such representatives all such additional documents (certified
by an officer of Lakota, if requested), financial information and other
information as Lakota may from time to time reasonably request, and (3)
cause Lakota's accountants to permit Chancellor and its accountants to
examine the records and working papers pertaining to Lakota's financial
statements' provided that no investigation by Chancellor or its
representatives will affect or limit the scope of any of the representations
and warranties of Lakota herein or in any Exhibit or other related document;
(d) use its best efforts to obtain in writing as promptly as possible all
approvals and consents required to be obtained by Lakota in order to
consummate the transactions contemplated hereby and deliver to Chancellor
copies, satisfactory in form and substance to Chancellor, of such approvals
and consents;
(e) promptly deliver to Chancellor true and complete copies of all monthly
and quarterly financial statements of Lakota and any reports with respect to
the activities of Lakota which are prepared by or for Lakota at any time
from the date hereof until Closing; and
(f) promptly notify Chancellor of any circumstance, event or action, by
Lakota or otherwise, (A) which, if known at the date of this Agreement,
would have been required to be disclosed in or pursuant to this Agreement,
or (B) the existence, occurrence or taking of which would result in any of
the representations and warranties of Lakota in this Agreement or in any
Transaction Document not being true and correct in all material respects.
<PAGE>
Section 5.2 Negative Covenants of Lakota. Except as Chancellor may otherwise
consent in writing, between the date of this Agreement and Closing, Lakota
shall not:
(a) change the character of its business;
(b) incur any liability or obligation or enter into any Contract except, in
each case, in the ordinary course of business consistent with prior
practices and not prohibited by any other provision hereof;
(c) incur, assume or guarantee any indebtedness or liability in
respect of borrowed money;
(d) make any capital expenditure or commitment for capital expenditure,
whether or not in the ordinary course of business, other than transaction
contemplated with Michael Childers as described in Exhibit 5.2(d);
(e) create, modify, terminate, or abrogate any Material Lakota Contract
other than in the ordinary course of business, or waive, lease, discharge,
transfer or cancel any rights or claims of material value;
(f) create or permit the creation or attachment of any Lien against
any of the assets or properties owned or leased by it;
(g) except as otherwise required by this Agreement, prepay any
material liabilities or obligations;
(h) issue any securities, or merge or consolidate with any other person, or
acquire any of the securities, partnership or joint venture interests, or
business of any other person;
(i) declare, set aside or pay any dividends on, or make any other
distribution with respect to, any of its capital stock, or repurchase,
redeem or otherwise acquire any of its capital stock; and
(j) enter into any transaction or permit the taking of any action that would
result in any of the representations and warranties in this Agreement not
being true and correct in all material respects at Closing.
Section 5.3 Affirmative Covenants of Chancellor. Except as Lakota may
otherwise agree in writing, between the date of this Agreement and Closing,
Chancellor shall:
(a) conduct its business only in the usual, regular, and ordinary
course and in accordance with past practices;
(b) (1) duly comply with all applicable Legal Requirements; (2) perform all
of its obligations under all Chancellor Contracts without default; and (3)
maintain its books, records, and accounts on a basis consistent with past
practices;
(c) (1) give to Lakota and its counsel, accountants and other
representatives reasonable access during normal business hours to the
premises of Chancellor, all of the assets and properties owned or leased by
Chancellor, Chancellor's books and records, and Chancellor's personnel; (2)
furnish to Lakota and such representatives all such additional documents
(certified by an officer of Chancellor, if requested), financial information
and other information as Chancellor may from time to time reasonably
request; and (3) cause
<PAGE>
Chancellor's accountants to permit Lakota and its accountants to examine the
records and working papers pertaining to Chancellor's financial statements'
provided that no investigation by Lakota or its representatives will affect
or limit the scope of any of the representations and warranties arising
herein or in any exhibit or other related document;
(d) use its best efforts to obtain in writing as promptly as possible all
approvals and consents required to be obtained by Chancellor in order to
consummate the transactions contemplated hereby and deliver to Lakota
copies, satisfactory in form and substance to Lakota, of such approvals and
consents;
(e) promptly deliver to Lakota true and complete copies of all monthly and
quarterly financial statements of Chancellor and any reports with respect to
the activities of Chancellor which are prepared by or for Chancellor at any
time from the date hereof until Closing; and
(f) promptly notify Lakota of any circumstance, event or action, by
Chancellor or otherwise, (A) which, if known at the date of this Agreement,
would have been required to be disclosed in or pursuant to this Agreement,
or (B) the existence, occurrence or taking of which would result in any of
the representations and warranties of Chancellor in this Agreement or in any
Transaction Document not being true and correct in all material respects.
Section 5.4 Negative Covenants of Chancellor. Except as Lakota may otherwise
consent in writing, between the date of this Agreement and Closing,
Chancellor shall not:
(a) change the character of its business;
(b) incur any liability or obligation or enter into any Contract in
excess of $1,000;
(c) incur, assume or guarantee any indebtedness or liability in
respect of borrowed money;
(d) make any capital expenditure or commitment for capital expenditure
whether or not in the ordinary course of business;
(e) create, modify, terminate, or abrogate any Material Chancellor Contract
other than in the ordinary course of business, or waive, lease, discharge,
transfer or cancel any rights or claims of material value;
(f) create or permit the creation or attachment of any Lien against
any of the assets or properties owned or leased by it;
(g) except as otherwise required by this Agreement, prepay any
material liabilities or obligations;
(h) issue any securities, or merge or consolidate with any other person, or
acquire any of the securities, partnership or joint venture interests, or
business of any other person;
(i) declare, set aside or pay any dividends on, or make any other
distribution with respect to, any of its capital stock, or repurchase,
redeem or otherwise acquire any of its capital stock; and
<PAGE>
(j) enter into any transaction or permit the taking of any action that would
result in any of the representations and warranties in this Agreement not
being true and correct in all material respects at Closing.
Section 5.5 Joint Undertakings. Each of Chancellor and Lakota shall
cooperate and exercise commercially reasonable efforts to facilitate the
consummation of the transactions contemplated by this Agreement so as to
permit Closing to take place on the date provided herein and to cause the
satisfaction of conditions to Closing set forth in Article 6.
Section 5.6 Confidentiality.
(a) Any non-public information that Chancellor may obtain from Lakota in
connection with this Agreement including but not limited to information
concerning trade secrets, licenses, research projects, costs, profits,
markets, sales, customer lists, strategies, plans for future development and
any other information of a similar nature, shall be deemed confidential and,
unless and until Closing shall occur, Chancellor shall not disclose
any such information to any third party (other than its directors, officers
and employees,and persons whose knowledge thereof is necessary to facilitate
the consummation of the transactions contemplated hereby) or use such
information to the detriment of Lakota; provided that (i) Chancellor may use
and disclose any such information once it has been publicly disclosed
(other than by Chancellor in breach of its obligations under this Section)
or which rightfully has come into the possession of Lakota (other than from
Lakota), and (ii) to the extent that Chancellor may become compelled by Legal
Requirements to disclose any of such information, Chancellor may disclose
such information if it shall have used all reasonable efforts, and shall have
afforded Lakota the opportunity, to obtain an appropriate protective order,
or other satisfactory assurance of confidential treatment, for the
information compelled to be disclosed. In the event of termination of this
Agreement, Chancellor shall use all reasonable efforts to cause to be delivered
to Lakota, and retain no copies of, any documents, work papers and other
materials obtained by Chancellor or on its behalf from Lakota, whether so
obtained before or after the execution hereof.
(b) Any non-public information that Lakota may obtain from
Chancellor in connection with this Agreement, including but not limited to
information concerning trade secrets, licenses, research projects, costs,
profits, markets, sales, customer lists, strategies, plans for future
development and any other information of a similar nature, shall
be deemed confidential and, unless and until Closing shall occur, Lakota
shall not disclose any such information to any third party (other than its
directors, officers and employees, and persons whose knowledge thereof is
necessary to facilitate the consummation of the transactions contemplated
hereby) or use such information to the detriment of Lakota; provided that
(i) Lakota may use and disclose any such information once it has been
publicly disclosed (other than by Lakota in breach of its obligations under
this Section) or which rightfully has come into the possession of Chancellor
(other than from Chancellor), and (ii) to the extent that Lakota may become
compelled by Legal Requirements to disclose any of such information, Lakota
may disclose such information if it shall have used all reasonable efforts,
and shall have afforded Chancellor the opportunity, to obtain an
appropriate protective order, or other satisfactory assurance of confidential
treatment, for the information compelled to be disclosed. In the event of
termination of this Agreement, Lakota shall use all reasonable efforts to
cause to be delivered to Chancellor, and retain no copies of, any documents,
work papers and other materials obtained by Lakota or on its behalf from
Lakota, whether so obtained before or after the execution hereof.
<PAGE>
Section 5.6 Publicity. Chancellor and Lakota shall each consult with and
obtain the consent of the other before issuing any press release or making
any other public disclosure concerning THIS Agreement or the transactions
contemplated hereby unless, in the reasonable judgment of the disclosing
party, a release or disclosure is required to discharge its disclosure
obligations under applicable legal requirements, in which case it shall in
good faith consult with the other party about the form, content and timing
of such release or disclosure prior to its release or disclosure.
ARTICLE 6
Conditions Precedent
Section 6.1 Conditions to Lakota's Obligations. The obligations of Lakota
to consummate the transactions contemplated by this Agreement are subject to
the following conditions:
(a) Accuracy of Representations. The representations of Chancellor in Us
Agreement or in any Transaction Document shall be true and accurate in all
material respects at and as of Closing with the same effect as if made at
and as of Closing, except as affected by the transactions contemplated hereby.
(b) Performance of Agreements. Chancellor shall have performed all
obligations and agreements and complied with all covenants in this Agreement
to be performed and complied with by it at or before Closing.
(c) Officer's Certificate. Lakota shall, have received a certificate
executed by an executive officer of Chancellor, dated as of Closing,
reasonably satisfactory in form and substance to Lakota certifying that the
conditions stated in subparagraphs (a), (b), (d) and (e) of this Section have
been satisfied.
(d) Legal Proceedings. There shall be no Legal Requirement, and no judgment
shall have been entered and not vacated by any governmental authority of
competent jurisdiction and no litigation shall be pending' which restrains,
makes illegal or prohibits consummation of the transactions contemplated
hereby.
(e) Consents. Lakota shall have obtained evidence, in form and substance
satisfactory to it, that there have been obtained all consents, approvals
and authorizations required by this Agreement.
(f) Resignation of Officers and Directors. Each of the officers and
directors of Chancellor whose resignation Lakota shall have requested
pursuant to Section 4.5 shall have been delivered to Lakota effective as of
Closing.
(g) Legal Matters Satisfactory to Lakota's Counsel. All actions,
proceedings, instruments and documents required to carry out the
transactions contemplated by this Agreement or incidental thereto and all
related legal matters shall be reasonably satisfactory to and approved by
Lakota's counsel, and such counsel shall have been furnished with such
certified copies of actions and proceedings and such other instruments and
documents as it shall have reasonably requested.
(h) Bank Account. The bank account of Chancellor shall contain cash in the
amount of $138 as of Closing and there shall be no outstanding checks which
have not cleared the banking system.
<PAGE>
Section 6.2 Conditions to Chancellor's Obligations. The obligations of
Chancellor to consummate the transactions contemplated by this Agreement are
subject to the following conditions:
(a) Accuracy of Representations. The representations of Lakota in this
Agreement or in any Transaction Document shall be true and accurate (in all
material respects) at and as of Closing with the same effect as if they were
made at and as of Closing, except as affected by the transactions
contemplated hereby.
(b) Performance of Agreements. Lakota shall have performed an obligations
and agreements and complied with all covenants in this Agreement or in any
Transaction Document to which it is a party to be performed and complied
with by it at or before Closing.
(c) Officer's Certificate. Chancellor shall have received a certificate
executed by a manager of Lakota, dated as of Closing, reasonably
satisfactory in form and substance to Chancellor, certifying that the
conditions stated in subparagraphs (a) and (b) of this Section have been
satisfied.
(d) Legal Proceedings. There shall be no Legal Requirement, and no judgment
shall have been entered and not created by any governmental authority of
competent jurisdiction and no litigation shall be pending which (i)
restrains, make illegal or prohibits consummation of the transactions
contemplated hereby or (ii) could have a material adverse effect upon the
operations or financial condition of Lakota.
(e) Consents. Chancellor shall have received evidence, in form and substance
satisfactory to it, that there have been obtained all consents, approvals,
and authorizations required by this Agreement.
(f) Legal Matters Satisfactory to Chancellor and its Representatives. All
actions, proceedings, instruments and documents required to carry out the
transactions contemplated by this Agreement or incidental thereto and all
related legal matters shall be reasonably satisfactory to and approved by
Chancellor's counsel, and such counsel shall have been furnished with such
certified copies of actions and proceedings and such other instruments and
documents as it shall have reasonably requested.
ARTICLE 7
Indemnification
Section 7.1 Indemnification by Lakota. From and after Closing, Lakota shall
indemnify and hold harmless Chancellor, its officers and directors, agents
and representatives, and any person claiming by or through any of them, as
the case may be, form and against any and all losses and related expenses
arising out of or resulting from:
(a) any representations and warranties of Lakota in this Agreement not being
true and accurate when made or when required by this Agreement to be true
and accurate; or
(b) any failure by Lakota to perform any of its covenants, agreements
or obligations in this Agreement.
(c) all undisclosed abilities and obligations relating to, or arising
out of activities of Lakota during periods prior to Closing.
<PAGE>
Section 7.2 Indemnification by Chancellor. From and after Closing,
Chancellor shall indemnify and hold harmless Lakota, its officers and
directors, agents and representatives, and any person claiming by or through
any of them, as the case may be, form and against any and all losses and
related expenses of Chancellor out of or resulting from:
(a) any representations and warranties of Chancellor in this Agreement not
being true and accurate when made or when required by this Agreement or any
Transaction Document to be true and accurate; or
(b) any failure by Chancellor to perform any of its covenants, agreements or
obligations in this Agreement.
(c) all undisclosed abilities and obligations relating to, or arising
out of activities of Chancellor during periods prior to Closing.
Section 7.3. Indemnification Against Third Party Claims. Promptly after
receipt by a person entitled to indemnification hereunder (the "Indemnitee")
of written notice of the assertion of any claim or the commencement of any
Litigation with respect to any matter referred to in Sections 7.1 or 7.2,
the Indemnitee shall give written notice thereof to the party from whom
indemnification is sought pursuant hereto (the "Indemnitor") and thereafter
shall keep the Indemnitor reasonably informed with respect thereto, provided
that failure of the Indemnitee to give the Indemnitor notice as provided
herein shall not relieve the Indemnitor of its obligations hereunder. In
case any litigation is brought against any Indemnitee, the Indemnitor shall
be entitled to participate in (and at the request of the Indemnitee shall
assume) the defense thereof with counsel satisfactory to the Indemnitee at
the Indemnitor's expense. If the Indemnitor, at the Indemnitee's request,
shall assume the defense of any settlement shall include as an unconditional
term thereof the giving by the claimant or the plaintiff of a release of the
Indemnitee, satisfactory to the Indemnitee, from all liability with respect
to such litigation.
Section 7.4. Time and Manner of Certain Claims. The representations and
warranties of Chancellor and the Principal Shareholders in this Agreement
shall survive Closing; provided, however, that neither Chancellor nor the
Principal Shareholders shall have any liability under Sections 7.1 or 7.2,
respectively unless a claim is asserted by the party seeking indemnification
thereunder by written notice to the party from whom indemnification is
sought within three years after Closing, sand such party commences
litigation seeking such indemnification within 180 days following the date
of such notice.
Section 7.5 Tax Effect. In calculating amounts payable to an Indemnitee
hereunder, (i) the amount of the indemnified losses shall be reduced by the
amount of any reduction in the Indemnitee's liability for taxes resulting
from the facts or occurrence giving rise to the indemnified losses; and (ii)
the amount of the indemnified losses shall be grossed up by the amount of
any increase in liability for taxes resulting from indemnification with
respect thereto.
ARTICLE 8
Termination
Section 8.1 Termination Events. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned:
(a) at any time, by the mutual agreement of Chancellor and Lakota;
<PAGE>
(b) by either Chancellor or Lakota, if the other is in material breach or
default of its respective covenants, agreements or other obligations
hereunder or if any of its representations and warranties herein are not
true and accurate in all material respects when made or when otherwise
required by this Agreement to be true and accurate.
(c) by Lakota, if any of the conditions to its obligations set forth in
Section 6.1 shall not have been satisfied as of Closing, unless satisfaction
shall have been frustrated or made impossible by an act or failure to act of
Lakota; or
(d) by Chancellor, if any of the conditions to its obligations set forth in
Section 6.2 shall not have been satisfied as of Closing, unless satisfaction
shall have been frustrate or made impossible by an act or failure to act of
Chancellor; or
(e) by either Chancellor or Lakota upon written notice to the other, if the
transactions contemplated by this Agreement are not consummated on or prior
to December 31, 1996, for any reason other than material breach or default
by such party of its respective representations, warranties, covenants,
agreements or other obligations hereunder.
Section 8.2 Effect of Termination. If this Agreement shall be terminated,
all obligations .of the parties hereunder shall terminate, except for the
obligations set forth in Section 5.5, 5.6 and 9.3.
ARTICLE 9
Miscellaneous
Section 9.1 Expenses. Lakota shall pay the legal, accounting and any other
expenses incurred as a result of this transaction up to a maximum of $5,000.
If this transaction is not consummated, each party shall bear its own costs.
Section 9.2 Waiver and Modifications. Any of the provisions of this
Agreement may be waived at any time by the party entitled to the benefit
thereof, upon the authority of the Board of Directors of such party;
provided, however, that no waiver by Chancellor shall be authorized after
the last vote of the stockholders of Chancellor if such waiver shall, in the
judgment of the Board of Directors of Chancellor, affect materially and
adversely the benefits of the Chancellor stockholders under this Agreement
or the Agreement of Merger. Any of the provisions of this Agreement
(including the exhibits and the Agreement of Merger) may be modified at any
time prior to and after the vote of the stockholders of Chancellor by
agreement in writing approved by the Board of Directors of each party and
executed in the same manner (but necessarily by the same persons) as this
Agreement, provided that such modification, after the last vote of the
stockholders of Chancellor shall not, in the judgment of the Board of
Directors of Chancellor, materially and adversely affect the benefits of
Chancellor's stockholders under this Agreement or the Agreement of Merger.
To the extent permitted by law, the powers of the Board of Directors may be
delegated by the Board of the Executive Committee of such Board or by such
Board (or by the Executive Committee to the extent any matter has been
delegated to such Committee by the Board) to any officer or officers of such
party, and any notices, consents or other action referred to in this
Agreement may be given or taken by any officer so authorized.
<PAGE>
Section 9.3 Finder commissions. Chancellor and Lakota each represents and
warrants that no broker or finder is entitled to any brokerage or finder's fee
or other commission based on agreements, arrangements or understandings made by
it with respect to the transactions contemplated by this Agreement or by the
Agreement of Merger, other than set forth in Exhibit 9.3.
Section 9.4 Notices. Any notice, request, instruction or other document to
be given hereunder or under the Agreement of Merger by any part to another
shall be in writing and delivered personally or sent by registered or
certified mail, postage prepaid,
if to Chancellor, addressed to:
Chancellor Trading Group, Inc.
12840 16th Avenue
Suite 203
White Rock, BC V4A 1N6
if to Lakota, addressed to:
Lakota Energy, Inc.
3350 Cumberland Circle
Suite 1900
Atlanta, Georgia 30339
Section 9.5 Abandonment. At any time before the effective date, this Merger
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either Chancellor or Lakota or both, notwithstanding approval
of this Agreement by the shareholders of Chancellor or the members of Lakota
or both.
Section 9.5 Entire Agreement. This Agreement and Plan of Merger represents
the entire agreement between the parties. Any and all other oral or written
agreements concerning this merger shall be deemed null and void.
Section 9.6 Governing Law. This Agreement shall, be governed by, construed,
and enforced in accordance with the laws of the State of Colorado.
Section 9.7 Counterparts. In order to facilitate the filing and recording of
this Merger Agreement the same may be executed in any number of
counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, Chancellor and Lakota, by their duly authorized
officers, have executed and delivered this Agreement effective as of the
date first above written.
Lakota Energy. Inc.
By: /s/ R.Kent Honeyman
Name: R. Kent Honeyman
Title: President
<PAGE>
Chancellor Trading Group, Inc.
By: /s/Kurt Waber
Name: Kurt Waber
Title: Secretary
REORGANIZATION AND STOCK PURCHASE
AGREEMENT
REORGANIZATION AND STOCK PURCHASE AGREEMENT ("Agreement"), dated
May 28, 1999, by and among Lakota Energy, Inc., a Colorado
corporation (hereinafter referred to as "Lakota"),
2-Infinity.com, Inc., a Texas corporation (hereinafter referred
to as "Infinity"), and Majed Jalali, the sole individual
stockholder of Infinity (hereinafter referred to as "Jalali").
Each of Lakota, Infinity, and Jalali shall be referred to herein
as a "Party" and collectively as the "Parties".
W I T N E S S E T H
WHEREAS, Jalali owns 100% of the issued and outstanding common
stock of Infinity (the "Infinity Shares") as set forth in
Exhibit "A" attached hereto;
WHEREAS, Jalali desires to sell and Lakota desires to purchase
the Infinity Shares in accordance with the terms, conditions,
covenants and promises set forth herein;
NOW THEREFORE, in consideration of the premises and respective
mutual agreements, covenants, representations and warranties
herein contained, it is agreed between the Parties hereto as
follows:
ARTICLE 1
DEFINITIONS
Capitalized terms in this Agreement shall have the meanings
indicated below:
1.1 "Initial Closing Date" shall mean the date when all
the Parties hereto have executed this Agreement.
1.2 "Closing" shall be the process of exchanging
documents, certificates and materials by and between the
Parties, and concluding all transactions contemplated hereunder
within thirty (30) days of the Initial Closing Date.
1.3 "Final Closing" shall be that date when all
anticipated and contemplated exchanges of documents,
certificates and materials between the Parties has been
accomplished in accordance with the terms of this Agreement,
which shall occur no later than thirty (30) days following the
Initial Closing Date.
1.4 "Subsidiary" shall be as described and defined in
Section 3.1.4 hereof.
1.5 "Initial Distribution" shall be as described and
defined in Section 2.1 hereof.
1.6 "Second Distribution" shall be as described and
defined in Section 2.3.1 hereof.
1.7 "Third Distribution" shall be as described and
defined in Section 2.3.2 hereof.
1.8 "Fourth Distribution" shall be as described and
defined in Section 2.3.3 hereof.
1.9 "Bonus Distribution" shall be as described and
defined in Section 2.3.4 hereof.
1.10 "Option" shall be as described and defined in
Section 4.5 hereof.
<PAGE>
ARTICLE 2
SALE AND PURCHASE OF THE SHARES
2.1 Sale of the Infinity Shares. Effective as of the Final
Closing Date, and subject to the terms and conditions herein
set forth, and on the basis of the representations, covenants,
warranties and agreements herein contained, Jalali shall sell
to Lakota and Lakota shall purchase from Jalali, all of the
Infinity Shares. As consideration for the receipt of the
Infinity Shares, Lakota shall cause to be issued to Jalali, or
his assigns, concurrent with the delivery of the Infinity
Shares and effective as of the Final Closing Date, an aggregate
of Three Million (3,000,000) shares of Lakota common stock
bearing an appropriate 144 restrictive legend (hereinafter
"Initial Distribution").
2.2 Instruments of Conveyance and Transfer. Effective as of
the Final Closing Date, and subject to the provisions of
Article 4 hereinbelow, Jalali shall deliver to Lakota a
certificate or certificates representing all of the Infinity
Shares held in the name of Jalali, and Lakota shall deliver to
Jalali a certificate or certificates representing an aggregate
of Three Million 3,000,000 shares of Lakota common stock.
2.3 Additional Consideration Based Upon Performance. As
additional consideration for the purchase of the Infinity
Shares, Lakota shall issue to Jalali, or his assigns,
additional shares of Lakota common stock, within thirty (30)
days of when the gross sales (i.e. the total of all sales
generated) of Infinity are confirmed by both the Lakota and
Infinity Boards to have reached or surpassed the following
milestones or goals:
2.3.1 At such time as Infinity achieves gross sales of one
million dollars (US$1,000,000) following the Final Closing Date
(accumulated gross sales shall be calculated from all sales
generated by Infinity effective as of the Final Closing Date),
then Jalali shall be issued an aggregate of one million five
hundred thousand (1,500,000) additional shares of Lakota common
stock bearing an appropriate 144 restrictive legend
(hereinafter "Second Distribution").
2.3.2 In addition to the additional consideration set forth
in Section 2.3.1 hereof, at such time as Infinity achieves
gross sales of two million six hundred fifty thousand dollars
(US$2,650,000) following the Final Closing Date, then Jalali
shall be issued an aggregate of one million five hundred
thousand (1,500,000) additional shares of Lakota common stock
bearing an appropriate 144 restrictive legend (hereinafter
"Third Distribution").
2.3.3 In addition to the additional consideration set forth
in Sections 2.3.1 and 2.3.2 hereof, at such time as Infinity
achieves gross sales of four million six hundred fifty thousand
dollars (US$4,650,000) following the Final Closing Date, then
Jalali shall be issued an aggregate of one million five hundred
thousand (1,500,000) additional shares of Lakota common stock
bearing an appropriate 144 restrictive legend (hereinafter
"Fourth Distribution").
2.3.4 In addition to the consideration set forth in Sections
2.3.1, 2.3.2, and 2.3.3 hereof, in the event that Infinity
reaches gross sales of at least $1,000,000 (accumulated gross
sales calculated from the Final Closing Date) during the eight
(8) months immediately following the Final Closing Date, and
reaches gross sales of at least $2,650,000 during the fourteen
(14) months immediately following the Final Closing Date, and
reaches gross sales of at least $4,650,000 during the eighteen
(18) months
<PAGE>
immediately following the Final Closing Date, then
Jalali shall be issued an aggregate of one million five hundred
thousand (1,500,000) additional shares of Lakota common stock
bearing an appropriate 144 restrictive legend (hereinafter
"Bonus Distribution").
2.3.5 The stock distributions described in Sections 2.3.1,
2.3.2, 2.3.3, and 2.3.4 are each independent of each other, and
can be accumulated and shall be payable to Jalali at any time
during his employment with Infinity, with the exception of the
Bonus Distribution described under Section 2.3.4, which can
only be accumulated if the second, third and fourth
distributions are achieved within the time frames indicated in
Section 2.3.4. All distributions of stock shall be made by
Lakota to Jalali within thirty (30) days following the date
when the gross sales have been confirmed or certified by both
the Infinity and Lakota Board of Directors to have reached or
exceeded the goals specified in the Sections above, and both
Boards shall use their best efforts to confirm and certify the
achievement of such goals within thirty (30) days following the
end of the month in which the gross sales were reported to have
achieved or exceeded the goals or milestones specified herein.
The obligations of Lakota to make the distributions to Jalali
described under this Section 2.3 shall be conditioned upon
Jalali's continued employment with Infinity as its principal
manager, and shall be forfeited by Jalali only in the event of
his voluntary termination of his employment with Infinity, or
in the event of his discharge by Infinity for cause; however,
should Jalali's employment with Infinity be terminated by
Infinity without cause, or without voluntary consent by Jalali,
then ALL distributions described under this Section 2.3
(inclusive of all stock distributions described in Sections
2.3.1, 2.3.2, 2.3.3, and 2.3.4) shall become immediately vested
in Jalali effective as of his date of termination, and shall be
distributed to Jalali by Lakota within no more than thirty (30)
days following his involuntary termination, without cause.
2.4 Position and Title with Infinity. Effective as of the Final
Closing Date, Jalali shall continue to serve as the President,
Chief Executive Officer, and as a Director of Infinity under
terms and minimum employment conditions which are mutually
agreeable to the Parties. Lakota and Infinity agree to enter
into any additional agreements or formal employment contracts
with Jalali, if deemed appropriate, on or before the Final
Closing Date in order to ensure the ongoing employment of
Jalali as President and Chief Executive Officer of Infinity,
effective as of the Final Closing Date.
2.5 Position and Title with Lakota. Effective as of the Final
Closing Date, Jalali will be appointed as a Director of Lakota,
to serve as a full voting member of the Lakota Board of
Directors at the discretion of the Lakota stockholders, until
his successor shall be duly elected and qualified.
2.6 Lakota's Appointments to the Infinity Board. Effective as
of the Final Closing Date, Lakota will appoint two (2) members
to the Infinity Board of Directors, to serve at the discretion
of the stockholder(s), until their successors are duly elected
and qualified.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Infinity. To induce
Lakota to enter into
<PAGE>
this Agreement and to consummate the transactions contemplated
hereby, Infinity represents and warrants, that as of the
Initial Closing Date and continuing through the Final Closing
Date, the following are true and correct:
3.1.1 Corporate Authority. Infinity has the full right, power
and authority to enter into this Agreement and to carry out and
consummate the transactions contemplated herein. This Agreement
constitutes the legal, valid and binding obligation of Infinity.
3.1.2 Corporate Existence and Authority of Infinity. Infinity
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas. It has all
requisite corporate power, franchises, licenses, permits and
authority to own its properties and assets and to carry on its
business as it has been and is being conducted. It is in good
standing in the State of Texas, or any other jurisdiction
wherein the character of the business transacted by it makes
such qualification necessary.
3.1.3 Capitalization of Infinity. The authorized equity
securities of Infinity consist of two thousand (2,000) shares
of common stock, of which all two thousand (2,000) shares are
issued and outstanding to Majed Jalali at the time of execution
of this Agreement and as of the Initial Closing Date. No other
shares of capital stock of Infinity are issued and outstanding.
All of the issued and outstanding shares have been duly and
validly issued in accordance and compliance with all applicable
laws, rules and regulations and are fully paid and
nonassessable. There are no options, other than as specified
herein under Section 4.5 below, warrants, rights, calls,
commitments, plans, contracts or other agreements of any
character granted or issued by Infinity, which provide for the
purchase, issuance or transfer of any shares of the capital
stock of Infinity other than those which are disclosed herein
and/or are contemplated under this Agreement; nor are there any
outstanding securities granted or issued by Infinity that are
convertible into any shares of the equity securities of
Infinity, and none is authorized. Infinity is not obligated or
committed to purchase, redeem or otherwise acquire any of its
equity. All presently exercisable voting rights in Infinity are
vested exclusively in its outstanding shares of common stock,
each share of which is entitled to one vote on every matter to
come before it's shareholders, and other than as may be
contemplated by this Agreement, there are no voting trusts or
other voting arrangements with respect to any of Infinity's
equity securities, however, the Parties agree that such Voting
Trusts or Voting Agreements are not prohibited by the Infinity
Bylaws or by applicable law, and that such an agreement may be
entered into by the Infinity shareholders, should they so elect.
3.1.4 Subsidiaries. "Subsidiary" or "Subsidiaries" means all
corporations, trusts, partnerships, associations, joint
ventures or other Persons, as defined below, of which a
corporation or any other Subsidiary of such corporation owns
not less than twenty percent (20%) of the voting securities or
other equity, or of which such corporation or any other
Subsidiary of such corporation possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies, whether through ownership of voting
shares, management contracts or otherwise. "Person" means any
individual, corporation, trust, association, partnership,
proprietorship, joint venture or other entity. There are no
Subsidiaries of Infinity.
3.1.5 Execution of Agreement. The execution and delivery of
this Agreement does not, and the consummation of the
transactions contemplated hereby will not: (a) violate,
conflict with, modify or cause any default under or
acceleration of (or give any party any
<PAGE>
right to declare any default or acceleration upon notice or
passage of time or both), in whole or in part, any charter, article
of incorporation, bylaw, mortgage, lien, deed of trust, indenture,
lease, agreement, instrument, order, injunction, decree,
judgment, law or any other restriction of any kind to which
either Infinity or Jalali are a party or by which either of
them or any of their properties are bound; (b) result in the
creation of any security interest, lien, encumbrance, adverse
claim, proscription or restriction on any property or asset
(whether real, personal, mixed, tangible or intangible), right,
contract, agreement or business of Infinity; (c) violate any
law, rule or regulation of any federal or state regulatory
agency; or (d) permit any federal or state regulatory agency to
impose any restrictions or limitations of any nature on Infinity.
3.1.6 Taxes. All known taxes, assessments, fees, penalties,
interest and other governmental charges with respect to
Infinity which have become due and payable as of the Initial
Closing Date, have been paid in full or adequately reserved
against by Infinity, (including without limitation, income,
property, sales, use, franchise, capital stock, excise, added
value, employees' income withholding, social security and
unemployment taxes), and all interest and penalties thereon
with respect to the periods then ended and for all periods
thereto. There are no other agreements of any character
granted or issued by Infinity which provide for the purchase,
issuance or transfer of any shares of the capital stock of
Infinity nor are there any outstanding securities granted or
issued by Infinity that are convertible into any shares of the
equity securities of Infinity, and none is authorized. Infinity
is not obligated or committed to purchase, redeem or otherwise
acquire any of its equity. All presently exercisable voting
rights in Infinity are vested exclusively in its outstanding
shares of common stock, each share of which is entitled to one
vote on every matter to come before it's shareholders, and
other than as may be contemplated by this Agreement, there are
no voting trusts or other voting arrangements with respect to
any of Infinity's equity securities.
Further, there are no agreements, waivers or other arrangements
providing for an extension of time with respect to the
assessment of any tax or deficiency against Infinity, nor are
there any known actions, suits, proceedings, investigations or
claims now pending against Infinity, nor are there any known
actions, suits, proceedings, investigations or claims now
pending against Infinity in respect of any tax or assessment,
or any matters under discussion with any federal, state, local
or foreign authority relating to any taxes or assessments, or
any claims for additional taxes or assessments asserted by any
such authority, and there is no known basis for the assertion
of any additional taxes or assessments against Infinity.
3.1.7 Disputes and Litigation. There is no suit, action,
litigation, proceeding, investigation, claim, complaint, or
accusation pending, threatened against or affecting Infinity or
any of its properties, assets or business or to which Infinity
is a party, in any court or before any arbitrator of any kind
or before or by any governmental agency (including, without
limitation, any federal, state, local, foreign or other
governmental department, commission, board, bureau, agency or
instrumentality), and there is no basis for such suit, action,
litigation, proceeding, investigation, claim, complaint, or
accusation; (b) there is no pending or threatened change in any
environmental, zoning or building laws, regulations or
ordinances which affect or could affect Infinity or any of its
properties, assets or businesses; and (c) there is no
outstanding order, writ, injunction,
<PAGE>
decree, judgment or award by any court, arbitrator or governmental
body against or affecting Infinity or any of its properties, assets or
business. There is no litigation, proceeding, investigation,
claim, complaint or accusation, formal or informal, or
arbitration pending, or any of the aforesaid threatened, or any
contingent liability which would give rise to any right of
indemnification or similar right on the part of any director or
officer of Infinity or any such person's heirs, executors or
administrators as against Infinity.
3.1.8 Compliance with laws. Infinity has at all times been,
and presently is to the best of its knowledge and belief, in
full compliance with, and has not received notice of any
claimed violation of, any applicable federal, state, local,
foreign and other laws, rules and regulations. Infinity has
filed all returns, reports and other documents and furnished
all information required or requested by any federal, state,
local or foreign governmental agency and all such returns,
reports, documents and information are true and complete in all
respects. All permits, licenses, orders, franchises and
approvals of all federal, state, local or foreign governmental
or regulatory bodies required of Infinity for the conduct of
its business through the Initial Closing Date have been
obtained, or have been disclosed to Lakota, and no violations
are or have been recorded in respect of any such permits,
licenses, orders, franchises and approvals, and there is no
litigation, proceeding, investigation, arbitration, claim,
complaint or accusation, formal or informal, pending or
threatened, which may revoke, limit, or question the validity,
sufficiency or continuance of any such permit, license, order,
franchise or approval. Such permits, licenses, orders,
franchises and approvals are valid and sufficient for all
activities presently carried on by Infinity.
3.1.9 Guaranties. Infinity has not guaranteed any dividend,
obligation or indebtedness of any person; nor has any Person
guaranteed any dividend, obligation or indebtedness of Infinity.
3.1.10 Books and Records. Infinity keeps its books, records
and accounts (including, without limitation, those kept for
financial reporting purposes and for tax purposes) in
accordance with good business practice and in sufficient detail
to reflect the transactions and dispositions of its assets,
liabilities and equities. The minute books of Infinity contain
records of its shareholders' and directors' meetings and of
action taken by such shareholders and directors. The meeting of
directors and shareholders referred to in such minute books
were duly called and held, and the resolutions appearing in
such minute books were duly adopted. The signatures appearing
on all documents contained in such minute books are the true
signatures of the persons purporting to have signed the same. A
true and accurate list of Infinity assets and liabilities as of
the Initial Closing Date is attached hereto as Exhibit "B".
Further, attached hereto as Exhibit "C" is the current contract
between Infinity and TUT Systems, Inc. which Infinity hereby
represents, is a valid and binding obligation on all parties
thereto. Infinity represents and warrants that there are no
other material contracts or agreements in existence as of the
Initial Closing Date.
3.1.11 Jalali acknowledges that all shares of Lakota common
stock issued in accordance with this Agreement will be
"restricted securities" (as such term is defined in Rule 144
promulgated under the Securities Act of 1933, ("Rule 144") as
amended), that the Shares will include the restrictive legend
set forth in Section 3.2 hereof, and, except as
<PAGE>
otherwise set forth in this Agreement, that the shares cannot be
sold for a period of one (1) year from the date of issuance
(which the Parties agree shall be the Final Closing Date) unless
registered with the United States Securities and Exchange
Commission ("SEC") and qualified by appropriate state
securities regulators, or unless Jalali obtains written consent
from Lakota and otherwise complies with an exemption from such
registration and qualification (including, without limitation,
compliance with Rule 144).
3.2 Representations and Warranties of Lakota. To induce
Infinity and Jalali to enter into this Agreement and to
consummate the transactions contemplated hereby, Lakota
represents and warrants to both Infinity and to Jalali
individually, that as of the Initial Closing Date and
continuing through the Final Closing Date, the following are
true and correct:
3.2.1 Corporate Existence and Authority of Lakota. Lakota is
a corporation duly organized, validly existing and in good
standing under the laws of the State of Colorado. It has all
requisite corporate power, franchises, licenses, permits and
authority to own its properties and assets and to carry on its
business as it has been and is being conducted. It is in good
standing in each state, nation or other jurisdiction in each
state, nation or other jurisdiction wherein the character of
the business transacted by it makes such qualification
necessary. Lakota has the full right, power and authority to
enter into this Agreement and to carry out and consummate the
transactions contemplated herein. This Agreement constitutes
the legal, valid and binding obligation of Lakota.
3.2.2 Capitalization of Lakota. The authorized equity
securities of Lakota consists of 50,000,000 shares of common
stock, of which 33,588,906 shares are issued and outstanding as
of the close of business on May 27, 1999, and 5,000,000 shares
of Preferred Stock, of which no shares are issued and
outstanding as of the close of business on May 27, 1999. No
other shares of capital stock of Lakota are issued and
outstanding, nor will any additional shares be issued by
Lakota, except as contemplated herein, between the Initial
Closing Date and the Final Closing Date. All of the issued and
outstanding shares have been duly and validly issued in
accordance and compliance with all applicable laws, rules and
regulations and are fully paid and nonassessable. All presently
exercisable voting rights in Lakota are vested exclusively in
its outstanding shares of common stock, each share of which is
entitled to one vote on every matter to come before it's
shareholders, and other than as may be contemplated by this
Agreement, there are no voting trusts or other voting
arrangements with respect to any of Lakota's equity securities.
3.2.3 Subsidiaries. There are no Subsidiaries of Lakota, as
the same have been defined under Section 2.1.4 above, with the
sole exception of West Belt Energy, Inc., a Texas corporation.
3.2.4 Execution of Agreement. The execution and delivery of
this Agreement does not, and the consummation of the
transactions contemplated hereby will not: (a) violate,
conflict with, modify or cause any default under or
acceleration of (or give any party any right to declare any
default or acceleration upon notice or passage of time or
both), in whole or in part, any charter, article of
incorporation, bylaw, mortgage, lien, deed of trust, indenture,
lease, agreement, instrument, order, injunction, decree,
judgment, law or any other restriction of any kind to which
Lakota is a party or by which it or any of its properties are
bound; (b) result in the creation of any security interest,
lien,
<PAGE>
encumbrance, adverse claim, proscription or restriction
on any property or asset (whether real, personal, mixed,
tangible or intangible), right, contract, agreement or business
of Lakota; (c) violate any law, rule or regulation of any
federal or state regulatory agency; or (d) permit any federal
or state regulatory agency to impose any restrictions or
limitations of any nature on Lakota or any of its actions.
ARTICLE 4
CLOSING AND DELIVERY OF DOCUMENTS
4.1 Initial Closing Date. The Initial Closing Date shall be
the date that all Parties have signed this Agreement, which in
no event, shall extend beyond June 1, 1999. Subsequent to the
signing, and within no more than thirty (30) days of the
Initial Closing Date (which in no event shall be beyond June
30, 1999), the following actions shall occur as a single
integrated transaction, intended to consummate and conclude the
obligations and conditions associated with the Closing:
4.2 Delivery of Initial Funds by Lakota to Infinity. Within
thirty (30) days following the Initial Closing Date, Lakota
shall cause to be delivered or wire transferred to an account
in the name of Infinity, located in Houston, Texas, an initial
capital investment of one hundred and fifty thousand dollars
(US$150,000) to be retained and used by Infinity for the
funding of its ongoing business activities and the expansion of
its business. Additional funds shall be contributed by Lakota
to Infinity, as necessary, following receipt of a projected
1999 Budget from Infinity's management to the Boards of both
Infinity and Lakota, following the Final Closing Date. All
additional operating and expense budget funding shall be
subject to the prior approval of both the Infinity and Lakota
Boards of Directors, and shall be submitted by the Infinity
management in accordance with good business practice and in
sufficient detail to reflect the transactions and expenditures
contemplated by the proposed budget. All such funds shall be
available for disbursement by the management of Infinity, for
the purposes of paying Infinity's ongoing business costs,
debts, expenses and fees incurred after the Final Closing Date.
4.3 Primary Stock Delivery by Lakota: Within no more than
thirty (30) days following the Initial Closing Date, Lakota
shall deliver to Jalali an aggregate of three million
(3,000,000) shares of Lakota common stock, and all instruments
of conveyance and transfer required by Section 2.2 subject to
no liens, security interests, pledges, encumbrances, charges,
restrictions, demands or claims in any other party whatsoever,
except as set forth in the legend on the certificate(s), which
legend shall provide as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF FOR A
PERIOD OF TWO YEARS FROM THE ISSUANCE THEREOF
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE
<PAGE>
STATE LAWS OR (ii) UPON THE EXPRESS WRITTEN
AGREEMENT OF THE COMPANY AND COMPLIANCE, TO
THE EXTENT APPLICABLE, WITH RULE 144 UNDER THE
ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISPOSITION OF SECURITIES).
4.4 Delivery by Jalali of Infinity Stock: Within no more than
thirty (30) days following the Initial Closing Date, and
simultaneous with Lakota's compliance with the transactions
described under Sections 4.2 and 4.3 above, Jalali shall deliver to
Lakota all of the Infinity Shares and all instruments of conveyance
and transfer required by Section 2.2. All such transfers shall be
effective as of the Final Closing Date.
4.5 Option to Repurchase Infinity Shares. Lakota and Jalali
acknowledge and agree that Jalali shall be granted and shall have
the exclusive option ("Option ") to acquire that number of shares of
common stock of Infinity which represents thirty percent (30%) of
all the issued and outstanding common stock of Infinity at the time
of exercise by Jalali, for a total sum equal to Ten Thousand Dollars
(US$10,000). The Option will be exercisable by Jalali in only two
events, namely: (1) the consummation and approval by the
Shareholders and Board of Directors of Infinity of a sale of
Infinity stock which results in a change in the majority interest or
control of Infinity, or which is a sale of substantially all of the
assets of Infinity; or (2) a registered public offering of Infinity
securities to the public effectuated through the use of a
registration statement with the SEC. As a condition precedent to
the exercise of the Option by Jalali, Jalali must consent and agree
in writing to the transaction which triggered the exercise of the
Option, in form and substance identical to the transaction as
approved by the Lakota and Infinity Shareholders and Board of
Directors, said consent or agreement to take whatever form may be
reasonably requested by the Lakota and Infinity Boards. This Option
shall be exclusive to Jalali, and shall not be contingent upon
Jalali's ongoing employment with Infinity, nor shall this Option be
conditioned upon any of the performance goals or milestones
discussed under Section 2.3 hereinabove.
ARTICLE 5
CONDITIONS, TERMINATION, AMENDMENT AND WAIVER
5.1 Condition Precedent. This Agreement, and the transactions
contemplated hereby, shall be subject to the approval of the Board
of Directors of Lakota and Infinity, and, if necessary, the
respective shareholders thereof. All conditions described herein
which are contemplated to occur within thirty (30) days of the
Initial Closing Date, are conditions precedent to the final
consummation of this Agreement, and shall be completed or waived by
written agreement signed by all Parties, prior to the Final Closing
Date. All transactions associated with Closing shall be
accomplished within thirty (30) days of the Initial Closing Date, or
this Agreement shall be deemed to be null and void. Time is of the
essence in this Agreement.
5.2 Termination. Notwithstanding anything to the contrary contained
in this Agreement, this Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior
to the Initial Closing Date by the mutual consent of
<PAGE>
all of the parties. Following execution of this Agreement, all
conditions and transactions described above shall be concluded within
thirty (30) days of the Initial Closing Date, as specified herein, unless
extended or waived by written agreement, executed by all Parties
hereto, prior to the expiration of the thirty (30) days following
the Initial Closing Date. Failure of the Parties to conclude all
contemplated transactions and delivery of documents, certificates
and materials described herein within the time limits specified
herein, shall render this Agreement null and void. Time is of the
essence in this Agreement.
5.3 Waiver and Amendment. Any term, provision, covenant,
representation, warranty or condition of this Agreement may be
waived, but only by a written instrument signed by the Party
entitled to the benefits thereof. The failure or delay of any Party
at any time or times to require performance of any provision hereof
or to exercise its rights with respect to any provision hereof shall
in no manner operate as a waiver of or affect such Party's right at
a later time to enforce the same. No waiver by any Party of any
condition, or of the breach of any term, provision, covenant,
representation or warranty contained in this Agreement, in any one
or more instances, shall be deemed to be or construed as a further
or continuing waiver of any such condition or breach or waiver of
any other condition or of the breach of any other term, provision,
covenant, representation or warranty. No modification or amendment
of this Agreement shall be valid and binding unless it be in writing
and signed by all Parties hereto.
ARTICLE 6
COVENANTS
6.1 To induce Lakota to enter into this Agreement and to consummate
the transactions contemplated hereby, and without limiting any
covenant, agreement, representation or warranty made by Infinity
above, Jalali covenants and agrees as follows:
6.1.1 Notices and Approvals. Jalali agrees: (a) to use his best efforts
to cause Infinity to give all notices to third parties which may be
necessary or reasonable in connection with this Agreement and the
consummation of the transactions contemplated hereby; (b) to use his best
efforts to cause Infinity to obtain, all federal and state governmental
regulatory agency approvals, consents, permit, authorizations, and orders
which are reasonably necessary to be obtained in connection with this
Agreement and the consummation of the transactions contemplated
hereby; and (c) to use his best efforts to cause Infinity to obtain,
all consents and authorizations of any other third parties which are
reasonably necessary to be obtained in connection with this
Agreement and the consummation of the transactions contemplated hereby.
6.1.2 Information for Lakota's Statements and Applications. Jalali and
Infinity and their employees, accountants and attorneys shall reasonably
cooperate with Lakota in the preparation of any statements or applications
made by Lakota to any federal or state governmental regulatory agency in
connection with this Agreement and the transactions contemplated hereby
and shall use their best efforts to furnish Lakota with all information
concerning Infinity which is necessary or reasonable for inclusion
in such statements and applications, including, without limitation,
all requisite financial statements and schedules.
<PAGE>
6.1.3 Access to Information. Lakota, together with its appropriate
attorneys, agents and representatives, have made and shall be permitted
to make a full and complete investigation of Infinity and have been
granted and shall be granted full access to all of the books and records
of Infinity during reasonable business hours. Notwithstanding the
foregoing, such parties shall treat all such information as confidential
and shall not disclose such information without the prior written consent
of the other, and further, Lakota covenants and agrees with both Jalali
and Infinity to treat any and all information obtained during the
negotiations between the Parties, through the course of Closing, and
as a process or consequence of the transactions contemplated by this
Agreement as confidential.
6.2 To induce Jalali to enter into this Agreement and to
consummate the transactions contemplated hereby, and without
limiting any covenant, agreement, representation or warranty made
above, Lakota covenants and agrees as follows:
6.2.1 Access to Information. Jalali, together with his appropriate
attorneys, agents and representatives, shall be permitted to make the full
and complete investigation of Lakota and have full access to all of the
books and records of the other during reasonable business hours.
Notwithstanding the foregoing, such parties shall treat all such
information as confidential and shall not disclose such information
without the prior consent of the other.
6.2.2 Key Employee. Lakota acknowledges that Jalali is critical to the
success of Infinity, and as such, Lakota shall use its best efforts to
ensure that Jalali is retained by Infinity as its principal manager
following the Final Closing Date under terms and conditions mutually
agreeable to the Parties.
ARTICLE 7
MISCELLANEOUS
7.1 Expenses. Except as otherwise specifically provided for herein,
whether or not the transactions contemplated hereby are consummated,
each of the Parties hereto shall bear all taxes of any nature
(including, without limitation, income, franchise, transfer and
sales taxes) and all fees and expenses relating to or arising from
its compliance with the various provisions of this Agreement and
such Party's covenants to be performed hereunder, and except as
otherwise specifically provided for herein, each of the Parties
hereto agrees to pay all of its own expenses (including, without
limitation, attorneys and accountants' fees and printing expenses)
incurred in connection with this Agreement, the transactions
contemplated hereby, the negotiations leading to the same and the
preparations made for carrying the same into effect, up to the Final
Closing Date.
7.2 Notices. Any notice, request, instruction or other document
required by the terms of this Agreement, or deemed by any of the
parties hereto to be desirable, to be given to any other party
hereto shall be in writing and shall be given by prepaid telegram or
delivered or mailed by registered or certified mail, postage
prepaid, with return receipt requested, to the following addresses:
To Lakota:
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, Georgia 30339
Attn: R.K. (Ken) Honeyman, President
Facsimile (770) 433-8260
with a copy to:
The Law Offices of M. Richard Cutler
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: Brian A. Lebrecht, Esq.
Facsimile (949) 719-1988
To Infinity or Jalali:
2-Infinity.com, Inc.
4828 Loop Central Drive, Suite 150
Houston, Texas 77081
Attn: Majed Jalali, President and CEO
Facsimile (713) 592-0378
The persons and addresses set forth above may be changed from time
to time by a notice sent as aforesaid. If notice is given by
delivery in accordance with the provisions of this Section, said
notice shall be conclusively deemed given at the time of such actual
delivery (courier receipt). If notice is given by mail in accordance
with the provisions of this Section, such notice shall be
conclusively deemed given forty-eight (48) hours after deposit
thereof in the United States mail, Certified, Return Receipt
Requested. If notice is given by telegraph in accordance with the
provisions of this Section, such notice shall be conclusively deemed
given at the time that the telegraphic agency shall confirm delivery
thereof to the addressee.
7.3 Entire Agreement. This Agreement, together with the schedule and
exhibits hereto, sets forth the entire agreement and understanding
of the parties hereto with respect to the transactions contemplated
hereby, and supersedes all prior agreements, arrangements and
understandings related to the subject matter hereof. No
understanding, promise, inducement, statement of intention,
representation, warranty, covenant or condition, written or oral,
express or implied, whether by statute or otherwise, has been made
by any party hereto which is not embodied in this Agreement, or
exhibits hereto or the written statements, certificates, or other
documents delivered pursuant hereto or in connection with the
transactions contemplated hereby, and no party hereto shall be bound
by or liable for any alleged understanding, promise, inducement,
statement, representation, warranty, covenant or condition not so
set forth.
7.4 Survival of Representations. All statements of fact
(including financial statements) contained in the schedules, the
exhibits, the certificates or any other instrument delivered by or
on behalf of the parties hereto, or in connection with the
transactions contemplated hereby, shall be deemed representations
and warranties by the
<PAGE>
respective party hereunder. All representation, warranties agreements
and covenants hereunder shall survive the Initial Closing Date and the
Final Closing Date and shall remain effective regardless of any
investigation or audit at any time made by or on behalf of the parties
or of any information a party may have in respect thereto. Consummation
of the transactions contemplated hereby shall not be deemed or construed
to be a waiver of any right or remedy possessed by any party hereto,
notwithstanding that such party knew or should have known at the
time that such right or remedy existed.
7.5 Incorporated by Reference. All documents (including, without
limitation, all financial statements) delivered as part hereof or
incident hereto are incorporated as a part of this Agreement by
reference.
7.6 Remedies Cumulative. No remedy herein conferred upon any Party
is intended to be exclusive of any other remedy and each and every
such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or
in equity or by statute or otherwise.
7.7 Execution of Additional Documents. Each party hereto shall make,
execute, acknowledge and deliver such other instruments and
documents, and take all such other actions as may be reasonably
required in order to effectuate the purposes of this Agreement and
to consummate the transactions contemplated hereby within the time
frames described herein. The Parties hereto understand and agree
that time is of the essence, and that failure to perform any of the
transactions or conveyances described under the Closing procedure,
shall render this Agreement null and void.
7.8 Finders' and Related Fees. Each of the Parties hereto is
responsible for, and shall indemnify the other against, any claim by
any third party to a fee, commission, bonus or other remuneration
arising by reason of any services alleged to have been rendered to
or at the instance of said party to this Agreement with respect to
this Agreement or to any of the transactions contemplated hereby.
7.9 Governing Law. This Agreement has been negotiated and executed
in the State of Texas and shall be construed and enforced in
accordance with the laws of such state.
7.10 Forum. Each of the parties hereto agrees that any action or
suit which may be brought by any party hereto against any other
party hereto in connection with this Agreement or the transactions
contemplated hereby may be brought only in a federal or state court
in Harris County, Texas.
7.11 Attorneys' Fees. Except as otherwise provided herein, if a
dispute should arise between the parties including, but not limited
to arbitration, the prevailing party shall be reimbursed by the
nonprevailing party for all reasonable expenses incurred in
resolving such dispute, including reasonable attorneys' fees
exclusive of such amount of attorneys' fees as shall be a premium
for result or for risk of loss under a contingency fee arrangement.
7.12 Binding Effect and Assignment. This Agreement, and the ongoing
rights, obligations, privileges and options described herein shall
inure to the benefit of and be binding upon the parties hereto and
their respective heirs, executors, administrators, legal
representatives and assigns.
7.13 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the
<PAGE>
same instrument. In making proof of this Agreement, it shall not be
necessary to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
as of the date first written hereinabove ("Initial Closing Date").
LAKOTA ENERGY, INC.
a Colorado corporation ("LAKOTA") Attest:
/s/R.K. Honeyman By:/s/Howard Wilson
By: R.K. (Ken) Honeyman
Its: President
2-INFINITY.COM, INC.
a Texas corporation ("INFINITY") Attest:
By:/s/Michael L. Omer
Secretary
/s/Majed Jalali
By: Majed Jalali
Its: President
Majed Jalali, Stockholder ("Jalali")
Witnessed:
/s/Majed Jalali
By: Majed Jalali
<PAGE>
EXHIBIT A
CERTIFICATION OF CORPORATE SECRETARY
(Insert here a certification signed by the Corporate Secretary of
2-Infinity.com, Inc. that the total authorized shares are two
thousand (2,000) and that all shares have been issued to and are
standing in the name of Majed Jalali.)
<PAGE>
EXHIBIT B
INFINITY ASSETS AND LIABILITIES
- - TUT Systems, Inc. Value Added Reseller Agreement dated May 20, 1999.
<PAGE>
EXHIBIT C
TUT Systems, Inc. Value Added Reseller Agreement
REORGANIZATION AND STOCK PURCHASE AGREEMENT
by and between
Lakota Energy, Inc.
a Colorado corporation
and
Voice Design, Inc.
a Texas corporation
and its shareholders
<PAGE>
REORGANIZATION AND STOCK PURCHASE AGREEMENT
REORGANIZATION AND STOCK PURCHASE AGREEMENT ("Agreement"),
dated June 8, 1999, by and among Lakota Energy, Inc., a Colorado
corporation (hereinafter referred to as "Lakota"), Voice Design,
Inc., a Texas corporation (hereinafter referred to as "VDI"), and
Patrick "Cody" Morgan, an individual (hereinafter referred to as
"Morgan"), Candice Morgan, an individual ("Candice"), and Charles H.
Downey, Jr., an individual ("Downey") Each of Morgan, Candice, and
Downey shall be referred to as a "Shareholder" or the
"Shareholders"). Each of Lakota, VDI, and the Shareholders shall be
referred to herein as a "Party" and collectively as the "Parties."
W I T N E S S E T H
WHEREAS, the Shareholders collectively own 100% of the issued
and outstanding common stock of VDI (the "VDI Shares") as set forth
in Exhibit "A" attached hereto;
WHEREAS, the Shareholders desire to sell and Lakota desires to
purchase the VDI Shares in accordance with the terms set forth herein;
NOW THEREFORE, in consideration of the premises and
respective mutual agreements, covenants, representations and
warranties herein contained, it is agreed between the parties hereto
as follows:
ARTICLE 1
SALE AND PURCHASE OF THE SHARES
1.1 Sale of the VDI Shares. At the Closing, subject to the
terms and conditions herein set forth, and on the basis of the
representations, warranties and agreements herein contained, the
Shareholders shall sell to Lakota and Lakota shall purchase from the
Shareholders, and each of them, all of the VDI Shares. As
consideration for the receipt of the VDI Shares, Lakota shall pay
the following consideration:
1.1.1 Lakota shall pay to Morgan cash consideration (the
"Cash Consideration") equal to Sixty Thousand Dollars ($60,000),
payable as follows:
(a) At the Closing, Lakota shall pay the sum of Twenty
Thousand Dollars ($20,000) (the "First Cash Payment");
(b) On the date which is sixty (60) days following the
Closing, Lakota shall pay the sum of Twenty Thousand Dollars ($20,000);
(c) On the date which is ninety (90) days following the Closing, Lakota
shall pay the sum of Twenty Thousand Dollars ($20,000).
<PAGE>
1.1.2 At the Closing, Lakota shall cause to be issued to the
Shareholders, pro rata in accordance with their ownership as set
forth on Exhibit A attached hereto, an aggregate of Three Million
(3,000,000) shares of Lakota common stock bearing an appropriate 144
restrictive legend (the "Initial Stock Consideration").
1.2 Instruments of Conveyance and Transfer. At the Closing,
the Shareholders shall deliver to Lakota the VDI Shares and Lakota
shall deliver to Morgan the First Cash Payment and a certificates
representing the Initial Stock Consideration.
1.3 Additional Consideration. As additional consideration
for the purchase of the VDI Shares, Lakota shall issue to Morgan, or
his assigns, additional shares of Lakota common stock based on the
following schedule (the "Additional Stock Consideration");
1.3.1 In the event that VDI reaches net revenue (as defined in
Section 1.3.4 below) of at least Thirty Two Thousand Four Hundred
Dollars ($32,400) by that date which is one (1) year from the date
of Closing, then Morgan shall be issued an aggregate of 1,000,000
shares of Lakota common stock bearing an appropriate 144 restrictive
legend.
1.3.2 In addition to the consideration set forth in Section
1.3.1 hereof, in the event that VDI reaches net revenue (as defined
in Section 1.3.4 below) of at least Two Hundred Eighty Seven
Thousand Dollars ($287,400) by that date which is two (2) years from
the date of Closing, then Morgan shall be issued an aggregate of
1,000,000 shares of Lakota common stock bearing an appropriate 144
restrictive legend.
1.3.3 In addition to the consideration set forth in Sections
1.3.1 and 1.3.2 hereof, in the event that VDI reaches net revenue
(as defined in Section 1.3.4 below) of at least Seven Hundred Sixty
Two Thousand Dollars ($762,400) by that date which is three (3)
years from the date of Closing, then Morgan shall be issued an
aggregate of 1,000,000 shares of Lakota common stock bearing an
appropriate 144 restrictive legend.
1.3.4 For purposes of this Agreement, the term "net revenues"
shall mean the total amount of gross sales of products and services
of Voice Design, Inc., either directly or indirectly arising out of
Voice Design, Inc.'s business operations, as determined under
generally accepted accounting principles, minus annual total
expenses arising directly out of Voice Design, Inc.'s business
operations (including, without limitation, taxes), but excluding
depreciation, amortization and expenses on monies borrowed by Voice
Design, Inc., or its parent, in furtherance of the transactions
contemplated by this Agreement.
1.4 Positions and Titles.
1.4.1 Morgan Positions. Effective as of the Closing, Morgan
shall serve as the President, and a Director of VDI, pursuant to the
terms of the employment agreement attached hereto as Exhibit "D".
Morgan will also be appointed as a Director of Lakota, to serve at
the discretion of the Lakota shareholders.
<PAGE>
1.4.2 Downey Positions. Effective as of the Closing,
Downey shall serve as the Chief Executive Officer and a Director of
VDI, pursuant to the terms of the employment agreement attached
hereto as Exhibit "E".
1.4.3 Lakota Appointments to the VDI Board of Directors.
Effective as of the Closing, Lakota will appoint three (3) members
to the VDI Board of Directors.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of VDI. To induce
Lakota to enter into this Agreement and to consummate the
transactions contemplated hereby, VDI represents and warrants, as of
the date hereof and as of the Closing, as follows:
2.1.1 VDI has the full right, power and authority to enter
into this Agreement and to carry out and consummate the transaction
contemplated herein. This Agreement constitutes the legal, valid
and binding obligation of VDI.
2.1.2 Corporate Existence and Authority of VDI. VDI is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Texas. It has all requisite
corporate power, franchises, licenses, permits and authority to own
its properties and assets and to carry on its business as it has
been and is being conducted. It is in good standing in each state,
nation or other jurisdiction wherein the character of the business
transacted by it makes such qualification necessary.
2.1.3 Capitalization of VDI. The authorized equity
securities of VDI consists of 50,000 shares of common stock, of
which 30,000 shares are issued and outstanding. No other shares of
capital stock of VDI are issued and outstanding. All of the issued
and outstanding shares have been duly and validly issued in
accordance and compliance with all applicable laws, rules and
regulations and are fully paid and nonassessable. There are no
options, warrants, rights, calls, commitments, plans, contracts or
other agreements of any character granted or issued by VDI which
provide for the purchase, issuance or transfer of any shares of the
capital stock of VDI nor are there any outstanding securities
granted or issued by VDI that are convertible into any shares of the
equity securities of VDI, and none is authorized. VDI is not
obligated or committed to purchase, redeem or otherwise acquire any
of its equity. All presently exercisable voting rights in VDI are
vested exclusively in its outstanding shares of common stock, each
share of which is entitled to one vote on every matter to come
before it's shareholders, and other than as may be contemplated by
this Agreement, there are no voting trusts or other voting
arrangements with respect to any of VDI's equity securities.
2.1.4 Subsidiaries. "Subsidiary" or "Subsidiaries" means
all corporations, trusts, partnerships, associations, joint ventures
or other Persons, as defined below, of which a corporation or any
other Subsidiary of such corporation owns not less than twenty
percent
<PAGE>
(20%) of the voting securities or other equity or of which
such corporation or any other Subsidiary of such corporation
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies, whether through ownership
of voting shares, management contracts or otherwise. "Person" means
any individual, corporation, trust, association, partnership,
proprietorship, joint venture or other entity. There are no
Subsidiaries of VDI.
2.1.5 Execution of Agreement. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not: (a) violate, conflict with, modify or
cause any default under or acceleration of (or give any party any
right to declare any default or acceleration upon notice or passage
of time or both), in whole or in part, any charter, article of
incorporation, bylaw, mortgage, lien, deed of trust, indenture,
lease, agreement, instrument, order, injunction, decree, judgment,
law or any other restriction of any kind to which VDI is a party or
by which either of them or any of their properties are bound; (b)
result in the creation of any security interest, lien, encumbrance,
adverse claim, proscription or restriction on any property or asset
(whether real, personal, mixed, tangible or intangible), right,
contract, agreement or business of VDI; (c) violate any law, rule or
regulation of any federal or state regulatory agency; or (d) permit
any federal or state regulatory agency to impose any restrictions or
limitations of any nature on VDI or any of their respective actions.
2.1.6 Taxes.
2.1.6.1 All taxes, assessments, fees, penalties, interest
and other governmental charges with respect to VDI which have become
due and payable on the date hereof have been paid in full or
adequately reserved against by VDI, (including without limitation,
income, property, sales, use, franchise, capital stock, excise,
added value, employees' income withholding, social security and
unemployment taxes), and all interest and penalties thereon with
respect to the periods then ended and for all periods thereto;
2.1.6.2 There are no agreements, waivers or other arrangements
providing for an extension of time with respect to the
assessment of any tax or deficiency against VDI, nor are there any
actions, suits, proceedings, investigations or claims now pending
against VDI, nor are there any actions, suits, proceedings,
investigations or claims now pending against VDI in respect of any
tax or assessment, or any matters under discussion with any federal,
state, local or foreign authority relating to any taxes or
assessments, or any claims for additional taxes or assessments
asserted by any such authority, and there is no basis for the
assertion of any additional taxes or assessments against VDI, and
2.1.6.3 The consummation of the transactions contemplated by
this Agreement will not result in the imposition of any additional
taxes on or assessments against VDI.
<PAGE>
2.1.7 Disputes and Litigation. There is no suit, action,
litigation, proceeding, investigation, claim, complaint, or
accusation pending, threatened against or affecting VDI or any of
its properties, assets or business or to which VDI is a party, in
any court or before any arbitrator of any kind or before or by any
governmental agency (including, without limitation, any federal,
state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality), and to the best knowledge
of VDI there is no basis for such suit, action, litigation,
proceeding, investigation, claim, complaint, or accusation; (b)
there is no pending or, to the best knowledge of VDI, threatened
change in any environmental, zoning or building laws, regulations or
ordinances which affect or could affect VDI or any of its
properties, assets or businesses; and (c) there is no outstanding
order, writ, injunction, decree, judgment or award by any court,
arbitrator or governmental body against or affecting VDI or any of
its properties, assets or business. There is no litigation,
proceeding, investigation, claim, complaint or accusation, formal or
informal, or arbitration pending, or to the best knowledge of VDI
any of the aforesaid threatened, or any contingent liability which
would give rise to any right of indemnification or similar right on
the part of any director or officer of VDI or any such person's
heirs, executors or administrators as against VDI.
2.1.8 Compliance with laws. VDI has at all times been, and
presently is, in full compliance with, and has not received notice
of any claimed violation of, any applicable federal, state, local,
foreign and other laws, rules and regulations. VDI has filed all
returns, reports and other documents and furnished all information
required or requested by any federal, state, local or foreign
governmental agency and all such returns, reports, documents and
information are true and complete in all respects. All permits,
licenses, orders, franchises and approvals of all federal, state,
local or foreign governmental or regulatory bodies required of VDI
for the conduct of its business have been obtained, no violations
are or have been recorded in respect of any such permits, licenses,
orders, franchises and approvals, and there is no litigation,
proceeding, investigation, arbitration, claim, complaint or
accusation, formal or informal, pending or, to the best knowledge of
VDI threatened, which may revoke, limit, or question the validity,
sufficiency or continuance of any such permit, license, order,
franchise or approval. Such permits, licenses, orders, franchises
and approvals are valid and sufficient for all activities presently
carried on by VDI.
2.1.9 Guaranties. VDI has not guaranteed any dividend,
obligation or indebtedness of any Person; nor has any Person
guaranteed any dividend, obligation or indebtedness of VDI.
2.1.10 Books and Records. VDI keeps its books, records and
accounts (including, without limitation, those kept for financial
reporting purposes and for tax purposes) in accordance with good
business practice and in sufficient detail to reflect the
transactions and dispositions of its assets, liabilities and
equities. The minute books of VDI contain records of its
shareholders' and directors' meetings and of action taken by such
shareholders and directors. The meeting of directors and
shareholders referred to in such minute books were duly called and
held, and the resolutions appearing in such minute books were duly
adopted.
<PAGE>
The signatures appearing on all documents contained in
such minute books are the true signatures of the persons purporting
to have signed the same. A true and accurate list of VDI assets and
liabilities as of the Closing Date is attached hereto as Exhibit
"B". Further, attached hereto as Exhibit "C" is a list of all
material contracts to which VDI is a party, and which VDI hereby
represents to be valid and binding obligations on all parties
thereto. VDI represents and warrants that there are no other
material contracts or agreements in existence as of the Closing Date.
2.2 Representations and Warranties of the Shareholders.
To induce Lakota to enter into this Agreement and to consummate the
transactions contemplated hereby, the Shareholder, and each of them,
represent and warrant, as of the date hereof and as of the Closing,
as follows:
2.2.1 The Shareholders have the full right, power and authority to enter
into this Agreement and to carry out and consummate the transaction
contemplated herein. This Agreement constitutes the legal, valid and
binding obligation of the Shareholders.
2.2.2 Execution of Agreement. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not: (a) violate, conflict with, modify or
cause any default under or acceleration of (or give any party any
right to declare any default or acceleration upon notice or passage
of time or both), in whole or in part, any mortgage, lien, deed of
trust, indenture, lease, agreement, instrument, order, injunction,
decree, judgment, law or any other restriction of any kind to which
the Shareholders are a party or by which any of them or any of their
properties are bound; (b) result in the creation of any security
interest, lien, encumbrance, adverse claim, proscription or
restriction on any property or asset (whether real, personal, mixed,
tangible or intangible), right, contract, agreement or business of
the Shareholders; (c) violate any law, rule or regulation of any
federal or state regulatory agency; or (d) permit any federal or
state regulatory agency to impose any restrictions or limitations of
any nature on the Shareholders or any of their respective actions.
2.2.3 The Shareholders acknowledges that all shares of
Lakota common stock issued in accordance with this Agreement will be
"restricted securities" (as such term is defined in Rule 144
promulgated under the Securities Act of 1933, as amended ("Rule
144")), that the Shares will include the restrictive legend set
forth in Section 3.2 hereof, and, except as otherwise set forth in
this Agreement, that the shares cannot be sold for a period of one
year from the date of issuance unless registered with the United
States Securities and Exchange Commission ("SEC") and qualified by
appropriate state securities regulators, or unless the Shareholders
obtain written consent from Lakota and otherwise comply with an
exemption from such registration and qualification (including,
without limitation, compliance with Rule 144).
2.2 Representations and Warranties of Lakota. To induce
VDI and the Shareholders to enter into this Agreement and to
consummate the transactions contemplated hereby, Lakota represents
and warrants, as of the date hereof and as of the Closing, as follows:
<PAGE>
2.2.1 Corporate Existence and Authority of Lakota. Lakota
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Colorado. It has all
requisite corporate power, franchises, licenses, permits and
authority to own its properties and assets and to carry on its
business as it has been and is being conducted. It is in good
standing in each state, nation or other jurisdiction in each state,
nation or other jurisdiction wherein the character of the business
transacted by it makes such qualification necessary.
2.2.2 Capitalization of Lakota. The authorized equity
securities of Lakota consists of 50,000,000 shares of common stock,
of which 33,588,906 shares are issued and outstanding as of the
close of business on May 27, 1999, and 5,000,000 shares of Preferred
Stock, of which no shares are issued and outstanding as of the date
hereof. No other shares of capital stock of Lakota are issued and
outstanding. All of the issued and outstanding shares have been
duly and validly issued in accordance and compliance with all
applicable laws, rules and regulations and are fully paid and
nonassessable. All presently exercisable voting rights in Lakota
are vested exclusively in its outstanding shares of common stock,
each share of which is entitled to one vote on every matter to come
before it's shareholders, and other than as may be contemplated by
this Agreement, there are no voting trusts or other voting
arrangements with respect to any of Lakota's equity securities.
2.2.3 Subsidiaries. There are currently two subsidiaries
of Lakota, namely West Belt Energy, Inc., a Texas corporation, and
2-Infinity.com, Inc., a Texas corporation.
2.2.4 Execution of Agreement. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not: (a) violate, conflict with, modify or
cause any default under or acceleration of (or give any party any
right to declare any default or acceleration upon notice or passage
of time or both), in whole or in part, any charter, article of
incorporation, bylaw, mortgage, lien, deed of trust, indenture,
lease, agreement, instrument, order, injunction, decree, judgment,
law or any other restriction of any kind to which Lakota is a party
or by which it or any of its properties are bound; (b) result in the
creation of any security interest, lien, encumbrance, adverse claim,
proscription or restriction on any property or asset (whether real,
personal, mixed, tangible or intangible), right, contract, agreement
or business of Lakota; (c) violate any law, rule or regulation of
any federal or state regulatory agency; or (d) permit any federal or
state regulatory agency to impose any restrictions or limitations of
any nature on Lakota or any of its actions.
ARTICLE 3
CLOSING AND DELIVERY OF DOCUMENTS
3.1 Closing. The Closing shall be deemed to have occurred as
of the date of signing of this Agreement. Subsequent to the
signing, the following shall occur as a single integrated transaction:
<PAGE>
3.2 Delivery by Lakota:
(a) Lakota shall deliver to the Shareholders the Initial
Stock Consideration of an aggregate of 3,000,000 shares of Lakota
common stock and all instruments of conveyance and transfer required
by Section 1.2 subject to no liens, security interests, pledges,
encumbrances, charges, restrictions, demands or claims in any other
party whatsoever, except as set forth in the legend on the
certificate(s), which legend shall provide as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF FOR A
PERIOD OF ONE YEAR FROM THE ISSUANCE THEREOF EXCEPT (i) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE LAWS OR (ii) UPON THE EXPRESS WRITTEN AGREEMENT OF THE COMPANY
AND COMPLIANCE, TO THE EXTENT APPLICABLE, WITH RULE 144 UNDER THE
ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES).
(b) Lakota shall deliver to Morgan the First Cash Payment in
the amount of Twenty Thousand Dollars ($20,000).
(c) Lakota shall execute the Employment Agreements set forth
in Exhibits "D" and "E" attached hereto.
3.3 Delivery by the Shareholders:
(a) The Shareholders shall deliver to Lakota all of the VDI
Shares and all instruments of conveyance and transfer required by
Section 1.2.
(b) Morgan and Downey shall execute the Employment Agreements
set forth in Exhibits "D" and "E", respectively.
ARTICLE 4
CONDITIONS, TERMINATION, AMENDMENT AND WAIVER
4.1 Condition Precedent. This Agreement, and the transactions contemplated
hereby, shall be subject to the approval of the Board of Directors of Lakota
and VDI, and, if necessary, the respective shareholders thereof.
<PAGE>
4.2 Termination. Notwithstanding anything to the
contrary contained in this Agreement, this Agreement may be
terminated and the transactions contemplated hereby may be abandoned
at any time prior to the Closing by the mutual consent of all of the
parties.
4.3 Waiver and Amendment. Any term, provision, covenant,
representation, warranty or condition of this Agreement may be
waived, but only by a written instrument signed by the party
entitled to the benefits thereof. The failure or delay of any party
at any time or times to require performance of any provision hereof
or to exercise its rights with respect to any provision hereof shall
in no manner operate as a waiver of or affect such party's right at
a later time to enforce the same. No waiver by any party of any
condition, or of the breach of any term, provision, covenant,
representation or warranty contained in this Agreement, in any one
or more instances, shall be deemed to be or construed as a further
or continuing waiver of any such condition or breach or waiver of
any other condition or of the breach of any other term, provision,
covenant, representation or warranty. No modification or amendment
of this Agreement shall be valid and binding unless it be in writing
and signed by all parties hereto.
ARTICLE 5
COVENANTS
5.1 To induce Lakota to enter into this Agreement and to
consummate the transactions contemplated hereby, and without
limiting any covenant, agreement, representation or warranty made
the Shareholders covenant and agree as follows:
5.1.1 Notices and Approvals. The Shareholders agree: (a) to
give and to cause VDI to give all notices to third parties which may
be necessary or deemed desirable by Lakota in connection with this
Agreement and the consummation of the transactions contemplated
hereby; (b) to use its best efforts to obtain and to cause VDI to
obtain, all federal and state governmental regulatory agency
approvals, consents, permit, authorizations, and orders necessary or
deemed desirable by Lakota in connection with this Agreement and the
consummation of the transaction contemplated hereby; and (c) to use
its best efforts to obtain, and to cause VDI to obtain, all consents
and authorizations of any other third parties necessary or deemed
desirable by Lakota in connection with this Agreement and the
consummation of the transactions contemplated hereby.
5.1.2 Information for Lakota's Statements and Applications.
The Shareholders and VDI and their employees, accountants and
attorneys shall cooperate fully with Lakota in the preparation of
any statements or applications made by Lakota to any federal or
state governmental regulatory agency in connection with this
Agreement and the transactions contemplated hereby and to furnish
Lakota with all information concerning the Shareholders and VDI
necessary or deemed desirable by Lakota for inclusion in such
statements and applications, including, without limitation, all
requisite financial statements and schedules.
5.1.3 Access to Information. Lakota, together with its
appropriate attorneys, agents and representatives, shall be
permitted to make the full and complete investigation of the
<PAGE>
Shareholders and VDI and have full access to all of the books and
records of the other during reasonable business hours.
Notwithstanding the foregoing, such parties shall treat all such
information as confidential and shall not disclose such information
without the prior consent of the other.
5.2 To induce the Shareholders to enter into this
Agreement and to consummate the transactions contemplated hereby,
and without limiting any covenant, agreement, representation or
warranty made Lakota covenants and agrees as follows:
5.2.1 Access to Information. The Shareholders, together with
their appropriate attorneys, agents and representatives, shall be
permitted to make the full and complete investigation of Lakota and
have full access to all of the books and records of the other during
reasonable business hours. Notwithstanding the foregoing, such
parties shall treat all such information as confidential and shall
not disclose such information without the prior consent of the other.
ARTICLE 6
MISCELLANEOUS
6.1 Expenses. Except as otherwise specifically provided
for herein, whether or not the transactions contemplated hereby are
consummated, each of the parties hereto shall bear all taxes of any
nature (including, without limitation, income, franchise, transfer
and sales taxes) and all fees and expenses relating to or arising
from its compliance with the various provisions of this Agreement
and such party's covenants to be performed hereunder, and except as
otherwise specifically provided for herein, each of the parties
hereto agrees to pay all of its own expenses (including, without
limitation, attorneys and accountants' fees and printing expenses)
incurred in connection with this Agreement, the transactions
contemplated hereby, the negotiations leading to the same and the
preparations made for carrying the same into effect, and all such
taxes, fees and expenses of the parties hereto shall be paid prior
to Closing.
6.2 Notices. Any notice, request, instruction or other
document required by the terms of this Agreement, or deemed by any
of the parties hereto to be desirable, to be given to any other
party hereto shall be in writing and shall be given by prepaid
telegram or delivered or mailed by registered or certified mail,
postage prepaid, with return receipt requested, to the following
addresses:
To Lakota:
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, Georgia 30339
Attn: R.K. (Ken) Honeyman, President
Facsimile (770) 433-8260
<PAGE>
with a copy to:
The Law Offices of M. Richard Cutler
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: Brian A. Lebrecht, Esq.
Facsimile (949) 719-1988
To VDI or the Shareholders
Voice Design, Inc.
Attn: Patrick "Cody" Morgan, President
Facsimile ( )
with a copy to:
Facsimile ( )
The persons and addresses set forth above may be changed from
time to time by a notice sent as aforesaid. If notice is given by
delivery in accordance with the provisions of this Section, said
notice shall be conclusively deemed given at the time of such
delivery. If notice is given by mail in accordance with the
provisions of this Section, such notice shall be conclusively deemed
given forty-eight (48) hours after deposit thereof in the United
States mail. If notice is given by telegraph in accordance with the
provisions of this Section, such notice shall be conclusively deemed
given at the time that the telegraphic agency shall confirm delivery
thereof to the addressee.
6.3 Entire Agreement. This Agreement, together with the
schedule and exhibits hereto, sets forth the entire agreement and
understanding of the parties hereto with respect to the transactions
contemplated hereby, and supersedes all prior agreements,
arrangements and understandings related to the subject matter
hereof. No understanding, promise, inducement, statement of
intention, representation, warranty, covenant or condition, written
or oral, express or implied, whether by statute or otherwise, has
been made by any party hereto which is not embodied in this
Agreement, or exhibits hereto or the written statements,
certificates, or other documents delivered pursuant hereto or in
connection with the transactions contemplated hereby, and no party
hereto shall be bound by or liable for any alleged understanding,
promise, inducement, statement, representation, warranty, covenant
or condition not so set forth.
6.4 Survival of Representations. All statements of fact
(including financial statements) contained in the schedules, the
exhibits, the certificates or any other instrument delivered by or
on
<PAGE>
behalf of the parties hereto, or in connection with the
transactions contemplated hereby, shall be deemed representations
and warranties by the respective party hereunder. All
representation, warranties agreements and covenants hereunder shall
survive the Closing and remain effective regardless of any
investigation or audit at any time made by or on behalf of the
parties or of any information a party may have in respect thereto.
Consummation of the transactions contemplated hereby shall not be
deemed or construed to be a waiver of any right or remedy possessed
by any party hereto, notwithstanding that such party knew or should
have known at the time of Closing that such right or remedy existed.
6.5 Incorporated by Reference. All documents (including,
without limitation, all financial statements) delivered as part
hereof or incident hereto are incorporated as a part of this
Agreement by reference.
6.6 Remedies Cumulative. No remedy herein conferred upon
and Party is intended to be exclusive of any other remedy and each
and every such remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute or otherwise.
6.7 Execution of Additional Documents. Each party hereto
shall make, execute, acknowledge and deliver such other instruments
and documents, and take all such other actions as may be reasonably
required in order to effectuate the purposes of this Agreement and
to consummate the transactions contemplated hereby.
6.8 Finders' and Related Fees. Each of the parties
hereto is responsible for, and shall indemnify the other against,
any claim by any third party to a fee, commission, bonus or other
remuneration arising by reason of any services alleged to have been
rendered to or at the instance of said party to this Agreement with
respect to this Agreement or to any of the transactions contemplated
hereby.
6.9 Governing Law. This Agreement has been negotiated
and executed in the State of Texas and shall be construed and
enforced in accordance with the laws of such state.
6.10 Forum. Each of the parties hereto agrees that any
action or suit which may be brought by any party hereto against any
other party hereto in connection with this Agreement or the
transactions contemplated hereby may be brought only in a federal or
state court in Harris County, Texas.
6.11 Attorneys' Fees. Except as otherwise provided
herein, if a dispute should arise between the parties including, but
not limited to arbitration, the prevailing party shall be reimbursed
by the nonprevailing party for all reasonable expenses incurred in
resolving such dispute, including reasonable attorneys' fees
exclusive of such amount of attorneys' fees as shall be a premium
for result or for risk of loss under a contingency fee arrangement.
<PAGE>
6.12 Binding Effect and Assignment. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and
their respective heirs, executors, administrators, legal
representatives and assigns.
6.13 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. In
making proof of this Agreement, it shall not be necessary to produce
or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, as of the date first written hereinabove.
LAKOTA ENERGY, INC. VOICE DESIGNS, INC.
a Colorado corporation ("LAKOTA") a Texas corporation ("VDI")
/s/R.K. Honeyman /s/Patrick Morgan
By: R.K. (Ken) Honeyman By: Patrick Morgan
Its: President Its: President
/s/Patrick Morgan /s/Candice Morgan
Patrick Morgan, an individual Candice Morgan, an individual
/s/Charles H. Downey, Jr.
Charles H. Downey, Jr., an individual
<PAGE>
EXHIBIT "A"
VDI SHARES
Patrick Morgan 10,000 shares
Candice Morgan 10,000 shares
Charles H. Downey, Jr. 10,000 shares
<PAGE>
EXHIBIT "B"
VDI ASSETS AND LIABILITIES
<PAGE>
EXHIBIT "C"
VDI MATERIAL CONTRACTS
<PAGE>
EXHIBIT "D"
MORGAN EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT "E"
DOWNEY EMPLOYMENT AGREEMENT
STOCK TRANSFER AGREEMENT
This STOCK TRANSFER AGREEMENT, dated as of June 14, 1999 by and
between Lakota Energy, Inc., a Colorado corporation ("Lakota
Energy") and Lakota Oil and Gas, Inc., a Texas corporation ("Lakota
Oil").
W I T N E S S E T H
WHEREAS, Lakota Oil desires to issue 10,000 shares of Lakota
Oil and Gas, Inc. Common Stock (the "Shares") to Lakota Energy on
the terms and conditions set forth in this Stock Transfer Agreement
(hereinafter called "Agreement"); and
WHEREAS, Lakota Energy desires to receive the Shares on the
terms and conditions set forth herein;
NOW THEREFORE, in consideration of the promises and respective
mutual agreements herein contained, it is agreed by and between the
parties hereto as follows:
ARTICLE 1
TRANSFER OF THE SHARES
1.1 Transfer of the Shares. Upon the execution of this Agreement as provided
in Section 3.1 hereto (the "Closing"), subject to the terms and conditions
herein set forth, and on the basis of the representations, warranties and
agreements herein contained, Lakota Oil shall issue to Lakota Energy, and
Lakota Energy shall receive from Lakota Oil, the Shares.
1.2 Instruments of Conveyance and Transfer. Simultaneously
with the Closing, Lakota Oil shall deliver a certificate or
certificates representing the Shares to Lakota Energy, in form and
substance satisfactory to Lakota Energy, as shall be effective to
vest in Lakota Energy all right, title and interest in and to all of
the Shares, as set forth in Section 3 herein.
1.3 Consideration and Payment for the Shares. In consideration for the
Shares Lakota Energy shall transfer all of its right, title, and interest in
and to, as well as any and all obligations arising from, the assets set forth
on Exhibit A attached hereto and made a part hereof ("Transfer Price").
ARTICLE 2
REPRESENTATIONS AND COVENANTS OF LAKOTA OIL AND LAKOTA ENERGY
2.1 Lakota Oil hereby represents and warrants that:
(a) It shall transfer title, in and to the Shares, to Lakota Energy
free and clear of all liens, security interests, pledges,
encumbrances, charges, restrictions, demands and claims, of any kind
and nature whatsoever, whether direct or indirect or contingent,
except as set forth in Paragraph 2.2 herein.
<PAGE>
2.2 On the Closing Date as defined herein in Section 3.1,
Lakota Oil shall deliver to Lakota Energy certificates representing
the Shares subject to no liens, security interests, pledges,
encumbrances, charges, restrictions, demands or claims in any other
party whatsoever, except as set forth in the legend on the
certificate(s), which legend shall provide as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF FOR A
PERIOD OF ONE YEAR FROM THE ISSUANCE THEREOF EXCEPT (i) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE LAWS OR (ii) UPON THE EXPRESS WRITTEN AGREEMENT OF THE COMPANY
AND COMPLIANCE, TO THE EXTENT APPLICABLE, WITH RULE 144 UNDER THE
ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES.)
2.3. Lakota Energy hereby represents and warrants that:
(a) Lakota Energy acknowledges that the Shares will be "restricted
securities" (as such term is defined in Rule 144 promulgated under
the Securities Act of 1933, as amended ("Rule 144")), that the
Shares will include the foregoing restrictive legend, and, except as
otherwise set forth in this Agreement, that the Shares cannot be
sold for a period of one year from the date of issuance unless
registered with the SEC and qualified by appropriate state
securities regulators, or unless Lakota Energy obtains written
consent from Lakota Oil and otherwise complies with an exemption
from such registration and qualification (including, without
limitation, compliance with Rule 144).
(b) Lakota Energy has the full right, power and authority to enter
into this Agreement and to carry out and consummate the transaction
contemplated herein. This Agreement constitutes the legal, valid
and binding obligation of Lakota Energy.
(c) Lakota Energy acknowledges that investment in the Shares
involves substantial risks and is suitable only for persons of
adequate financial means who can bear the economic risk of an
investment in the Shares for an indefinite period of time. Lakota
Energy further represents that it:
(1) has adequate means of providing for its current needs and
possible personal contingencies, has no need for liquidity in his
investment in
<PAGE>
the Shares, is able to bear the substantial economic risks of an investment
in the Shares for an indefinite period, and, at the present time, can afford
a complete loss of his investment;
(2) is an "Accredited Investor" as that term is defined in Section
501(a) of Regulation D promulgated under the Securities Act of 1933,
as amended (the "Act");
(3) does not have an overall commitment to investments which are
not readily marketable that is disproportionate to his net worth,
and that its investment in the Shares will not cause such overall
commitment to become excessive;
(4) is acquiring the Shares for its own account, for investment
purposes only and not with a view toward resale, assignment or
distribution thereof, and no other person has a direct or indirect,
beneficial interest, in whole or in part, in such Shares;
(5) has such knowledge and experience in financial, tax and
business matters that it is capable of evaluating the merits and
risks of an investment in the Shares;
(6) has been given the opportunity to ask questions of and to
receive answers from persons acting on each of the Lakota Oil's
behalf concerning the terms and conditions of this transaction and
also has been given the opportunity to obtain any additional
information which Lakota Oil possesses or can acquire without
unreasonable effort or expense. As a result, Lakota Energy is
cognizant of the financial condition, capitalization, use of
proceeds from this financing and the operations and financial
condition of Lakota Oil, has available full information concerning
their affairs and has been able to evaluate the merits and risks of
the investment in the Shares; and
(7) The funds provided for Lakota Energy's purchase are either
separate property, community property over which the signatory(ies)
hereto has or have the right of control or are otherwise funds as to
which the undersigned has the sole right of management.
ARTICLE 3
CLOSING AND DELIVERY OF DOCUMENTS
3.1 Closing. The Closing shall be deemed to have occurred upon the
date of signing of this Agreement. Subsequent to the signing, the
following shall occur as a single integrated transaction:
<PAGE>
3.2 Delivery by Lakota Oil.
(a) Lakota Oil shall deliver to Lakota Energy the stock certificate
and any and all other instruments of conveyance and transfer
required by Section 1.2.
(b) Lakota Oil shall deliver, or cause to be delivered, to Lakota
Energy such instruments, documents and certificates as are required
to be delivered by Lakota Oil or its representatives pursuant to the
provisions of this Agreement.
3.3 Delivery by Lakota Energy.
(a) Lakota Energy shall deliver the Transfer Price as required in
Section 1.3 by execution and delivery of the Assignment of Assets as
set forth in Exhibit A attached hereto.
(b) Lakota Energy shall deliver, or cause to be delivered, to
Lakota Oil such instruments, documents and certificates as are
required to be delivered by Lakota Energy or its representatives
pursuant to the provisions of this Agreement.
ARTICLE 4
TERMINATION, AMENDMENT AND WAIVER
4.1 Termination. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement may be terminated and
the transactions contemplated hereby may be abandoned at any time
prior to delivery of the Transfer Price solely by the mutual
consent of all of the parties.
4.2 Waiver and Amendment. Any term, provision, covenant,
representation, warranty or condition of this Agreement may be
waived, but only by a written instrument signed by the party
entitled to the benefits thereof. The failure or delay of any party
at any time or times to require performance of any provision hereof
or to exercise its rights with respect to any provision hereof shall
in no manner operate as a waiver of or affect such party's right at
a later time to enforce the same. No waiver by any party of any
condition, or of the breach of any term, provision, covenant,
representation or warranty contained in this Agreement, in any one
or more instances, shall be deemed to be or construed as a further
or continuing waiver of any such condition or breach or waiver of
any other condition or of the breach of any other term, provision,
covenant, representation or warranty. No modification or amendment
of this Agreement shall be valid and binding unless it be in writing
and signed by all parties hereto.
ARTICLE 5
MISCELLANEOUS
5.1 Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to
the transactions contemplated hereby, and supersedes all prior
agreements, arrangements and understandings related to the subject
matter hereof. No understanding, promise, inducement, statement of
intention, representation, warranty, covenant or condition, written
or oral, express or implied, whether by statute or otherwise, has
been made by any
<PAGE>
party hereto which is not embodied in this Agreement or the written
statements, certificates, or other documents delivered pursuant hereto
or in connection with the transactions contemplated hereby, and no party
hereto shall be bound by or liable for any alleged understanding, promise,
inducement, statement, representation, warranty, covenant or condition not
so set forth.
5.2 Notices. All notices provided for in this Agreement shall be
in writing signed by the party giving such notice, and delivered
personally or sent by overnight courier or messenger or sent by
registered or certified mail (air mail if overseas), return receipt
requested, or by telex, facsimile transmission, telegram or similar
means of communication. Notices shall be deemed to have been
received on the date of personal delivery, telex, facsimile
transmission, telegram or similar means of communication, or if sent
by overnight courier or messenger, shall be deemed to have been
received on the next delivery day after deposit with the courier or
messenger, or if sent by certified or registered mail, return
receipt requested, shall be deemed to have been received on the
third business day after the date of mailing.
5.3 Choice of Law and Venue. This Agreement and the rights
of the parties hereunder shall be governed by and construed in
accordance with the laws of the State of Georgia including all
matters of construction, validity, performance, and enforcement and
without giving effect to the principles of conflict of laws. Any
action brought by any party hereto shall be brought within the State
of Georgia.
5.4 Jurisdiction. The parties submit to the jurisdiction of the
Courts of the State of Georgia or a Federal Court empaneled in the
State of Georgia for the resolution of all legal disputes arising
under the terms of this Agreement, including, but not limited to,
enforcement of any arbitration award.
5.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same instrument.
5.6 Attorneys' Fees. Except as otherwise provided herein, if a
dispute should arise between the parties including, but not limited
to arbitration, the prevailing party shall be reimbursed by the
nonprevailing party for all reasonable expenses incurred in
resolving such dispute, including reasonable attorneys' fees
exclusive of such amount of attorneys' fees as shall be a premium
for result or for risk of loss under a contingency fee arrangement.
5.7 Taxes. Any income taxes required to be paid in connection
with the payments due hereunder, shall be borne by the party
required to make such payment. Any withholding taxes in the nature
of a tax on income shall be deducted from payments due, and the
party required to withhold such tax shall furnish to the party
receiving such payment all documentation necessary to prove the
proper amount to withhold of such taxes and to prove payment to the
tax authority of such required withholding.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, as of the date first written hereinabove.
Lakota Energy Lakota Oil
LAKOTA ENERGY, INC. LAKOTA OIL AND GAS, INC.
/s/R.K. Honeyman /s/R.K. Honeyman
By: R.K. Honeyman By: R.K. Honeyman
Its: President Its: President
<PAGE>
EXHIBIT "A"
ASSIGNMENT OF ASSETS
WHEREAS, Lakota Energy, Inc., a Colorado corporation (the "Assignor"), is the
owner of those certain assets set forth on Exhibit 1 attached hereto and made a
part hereof (the "Assets"); and
WHEREAS, Assignor desires to assign all of its right, title, and interest in,
as well as all of its obligations arising as a result of, the Assets to Lakota
Oil and Gas, Inc., a Texas corporation ("Assignee"), in exchange for 10,000
shares of common stock of Assignee;
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, Assignor does hereby assign to Assignee all rights, title
and interest in and to the Assets.
Dated: June 14, 1999 Lakota Oil and Gas, Inc.,
a Texas corporation
By : /s/R.K. Honeyman
Its: President
Dated: June 14, 1999 Lakota Energy, Inc.,
a Colorado corporation
By: /s/R.K. Honeyman
Its: President
<PAGE>
EXHIBIT "1"
ASSETS
[951089477 C $50.00]
[SECRETARY OF STATE]
[07-14-95 08:42]
ARTICLES OF INCORPORATION
OF
CHANCELLOR TRADING GROUP, INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned Incorporator being a
natural person of the age of eighteen years of age or older and desiring to
form a body corporate under the laws of the State of Colorado does hereby
sign, verify and deliver in duplicate to the Secretary of State of the State
of Colorado these Articles of Incorporation:
ARTICLE I
Name
The name of the Corporation is CHANCELLOR TRADING GROUP, INC.
ARTICLE II
Period of Duration
This Corporation shall exist in perpetuity, from and after the date of
filing these Articles of Incorporation with the Secretary of State of
Colorado unless and until dissolved according to the laws of the State of
Colorado.
ARTICLE III
Purposes
Section 1. Specific Purposes
A. To engage in the business of developing and establishing tio
Wading corporations for import and export of materials and services.
B. To provide management services to corporations engaged in the
business of international trading.
Section 2. General Purposes
A. To own, operate and maintain such real or personal property as may be
necessary to conduct such business and to do all of the things in connection
with the real or personal property which might be done by an individual.
B. To hire and employ agents and employees, and to enter into
agreements of employment and collective bargaining agreements for the
purpose of advancement and performance of the purposes of this Corporation.
<PAGE>
C. To carry on any other business, whether or not related to the
foregoing, including the transaction of all lawful business for which
corporations may be organized pursuant to, the Colorado Corporation Act, to
have and exercise all powers, privileges and immunities now or hereafter
conferred upon or permitted to corporations by the laws of the State of
Colorado, and to do any and all things herein set forth to the same extent
as natural persons could do insofar as permitted by the laws of the State of
Colorado.
D. To do those things which are authorized and permitted by the Colorado
Corporations Code.
E. To do all things authorized by law or incidental thereto.
ARTICLE IV
Powers
The powers of the Corporation shall be those powers granted by Article Two
of the Colorado Corporation Code under which this Corporation is formed. In
addition, the Corporation shall have the following specific powers:
Section 1. Officers. The Corporation shall have the power to elect or
appoint officers and agents of the Corporation and to fix their compensation.
Section 2. Capacity. The Corporation shall have the power to act as an agent
for any individual, association, partnership, corporation or other legal
entity, and to act as general partner for any limited partnership.
Section 3. Acquisitions. The Corporation shall have the power to receive,
acquire, hold, exercise rights arising out of the ownership or possession
thereof, sell, or otherwise dispose of, shares or other interests in, or
obligations of, individuals, associations, partnerships, corporations or
governments.
Section 4. Earned Surplus. The Corporation shall have the power to receive,
acquire, hold, pledge, transfer, or otherwise dispose of shares of the
Corporation, but such shares may only be purchased, directly or indirectly,
out of earned surplus.
Section 5. Gifts. The Corporation shall have the power to make gifts or
contributions for the public welfare or for charitable, scientific or
educational purposes.
<PAGE>
ARTICLE V
Capital Structure
Section 1. Authorized Capital. The aggregate number of shares and the amount
of the total authorized capital of said Corporation shall consist of
50,000,000 shares of common stock, no par value per share, and 5,000,000
shares of non-voting preferred stock, no par value per share.
Section 2. Share Status. All common shares will be equal to each other, and
when issued, shall be fully paid and nonassessable, and the private property
of shareholders shall not be liable for corporate debts. Preferred shares
shall have such preferences as the Directors may assign to them prior to
issuance. Each holder of a common share of record shall have one vote for
each share of stock outstanding in his name on the books of the Corporation
and shall be entitled to vote said stock.
Section 3. Consideration for Shares. The common stock of the Corporation
shall be issued for such consideration as shall be fixed from time to time
by the Board of Directors. In the absence of fraud, the judgment of the
Directors as to the value of any property or services received in full or
partial payment for shares shall be conclusive. When shares are issued upon
payment of the consideration fixed by the Board of Directors, such shares
shall be taken to be fully paid stock and shall be nonassessable.
Section 4. Pre-Emptive Rift. Except as may otherwise be provided by the
Board of Directors, holders of shares of stock of the Corporation shall have
no preemptive right to purchase, subscribe for or otherwise acquire shares
of stock of the Corporation, rights, warrants or options to purchase stocks
or securities of any land convertible into stock of the Corporation.
SECTION 5. Dividends. Dividends in cash, property or shares of the
Corporation may be paid, as and when declared by the Board of Directors, out
of funds of the Corporation to the extent and in the manner permitted by law.
Section 6. Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, and after paying or adequately providing for
the payment of all its obligations, the remainder of the assets of the
Corporation shall be distributed, either in cash or in kind, pro rata to the
holders of the common stock, subject to prefere es, if any, granted to
holders of the preferred shares. The Board of Directors may, from time to
time, distribute to the shareholders in partial liquidation from stated
capital of the Corporation, in cash or property, without the vote of the
shareholders, in the manner permitted and upon compliance with limitations
unposed by law.
<PAGE>
ARTICLE VI
Voting by Shareholders
Section 1. Voting Rights: Cumulative Voting. Each outstanding share of
common stock is entitled to one vote and each fractional share of common
stock is entitled to a corresponding fractional vote on each matter
submitted to a vote of shareholders. Cumulative voting shall not be allowed
in the election of Directors of the corporation and every shareholder
entitled to vote at such election shall have the right to vote the number of
shares owned by him for as many persons as there are Directors to be
elected, and for whose election he has a right to vote. Preferred shares
have no voting rights unless granted by amendment to these Articles of
Incorporation.
Section 2. Majority Vote. When, with respect to any action to be taken by
the Shareholders of the Corporation, the Colorado Corporation Code requires
the vote or concurrence of the holders of two-thirds of the outstanding
shares entitled to vote thereon, or of any class or series, any and every
such action shall be taken, notwithstanding such requirements of the
Colorado Corporation Code, by the vote or concurrence of the holders of a
majority of the outstanding shares entitled to vote thereon, or of any class
or series.
ARTICLE ViI
Registered and Initial Principal Office and Registered Agent
The registered office and initial principal office of the Corporation is
located at 1291 South Lincoln Street, Denver, Colorado 80210, and the name
of the registered agent of the Corporation at such address is Edward H.
Hawkins.
ARTICLE VIII
Incorporator
The name and address of the Incorporator is Edward H. Hawkins, 1291 South
Lincoln Street, Denver, Colorado 80210.
ARTICLE IX
Board of Directors
Section 1. The corporate powers shall be exercised by a majority of the
Board of Directors. The number of individuals to serve on the Board of
Directors shall be set forth in the Bylaws of the Corporation; provided,
however, that the initial Board of Directors shall consist of one person
below-named to manage the affairs of the Corporation until such time as he
resigns or his successor is elected by a majority vote of the Shareholders:
Name of Director Address
Edward H. Hawkins 1291 So. Lincoln St.
Denver, CO 80210
<PAGE>
Section 2. If in the interval between the annual meetings of shareholders of
the Corporation, the Board of Directors of the Corporation deems it
desirable that the number of Directors be increased, additional Directors
may be elected by a unanimous vote of the Board of Directors of the
Corporation then in office, or as otherwise set forth in the Bylaws of the
Corporation.
Section 3. The number of Directors comprising the whole Board of Directors
may be increased or decreased from time to time within such foregoing limit
as set forth in the Bylaws of the Corporation.
ARTICLE X
Powers of the Board of D ors
In furtherance and not in limitation of the powers conferred by the State of
Colorado, the Board of Directors is expressly authorized and empowered:
Section 1. Bylaws. To make, alter, amend and repeal the Bylaws, subject to
the power of the shareholders to alter or repeal the Bylaws made by the
Board of Directors.
Section 2. Books ad Records. Subject to the applicable provisions of the
Bylaws then in effect, to determine, from time to time, whether and to what
extent, and at what times and places, and under what conditions and
regulations, the accounts and books of the Corporation or any of them, shall
be open to shareholder inspection. No shareholder shall have any right to
inspect any of the accounts, books, or documents of the Corporation, except
as permitted by law, unless and until authorized to do so by resolution of
the Board of Directors or of the shareholders of the Corporation.
Section 3. Power to Borrow. To authorize and issue, without shareholder
consent, obligations of the Corporation, secured and unsecured, under such
terms and conditions as the Board, in its sole discretion, may determine,
and to pledge, or mortgage, as security therefor, any real or personal
property of the Corporation, including after-acquired property.
Section 4. Dividends. To determine whether any and, if so, what part, of the
earned surplus of the Corporation shall, be paid in dividends to the
shareholders, and to direct and determine other use and disposition of any
such earned surplus.
Section 5. Profits. To fix, from time to time, the amount of the profits of
the Corporation to be reserved as working capital or for any other lawful
purposes.
Section 6. Employees' Plans. From time to time to provide and carry out and
to recall, abolish, revise, amend, alter, or change a plan or plans for the
participation by all or any of the employees, including Directors and
officers of this Corporation or of any corporation in which or in the
welfare of which the Corporation has any interest, and those actively
engaged in the conduct of this Corporation's business, in the profits of this
<PAGE>
Corporation or of any branch or division thereof, as a part of this
Corporation's legitimate expenses, and for the furnishing to such employees
and persons, or any of them, at this Corporation's expense, of medical
services, insurance against accident, sickness, or death, pensions during
old age, disability, or unemployment, education, housing, social services,
recreation, or other similar aids for their relief or general welfare, in
such manner and upon such terms and conditions as may be determined by the
Board of Directors.
Section 7. Warrants an Options. The Corporation, by resolution or
resolutions of its Board of Directors, shall have power to create and issue,
whether or not in connection with the issue and sale of any shares of any
other securities of the Corporation, warrants, rights, or options entitling
the holders-thereof to purchase from the Corporation any shares of any class
or classes of any other securities of the Corporation, such warrants, rights
or options to be evidenced by or in such instrument or instruments as shall
be approved by the Board of Directors. The terms upon which, the time or
times (which may be limited or unlimited in duration), and the price or
prices (not less than the minimum amount prescribed by law, if any) at which
any such warrants, rights, or options may be issued and any such shares or
other securities may be purchased from the Corporation upon the exercise of
such warrant, right, or option shall be such as shall be fixed and stated in
the resolution or resolutions of the Board of Directors providing for the
creation and issue of such warrants, rights or options. The Board of
Directors is hereby authorized to create and issue any such warrants, rights
or options from time to time for such consideration, and to such persons,
firms, or corporations, as the Board of Directors may determine.
Section 8. Compensation. To provide for the reasonable compensation of its
own members, and to fix the s and conditions upon which such compensation
will be paid.
Section 9. Not in Limitation. In addition to the powers and authority
hereinabove, or by statute expressly conferred upon it, the Board of
Directors may exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to the
provisions of the laws of the State of Colorado, of these Articles of
Incorporation and of the Bylaws of the Corporation.
ARTICLE XI
Right of Directors to Contract with Corporation
No contract or other transaction between this Corporation and one or more of
its Directors or any other corporation, firm, association, or entity in
which one or more of its Directors are directors or officers or are
financially interested shall be either void or voidable solely because of
such relationship or interest or solely because such directors are present
at the meeting of the Board of Directors or a committee thereof which
authorizes, approves, or ratifies such contract or transaction or solely
because their votes are counted for such purpose if:
<PAGE>
A. The fact of such relationship or interest is disclosed or known to the
Board of Directors or committee which authorizes, approves, or ratifies the
contract or tr nsaction by a vote or consent sufficient for the purpose
without counting the votes of consents of such interested Directors; or
B. The fact of such relationship or interest is disclosed or known to the
shareholders entitled to vote and they authorize, approve, or ratify such
contract or tr nsaction by vote or written consent, or
C. The contract or transaction is fair and reasonable to the Corporation.
ARTICLE XII
Corporate Opportunity
The officers, Directors and other members of management of this Corporation
shall be subject to the doctrine of "corporate opportunities" only insofar.
as it applies to business opportunities in which this Corporation has expressed
an interest as determined from time to time by this Corporation's Board of
Directors as evidenced by resolutions appearing in the Corporation's minutes.
Once such areas of interest are delineated, all such business opportunities
within such areas of interest which come to the attention of the officers,
Directors, and other members of in agement of this Corporation shall be
disclosed promptly to this Corporation and made available to it. The Board
of Directors may reject any business opportunity presented to it and thereafter
any officer, Director or other member of management may avail himself of such
opportunity. Until such time as this Corporation, through its Board of
Directors, has designated an area of interest, the officers, Directors and
other members of management of this Corporation shall be free to engage in such
areas of interest on their own and this doctrine shall not limit the right
of any officer, Director or other member of management of this Corporation
to continue a business existing prior to the time that such area of interest is
designated by the Corporation. Tins provision shall not be construed to release
any employee of this Corporation (other than an officer, Director or member of
management) any duties which he may have to this Corporation.
ARTICLE XIII
Indemnification of Officers, Directors and Others
The Board of Directors of the Corporation shall have the power to:
A. Indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal. administrativer or investigative (other than an
action by or in the right of the Corporation), by reason of the fact that he
is or was a director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection
<PAGE>
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in the best interests of the Corporation
and, with respect to any criminal action or proceedings, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement or conviction or upon a
plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in the best interests of the Corporation and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
B. Indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of the Corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorney's fees) actually and reasonably incurred by him in. connection with
the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in the best interests of the
Corporation; but no indemnification shall be made in respect of any claim,
issue or matter as to which such person has been adjudged to be liable for
negligence or misconduct in the performance of his duty to the Corporation
unless and only to the extent that the court in which such action or suit
was brought determines upon application that, despite the adjudication of
liability, but in view of all cir cumstances of the case, such person is
fairly and reasonably entitled to demnification for such expenses which
such court deems proper.
C. Indemnify a Director, officer, employee or agent of the Corporation to
the extent that such person has been successful on the merits in defense of
any action, suit or proceeding referred to in Subparagraph A or B of this
Article or in defense of any claim, issue, or matter therein, against
expenses (including attorney's fees) actually and reasonably incurred by him
in connection therewith.
D. Authorize on under Subparagraph A or B of this Article (unless ordered by
a court) in the specific case upon a determination that indemnification
of the Director, officer, employee or agent is proper in the because he has
met the applicable standard of conduct set forth in said Subparagraph A or
B. Such determination shall be made by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or, if such a quorum is not obtainable or even if
obtainable a quorum of directors so directs, by independent legal counsel
in a written opinion, or by the shareholders.
E. Authorize payment of expenses (including attorney's fees) incurred in
defending a civil or criminal action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding as authorized in
Subparagraph D of this Article upon receipt of an undertaking by or on
behalf of the Director, officer, employee or agent to
<PAGE>
repay such amount unless it is ultimately determined that he is entitled to
be indemnified by the Corporation as authorized in this Article.
F. Purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or who is or was
serving at the request of the Corporation as a Director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in
any such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability
under the provision of this Article.
The indemnification provided by this Article shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under these
Articles of Incorporation, and the Bylaws, agreement, vote of shareholders
or disinterested directors or otherwise, and any procedure provided for by
any of the foregoing, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a Director, officer, employee or agent and
shall inure to the benefit of heirs, executors and administrators of such a
person.
ARTICLE XIV
Right to Amend
The right is expressly reserved to amend, alter, change, or repeal any
provision or provisions contained in these Article of Incorporation or any
Article herein by a majority vote of the members of the Board of Directors,
and a majority vote of the shareholders of the Corporation.
IN WITNESS WHEREOF, the undersigned has set his hand and seal this 13th day of
of July, 1995.
/s/ Edward H. Hawkins
Edward H. Hawkins, Incorporator
CONSENT OF AGENT
The undersigned hereby consents to the appointment as agent for the above
named corporation under the Section 105 of the Colorado Business Corporation
Act, until such as he resings such position.
/s/ Edward H. Hawkins
Edward H. Hawkins, Agent
1291 So. Lincoln St., Denver, CO 80210
[961168718 M $85.00]
[SECRETARY OF STATE]
[12-06-96 11:48 ]
ARTICLES OF MERGER
CHANGE OF NAME
ARTICLES OF MERGER (these "Articles") mad and entered into as of the
7th day of November, 1996 by and between Lakota Energy, Inc., a Colorado
corporation ("Lakota") and Chancellor Trading Group, Inc., a Colorado
corporation ("Chancellor"). These Articles are adopted pursuant to, Section
7-111-107 of the Colorado Business Corporation Act. All of such laws expressly
permit the merger described herein; subject to and pursuant to all the terms
and conditions as set forth herein.
ARTICLE I
SURVIVOR CORPORATION
Chancellor, a Colorado corporation, shall be the survivor corporation.
ARTICLE II
SHARES AUTHORIZED AND OUTSTANDING
On the date of these Articles of Merger, Chancellor has authority to issue
50,000,000 shares of common stock (the "Chancellor Common Shares") no par
value, of which 1,801,000 common shares are issued and outstanding and
5,000,000 shares of non-voting preferred stock, no par value per share of
which no preferred share are issued and outstanding.
On the date of these Articles of Merger, Lakota has authority to issue
15,000,000 shares of common stock, no par value (the "Lakota Common
Shares"), of which 4,593,750 shares am issued and outstanding. Lakota has
the authority to issue 5,000,000 shares of preferred stock, no par value, of
which no preferred shares are issued and outstanding.
ARTICLE III
SHAREHOLDER VOTE
On November 6, 1996, pursuant to written consent shareholders entitled to
vote on the action constituting 100% of the outstanding 4,593,750 Lakota
Common Shares approved the Agreement of Merger, none opposed. Said number of
votes was sufficient for approval by the stockholders.
On November 6, 1996, pursuant to written consent, shareholders entitled to
vote on the action constituting 100% of the outstanding Chancellor Common
Shares approved the Agreement of Merger, none opposed. Said number of vows
was sufficient for approval by the stockholders.
ARTICLE IV
PLAN OF MERGER
The executed agreement of merger is on file at the principal place of
business of the surviving corporation. Said address is 3350 Cumberland
Circle, Suite 1900, Atlanta, Georgia 30339.
<PAGE>
The terms of the Agreement of Merger are as follows:
(1) Merger. Lakota shall be merged with and into Chancellor, and Chancellor
shall be the survivor corporation ("Survivor Corporation") of the merger
("Merger"), effective upon the date when this Merger Agreement is made
effective in accordance with applicable laws (the "Effective Date").
(2) Amendment to Articles. Article One of the Articles of Incorporation of
the Survivor Corporation shall be amended to read:
The name of the corporation shall be Lakota Energy, Inc.
(3) Directors and Officers and Governing Documents. The directors and
officers of Chancellor shall, redsign. The directors of Chancellor shall
appoint the nominees designated by Lakota to the Board of Directors of the
Survivor Corporation.
The Bylaws of Chancellor, in effect on the Effective Date, shall continue
to be the Bylaws of the Surviving Corporation without change or amendment
until further amended in accordance with the provisions thereof and
applicable laws.
(4) Succession. On the Effective Date, Lakota shall succeed to Chancellor
in the manner of and as more fully set forth in the Colorado Revised Statutes.
(5) Further Assurances. From time to time, as and when required by
Chancellor or by its successors and assigns, there shall be executed and
delivered on behalf of Lakota such deeds and other instruments, and there
shall be taken or caused to be taken by it such further and other action, as
shall be appropriate or necessary in order to vedst, perfect or confirm, of
record or otherwise, in Chancellor the title to and possession of all the
property, interests, assets, tights, privileges, immunities, powers,
franchises and authority of Lakota, and otherwise to carry out the purposes
of this Merger Agreement, and the officers and directors of Chancellor are
fully authorized in the name and on behalf of Lakota or otherwise to take
any and all such action and to execute and deliver any and all such deeds
and other instruments.
(6) Stock of Chancellor. Upon the Effective Date, by virtue of the merger
and without any action on die part of the holder thereof, each. Chancellor
Common and Preferred Sham outstanding immediately prior thereto shall be
changed and converted into 1,801,000 and 300, respectively, fully paid and
nonassessable shares of the Survivor Corporation's common stock ("Survivor
Common Shares").
(7) Stock of Lakota. On and after the Effective Date, all of the outstanding
certificates which prior to that time represented Lakota Common Shares shall
be recalled and canceled and 9,187,500 restricted Survivor Common Sham shall
be issued to current Lakota in proportion to their ownership percentage. The
registered owner on the books and records of Lakota or its transfer agents
of any such outstanding stock certificate shall, until such certificate
shall have been surrendered for transfer or otherwise accounted for to
Chancellor or its transfer agents, have and be entitled to exercise any
voting and other tights with respect to and to receive any dividend and
other distributions upon the Survivor Common Shares evidenced by such
outstanding certificate as above provided.
<PAGE>
(8) Covenants of Chancellor. Chancellor covenants and agrees that it will,
on or before the Effective Date:
(i) Qualify to do business as a foreign corporation in the State of
Georgia, and in connection therewith irrevocably appoint an agent for
service of process as required under the provisions of the Georgia Business
Corporation Code; and
(ii) File any and all documents with the Georgia Department of Revenue
necessary to the assumption by Chancellor of all of the tax liabilities of
Lakota.
(9) Book Entries. As of the Effective Date, entries shall be made upon the
books of Chancellor in accordance with the following.
(a) The assets and liabilities of Lakota shall be recorded at the amounts at
which they were carried on the books of Lakota immediately prior to die
Effective Date, with appropriate adjustments to reflect the retirement of
the Lakota Common Shares presently issued and outstanding.
(b) There shall be credited to the common stock account of the Survivor
Corporation the aggregate amount of the stated value of all Chancellor
Common Shares resulting from the conversion of the outstanding Lakota Common
Shares pursuant to the merger.
(C) There shall be credited to the retained earnings account of Chancellor
the aggregate of the amount carded in the retained earnings account of
Lakota immediately prior to the Effective Date.
(10) Access to Documentation. Prior to the merger, Chancellor and Lakota
shall provide each other full access to their books and records, and shall
furnish financial and operating data and such other information with respect
to their business and assets as may reasonably be requested from time to
dram If the proposed transaction is not consummated, all parties shall keep
confidential any information any (unless ascertainable from public filings or
published information) obtained concerning each others operations, assets
and business.
(11) Merger Expenses. Lakota shall pay the legal, accounting and any other
expenses reasonably incurred in connection with this transaction not to
exceed $5,000. Each party shall bear its own expenses if the transaction is
not consummated.
(12) Abandonment. At any time before the effective Date, this Merger
Agreement may be terminated and the merger may be abandoned by the Board of
Directors of either Chancellor or Lakota or both, notwithstanding approval
of this Agreement by the shareholders of Chancellor or the shareholders of
Lakota or both.
<PAGE>
IN WITNESS WHEREOF, these Articles of Merger, having first been duly
approved by resolution of die Boards of Directors of Chancellor and Lakota
and their respective shareholders, is hereby executed on behalf of each of
said two corporations by their respective officers hereunto duly authorized.
Chancellor Trading Group, Inc. ATTEST:
A Colorado corporation
/s/Unknown /s/Unknown
President Secretary
Lakota Energy, Inc. ATTEST:
A Colorado corporation
/s/Ken Honeyman /s/Howard Wilson
President Secretary
State of Georgia )
)ss.
County of Cabb )
On the 7th day of November, 1996, personally appeared before me the
President of Lakota Energy, Inc. a Colorado corporation, the signer of the
above instrument who duly acknowledged to me that he executed the same on
behalf of said corporation pursuant to duly adopted director's resolutions.
/s/Diana B. Greenway
NORARY PUBLIC
549 Goose Ridge St.
Marietta, GA 30064
Address
My Commission Expires: [Stamp of Diana B. Greenway]
[December 28, 1998]
[NOTARY SEAL]
<PAGE>
State of Georgia )
)ss.
County of Cabb )
On the 7th day of November, 1996, personally appeared before me the Secretary
of Lakota Energy, Inc., a Colorado corporation, the signer of the above
instrument who duly acknowledged to me that he executed the same on behalf
of said corporation pursuant to duly adopted director's resolutions.
/s/Diana B. Greenway
NOTARY PUBLIC
549 Goose Ridge St.
Marietta, GA 30064
Address
My Commission Expires: [Stamp of Diana B. Greenway]
[December 28, 1998 ]
[NOTARY SEAL]
City of Surrey, Province of British Columbia )
)ss.
County of Canada )
On the 14th day of November, 1996, personally appeared before me the
President of Chancellor Trading Group, Inc., a Colorado corporation, the
signer of the above instrument who duly acknowledged to me that he executed
the same on behalf of said corporation pursuant to duly adopted director's
resolutions.
/s/Judy Friesen
NOTARY PUBLIC
[Stamp of Judy Friesen]
[Notary Public]
[#200-1676 Martin Drive]
[Surrey, B.C. V4A 6E7]
[Tel. (604) 538-0415]
My Commission Expires: Permanent
SEAL
<PAGE>
City of Surrey, Province of British Columbia )
)ss.
County of Canada )
On the 14th day of November, 1996, personally appeared before me the Secretary
of Chancellor Trading Group, Inc., a Colorado corporation, the signer of the
above instrument who duly acknowledged to me that he executed the same on
behalf of said corporation pursuant to duly adopted director's resolutions.
/s/Judy Friesen
NOTARY PUBLIC
[Stamp of Judy Friesen]
[Notary Public]
[#200-1676 Martin Drive]
[Surrey, B.C. V4A 6E7]
[Tel. (604) 538-0415]
My Commission Expires: Permanent
SEAL
<PAGE>
VERIFICATION
The undersigned, after being duly sworn, does hereby depose and state, that
he is the Secretary of Chancellor Trading Group, Inc., a Colorado
corporation, and that he has read the foregoing Articles of Merger and knows
the contents thereof, and does hereby certify that these Articles of Merger
contain a truthful statement of the Agreement of Merger as duly adopted by
the Board of Directors.
/s/Unknown
Secretary
City of Surrey, Province of British Columbia )
)ss.
County of Canada )
On the 14 day of November, 1996, personally appeared before me the Secretary
of Chancellor Trading Group, Inc., a Colorado corporation, the signer of the
above instrument who duly acknowledged to me that he executed the same on
behalf of said corporation pursuant to duly adopted director's resolutions.
/s/Judy Friesen
NOTARY PUBLIC
[Stamp of Judy Friesen]
[Notary Public]
[#200-1676 Martin Drive]
[Surrey, B.C. V4A 6E7]
[Tel. (604) 538-0415]
My Commission Expires: Permanent
SEAL
<PAGE>
VERIFICATION
The undersigned, after being duty sworn does hereby depose and state, that
he is the Secretary of Lakota Energy, Inc., a Colorado corporation, and that
he has read the foregoing Articles of Merger and knows the contents thereof,
and does hereby certify that these Articles of Merger contain a truthful
statement of the Agreement of Merger as duly adopted by the Board of
Directors by a majority of the stockholders of the corporation.
/s/Howard Wilson
Secretary
State of
)ss.
County of
On the 14th day of November, 1996, personally appeared before me the
Secretary of Lakota Energy, Inc., a Colorado corporation, the signer of the
above instrument who duly acknowledged to me that he executed the same on behalf
of said corporation pursuant to duly adopted director's resolutions.
/s/Diana B. Greenway
NOTARY PUBLIC
549 Goose Ridge St.
Marietta, GA 30064
Address
My Commission Expires: [Stamp of Diana B. Greenway]
[December 28, 1998 ]
[NOTARY SEAL]
<PAGE>
MERGER CONSOLIDATION
CANCELLATION OF LIMITED PARTNERSHIP DUE TO MERGER
DOMESTIC FOREIGN PROFIT NONPROFIT
MERGER #961168718
LAKOTA ENERGY, INC. DP951139679
(COLORADO CORPORATION)
INTO
CHANCELLOR TRADING GROUP, INC. DP951089447
(COLORADO CORPORATION)
THE SURVIVOR
CHANGING ITS NAME TO
LAKOTA ENERGY, INC.
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
LAKOTA ENERGY, INC.
Pursuant to the provisions of the Colorado Business Corporation
Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is Lakota Energy, Inc.
SECOND: The following amendment to the Articles of Incorporation
was adopted on July 16, 1999, as prescribed by the Colorado Business
Corporation Act. Such amendment was adopted by a vote of the
shareholders. The number of shares voted for the amendment was
sufficient for approval.
THIRD: Article I of the Articles of Incorporation is restated and
amended to read as follows:
"Article I
Name
The name of the Corporation is Lakota Technologies, Inc."
FOURTH: Article V, Section 1 of the Articles of Incorporation is
restated and amended to read as follows:
"Article V
Capital Structure
Section 1. Authorized Capital. The aggregate number of shares
and the amount of the total authorized capital of said Corporation
shall consist of 100,000,000 shares of common stock, no par value
per share, and 25,000,000 shares of preferred stock, no par value
per share."
/s/R.K. Honeyman
By: R.K. Honeyman
Title: President
BYLAWS
OF
CHANCELLOR TRADING GROUP, INC.
ARTICLE I
OFFICES
The principal office of the Corporation in Colorado shall initially be
located in Denver, Colorado. The Corporation may have such other offices,
either within or outside the State of Colorado, as the Board of Directors
may designee, or as the business of the Corporation may require from time to
time.
The registered office of the Corporation required by the Colorado Business
Corporation Act to be maintained in the State of Colorado may be, but need
not be, identical with the principal office, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II
Shareholders
Section 1. Annual Meeting.
The annual meeting of the shareholders shall be held pursuant to notice
given by the Board of Directors for the purpose of electing directors and
for the transaction of such other business as may come before the meeting.
Section 2. Special Meetings
Special meetings of the shareholders, for any purpose, unless otherwise
prescribed by statute may be called by the President or by the Board of
Directors, and shall be called by the President at the request of the holders
of not less than ten (10%) percent of all the outstanding shares of the
Corporation entitled to vote at the meeting. Such request shall state the
purposes of the proposed meeting.
Section 3. Adjournment.
a. When the annual meeting is convened, or when any special meeting is
convened, the presiding officer may adjourn it for such period of time as
may be reasonably necessary to reconvene the meeting at another place and
another time.
b. The presiding officer shall have the power to adjourn any
meeting of the shareholders for any proper purpose, including, but not
limited to, lack of a quorum, to secure a more adequate meeting place, to
elect officials to count and tabulate votes, to review any shareholder
proposals or to pass upon any challenge which may properly come before the
meeting.
c. When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place
to which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted on the original date of the meeting.
If, however, after the adjournment the Board fixes a new record date for the
adjourned meeting, a notice of the adjourned meeting shall be given in
compliance with Subsection (4)(a) of this Article II to each shareholder of
record on the new record date entitled to vote at such meeting.
<PAGE>
Section 4. Notice of Meeting; Purpose of Meeting;
a. Each shareholder of record entitled to vote at any meeting
shall be given in person, or by first class mail, postage prepaid, written
notice of such meeting which, in the case of a special meeting, shall set
forth the purpose(s) for which the meeting is called, not less than ten (10)
or more then fifty (50) days before the date of such meeting. If mailed,
such notice is to be sent to the shareholder's address as it appears on the
stork transfer books of the Corporation unless the shareholder shall have
requested of the Secretary in writing at least fifteen (15) days prior to
the distribution of any required notice that any notice intended for him to
be sent to some other address, in which case the notice may be sent to the
address so designated. Notwithstanding any such request by a shareholder,
notice sent to a shareholder's address as it appears on the stock transfer
books of this Corporation as of the record date shall be deemed properly
given. Any notice of a meeting sent by the United States mail shall be
deemed delivered when deposited with proper postage thereon with the United
States Postal Service or in any mail receptacle under its control.
b. A shareholder waives notice of any meeting by attendance,
either in person or by proxy, at such meeting or by waiving notice in
writing either before, during or after such meeting. Attendance at a meeting
for the express purpose of objecting that the meeting was not lawfully
called or convened, however, will not constitute a waiver of notice by a
shareholder stating at the beginning of the meeting, his objection that the
meeting is not lawfully called or convened.
C. Whenever the holders of at least eighty (80%) percent of the capital
stock of the Corporation having the right to vote shall be present at any
annual or special meeting of shareholders, however called or notified, and
shall sign a written consent thereto on the minutes of such meeting, the
meeting shall be valid for all purposes.
d. A Waiver of Notice signed by all shareholders entitled to vote at a
meeting of shareholders may also be used for any other proper purpose
including, but not limited to, designating any place within or without the
State of Colorado as the place for holding such a meeting.
e. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of shareholders need be specified in any
written Waiver of Notice.
<PAGE>
Section 5. Closing of Transfer Books: Record Date- -Sharcholders' List.
a. In order to determine the holders of record of the capital stock of the
Corporation who are entitled to notice of meetings, to vote at a meeting or
adjournment thereof, or to receive payment of any dividend, or for any other
purpose, the Board of Directors may fix a date not more than fifty (50) days
prior to the date set for any of the abovementioned activities for such
determination of shareholders.
b. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting.
c. In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the date for such determination of shareholders,
such date in any caw to be not more than fifty (50) days and, in case of a
meeting of shareholders, not less than ten (10) days prior to the date on
which the particular action, requiring such determination of shareholders,
is to be taken.
d. If the stock transfer books are not closed and no record date
is fixed for the determination of shareholders entitled to notice or to vote
at a meeting of shareholders, or to receive payment of a dividend, the date
on which notice of the meeting is mailed or the date on which the resolution
of the Board of Directors declaring such dividend is adopted, as the case
may be, shall be the record date for such determination of shareholders:
<PAGE>
e. When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as pro-sided in this section, such determination
shall apply to any adjournment thereof, unless the Board of Directors fixes
a new record date under tins section for the adjourned meeting
f. The officer or agent having charge of the stock transfer books
of the Corporation shall make, as of a date at least ten (10) days before
each meeting of shareholders, a complete list of the shareholders entitled
to vote at such meeting or any adjournment thereof, with the address of
each shareholder and the number and class and series, if any, of shares held
by each shareholder. Such list shall be kept on file at the registered
office of the Corporation or at the office of the transfer agent or
registrar of the Corporation for a period of ten (10) days prior to such
meeting and shall be available for inspection by any shareholder at any time
during usual business hours. Such list shall also be produced and kept open
at the time and place of any meeting of shareholders and shall be subject to
inspection by any shareholder at any time during the meeting.
g. The original stock transfer books shall be prima facie evidence
as to the shareholders entitled to examine such list or stock transfer books
or to vote at any meeting of shareholders.
h. If the requirements of Subsection 5(f) of this Article II have not been
substantially complied with then, on the demand of any shareholder in person
or by proxy, the meeting shall be adjourned until such requirements are
complied with.
I. If no demand pursuant to Section 5(h) is made, failure to
comply with the requirements of this Section shall not affect the validity
of any action taken at such meeting.
j. Subsection 5(g) of this Article II shall be operative only at
such time(s) as the Corporation shall have six (6) or more shareholders.
Section 6. Quorum.
a. At any meeting of the shareholders of the Corporation, the
presence, in person or by proxy, of shareholders owning a majority of the
issued and outstanding sham of the capital stock of the Corporation entitled
to vote thereat shall be necessary to constitute a quorum for the
transaction of any business. If a quorum is present the affirmative vote of
a majority of the shares represented at such meeting and entitled to vote on
the subject matter shall be the act of the shareholders. If there shall not
be a quorum at any meeting of the shareholders of the Corporation, then the
holders of a majority of the shares of the capital stock of the Corporation
who shall be present at such meeting, in person or by proxy, may adjourn
such meeting from time to time until holders of a majority of the shares of
the capital stork shall attend. At any such adjourned meeting at which a
quorum shall be present any business may be transacted which might have been
transacted at the meeting as originally scheduled.
b. The shareholders at a duty organized meeting having a quorum
may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 7. Presiding Officer. Order of Business.
a. Meetings of the shareholders shall be presided over by the
Chairman of the Board, or, if he is not present, by the President or, if he
is not present, by a Vice President or, if none of the Chairman of the
Board, the President; or a Vice President is present; the meeting shall be
presided over by a Chairman to be chosen by a plurality of the shareholders
entitled to vote at the meeting who are present, in person or by proxy. The
presiding officer of any meeting of the shareholders may delegate the duties
and obligations of the presiding officer of the meeting as he sees fit.
b. The Secretary of the Corporation, or, in his absence, an Assistant
Secretary Shan act as Secretary of every meeting of shareholders, but if
neither the Secretary nor an Assistant Secretary is present the presiding
officer of the meeting shall choose any person present to act as Secretary
of the meeting.
<PAGE>
c. The order of business shall be as follows:
1. Call of meeting to order.
2. Proof of notice of meeting.
3. Reading of minutes of last previous shareholders meeting
or a Waiver thereof.
4. Reports of officers.
5. Reports of committees.
6. Election of directors.
7. Regular and miscellaneous business.
8. Special matters.
9. Adjournment.
d. Notwithstanding the provisions of Article II Section 7,
Subsection c, the order and topics of business to be transacted at any
meeting shall be determined by the presiding officer of the meeting in his
sole discretion. In no event shall any variation in the order of business or
additions and deletions from the order of business as specified in Article
11, Section 7, Subsection c, invalidate any actions properly taken at any
meeting.
Section 8. Voting.
a. Unless otherwise provided for in the Certificate of
Incorporation, each shareholder shall be entitled, at each meeting and upon
each proposal to be voted upon, to one vote for each sham of voting stock
recorded in his name on the books of the Corporation on the record date
fixed as provided for in Article II Section 5.
b. The presiding officer at any meeting of the shareholders shall
have the power to determine the method and means of voting when any matter
is to be voted upon. The method and means of voting may include, but shall
not be limited to, vote by ballot, vote by hand or vote by voice. However,
no method of voting maybe adopted which fails to take account of any
shareholder's right to vote by proxy as provided for in Section 10 of this
Article II. In no event may any method of voting be adopted which would
prejudice the outcome of the vote.
Section 9. Action Without Meeting.
a. Any action required to be taken at any annual or special meeting of
shareholders of the Corporation, or any action which may be taken at any
annual or special meeting of such shareholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that
would be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were
present and voted. If any class of shares is entitled to vote thereon as a
class, such written consent shall be required of the holders of a majority
of the shares of each class of shares entitled to vote thereon.
b. Within ten (10) days after obtaining such authorization by
written consent, notice must be given to those shareholders who have not
consented in writing. The notice shall fairly summarize the material
features of the authorized action and, if the action be a merger,
consolidation or sale or exchange of assets for which dissenters' rights are
provided under the Colorado Business Corporation Act, the notice shall
contain a clear statement of the right of the shareholders dissenting
therefrom to be paid the fair value of their shares upon compliance with
further provisions of the Colorado Business Corporation Act regarding the
rights of dissenting shareholders.
c. In the event that the action to which the shareholders' consent is such
as would have required the filing of a certificate under the Colorado
Business Corporation Act if such action had been voted on by shareholders at
a meeting thereof, the certificate filed under such other section shall
state that written consent has been given in accordance with the provisions
of this Article II, Section 9.
<PAGE>
Section 10. Proxies.
a. Every shareholder entitled to vote at a meeting of shareholders
or to express consent or dissent without a meeting, or his duly authorized
attorney-in-fact may authorize another person or persons to act for him by
proxy.
b. Every proxy must be signed by the shareholder or his attorney-in-fact. No
proxy shall be valid after the expiration of eleven (11) months from the
date thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the shareholder executing it, except as
otherwise provided in this Article II, Section 10.
c. The authority of the holder of a proxy to act shall not be revoked by the
incompetence or death of the shareholder who executed the proxy unless,
before the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the corporate officer
responsible for maintaining the list of shareholders.
d. Except when other provisions shall have been made by written
agreement between the parties, the record holder of shares held as pledges
or otherwise as security or which belong to another, shall issue to the
pledgor or to such owner of such shares, upon demand therefor and payment of
necessary expenses thereof, a proxy to vote or take other action thereon.
e. A proxy which states that it is irrevocable is irrevocable when it is
held by any of the following or a nominee of any of the following: (1) a
pledgee; (ii) a person who has purchased or agreed to purchase the shares;
(iii) a creditor or creditors of the Corporation who extend or continue to
extend credit to the Corporation in consideration of the proxy, if the proxy
states that it was given in consideration of such extension or continuation
of credit the amount thereof, and the name of the person extending or
continuing credit; (iv) a person who has contracted to perform services as
an officer of the Corporation, if a proxy is required by the contract of
employment if the proxy states that it was given in consideration of such
contract of employment and states the name of the employee and the period of
employment contracted for, and (v) a person designated by or under an
agreement as provided in Article XI hereof.
f. Notwithstanding a provision in a proxy stating that it is
irrevocable, the proxy becomes revocable after the pledge is redeemed, or
the debt of the Corporation is paid, or the period of employment provided
for in the contract of employment has terminated, or the agreement under
Article XII hereof, has terminated and, in a case provided for in Subsection
10(e)(iii) or Subsection 10(e)(iv) of this Article II becomes irrevocable
three years after the date of the proxy or at the end of the period, if any,
specified therein, whichever period is less, unless the period of
irrevocability is renewed from time to time by the execution of a new
irrevocable proxy as provided in this Article IL Section 10. This Subsection
10(f) does not affect the duration of a proxy under Subsection 10(b) of this
Article II.
g. A proxy may be revoked, notwithstanding a provision making it
irrevocable, by a purchaser of shares without knowledge of the existence of
the provision unless the existence of the proxy and its irrevocability is
noted conspicuously on the face or back of the certificate representing such
shares.
h. If a proxy for the same shares confers authority upon two (2)
or more persons and does not otherwise provide a majority of such persons
present at the meeting, or if only one is present, then that one may exercise
all the powers conferred by the proxy. If the proxy holders present at the
meeting are equally divided as to the right and manner of voting in any
particular case, the voting of such shares shall be prorated.
I. If a proxy expressly so provides, any proxy holder may appoint
in writing a substitute to act in his place.
Section 11. Voting of Shares by Shareholders.
a. Shares standing in the name of another corporation, domestic or
foreign, may be voted by the officer, agent or proxy designated by the
Bylaws of the corporate shareholder, or, in the absence of any applicable
Bylaw, by such person as the Board of Directors of the corporate shareholder
may designate. Proof of such designation may be
<PAGE>
made by presentation of a certified copy of the Bylaws or other instrument
of the corporate shareholder. In the absence of any such designation, or in
case of conflicting designation by the corporate shareholder, the Chairman
of the Board, President any vice president secretary and treasurer of the
corporate shareholder, in that order shall be presumed to possess authority
to vote such shares.
b. Shares held by an administrator, executor, guardian or
conservator may be voted by him, either in person or by proxy, without a
transfer of such shares into his name Shares standing in the name of a
trustee may be voted by him, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him without a transfer of such
shares into his name.
c. Shares standing in the name of a receiver may be voted by such receiver.
Shares held by or under the control of a receiver but not standing in the
name of such receiver, may be voted by such receiver without the transfer
thereof into his name if authority to do so is contained in an appropriate
order of the court by which such receiver was appointed.
d. A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledge.
c. Shares of the capital stock of the Corporation belonging to the
Corporation or held by it in a fiduciary capacity shall not be voted,
directly or indirectly, at any meeting, and shall not be counted in
determining the total number of outstanding shares.
ARTICLE III
Directors
Section 1. Board of Directors Exercise of Powers.
a. All corporate powers shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors except as may be
otherwise provided in the Articles of Incorporation. If any such provision
is made in the Articles of Incorporation, the powers and duties conferred or
imposed upon the Board of Directors shall be exercised or performed to such
extent and by such person or persons as shall be provided in the Articles of
Incorporation.
b. Directors need not be residents of the state of incorporation
unless the Articles of Incorporation so require.
c. The Board of Directors shall have authority to fix the compensation of
Directors unless otherwise provided in the Articles of Incorporation.
d. A Director shall perform his duties as a Director, including
his duties as a member of any committee of the Board upon which he may
serve, in good faith, in a manner he reasonably believes to be in the best
interests of the Corporation, and with such care as an ordinarily prudent
person in a like position would use under similar circumstances.
e. In performing his duties, a Director shall be entitled to rely
on information, opinions, reports or statements, including financial data,
in each case prepared or presented by: (I) one or more officers or employees
of the Corporation whom the Director reasonably believes to be, reliable and
competent in the matters presented; (ii) counsel, public accountants or
other persons as to matters which the Director reasonably believes to be
within such persons professional or expert competence; or (iii) a committee
of the Board upon which he does not serve, duly designated in accordance
with a provision of the Articles of Incorporation or the Bylaws, as to
matters within its designated authority, which committee the Director
reasonably believes to merit confidence.
<PAGE>
f. A Director shall not be considered to be acting in good faith
if he has knowledge concerning the matter in question that would cause such
reliance described in Subsection 1(e) of this Article III to be unwarranted.
g. A person who performs his duties in compliance with this Article
III, Section 1 shall have no liability by reason of being or having been a
Director of the Corporation.
h. A Director of the Corporation who is present at a meeting of the Board
of Directors at which action on any corporate matter is taken consents
thereto unless he votes against such action or abstains from voting in
respect thereto because of an asserted conflict of interest.
Section 2. Number Election; Classification of Directors; Vacancies.
a. The Board of Directors of this Corporation shall consist of not
less than three (3) nor more than seven (7) members, unless the number of
shareholders is less than three, in which the Corporation shall have as many
directors as there are shareholders. The number of directors shall be fixed
by the initial Board of Directors. The number of directors constituting the
initial Board of Directors shall be fixed by the Articles of Incorporation.
The number of directors may be increased from time to time by the Board of
directors, but no decrease shall have the effect of shortening the term of
any incumbent director.
b. Each person named in the Articles of Incorporation as a member
of the initial Board of Directors, shall hold office until the first annual
meeting of shareholders, and until his successor shall have been elected and
qualified or until his earlier resignation, removal from office or death.
c. At the first annual meeting of shareholders and at each annual meeting
thereafter the shareholders shall elect directors to hold office until the
next succeeding annual meeting, except in case of the classification of
directors as permitted by die Colorado Business Corporation Act. Each
director shall hold office for the term for which he is elected and until
his successor shall have been elected and qualified or until his earlier
resignation, removal from office or death.
d. The shareholders, by amendment to these Bylaws, may provide that
the directors be divided into not more than four classes, as nearly equal in
number as possible, whose terms of office shall respectively expire at
different times, but no such term shall continue longer than four (4) years,
and at least one-fifth (1/5) in number of the directors shall be elected
annually.
e. If directors are classified and the number of directors is thereafter
changed, any increase or decrease in directorships shall be so apportioned
among the classes as to make all classes as nearly equal in number as possible.
f. Any vacancy occurring in the Board of Directors including any
vacancy created by reason of an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. A director elected to
fill a vacancy shall hold office only until the next election of directors
by the shareholders.
Section 3. Removal of Directors.
a. At a meeting of shareholders called expressly for that purpose,
directors may be removed in the manner provided in this Article III, Section
3. Any director or the entire Board of Directors may be removed, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote at an election of directors.
b. If the Corporation has cumulative voting, if less than the
entire Board is to be removed, no one of the directors may be removed if the
votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire Board of Directors, or, if
there be classes of directors, at an election of the class of directors of
which he is a member.
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Section 4. Director Quorum and Voting.
a. A majority of the number of directors fixed in the manner
provided in these Bylaws shall constitute a quorum for the transaction of
business unless a greater number if required elsewhere in these Bylaws.
b. A majority of the members of an Executive Committee or other
committee shall constitute a quorum for the transaction of business at any
meeting of such Executive Committee or other committee.
c. The act of the majority of the directors present at a Board meeting at
which a quorum is present shall be the act of the Board of Directors.
d. The act of a majority of the members of an Executive Committee
present at an Executive Committee meeting at which a quorum is present shall
be the act of the Executive Committee.
e. The act of a majority of the members of any other committee present at a
committee meeting at which a quorum is present shall be the act of the
committee.
Section 5. Director Conflicts of Interest.
a. No contract or other transaction between this Corporation and
one or more of its directors or any other Corporation, firm, association or
entity in winch one or more of its directors are directors or officers or
are financially interested, shall be either void or voidable because of a
relationship or interest or because such director or directors arc present
at the meeting of the Bond of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction or because his
or their votes are counted for such purpose, if:
(I) The fact of such relationship or interest is disclosed or known
to the Board of Directors or committee which authorizes, approves or
ratifies the contract or transaction by a vote or consent sufficient for the
purpose without counting the votes or consents of such interested directors; or
(ii) The fact of such relationship or interest is disclosed or known
to the shareholders entitled to vote and they authorize, approve or ratify
such contract or transaction by vote or written consent, or
(iii) The contract or transaction is fair and reasonable as to the
Corporation at the time it is authorized by the Board, a committee, or the
shareholders.
b. Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or a committee thereof
which authorizes, approves or ratifies such contract or transaction.
Section 6. Executive and Other Committees; Designation; Authority.
a. The Board of Directors, by resolution adopted by a majority of
the fail Board of Directors, may designate from among its members an
Executive Committee and one or more other committees each of which, to the
extent provided in such resolution or in the Articles of Incorporation or
these Bylaws, shall have and may exercise all the authority of the Board of
Directors, except that no such committee shall have the authority to: (1)
approve or recommend to shareholders actions or proposals required by the
Colorado Business Corporation Act to be approved by shareholders; (ii)
designate candidates for the office of director for purposes of proxy
solicitation or otherwise; (iii) fill vacancies on the Board of Directors or
any committee thereof; (iv) amend the Bylaws; or (v) authorize or approve
the issuance or sale of, or any contract to issue or sell, sham or designate
the terms of a series of class of shares, unless the Board of Directors,
having acted regarding general authorization for the issuance or sale of
shares, or any contract therefor, and, in the case of a series, the
designation thereof, has specified a general formula or method by resolution
or by adoption of a stock option or other plan, authorized a committee to
fix the terms upon which such shares may be issued or sold, including,
without limitation, the price, the rate or manner of payment of dividends,
provisions for
<PAGE>
redemption, sinking fund, conversion, and voting preferential rights, and
provisions for other features of a class of shuts, or a series of class of
shares, with full power in such committee to adopt any final resolution
setting forth all the terms thereof and to authorize the statement of the
tam of a series for filing with the Secretary of State under the Colorado
Business Corporation Act.
b. The Board, by resolution adopted in accordance with Article
III, Subsection 6(a) may designate one or more directors as alternate
members of any such committee, who may act in the place and stead of any
absent member or members at any meeting of such committee.
c. Neither the designation of any such committee, the delegation thereto of
authority, nor action by such committee pursuant to such authority shall
alone constitute compliance by any member of the Board of Directors, not a
member of the committee in question, with his responsibility to act in good
faith, in a manner he reasonably believes to be in the best interests of the
Corporation, and with such care as an ordinarily prudent person in a file
position would use under similar circumstances.
Section 7. Place, Time, Notice, and Call of Directors' Meetings.
a. Meetings of the Board of Directors, regular or special, may be
held either within or without this state.
b. A regular meeting of the Board of Directors of the Corporation
shall be held for the election of officers of the Corporation and for the
transaction of such other business as may come before such meeting as
promptly as practicable after the annual meeting of the shareholders of this
Corporation without the necessity of other notice than this Bylaw. Other
regular meetings of the Board of Directors of the Corporation may be held at
such times and at such places as the Board of Directors of the Corporation
may from time to time resolve without other notice than such resolution.
Special meetings of the Board of Directors may be held at any time upon call
of the Chairman of the Board or the President or a majority of the Directors
of the Corporation, at such time and at such place as shall be specified in
the call thereof Notice of any special meeting of the Board of Directors
must be given at least two (2) days prior thereto, if by written notice
delivered personally, or at least five (5) days prior thereto, if mailed;
or at least two (2) days prior thereto, if by telegram; or at least two (2)
days prior thereto, if by telephone. If such notice is given by mail, such
notice shall be deemed to have been delivered when deposited with the United
States Postal Service addressed to the business address of such director
with postage thereon prepaid. If notice be given by telegram, such notice
shall be deemed delivered when the telegram is delivered to the telegraph
company If notice is given by telephone, such notice shall be deemed
delivered when the call is completed.
c. Notice of a meeting of the Board of Directors need not be given to any
director who sips a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all objections to the place of the
meeting, the time of the meeting, or the manner in which it has been called
or convened, except when a director states, at the beginning of the meeting,
any objection to the transaction of business because the meeting is not
lawfully called or convened.
d. Neither the business to be transacted at, nor the purpose of
any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting.
e. A majority of the directors present; whether or not a quorum. exists, may
adjourn any meeting of the Board of Directors to another time and place.
Notice of any such adjourned meeting shall be given to the directors who
were not present at the time of the adjournment and, unless the time and
place of the adjourned meeting are announced at the time of the adjournment,
to the other directors.
f. Members of the Board of Directors may participate in a meeting of such
Board by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each
other at the same time. Participation by such means shall constitute
presence in person at a meeting.
<PAGE>
Section 8. Action by Directors Without a Meeting.
Any action required by the Colorado Business Corporation Act to be taken at
a meeting of the directors of the Corporation, or a committee therefrom, may
be taken without a meeting if a consent in writing, setting forth the action
so to be taken, signed by all of the directors, or all of the members of the
committee, as the case may be, is filed in the minutes of the proceedings of
the Board or of the committee. Such consent shall have the same effect as a
unanimous vote.
Section 9. Compensation.
The directors and members of the Executive and any other committee of the
Board of Directors shall be entitled to such reasonable compensation for
their services and on such basis as shall be fixed from time to time by
resolution of the Board of Directors. The Board of Directors and members of
any committee of the Board of Directors shall be entitled to reimbursement
for any reasonable expenses incurred in attending any Board or committee
meeting. Any director receiving compensation under this section shall not be
prevented from serving the Corporation in any other capacity and shall not
be prohibited from receiving reasonable compensation for such other services.
Section 10. Resignation.
Any Director of the Corporation may resign at any time without acceptance by
the Corporation. Such resignation shall be in writing and may provide that
such resignation shall take effect immediately or on any future date stated
in such notice.
Section 11. Removal.
Any Director of the Corporation may be removed for cause by a majority vote
of the other members of the Board of Directors as then constituted or with
or without cause by the vote of the holders of a majority of the outstanding
shares of capital stock shareholders of the Corporation called for such
purpose.
Section 12. Vacancies.
In the event that a vacancy shall occur on the Board of Directors of the
Corporation whether because of death, resignation, removal, an increase in
the number of directors or any other reason, such vacancy may be filled by
the vote of a majority of the remaining directors of the Corporation even
though such remaining directors represent less than a quorum. An increase in
the number of directors shall create vacancies for the purpose of this
section. A director of the Corporation elected to fill a vacancy shall hold
office for the unexpired term of his predecessor, or in the case of an
increase in the number of directors, until the election and qualification of
directors at the next annual meeting of the shareholders.
ARTICLE IV
Officers
Section 1. Election; Number Terms of Office.
a. The officers of the Corporation shall consist of a Chairman of the Board,
a President; a Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors at such time and in such manner as may be prescribed
by these Bylaws. Such other officers and assistant officers and agents as
may be deemed necessary may be elected or appointed by the Board of Directors.
b. All officers and agents, as between themselves and the Corporation, shall
have such authority and perform such duties in the management of the
Corporation as are provided in these Bylaws, or as may be determined by
resolution of the Board of Directors not inconsistent with these Bylaws.
<PAGE>
c. Any two (2) or more offices may be held by the same person except the
offices of die President and Secretary.
d. A failure to elect a Chairman of the Board, President a Secretary and a
Treasurer shall not affect the existence of the Corporation.
Section 2. Removal.
An officer of the Corporation shall hold office until the election and
qualification of his successor, however, any officer of the Corporation may
be removed from office by the Board of Directors whenever in its judgment
the best interests of the Corporation will be served thereby Such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of any officer shall not of itself create
any contract right to employment or compensation
Section 3. Vacancies.
Any vacancy in any office from any cause may be filled for the unexpired
portion of the term of such office by the Board of Directors.
Section 4. Powers and Duties.
a. The Chairman of the Board shall be the Chief Executive Officer of the
Corporation. The Chairman of the Board shall preside at all meetings of the
shareholders and of the Board of Directors. Except where by law the
signature of the President is required or unless the Board of Directors
shall rule otherwise, the Chairman of the Board shall possess the same power
as die President to sip all certificates, contracts and other instruments of
the Corporation which may be authorized by the Board of Directors. Unless a
Chairman of the Board is specifically elected, the President shall be deemed
to be the Chairman of the Board.
b. The President shall be the Chief Operating Officer of the Corporation. He
shall be responsible for the general day-to-day supervision of the business
and affairs of the Corporation. He shall sip or countersign all
certificates, contracts or other instruments of the Corporation as
authorized by the Board of Directors. He may, but need not, be a member of
the Board of Directors. In the absence of the Chairman of the Board, die
President shall be the Chief Executive Officer of the Corporation and shall
preside at all meetings of the shareholders and the Board of Directors. He
shall make reports to the Board of Directors and shareholders. He shall
perform such other duties as are incident to his office or are properly
required of him by the Board of Directors. The Board of Directors will at
all times retain the power to expressly delegate the duties of the President
to any other officer of the Corporation.
c. The Vice-President(s), if any, in the order designated by the Board of
Directors, shall exercise the functions of the President during the absence,
disability, death, or refusal to act of the President During the time that
any Vice. President is properly exercising the functions of the President
such Vice-president shall have all the powers of and be subject to all the
restrictions upon the President Each Vice-President shall have such other
duties as me assigned to him from time to time by the Board of Directors or
by the President of the Corporation.
d. The Secretary of the Corporation shall keep the minutes of the meetings
of the shareholders of the Corporation and, if so requested, the Secretary
shall keep die minutes of the meetings of the Board of Directors of the
Corporation. Ile Secretary shall be the custodian of the minute books of the
Corporation and such other books and records of the Corporation as the Board
of Directors of the Corporation may direct. The Secretary shall make or
cause to be made all proper entries in all corporate books that the Board of
Directors of the Corporation may direct. The Secretary shall have the
general responsibility for maintaining the stock transfer books of the
Corporation, or of supervising the maintenance of the stock transfer books
of the Corporation by the transfer agent if any, of the Corporation. The
Secretary shall be the custodian of the corporate seal of the Corporation
and shall affix the corporate seal of the Corporation on contracts and other
instruments as the Board of Directors of the Corporation may direct. The
<PAGE>
Secretary shall perform such other duties as are assigned to him from time
to time by the Board of Directors or the President of the Corporation.
e. The Treasurer of the Corporation shall have custody of all funds and
securities owned by the Corporation. The Treasurer shall cause to be entered
regularly in the proper books of account of the Corporation full and
accurate accounts of the receipts and disbursements of the Corporation. The
Treasurer of the Corporation shall render a statement of cash, financial and
other accounts of the Corporation whenever he is directed to render such a
statement by the Board of Directors or by the President of the Corporation.
The Treasurer shall at all reasonable times make available the Corporation's
books and financial accounts to any Director of the Corporation during
normal business hours. The Treasurer shall perform all other acts incident
to the office of the Treasurer of the Corporation, and he shall have such
other duties as are assigned to him from time to time by the Board of
Directors or the President of the Corporation.
f. Other subordinate or assistant officers appointed by the Board
of Directors or by the President if such authority is delegated to him by
the Board of Directors, shall exercise such powers and perform such duties
as may be delegated to them by the Board of Directors or by the President as
the case may be.
g. In case of the absence or disability of any officer of the Corporation
and of any person authorized to act in his place during such period of
absence or disability, the Board of Directors may from time to time delegate
the powers and duties of such officer to any other officer or any director
or any other person whom it may select
Section 5. Salaries.
The salaries of all Officers of the Corporation shall be fixed by the Board
of Directors. No officer shall be ineligible to receive such salary by
reason of the fact that he is also a Director of the Corporation and
receiving compensation therefor.
ARTICLE V
Loans to Employees and Officers;
Guaranty of Obligations of Employees and Officers
This Corporation may lend money to, guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of a
subsidiary, including any officer or employee who is a Director of the
Corporation or of a subsidiary, whenever, in the judgment of the Directors,
such loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Article shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of this Corporation at
common law or under any statute.
ARTICLE VI
STOCK CERTIFICATES; VOTING TRUSTS; TRANSFERS
Section 1. Certificates Representing Shares.
a. Every holder of shares in this Corporation shall be entitled to
one or more certificates, representing all shares to which he is entitled
and such certificates shall be signed by the President or a Vice President
and the Secretary or an Assistant Secretary of the Corporation and may be
sealed with the seal of the Corporation or a facsimile thereof. The
signatures of the President or Vice President and the Secretary or Assistant
Secretary may be facsimiles if the certificate is manually signed on behalf
of a transfer agent or a registrar, other than the Corporation itself or an
employee of die Corporation. In case any officer who signed or whose
facsimile signature has been placed upon such certificate
<PAGE>
shall have ceased to be such officer before such certificate is issued, it
may be used by the Corporation with the same effect as if he were such officer
at the date of its issuance.
b. Each certificate representing shares shall state upon the face
thereof. (I) the name of the Corporation; (ii) that the Corporation is
organized under the laws of this state; (iii) the name of the person or
persons to whom issued; (iv) the number and class of shares, and the
designation of the series, if any, which such certificate represents; and
(v) the par value of each share represented by such certificate, or a
statement that the shares are without par value.
c. No certificate shall be issued for any shares until such shares are
fully paid.
Section 2. Transfer: Book.
The Corporation shall keep at its registered office or principal place of
business or in the office of its transfer agent or registrar, a book (or
books where more than one kind, class, or series of stock is outstanding) to
be known as the Stock Book, containing the names, alphabetically arranged,
addresses and Social Security numbers of every shareholder, and the number
of shares of each kind, class or series of stock held of record. Where the
Stock Book is kept in the office of the transfer agent, the Corporation
shall keep at its office in the State of Colorado copies of the stock fists
prepared from said Stock Book and sent to it from time to time by said
transfer agent. The Stock Book or stock lists shall show the current status
of the ownership of sham of the Corporation provided, if the transfer agent
of the Corporation be located elsewhere, a reasonable time shall be allowed
for transit or mail.
Section 3. Transfer of Shares.
a. The name(s) and address(s) of the person(s) to whom shares of
stock of this Corporation are issued, shall be entered on the Stock Transfer
Books of the Corporation, with the number of shares and date of issuance.
b. Transfer of shares of the Corporation shall be made on the
Stock Transfer Books of the Corporation by the Secretary or the transfer
agent, only when the holder of record thereof or the legal representative of
such holder of record or the attorney-in-fact of such holder of record,
authorized by power of attorney duly executed and filed with the Secretary
or transfer agent of the Corporation, shall surrender die Certificate
representing such shares for cancellation. Lost, destroyed or stolen Stock
Certificates shall be replaced pursuant to Section 5 of this Article VI.
c. The person or persons in whose names sham stand on the books of the
Corporation shall be deemed by the Corporation to be the owner of such
shares for all purposes, except as otherwise provided pursuant to Section 10
and 11 of Article II, or Section 4 of this Article VI.
Section 4. Voting Trusts.
a. Any number of shareholders of the Corporation may create a voting trust
for the purpose of conferring upon a trustee or trustees the right to vote
or otherwise represent their shares, for a period not to exceed ten (10)
years, by: (I) entering into a written voting bust, (ii) depositing a
counterpart of the agreement with the Corporation at its registered office;
and (iii) transferring their shares to such trustee or trustees for die
purposes of this Agreement. Prior to the recording of the Agreement the
shareholder concerned shall tender the stock certificate(s) described
therein to the corporate secretary who shall note on each certificate:
"This Certificate is subject to the provisions of it voting trust agreement
dated , recorded in Minute Book ,of the Corporation.
Secretary"
b. Upon the transfer of such shares, voting bust certificates
shall be issued by the trustee or trustees to the shareholders who transfer
their share in trust Such trustee or trustees shall keep a record of the
holders of the voting
<PAGE>
trust certificates evidencing a beneficial interest in the voting trust,
giving the names and addresses of all such holders and the number and class
of the shares in respect of which the voting trust certificates held by each
are issued, and shall deposit a copy of such record with the Corporation at
its registered office.
b. Upon the transfer of such shares, voting trust certificates
shall be issued by the trustee or trustees to the shareholders who transfer
their sham in trust. Such trustee or trustees shall keep a record of the
holders of the voting trust certificates evidencing a beneficial interest in
the voting bust, giving the names and addresses of all such holders and the
number and class of the shares in respect of which the voting trust
certificates held by each are issued, and shall deposit a copy of such
record with the Corporation at its registered office.
c. The counterpart of the voting trust agreement and the copy of such
record so deposited with the Corporation shall be subject to the same right
of examination by a shareholder of the Corporation, in person or by agent or
attorney, as are the books and records of the Corporation, and such
counterpart and such copy of such record shall be subject to examination by
any holder of record of voting trust certificates either in person or by
agent or attorney, at any reasonable time for any proper purpose.
d. At any time before the expiration of a voting trust agreement
as originally fixed or as extended one or more times under this Article VI,
Subsection 4(d) one or more holders of voting bug certificates may, by
agreement in writing, extend the duration of such voting trust agreement
nominating the same or substitute trustee or trustees, for an additional
period not exceeding ten (10) years. Such extension agreement shall not
affect the rights or obligations of persons not parties to the agreement,
and such persons shall be entitled to remove their shares from the trust and
promptly to have their stock certificates reissued upon the expiration date
of the original term of the voting bust agreement. The extension agreement
shall in every respect comply with and be subject to all the provisions of
this Article VI, Section 4 applicable to the original voting trust agreement
except that the ten (10) year maximum period of duration shall commence on
the date of adoption of the extension agreement
c. The trustees under the terms of the agreements entered into under the
provisions of this Article VI, Section 4 shall not acquire the legal title
to the shares but shall be vested only with the legal right and title to the
voting power which is incident to the ownership of the shares.
Section 5. Lost, Destroyed, or Stolen Certificates.
No certificate representing shares of the stock in the Corporation shall be
issued in place of any Certificate alleged to have been lost, destroyed, or
stolen except on production of evidence, satisfactory to the Board of
Directors, of such loss, destruction or theft, and, if the Board of
Directors so requires, upon the famishing of an indemnity bond in such
amount (but not to exceed twice the fair market value of the shares
represented by the Certificate) and with such terms and with such surety as
the Board of Directors may, in its discretion, require.
ARTICLE VII
Books and Records
a. The Corporation shall keep correct and complete books and
records of account and shall keep minutes of the proceedings of its
shareholders, Board of Directors and committees of Directors.
b. Any books, records and minutes may be in written form or in any
other form capable of being converted into written form within a reasonable
time.
c. Any person who shall have been, a holder of record of one quarter of
one percent of all shares or of voting trust certificates therefor at least
six months immediately preceding his demand or shall be the holder of record
of, or the holder of record of voting trust certificates for, at least five
(5%) percent of the outstanding sham of any class or series of the
Corporation, upon written demand stating the purpose thereof, shall have the
right to examine, in person
<PAGE>
or by agent or attorney, at any reasonable time or times, for any proper
purpose, its relevant books and records of account, minutes and record of
shareholders and to make extracts therefrom.
d. No shareholder who within two (2) years has sold or offered for
sale any list of shareholders or of holders of voting trust certificates for
shares of this Corporation or any other Corporation; has aided or abetted
any person in procuring any fist of shareholders or of holders of voting
trust certificates for any such purpose; or has improperly used any
information secured through any prior examination of the books and records
of account minutes, or record of shareholders or of holders of voting trust
certificates for shares of the Corporation or any other Corporation; shall
be entitled to examine the documents and records of the Corporation as
provided in Subsection c of this Article VII. No shareholder who does not
act in good faith or for a proper purpose in making his demand shall be
entitled to examine the documents and records of the Corporation as provided
in Subsection c of this Article VII.
e. Unless modified by resolution of the shareholders, this Corporation shall
prepare not later than four (4) months after the close of each fiscal year
(I) A balance sheet showing in reasonable detail the financial
conditions of the Corporation as of the date of its fiscal year.
(ii) A profit and loss statement showing the results of its operation during
its fiscal year.
f. Upon the written request of any shareholder or holder of voting
bust certificates for shuts of the Corporation, the Corporation shall mail
to such shareholder or holder of voting trust certificates a copy of its
most recent balance sheet and profit and loss statement
g. Such balance sheets and profit and loss statements shall be
filed and kept for at least five (5) years in the registered office of the
Corporation in this state and shall be subject to inspection during business
hours by any shareholder or holder of voting bust certificates.
ARTICLE VIII
Dividends
The Board of Directors of the Corporation may, from time to time, declare
and the Corporation may pay dividends on its shares in cash, property or its
own shares, except when the Corporation is insolvent or when the payment
thereof would render the Corporation insolvent subject to the following
provisions:
a. Dividends in cash or property may be declared and paid, except as
otherwise provided in this Article VIII, only out of the unreserved and
unrestricted earned surplus of the Corporation or out of capital surplus,
however arising, but each dividend paid out of capital surplus shall be
identified as a distribution of capital surplus, and the amount per share
paid from such capital surplus shall be disclosed to the shareholders
receiving the same concurrently with the distribution.
b. Dividends may be declared and paid in the Corporation's treasury shares.
c. Dividends may be declared and paid in the Corporation's authorized but
unissued shares out of any unreserved and unrestricted surplus of the
Corporation upon the following conditions:
(I) If a dividend is payable in the Corporation's own sham having a par
value, such shares shall be issued at not less than the par value thereof
and there shall be transferred to stated capital at the time such dividend
is paid an amount of surplus equal to the aggregate par value of the shares
to be issued as a dividend.
(ii) If a dividend is payable in the Corporation's own shares without par
value, such shares shall be issued at such stated value as shall be fixed by
the Board of Directors by resolution adopted at the time such dividend
<PAGE>
is declared, and there shall be transferred to stated capital at the time
such dividend is paid an amount of surplus equal to the aggregate stated
value so fixed in respect of such shares; and the amount per share so
transferred to stated capital shall be disclosed to the shareholders
receiving such dividend concurrently with the payment thereof
d. No dividend payable in sham of any class shall be paid to the
holders of shares of any other class unless the Articles of Incorporation so
provide or such payment is authorized by the affirmative vote or written
consent of the holders of at least a majority of the outstanding shares of
the class in which the payment is to be made.
e. A split up or division of the issued shares of any class into a greater
number of shares of the same class without increasing the stated capital of
the Corporation shall not be construed to be a stock dividend within the
meaning of this Article VIII.
ARTICLE IX
Indemnification.
Section 1. Action, etc. Other Than by or in the Right of the Corporation.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding or investigation, whether civil, criminal or
administrative, and whether external or internal to the Corporation, (other
than a judicial action or suit brought by or in the right of the
Corporation) by reason of the fact that he is or was a director, officer:,
employee or agent of the Corporation, or that, being or having been such a
director, officer; employee or agent he is or was serving at the request of
the Corporation as a director, officer, employee, or trustee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(all such persons being referred to hereafter as an "Agent"), against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, or any appeal therein, if such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and with respect to any criminal
action or proceeding, had no reasonable cause to believe such conduct was
unlawful. The termination of any action, suit or proceeding -- whether by
judgment order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent-- shall not of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, that such person had
reasonable cause to believe that his conduct was unlawful.
Section 2. Action, etc., by or in the Right of the Corporation.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
judicial action or suit brought by or in the right of the Corporation to
proem a judgment in its favor by reason of the fact that he is or was an
Agent (as defined above) against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense,
settlement or appeal of such action or suit if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for gross negligence or willful misconduct in the
performance of his or her duty to the Corporation unless and only to the
extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall
deem proper.
Section 3. Determination of Right of Indemnification.
Any indemnification under Section 1 or 2 (unless ordered by a court) shall
be made by the Corporation unless a determination is reasonably and promptly
made (I) by the Board by a majority vote of a quorum consisting of directors
who Avert not parties to such action, suit or proceeding, or (ii) if such a
quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the
<PAGE>
stockholders, that such person acted in bad faith and in a manner that such
person did not believe to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe that his conduct was unlawful.
Section 4. Indemnification Against Expenses of Successful Party.
Notwithstanding the other provisions of this Article, to the extent that an
Agent has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice or the settlement
of an action without admission of liability, in defense of any proceeding or
in defense of any claim, issue or matter therein, or on appeal from any such
proceeding, action, claim or matter, such Agent shall be indemnified against
all expenses incurred in connection therewith.
Section 5. Advances of Expenses.
Except as limited by Section 6 of this Article, costs, charges and expenses
(including attomeys' fees) incurred in any action, suit, proceeding or
investigation or any appeal therefrom shall be paid by the Corporation in
advance of the final disposition of such matter, if the Agent shall
undertake to repay such amount in the event that it is ultimately
determined, as provided herein, that such person is not entitled to
indemnification. Notwithstanding the foregoing, no advance shall be made by
the Corporation if a determination is reasonably and promptly made by the
Board of Directors or if a majority vote of a quorum of disinterested
directors cannot be obtained, then by independent legal counsel in a written
opinion, that based upon the facts known to the Board or counsel at the time
such determination is made, such person acted in bad faith and in a manner that
such person did not believe to be in or not opposed to the best interest of
the Corporation, or, with respect to any criminal proceeding, that such
person believed or had reasonable cause to believe his conduct was unlawful.
In no event shall any advance be made in instances where the Board or
independent Legal counsel reasonably determines that such person
deliberately breached his duty to the Corporation or its shareholders.
Section 6. Right of Agent to Indemnification Upon Application;
Procedure Upon Application.
Any indemnification under Sections 1, 2 and 4 or advance under Section 5 of
this Article, shall be made promptly, and in any event within ninety (90)
days, upon the written request of the Agent unless with respect to
applications under Sections 1, 2 or 5, a determination is reasonably and
promptly made by the Board of Directors by a majority vote of a quorum of
disinterested directors that such Agent acted in a manner set forth in such
Sections as to justify the Corporation's\ not indemnifying or making an
advance to the Agent In the event no quorum of disinterested directors is
obtainable, the Board of Directors shall promptly direct that independent
legal counsel shall decide whether the Agent acted in the manner set forth
in such Sections as to justify the Corporation's not indemnifying or making
an advance to the Agent. The right to indemnification or advances as granted
by this Article shall be enforceable by the Agent in any court competent
jurisdiction, if the Board or independent legal counsel denies the claim, in
whole or in part, or if no disposition of such claim is made within ninety
(90) days. Ile Agent's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part,
in any such proceeding shall also be indemnified by the Corporation.
Section 7. Contribution.
in order to provide for just and equitable. contribution in circumstances in
which the indemnification provided for in this Article is held by a court of
competent jurisdiction to be unavailable to an indemnities in whole or part
the Corporation shalt in such an event after taking into account among other
things, contributions by other directors and officers of the Corporation
pursuant to indemnification agreements or otherwise, and, in the absence of
personal enrichment, acts of intentional fraud or dishonesty or criminal
conduct on the part of the Agent, contribute to the payment of Agent's
losses to the extent that, after other contributions are taken into account,
such losses exceed: (1) in the case of a director of the Corporation or any
of its subsidiaries who is not an officer of the Corporation or any of such
subsidiaries, the amount of fees paid to him for serving as a director
during the 12 months preceding the commencement of the suit proceeding or
investigation; or (ii) in the case of a director of the Corporation or any
of its subsidiaries who
<PAGE>
is also an officer of the Corporation or any of such subsidiaries, the
amount set forth in clause (I) plus 5% of the aggregate cash compensation
paid to said director for service in such office(s) during the 12 months
preceding the commencement of the suit proceeding or investigation; or (iii)
in the case of an officer of the Corporation or any of its subsidiaries, 5%
of the aggregate cash compensation paid to such officer of service in such
office(s) during the 12 months preceding the commencement of such suit,
proceeding or investigation.
Section 8. Other Rights and Remedies.
The indemnification provided by this Article shall not be deemed exclusive
of, and shall not affect, any other rights to which an Agent seeking
indemnification may be entitled under any law, Bylaw, or charter provision,
agreement vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased
to be an Agent and shall inure to the benefit of the heirs, executors and
administrators of such a person. All rights to indemnification under this
Article shall be deemed to be provided by a contract between the Corporation
and the Agent who serves in such capacity at any time while these Bylaws and
other relevant provisions of the general corporation law and other
applicable law, if any are in effect Any repeal or modification thereof
shall not affect any rights or obligations then existing.
Section 9. Insurance.
Upon resolution passed by die Board, the Corporation may purchase and
maintain insurance on behalf of any person who is or was an Agent against
any liability asserted against such person and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify such person against such
liability under die provisions of this Article. The Corporation may create a
trust fund, grant a security interest or use other means (including,
without limitation, a letter of credit) to ensure the payment of such sums
as may become necessary to effect indemnification as provided herein.
Section 10. Constitution Corporation.
For the purposes of this Article., references to the "Corporation" include
all constituent corporations absorbed in a consolidation or merger as well
as the resulting or surviving corporation, so that any person who is or was
a director, officer, employee, agent or trustee of such a constituent
corporation or who, being or having been such a director, officer, employee
or trustee, is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or trustee of another corporation,
partnership, joint venture, Mist or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting
or surviving corporation as such person would if he had served the resulting
or surviving corporation in the same capacity.
Section 11. Other Enterprises, Fines and Serving at Corporation's Request.
For purposes of this Article, references to "other enterprise" in Sections 1
and 10 shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan-, and references to "serving at the request of the Corporation"
shall include any service by Agent as director, officer, employee, trustee
or agent of the Corporation which imposes duties on, or involves services
by, such Agent with respect to any employee benefit plan, its participants,
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to
in this Article.
Section 12. Savings Clause.
If this Article or any portion thereof shall be invalidated on any ground by
any court of competent jurisdiction, then the Corporation shall nevertheless
indemnify each Agent as to expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement. with respect to any action, suit,
appeal, proceeding or investigation, whether civil,
<PAGE>
criminal or administrative, and whether internal or external, including a
grand jury proceeding and an action or suit brought by or in the right of
the Corporation, to the full extent permitted by any applicable portion of
this Article that shall not have been invalidated, or by any other
applicable law.
ARTICLE X
Amendment of Bylaws
a. The Board of Directors shall have the power to amend, alter, or
repeal these Bylaws, and to adopt new Bylaws, from time to time.
b. The shareholders of the Corporation, may, at any annual meeting
of the shareholders of the Corporation or at any special meeting of the
shareholders of the Corporation called for the purpose of amending these
Bylaws, amend, alter, or repeal these Bylaws, and adopt new Bylaws, from
time to time.
c. The Board of Directors shall not have the authority to adopt or amend
any Bylaw if such new Bylaw of such amendment would be inconsistent with any
Bylaw previously adopted by the shareholders of the Corporation. The
shareholders may prescribe in any Bylaw made by them that such Bylaw shall
not be altered, amended or repealed by the Board of Directors.
ARTICLE XI
Shareholder Agreements
Unless the shares of this Corporation are listed on a national securities
"change or are regularly quoted by licensed securities dealers and brokers,
all the shareholders of this Corporation may enter into agreements relating
to any phase of business and affairs of the Corporation and which may
provide for, among other things, the election of directors of the
Corporation in a manner determined without reference to the number of shares
of capital stock of the Corporation owned by its shareholders, the
determination of management policy, and division of profits. Such agreement
may restrict the discretion of the Board of Directors and its management of
the business of the Corporation or may treat the Corporation as if it were a
partnership or may arrange the relationships of the shareholders in a manner
that would be appropriate only among partners. In the event such agreement
shall be inconsistent in whole or in part with the Articles of Incorporation
and/or Bylaws of the Corporation, the terms of such agreement shall govern.
Such agreement shall be binding upon any transferee of shares of THIS
corporation provided such transferee has actual notice thereof or a legend
referring to such agreement is noted on the face or back of the certificate
or certificates representing the shares transferred to such transferee.
ARTICLE XII
Fiscal Year
The Fiscal Year of this Corporation shall be determined by the Board of
Directors.
Date: 12-22-95
/s/William R. Barber
Secretary
[SEAL]
<PAGE>
FIRST AMENDMENT TO
BYLAWS
OF
LAKOTA ENERGY, INC.
F/K/A CHANCELLOR TRADING GROUP, INC.
A COLORADO CORPORATION
Pursuant to unanimous written consent of the Directors on June
11, 1999, Article III, Directors, Section 2, Subsection a. of the
Bylaws is hereby restated in its entirety to read as follows:
"Section 2. Number; Election; Classification of Directors; Vacancies.
a. The Board of Directors of this Corporation shall consist
of not less than three (3) nor more than eleven (11) members, unless
the number of shareholders is less than three, in which the
Corporation shall have as many directors as there are shareholders.
The number of directors shall be fixed by the initial Board of
Directors. The number of directors constituting the initial Board
of Directors shall be fixed by the Articles of Incorporation. The
number of directors may be increased from time to time by the Board
of Directors, but no decrease shall have the effect of shortening
the term of any incumbent director."
CERTIFICATION
I, Howard Wilson, hereby certify that:
I am the Secretary of Lakota Energy, Inc., a Colorado corporation, and
The foregoing First Amendment to Bylaws of Lakota Energy, Inc. f/k/a
Chancellor Trading Group, Inc., consisting of one (1) page, is
a true and correct copy of the First Amendment to Bylaws of Lakota
Energy, Inc. f/k/a Chancellor Trading Group, Inc. as duly adopted by
an affirmative vote by a majority of the Shareholders on July 16, 1999.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
seal of the Corporation this 16th day of July, 1999.
/s/Howard Wilson
Secretary
CUTLER LAW GROUP
610 NEWPORT CENTER DRIVE, SUITE 800
NEWPORT BEACH, CALIFORNIA 92660
(949) 719-1977 M. Richard Cutler, Esq.
FAX: (949) 719-1988 Brian A. Lebrecht, Esq.
www.cutlerlaw.com Vi Bui, Esq.
October 5, 1999
Securities and Exchange Commission
Division of Corporate Finance
Washington, D.C. 20549
Re: Lakota Technologies, Inc., a Colorado corporation
Ladies and Gentlemen:
This office represents Lakota Technologies, Inc., a
Colorado corporation (the "Registrant") in connection with the
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933 (the "Registration Statement"), which relates
to the issuance and sale of (i) 10,000,000 shares of common stock
for sale to the public (the "Public Shares"), (ii) up to an
additional 10,000,000 shares of common stock issuable upon the
conversion of the 8% Convertible Notes due August 24, 2001 (the
"Conversion Shares"), (iii) up to 1,600,000 shares of common
issuable in satisfaction of interest due under the Notes (the
"Interest Shares"), (iv) up to 5,000,000 shares of common stock
issuable upon the exercise of warrants issued to the Note holders
(the "Noteholder Warrant Shares"), (v) up to 6,000,000 shares
issuable upon the exercise of warrants issued to investors (the
"Warrant Shares"), (vi) 5,390,000 shares issued to investors, a
member of the Company's Board of Directors, consulting firms, and
legal counsel (the "Issued Shares"). For purposes hereinafter, the
Public Shares, Conversion Shares, Interest Shares, Noteholder
Warrant Shares, Warrant Shares, and Issued Shares, together with the
components of each of the foregoing, are collectively referred to as
the "Registered Securities." In connection with our representation,
we have examined such documents and undertaken such further inquiry
as we consider necessary for rendering the opinion hereinafter set
forth.
Based upon the foregoing, it is our opinion that the
Registered Securities, when sold as set forth in the Registration
Statement, will be legally issued, fully paid and nonassessable.
We acknowledge that we are referred to under the heading
"Legal Matters" in the Prospectus which is a part of the
Registrant's Form SB-2 Registration Statement relating to the
Registered Securities, and we hereby consent to such use of our name
in such Registration Statement and to the filing of this opinion as
Exhibit 5 to the Registration Statement and with such state
regulatory agencies in such states as may require such filing in
connection with the registration of the Registered Securities for
offer and sale in such states.
/s/ Cutler Law Group
CUTLER LAW GROUP
Office Lease Form Under 30226
Relinquishment Act
Revised, September 1987
GLO-19-(9-87)
OIL AND GAS
LEASE
THIS AGREEMENT is made and entered into this 23, day of October,
1995, between LESSOR, Gwen Kennedy Hunnicutt of 1809 E. 16th ST.
GEORGETOWN, TEXAS 78626, herein referred to as the owner of the soil
(whether one or more), and LESSEE, PILARES OIL & GAS, INC., of 3241
SOUTH FIRST ABILENE, TEXAS 79605, hereinafter called Lessee.
1. GRANTING CLAUSE. For and in consideration of the amounts stated
below and of the covenants and agreements to be paid, kept and
performed by Lessee under this lease, the LESSOR, hereby grants,
leases and lets unto Lessee, for the sole and only purpose of
prospecting and drilling for and producing oil and gas, laying
pipelines, building tanks, storing oil and building power stations,
telephone lines and other structures thereon, to produce, save take
care of, treat and transport said products of the lease, the
following lands situated in KIMBLE County,
State of Texas, to-wit:
SECTION 24, ABSTRACT 1573, BLK 4 KIMBLE COUNTY, TEXAS
BEING 640 ACRES MORE OR LESS AND 62 ACRES MORE OR LESS OUT OF G.
KEITH GORDON SURVEY #14 AND 38 ACRES MORE OR LESS OUT OF G. KEITH
GORDON SVY. #3
Containing 740 acres, more or less. The bonus consideration paid
for this lease is as follows:
To the State of Texas: NA
Dollars ($ )
To the owner of the soil: Gwen Kennedy Hunnicutt- LESSOR
Dollars ($3,750.00)
Total Bonus consideration:
Dollars ($3,750.00)
The total bonus consideration paid represents a bonus of Thirty
Seven Hundred Fifty Dollars
($5.00) per acre, on 740 net acres.
2. TERM. Subject to the other provisions in this lease, this lease
shall be for a term of THREE YEARS from this date (herein called
"primary term") and as long thereafter as oil and gas, or either of
them, is produced in paying quantities* from said land.
As used in this lease, the term "produced in paying quantities"
means that the receipts from the sale or other authorized commercial
use of the substance(s) covered exceed out of pocket operational
expenses for the six months last past.
<PAGE>
3. DELAY RENTALS. If no well is commenced on the leased premises
on or before one (1) year from this date, this lease shall
terminate, unless on or before such anniversary date Lessee shall
pay or tender to the owner of the soil or to his credit Walburg
State Bank, Georgetown, TX, or its successors (which shall continue
as the depository regardless of changed in the ownership of said
land), the specified below: Payments under this Paragraph shall
operate as a rental and shall cover the privilege of deferring the
commencement of a well for one (1) year from said date. Payments
under this paragraph shall be in the following amounts:
To the owner of the soil: GWEN KENNEDY HUNNICUTT-LESSOR
Dollars ($740.00)
To the State of Texas: NA
Dollars ($740.00)
Total Rental:
Dollars ($ )
In a like manner and upon like payments or tenders annually, the
commencement of a well may be further deferred for successive
periods of one (1) year each during the primary term. All payments
or tenders of rental to the owner of the soil may be made by check
or sight draft of Lessee, or any assignee of this lease, and may be
delivered on or before the rental paying date. If the bank
designated in this paragraph (or its successor bank) should cease to
exist, suspend business, liquidate, fail or be succeeded by another
bank, or for any reason fail or refuse to accept rental, Lessee
shall not be held in default for failure to take such payments or
tenders of rental until thirty (30) days after the owner of the
soil shall deliver to Lessee a proper recordable instrument naming
another bank as agent to receive such payments or tenders.
4. PRODUCTION ROYALTIES. All Royalties to be paid to land owner.
(a) OIL. Royalty payable on oil, which is defined as including all
hydrocarbons produced in a liquid form at the month of the well and
also as all condensate, distillate, and other liquid hydrocarbons
recovered from oil or gas run through a separator or other
equipment, as hereinafter provided, shall be TWENTY PERCENT part of
the gross production or the market value thereof, at the option of
the owner of the soil such value to be determined by 1) the highest
posted price, plus premium, if any, offered or paid for oil,
condensate, distillate, or other liquid hydrocarbons, respectively,
of a like type and gravity in the general area where produced and
when run, 2) the highest market price thereof offered or paid in the
general area where produced and when run, or 3) the gross proceeds
of the sale thereof, whichever is greatest. Lessee agrees that
before any gas produced from the leased premises is sold, used or
processed in a plant, it will be run free of cost to the parties
entitled to royalties through an adequate oil and gas separator of
conventional type, or other equipment at least as efficient, so that
all liquid hydrocarbons recoverable from the gas by such means will
be recovered. The requirement that such gas be run through a
separator or other equipment may be waived in writing by the royalty
owners upon such terms and conditions as they prescribe.
(b) NON PROCESSED GAS. Royalty on any gas (including flared gas),
which is defined as all hydrocarbons and gaseous substances not
defined as oil in subparagraph (a) above, produced from any well on
said land (except as provided herein with respect to gas processed
in a plant for the extraction of gasoline, liquid hydrocarbons or
other products) shall be TWENTY PERCENT part of the gross production
or the market value hereof, at the option of the owner of the soil
such value to be based on the highest market price paid or offered
for gas of comparable quality in the general area where produced and
when run, or the gross price paid or offered to the producer
whichever is greater; provided that the maximum presser base in
measuring the gas under this lease shall not at any time exceed
14.65 pounds per square inch absolute, and the standard bas
temperature shall be sixty (60) degrees Fahrenheit, correction to be
made for pressure according to Boyle's Law, and for specific gravity
according to tests made by the Balance Method or by the most
approved method of testing being used by the industry at the time of
testing.
(c) PROCESSED GAS. Royalty on any gas processed in a gasoline
plant or other plant for the recovery of gasoline or other liquid
hydrocarbons shall be TWENTY PERCENT part of the residue gas and the
liquid hydrocarbons extracted or the market value thereof, at the
option of the owner of the soil. All royalties due herein shall be
based on one hundred percent (100%) of the total plant production of
residue gas attributable to gas produced from this lease, and on
fifty percent (50%), or that percent accruing to Lessee, whichever
is greater, of the total plant production of liquid hydrocarbons
attributable to the gas produced from this lease; provided that if
liquid hydrocarbons
<PAGE>
are recovered from gas processed in a plant in which Lessee (or its
parent, subsidiary or affiliate) owns an interest, then the
percentage applicable to liquid hydrocarbons shall be fifty percent
(50%) or the highest percent accruing to a third party processing
gas through such plant under a processing agreement negotiated at
arm's length (or if there is no such third party, the highest
percent then being specified in processing agreements or contracts
in the industry), whichever is greater. The respective royalties on
residue gas and on liquid hydrocarbons shall be determined by 1) the
highest market price paid or offered for any gas (or liquid
hydrocarbons) of comparable quality in the general area, or 2) the
gross price paid or offered for such residue gas (or the weighted
average gross selling price for the respective grades of liquid
hydrocarbons, F.O.B. at the plant in which said gas is processed),
whichever is greater.
(d) OTHER PRODUCTS. [OMITTED]
5. MINIMUM ROYALTY. For each calendar year following the date of
the expiration of the primary term when this lease is held for any
part of such calendar year by production, the royalty received under
this lease must not be less than an amount equal to the total annual
delay rental provided for in Paragraph 3. If Paragraph 3 of this
lease does not specify a delay rental amount, then for the purposes
of this paragraph, the delay rental amount shall be one dollar
($1.00) per acre.
6. ROYALTY IN KIND. Notwithstanding any other provision in this
lease, at any time or from time to time, the owner of the soil, upon
not less than sixty (60) days notice to the holder of the lease,
require that the payment of any royalties accruing to such royalty
owner under this lease be made in kind.
7. NO DEDUCTIONS. Lessee agrees that all royalties accruing under
this lease (including those paid in kind) shall be without deduction
for the cost of producing, gathering, storing, separating, treating,
dehydrating, compressing, processing, transporting, and otherwise
making the oil, gas and other products hereunder ready for sale or
use. Lessee agrees to compute and pay royalties on the gross value
received, including and reimbursement for severance taxes and
production related costs. ROYALTIES WILL BE SUBJECT TO THEIR
PROPORTIONATE PART OF SEVERANCE TAXES.
8. PLANT FUEL AND RECYCLED GAS. No royalty shall be payable on any
gas as may represent this lease's proportionate share of any fuel
used to process gas produced hereunder in any processing plant.
Notwithstanding any other provision of this lease, and subject to
the written consent of the owner of the soil and the Commissioner of
the General Land Office, Lessee may recycle gas for gas lift
purposes on the leased premises or for injection into any oil or gas
producing formation underlying the leased premises after the liquid
hydrocarbons contained in the gas have been removed; no royalties
shall be payable on the recycled gas until it is produced and sold
or used by Lessee in a manner which entities the royalty owners to a
royalty under this lease.
9. ROYALTY PAYMENTS AND REPORTS. All royalties which are required
to be paid under this lease shall be due and payable in the
following manner: Royalty on oil and gas is due and must received by
Lessor on or before the 15th day of the second month succeeding the
month of production.
<PAGE>
10. PERMITS, REPORTS, AND RESERVES. [OMITTED]
11. DRY HOLE CLAUSE. If, during the primary term hereof and prior
to discovery and production of oil or gas on said land. Lessee
should drill a dry hole or holes thereon, or if, after discovery and
production of oil or gas, the production hereof should cease from
any cause, this lease shall not terminate if, on or before the
rental paying date next ensuing after the expiration of sixty (60)
days from date of completion of said dry hold or cessation of
production. Lessee commences additional drilling or reworking
operations thereon, or commences or resumes the payment of annual
delay rental in the same manner as provided in Paragraph 3 of this
lease. If a dry hole be completed and abandoned during the last
year of the primary term, Lessee's rights shall remain in full force
and effect without further operations until the expiration of the
primary term. Should the first well or any subsequent well drilled
on the above described land be completed as a shut-in oil or gas
well within the primary term hereof, Lessee may resume payment of
annual rental in the same manner as provided in Paragraph 3 in this
lease on or before the rental paying date next ensuing after sixty
(60) days from the date of completion of such shut-in oil or gas
well, and upon the failure to make such annual rental payment, this
lease shall ipso facto terminate. If at the expiration of the
primary term or at any time thereafter shut-in oil or gas well is
located on the leased premises, payments may be made in accordance
with the provisions of Paragraph 14 of this lease.
12. DRILLING AND REWORKING AT EXPIRATION OF PRIMARY TERM. If, at
the expiration of the primary term, neither oil nor gas is being
produced on said land, but Lessee is then engaged in drilling or
reworking operations thereon, this lease shall remain in force so
long as operations on said well or for drilling or reworking of any
additional well are prosecuted in good faith and in workmanlike
manner without interruptions totaling more than sixty (60) days
during any one such operation, and if they result in the production
of oil and/or gas, so long thereafter as oil and/or gas is produced
in paying quantities from said land, or payment of shut-in oil or
gas well royalties or compensatory royalties is made as provided in
this lease.
13. CESSATION, DRILLING AND REWORKING. In the event production of
oil or gas on the leased premises after once obtained shall cease
from any cause at the expiration of the primary term thereof or at
any time or times thereafter, this lease shall not terminate if
Lessee commences additional drilling or reworking operations within
sixty (60) days thereafter, and the lease shall remain in full force
and effect so long as such operations continue in good faith and in
a workmanlike manner without interruptions totaling more than sixty
(60) days during any one such operation; and if such drilling or
reworking operations result in the production of oil or gas, the
lease shall remain in full force and effect so long as oil or gas is
produced therefrom in paying quantities or payment of shut-in oil or
gas royalties or compensatory royalties is made as hereinafter
provided or as provided elsewhere in the statutes of the State of
Texas.
14. SHUT IN ROYALTIES. If, at the expiration of the primary term
or at any time thereafter, a well or wells capable of producing oil
or gas in paying quantities is located on the leased premises but
oil or gas is not being produced for lack of suitable production
facilities or a suitable market, and the lease is not being
maintained in force and effect, Lessee may pay as a shut-in oil or
gas royalty an amount equal to double the annual rental provided in
Paragraph 3 of this lease but not less than $1,200 a year for each
well capable of producing oil or gas in paying quantities. If
Paragraph 3 of this lease does not specify
<PAGE>
delay rental amount, then for the purposes of this
.................[rest of this line is not legible] any shut-in
oil or gas royalty must be paid on or before: (1) the expiration of
the primary term, (2) 60 days after the lessee ceases to produce oil
or gas from the leased premises, or (3) 60 days after lessee
completes a drilling and reworking operation in accordance with the
lease provisions; whichever date is latest. If the shut-in oil or
gas royalty is paid, the lease shall be considered to be a producing
lease and the payment shall extend the term of the lease for a
period of one (1) year from the end of the primary term or from the
first day of the month next succeeding the month in which production
ceased and after that, if no suitable production facilities or
suitable market for the oil or gas exists, Lessee may extend the
lease for four (4) additional and successive periods of one year by
paying the same amount each year on or before the expiration of the
extended term. If, during the period the lease is kept in effect by
payment of the shut-in oil or gas royalty, oil or gas is sold and
delivered in paying quantities from a well located within 1,000 feet
of the leased premises and completed in the same producing reservoir
or, in any case in which drainage is occurring, the right to
continue to extend the lease by paying the shut-in oil or gas
royalty shall cease. The lese shall remain effective for the
remainder of the year for which the royalty has been paid and for
four (4) additional and successive periods of one year each by the
Lessee paying compensatory royalty at the royalty rate provided in
the lease of the value at the well of production from the well that
is causing the drainage or that is completed in the same producing
reservoir and within 1,000 feet of the leased premises. If the
compensatory royalty paid in any 12-month period is in an amount
less than the annual shut-in oil or gas royalty, Lessee shall pay an
amount equal to the difference within 30 days from the end of the
12-month period. None of these provisions will relieve Lessee of
the obligation of reasonable development or the obligation to drill
offset wells as provided in Texas Natural Resources Code Section52.173.
15. DEVELOPMENT. Notwithstanding any provision of this lease to
the contrary, after a well producing, or capable of producing, oil
or gas has been completed on the leased premises, Lessee shall
exercise the diligence of a reasonably prudent operator in drilling
such additional well o wells as my be reasonably necessary for the
proper development of the leased premises and in marketing the oil
and gas produced. In the event this lease is in force and effect
three (3) years after the expiration date of the primary term, it
shall then terminate as to all of the leased premises, EXCEPT: 1) 40
acres surrounding each producing oil well and 320 acres surrounding
each producing gas well (including a shut-in oil or gas well as
provided in Paragraph 14 of this lease), or a well upon which Lessee
is then engaged in continuous drilling or reworking operations, or
2) the number of acres included in a producing pooled unit pursuant
to Texas Natural Resources Code Section52.151 - Section52.153, or 3)
such greater or lesser number of acres as may then be allocated for
production purposes to a proration unit for each such producing well
under the rules and regulations of the Railroad Commission of Texas
or any successor agency, or other governmental authority having
jurisdiction. "Producing" as used in this lease means producing in
paying quantities. The acreage retained under this provision as to
each well shall, as nearly as practical, be in the form of a square
with the well located in the center. Lessee shall execute and
record a release or releases containing a satisfactory description
of the acreage terminated under this provision.
16. OFFSET WELLS. Neither the bonus, delay rentals, nor royalties
paid, or to be paid, under this lease shall relieve Lessee of his
obligation to protect the oil and gas under the above-described land
from being drained. To prevent drainage, Lessee is obligated to
drill as many wells as the facts may justify and to the depth or
depths necessary for effective protection against undue drainage.
In addition, if a draining well which is producing in commercial
quantities is located within 1, 000 feet of the above-described
land, or in any case where the above described land is being
drained, Lessee is statutorily obligated to drill an offset well on
the leased premises within 100 days after the draining well begins
production in commercial quantities. Failure to satisfy the
statutory offset obligation may subject this lease and the owner of
the soil's agency rights to forfeiture. Only upon the determination
of the Commissioner of the General Land Office and with his written
approval may the payment of compensatory royalty satisfy obligation
to drill an offset well or wells required under this paragraph.
17. FORCE MAJEURE. If, after a good faith effort, Lessee is
prevented from complying with any express or implied covenant of
this lease, from conducting drilling operations on the leased
premises, or from producing oil or gas from the leased premises by
reason of war, rebellion, riots, strikes, acts of God, or any valid
order, rule or regulation of government authority, then while so
prevented, Lessee's obligation to comply with such covenant shall be
suspended and Lessee shall not be liable for damages for failure to
comply with such covenants; additionally, this lease shall be
extended while Lessee is prevented, by any such cause, from
conducting drilling and reworking operations or from producing oil
or gas from the leased premises. However, nothing in this paragraph
shall suspend the payment of delay rentals in order to maintain this
lease in effect during the primary term in the absence of such
drilling or reworking operations or production of oil or gas.
<PAGE>
18. WARRANTY CLAUSE. The owner of the soil warrants and agrees to
defend title to the leased premises. I f the owner of the soil
defaults in payments owned on the leased premises, then Lessee may
redeem the rights of the owner of the soil in the leased premises by
paying any mortgage, taxes or other liens on the leased premises.
If Lessee makes payments on behalf of the owner of the soil under
this paragraph, Lessee may recover the cost of these payments from
the rental and royalties due the owner of the soil.
19. PROPORTIONATE REDUCTION CLAUSE. If the owner of the soil owns
less than the entire undivided surface estate in the above described
land, whether or not Lessee's interest is specified herein, then the
royalties and rental herein provided to be paid to the owner of the
soil shall be paid to him in the proportion which his interest bears
to the entire undivided surface estate.
20. USE OF WATER. Lessee shall have the right to sue water
produced on said land necessary for operations under this lease
except water from wells or tanks of the owner of the soil; provided,
however, Lessee shall not use potable water or water suitable for
livestock or irrigation purposes for waterflood operations without
the prior consent of the owner of the soil.
21. AUTHORIZED DAMAGES. Lessee shall pay the owner of the soil for
damages caused by its operations to all personal property,
improvements, livestock and crops on said land.
22. PIPELINE DEPTH. When requested by the owner of the soil,
Lessee shall bury its pipeline below plow depth.
23. WELL LOCATION LIMIT. No well shall be drilled nearer than two
hundred (200) feet to any house or barn now on said premises without
the written consent of the owner of the soil.
24. CONSERVATION CLAUSE. Lessee shall have the exclusive right to
build, operate and maintain pits, reservoirs, pickup stations and
plants for the purpose of picking up and conserving waste oil that
flows down the creeks, ravines and across the leased premises,
whether such waste oil is produced from the leased premises or from
other lands.
25. REMOVAL OF EQUIPMENT. Subject to limitations in this
paragraph, Lessee shall have the right to remove machinery and
fixtures placed by Lessee on the leased premises, including the
right to draw and remove casing, within on hundred twenty (120) days
after the expiration or the termination of this lease unless the
owner of the soil grants Lessee an extension of this 120 day period.
However, Lessee may not remove casing from any well capable of
producing oil and gas in paying quantities. Additionally, Lessee
may not draw and remove casing until after thirty (30) days written
notice to the Commissioner of the General Land Office and to the
owner of the soil. The owner of the soil shall become the owner of
any machinery, fixtures, or casing which are not timely removed by
Lessee under the terms of this paragraph.
26. (a) ASSIGNMENTS. Under the conditions contained in this
paragraph and Paragraph 28 of this lease, the rights and estates of
either party to this lease may be assigned, in whole or in part, and
the provisions of this lease shall extend to and be binding upon
their heirs, devisees, legal representatives, successors and
assigns. However, a change or division in ownership of the land,
rentals or royalties will not enlarge the obligations of Lessee,
diminish the rights, privileges and estates of Lessee, impair the
effectiveness of any payment made by Lessee or impair the
effectiveness of any act performed by Lessee. And no change or
division in ownership of the land, rentals, or royalties shall bind
Lessee for any purpose until thirty (30) days after the owner of the
soil (or his heirs, devisees, legal representatives or assigns)
furnishes the Lessee with satisfactory written evidence of the
change in ownership, including the original recorded muniments of
title (or a certified copy of such original) when the ownership
changed because of a conveyance. A total or partial assignment of
this lease shall, to the extent of the interest assigned, relieve
and discharge Lessee of all subsequent obligations under this lease.
If this lease is assigned in its entirety as to only part of the
acreage, the right and option to pay rentals shall be apportioned as
between the several owners ratably, according to the area of each,
and failure by one or more of them to pay his share of the rental
shall not affect
<PAGE>
(b) ASSIGNMENT LIMITATION. [OMITTED]
27. RELEASES. Under the conditions contained in this paragraph and
Paragraph 28, Lessee may at any time execute and deliver to the
owner of the soil and place of record a release or releases covering
any portion or portions of the leased premises, and thereby
surrender this lease as to such portion or portions, and be relieved
of all subsequent obligations as to acreage, surrendered. If any
part of this lease is properly surrendered, the delay rental due
under this lease shall be reduced by the proportion that the
surrendered acreage bears to the acreage which was covered by this
lease immediately prior to such surrender; however, such release
will not relieve Lessee of any liabilities which may have accrued
under this lease prior to the surrender of such acreage.
28. FILING OF ASSIGNMENTS AND RELEASES. If all or any part of this
lease is assigned or released, such assignment or release must be
recorded in the county where the land is situated.
29. LEASE FILING. [OMITTED]
30. DISCLOSURE CLAUSE. All provisions pertaining to the lease of
the above-described land have been included in this instrument,
including the statement of the true consideration to be paid for the
execution of this lease and the rights and duties of the parties.
Any collateral agreements concerning the development of oil and gas
from the leased premises which are not contained in this lease
render this lease invalid.
31. FIDUCIARY DUTY. [OMITTED]
32. FORFEITURE. If Lessee shall fail or refuse to make the payment
of any sum within thirty days after it becomes due, or if Lessee or
an authorized agent should knowingly make any false return or false
report concerning production or drilling, or if Lessee shall fail or
refuse to drill any offset well or wells in good faith as required
by law, if Lessee should fail to file reports in the manner required
by law or fail to comply with rules and regulations promulgated by
the Railroad Commission, or if Lessee should refuse the proper
authority access to the records pertaining to operations, or if
Lessee or an authorizes agent should knowingly fail or refuse to
give correct information to the proper authority THIS LEASE WILL BE
SUBJECT TO FORFEITURE BY LESSOR.
<PAGE>
33. RAILROAD COMMISSION HEARINGS ON GAS. [OMITTED]
34. [OMITTED]
IN WITNESS WHEREOF, this instrument is executed on the date first
above written.
STATE OF TEXAS
BY: NA
Individually and as agent for the State of Texas
GWEN KENNEDY HUNNICUTT
BY: /s/Gwen Kennedy Hunnicutt
Individually
STATE OF TEXAS
BY: NA
Individually and as agent for the State of Texas
STATE OF TEXAS
BY: NA
Individually and as agent for the State of Texas
Ashby Lease. If in the event Pilares Oil and Gas, Inc., or its
assignees acquires the Oil and Gas Lease, called the Ashby Lease,
currently in force on Section 23 of Lessor's land, the terms and
conditions of this lease shall supersede the Ashby lease.
If in the event the Ashby well is plugged and Section 23 becomes
available, first right of refusal to lese Section 24 will be offered
by Lessor to Lessee under the same terms and conditions as this lease.
<PAGE>
STATE OF TEXAS
COUNTY OF (unknown)
This instrument acknowledged before me on October 25, 1995 by Gwen
Kennedy Hunnicutt.
/s/Judy Belle Horick
Notary Public in and for (unknown) County, Texas
My commission expires:
[SEAL]
STATE OF TEXAS
COUNTY OF
This instrument acknowledged before me on
by .
Notary Public in and for County, Texas
My commission expires:
STATE OF TEXAS
COUNTY OF
This instrument acknowledged before me on
by .
Notary Public in and for County, Texas
My commission expires:
STATE OF TEXAS
COUNTY OF
This instrument acknowledged before me on
by .
Notary Public in and for County, Texas
My commission expires:
FILED FOR RECORD 30226
The 4th day of March
A.D., 1997
At 4:30 O'Clock P.M.
ELAINE CARPENTER/(/s/initials)
COUNTY CLERK, KIMBLE COUNTY, TEXAS.
/s/ Elaine Carpenter
County Clerk, Kimble County, Texas
VOL. 15 PAGE 788
RECORDED March 13, 1997
By
HAYDEE TORRES, DEPUTY
NICOLE NEWDURY, DEPUTY
STATE OF TEXAS
COUNTY OF KIMBLE
I hereby certify that this instrument was FILED FOR RECORD on the
date and at the time entered hereon by me and was duly RECORDED in
the Volume and Page of the Oil and Gas Lease Records of Kimble
County, Texas.
ANY PROVISION HEREIN WHICH RESTRICTS THE SALE, RENTAL OR USE OF THE
DESCRIBED REAL PROPERTY BECAUSE OF COLOR OR RACE IS INVALID AND
UNENFORCEABLE UNDER FEDERAL LAW.
ASSIGNMENT OF OIL, GAS AND MINERAL LEASE
STATE OF TEXAS *
* KNOW ALL MEN BY THESE PRESENTS THAT
COUNTY OF KIMBLE *
WHEREAS, Pilares Oil & Gas, Inc., whose address is 3241 South 1st
Street, One Burro Alley, Abilene, TX 79605, hereinafter referred to
as "Assignor", is the owner and holder of certain Oil, Gas and
Mineral Leases. One lease was executed the 15th day of May 1995,
Jack Hunnicutt as Lessor to Pilares Oil & Gas, Inc., Lessee; and,
the second lease is dated the 1st day of March 1996, and executed by
Arthur L. Mudge, et al., to Pilares Oil & Gas, Inc. The Lease
executed by Jack Hunnicutt covers the following described lot,
tract, or parcel of land, hereinafter called "the Assigned
Premises," is situated in Kimble County, Texas and is described as
follows:
Section 23, Abstract 1573, Block 4, Kimble County, Texas being 640
acres of land, more or less.
WHEREAS, the Lease executed by Arthur L. Mudge, et al. Covers the
following described lots, tracts or parcels of land hereinafter
called "Assigned Premises," and situated in Kimble County, Texas as
described as follows:
First Tract: All of the North 80 acres, more or less, of Survey No.
1, Certificate No. 00/543, Abstract No. 670, Original Grantee,
T.W.N.G.R.R. Co., and patented to William Appleton by Patent No.
407, volume 29, dated September 11, 1877, and containing 640 acres,
more or less, said patent to said land being of record in volume 1,
Page 194 of the Patent Records of Kimble County, Texas, for more
complete description of said lands by metes and bounds.
<PAGE>
Second Tract: All of Survey No. 2, Certificate No. 1306, Abstract
No. 1074, B.J. Hall, Original Grantee, patented to G. .Keith Gordon
by Patent No. 62, Vol. 31, on January 10, 1906 for 570.60 acres of
land, described by metes and bounds as follows:
BEGINNING at the N.W. corner of Sur. No. 8S.P. Ry. Co.;
THENCE E. 680 vrs. to W. line of No. 7;
THENCE N. 29-3/5 vrs. to its N.W. corner;
THENCE E. 190-1/2 vrs. to W. line of Sur. No. 50, W.C.Thayer;
THENCE N. 34-/12 vrs. to its N.W. corner;
THENCE E. 6-1/2 vrs. to its N.E. corner;
THENCE N 1 deg. E. with W. line of Sur. 49 E. Brush, 1800 vrs. to S.
E. corner of Sur. 21, D. W. Roberts;
THENCE W. 1576 vrs. to E. line of No. 10, T.W.N.G. Ry. Co.;
THENCE S. 23-1/2 vrs. to its S. E. corner;
THENCE W. 380 vrs.;
THENCE S. 953-1/2 vrs. to N. line of No. 14;
THENCE E. 382-1/2 vrs. to its N. E. corner;
THENCE S. 887 vrs. to the place of BEGINNING.
Third Tract: All of Survey No. 3, Abstract No. 1478, patented to G.
Keith Gordon by patent No. 398, Volume 48, dated June 26, 1914, and
recorded in Volume 2, Page 166, of the Patent Records of Kimble
County, Texas, to which said patent and the record thereof is herein
referenced for more complete description of said lands by metes and
bounds, containing 52-1/2 acres of land, more or less.
<PAGE>
Fourth Tract: Being 181.61 acres out of and a part of Survey No.
50-1/2, Certificate No. 36/15, Abstract No. 1250, Original Grantee,
John M. Swisher, and patented to G. Keith Gordon by Patent No. 220,
Volume 8, dated March 13, 1896, and containing 204-1/2 acre of land,
more or less. Said patent being recorded in Volume 1, Page 191 of
the Patent Records of Kimble County, Texas.
Fifth Tract: Being 274.31 acres of land, more or less, out of Survey
No. 14, Abstract No. 1418, Certificate No. 5351, Original Grantee,
G. Keith Gordon , patented to G. Keith Gordon by Patent No. 399,
Volume 48, dated June 27, 1914, recorded in Volume 2, Page 167 of
the Patent Records of Kimble County.
WHEREAS, Assignor has agreed to assign and does by these presents
assign to West Bolt Energy, Inc., whose address is 3241 South 1st
Street, One Burro Alley, Abilene, TX 79605, hereinafter referred to
as "Assignee, " all of Assignor's right, title, and interest in the
Assigned Premises.
NOW, THEREFORE, for and in consideration of Ten and No/100 Dollars
($10.00), the receipt by the Assignor of Two Hundred Ninety-Nine
(299,999) shares of common stock of the Assignee whose par value is
$.001 per share at a transactional value of $ , and
other good and valuable consideration receipt and sufficiency is
hereby acknowledged by the Assignee. The Assignor hereby Bargains,
Sells, Transfers, Conveys and Assigns unto Assignee, all right,
title and interest in and to the Assigned Premises.
It is expressly understood that Assignee assumes all of Assignor's
duties, rights and obligations in connection with the Assigned
Premises and described wells including, but not limited to, the
plugging and abandoning of said wells, and Assignee further agrees
to file or cause to be filed, all necessary documents to effect said
assumption.
<PAGE>
For the same consideration, the said Assignor hereby covenants for
itself and its successors and assigns with the said Assignee and its
successors and assigns that the said Assignee is the lawful owner of
the aforesaid leases, warrants title and possession to the properly
herein assigned as of the date and time of execution of this
instrument, and that the said leases are conveyed hereby free and
clear of all liens and encumbrances. The Assignor further covenant
that the Assignor shall warrant and forever defend the title in and
to such oil, gas and mineral leases to said Assignee.
In testimony whereof, I have hereunto set my hand on this the 15th
day of March, 1996.
Pilares Oil & Gas, Inc.
By: /s/Charles M. Childers
Charles M. Childers, President
THE STATE OF TEXAS *
*
COUNTY OF TAYLOR *
THIS IS TO CERTIFY that the foregoing instrument was acknowledge
before me on 15th day of March, 1996, by Charles M. Childers, of
Pilares Oil & Gas, Inc., a corporation, on behalf of said corporation.
/s/Deborah L. Scott
Notary Public
Deborah L . Scott
[NOTARY SEAL]
OIL, GAS AND MINERAL LEASE
THIS AGREEMENT made this day of April 26, 1996, between MATTIE SUE WALKER
1992 INVESTMENT TRUST, Charlotte Walker Furman, Trustee of 2909
East 17th St., Odessa, Texas 79761
Lessor (whether one or more), and PILARES OIL & GAS, INC. 3241 S 1ST ABILENE,
TEXAS 79605
Lessee, WITNESSETH:
1. Lessor in consideration of TEN DOLLARS Dollars ($10.00) in hand paid,
of the royalties herein provided, and of the agreements of Lessee herein
contained, hereby grants, leases and lets exclusively unto Lessee for the
purpose of investigating, exploring, prospecting, drilling and mining for
and producing oil, gas and all other minerals, laying pipe lines,
building tanks, power stations, telephone lines and other structures
thereon to produce, save, take care of, treat, transport, and own said
products, and housing its employees, the following described land in
PECOS county, Texas, to-wit:
484.25 ACRES OUT OF SURVEY 9 A-4884 CERT 1598, BLK 182 T.C.R.R. CO. 483.1
ACRES OUT OF SURVEY 16 CERT 1598, BLK 1821 T.C.R.R. CO. A-5450 817. 07 ACRES
OUT OF SURVEY SF 14162 J.N. MONTGOMERY A-9333 (WEST) 722 ACRES OUT OF SURVEY
24 BLK-170 T.C.R.R. CO. 570.67 ACRES OUT OF SURVEY 23, BLK 170 T.T.R.R. CO.
A-4223 640 ACRES OUT OF SURVEY 20, BLK 170 T.T.R.R. CO.
and containing 3,717.09 acres more or less. In the event a resurvey
of said lands shall reveal the existence of excess and/or vacant lands
lying adjacent to the land above described and the lessor, his heirs,
or assigns, shall, by virtue of his ownership of the lands above described,
have preference right to acquire said excess and/or vacant lands, then in
that event this lease shall cover and include all such excess and/or vacant
lands which the lessor, his heirs, or assigns, shall have the preference
right to acquire by virtue of his ownership of the lands above described
as and when acquired by the lessor; and the lessee shall pay the
lessor for such excess and/or vacant leads at the same rate per acre
as the cash consideration paid for the acreage hereinabove mentioned.
2. Subject to the other provisions herein contained, this lease shall be for
a term of ten years from this date (called "primary term") and as long
thereafter as oil, gas or other mineral is produced from said land hereunder.
3. The Royalties to be paid Lessor are (a) on oil, one-eighth of that
produced and saved from said land, the same to be delivered at the wells or
to the credit of Lessor into the pipe line to which the wells may be
connected: Lessee may from time to time purchase any royalty oil in its
possession, paying the to market price therefor prevailing for the field
where produced on the date of purchase: (b) on gas, including casinghead
gas or other gaseous substance, produced from said land and sold
or used off the promises or in the manufacture of gasoline or other product
therefrom, the market value at the well of one-eighth of the gas so sold
or used, provided that on gas sold at the wells the royalty shall be
one-eighth of the amount realized from such sale; where gas from a well
producing gas only is not sold or used. Lessee may pay as royalty
$50.00 per well per year, and upon such payment it will be considered that
gas is being produced within the meaning of Paragraph 2 hereof; and (c)
all other minerals mined and marketed, one-tenth either in kind or
value at the well or mine, at Lessee's election, except that on
sulphur the royalty shall be fifty cents (50c) per long ton.
Lessee shall have free use of oil, gas, coal, wood and water
from said land, except water from Lessor's wells, for all operations
hereunder, and the royalty on oil, gas and coal shall be computed after
deducting any so used. Lessor shall have the privilege at his risk
and expense of using gas from any gas well on said land for stoves
and inside lights in the principal dwelling thereon out of any surplus
gas not needed for operations hereunder.
4. If operations for drilling are not commenced on said land on or before
one Year from this date the lease shall then terminate as to both parties
unless on or before such anniversary date Lessee shalt pay or tender to
Lessor or to the credit of Lessor in _______ Bank at _________ (which
bank and its successors are Lessor's agent and shall continue as
the depository for all rentals payable hereunder regardless of
changes in ownership of said land or the rentals) the sum of
SEVEN THOUSAND FOUR HUNDRED THIRTY-FOUR AND 18/100 Dollars
(herein called rental), which shall cover the privilege of deferring
commencement of drilling operations for a period of twelve (12) months.
In like manner and upon like payments or tenders annually the commencement of
drilling operations may be further deferred for successive periods of
twelve (12) months each during the primary term. The payment or tender
of rental may be made by the check or draft of Lessee
mailed or delivered to said bank on or before such date of payment if such
bank (or any successor bank) should fail, liquidate or be succeeded by
another bank, or for any reason fall or refuse to accept rental. Lessee
shall not be held in default for failure to make such payment or tender of
rental until thirty (30) days after Lessor %hall deliver to Lessee a proper
recordable instrument, naming another bank as agent to receive such payments
or Lenders. The down cash pay Is consideration for this lease according to
Its terms and shall not be allocated to were rental for a period. Lessee may
at any time execute and deliver to Lessor or to the depositors above named
or place of record it release or releases covering any portion or portions
of the above described premises slid then by surrender this lease as to such
portion or portions and be relieved of all obligations an to the acreage
surrendered. and thereafter the rentals payable hereunder shelf be reduced
at the proportion that the acreage covered hereby is reduced by said release
or releases. In this connection the above described premises shall be
treated as comprising 3717.09 acres whether there be more or less.
5. If prior to discovery of oil or gas on said land Lessee should drill a
dry hole or holes thereon, or if after discovery of oil or gas the
production thereof should cease from any cause, this lease shall not
terminate if Lessee commences additional drilling or re-working
operations within sixty (60) days thereafter or (if it be within the
primary term) commences or resumes the payment or tender of rentals
on or before the rental paying date next ensuing after the expiration
of three months from date of completion at dry hole or creator of production.
If at the expiration of the primary term oil, gas or other mineral is not
being produced on said land but Lessee is then engaged in drilling or
re-working operations thereon, the lease shall remain in force so long as
operations are prosecuted with no cessation of more the than 90 consecutive
days, and if they result in the production of oil, gas or other minerals so long
thereafter as oil, gas or other mineral is produced from said land.
In the event a well or wells producing oil or was in paying quantities should
be brought in on adjacent land and within one hundred fifty (150)
feet of and draining the leased premises. Lessee agrees to drill such
offset wells as a reasonably prudent operator would drill under the
same or similar circumstances.
6. Lessee shall have the right at any time during or after the expiration
of this lease to remove all property and fixtures placed by Lessee on said
land. Including the right to draw and remove all casing. When required by
Lessor, Lessee will bury all pipe lines below ordinary plow depth, and no
well shall be drilled within two hundred (200) feet of any residence or barn
now on said land without Lessor's consent.
7. The rights or either party hereunder may be assigned in whole or in part
and the provisions hereof shall extend to the heirs, successors and assigns,
but no chance or divisions in ownership of the land, rentals, or royalties,
however accomplished, shall operate to enlarge the obligations or diminish
the rights of Lessee. No sale or assignment by Lessor shall be binding on
Lessee until Lessee shall be furnished with it certified copy of recorded
instrument evidencing same. In event of assignment of this lease as to
a segregated portion of said land, the rentals payable hereunder shall
be apportionable as between the several leasehold owners ratably according
to the surface area of each, and default in rental payment by one shall
not affect the rights of other leasehold owners hereunder. If six or more
parties become entitled to royalty hereunder, Lessee may withhold
payment thereof unless and until furnished with a recordable instrument
executed by all such parties designating an agent to receive payment for
all.
8. [OMITTED]
9. Lessor hereby warrants and agrees to defend the title to said land
and agrees that Lessee at its option may discharge any tax, mortgage
or other lien upon said land and in event Lessee does so, it shall be
subrogated to such lien with the right to enforce same and apply
rentals and royalties accruing hereunder toward satisfying same.
Without impairment of Lessdee's rights under the warranty in event
of failure of title, it is agreed that if Lessor ownds an interest
in said land less than the entire fee simple estate, then the royalties
and rentals to be paid Lessor shall be reduced proportionately.
10. If any operation permitted or required hereunder, or the
performance by Lessee of any covenant, agreement or requirement
hereof is delayed or interrupted directly or indirectly by any
past or future acts, orders, regulations or requirements of
the Government of the United States or of any state or other
governmental body, or any agency, officer, representative or
authority of any of them, or because of delay or inability to get
materials, labor, equipment or supplies, or on account of any other
similar or dissimilar cause beyond the control of Lessee, the
period of such delay or interruption shall not be counted against
the Lessee, and the primary term of this lease shall automatically be
extended after the expiration of the primary term set forth in
Section 2 above, so long as the cause or causes for such delays
or interruptions continue and for a period of six (6) months
thereafter; and such extended term shall constitute and shall
be considered for the purpioses of this lease as a part of the
primary term hereof. The provisions of Section 4 hereof, relating
to the payment of delay rentals shall in all things be applicable
to the primary term as extended hereby just as if such extended term
were a part of the original primary term fixed in Section 2 hereof.
The Lessee shall not be liable to Lessor in damages for failure
to perform any operation permitted or required hereunder or to
comply with any covenant, agreement or requirement hereof during the
time Lessee is relieved from the obligationsd to comply with
such covenants, agreements or requirements.
11. Further provisions of this Lease are set forth in the
attached "Addendum to Lease."
IN WITNESS WHEREOF, this instrument is executed on the date
first above written.
MATTIE SUE WALKER 1992 INVESTMENT TRUST
By:/s/Charlotte Walker Furman
Charlotte Walker Furman, Trustee
Witnesses:
/s/Jimmie B. Todd
<PAGE>
SINGLE ACKNOWLEDGMENT
THE STATE OF TEXAS )
COUNRY OF )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared CHARLOTTE WALKER FURMAN, Trustee
of the MATTIE SUE WALKER 1992 INVESTMENT TRUST known to me to be the
person whose name subscribed to the foregoing instrument, and acknowledged
to me that he executed the same for the purposes and consideration
therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 26th day of April A.D. 1996
ELIZABETH K. HARVEY) /s/Elizabeth K. Harvey
Notary Public)
State of Texas)
My Commission Expires 01/27/97)
<PAGE>
ADDENDUM TO LEASE
ATTACHED TO AND MADE A PART OF THAT CERTAIN OIL, GAS AND MINERAL LEASE DATED
APRIL 26,1996, BY AND BETWEEN THE MATTIE SUE WALKER 1992 INVESTMENT TRUST,
LESSOR, AND PILARES OIL & GAS, INC., LESSEE.
1. Lessee and/or its employees and agents shall have the exclusive right to
enter on said lands, or any portion thereof, for the purpose of conducting
seismic survey(s) and/or other geophysical explorations ("Survey"). The
"Survey" shall consist of conducting geophysical operations over and across
the said lands that Lessee, in its sole discretion, shall determine and deem
reasonable and necessary subject to the terms and conditions set out herein.
2. The consideration for the execution of this lease shall be $5.00 per
net surface acre of the said lands owned by Lessor.
3. Lessor agrees that the payment of the consideration hereinabove recited
includes and is accepted by Lessor as payment for damages if any, to the
described lands resulting from said seismic operations except however, for
any damages that may result from Lessee, its assigns or agent's negligence,
and except for damages, if any, to growing crops on the lands hereinabove
described will be paid to Lessor by Lessee based upon the reasonable market
value thereof assuming the harvest of a normal crop. Upon receipt of
payment, as set forth hereinabove, Lessor, Lessor's heirs, successors, and
assigns, shall forever remise, release, acquit, and discharge Lessee,
Lessee's affiliates, Lessee's agents, and independent contractors hired by
Lessee from and all manner of action and actions, cause and causes of
action, suits, claims, and damages that may arise as a result of geophysical
operations being conducted by the same.
4. Lessee shall at all times use reasonable care in all of its operations on
the leased premises to prevent injury or damage to the cattle, livestock,
building or other property of Lessor or Lessor's tenant situated on the
surface of said land, or Lessor's water wells and without limitation, all
other property of Lessor situated on the surface of the leased premises
resulting from Lessee's operations on the leased premises.
5. Notwithstanding anything herein to the contrary, it is agreed and
understood that the lease premises shall not be pooled with any acreage not
owned by Lessor without Lessor's consent unless it is necessary to comply
with the spacing regulations or unit regulations of the Railroad Commission
of Texas or other governmental, authority having jurisdiction, so as to
permit the drilling of a well, or the production of a well, on the lease
premises or upon adjacent acreage not covered by this lease, therefore not
requiring Lessor's consent.
6. It is agreed and understood that the term of 'ten (10)" years as set
out in Paragraph No. 2 of this lease is changed to read "five (5)" years.
7. Notwithstanding anything in this lease to the contrary royalty on oil and
gas, shall be twenty percent (20%) of oil and gas produced and saved under
the terms of this lease, and wherever in Paragraph No. 3 of this lease the
fraction one-eighth (1/8) appears, same shall be deemed to read twenty
percent (20%).
8. (a) Notwithstanding any provision herein to the contrary, it is agreed that
at the end of the "primary term" of this lease, this lease shall terminate
insofar as it pertains to all lands not then included in the proration unit
of a producing well as designated by Lessee in accordance with the spacing
regulations of the Railroad Commission of Texas, provided that the proration
unit of a producing well shall never be designated to consist of more than
the smallest number of acres necessary to obtain the maximum allowable for
such well under applicable rules and orders of the Railroad Commission.
Lessee agrees to file for record a release covering those lands so terminated.
Notwithstanding the termination of this lease as to a portion of the lands
described above, if any Lessee shall continue to have the right of ingress
and, egress on all of said lands for all purposes described and allowed
under the terms of this lease as necessary to Lessee's continuing operations
on the lands remaining under this lease together with easements,
rights-of-way roads, pipelines and other, facilities on, over and across all
the lands originally covered by this lease for access to and from the lands
still subject to this lease and for the
<PAGE>
gathering or transportation of oil, gas and associated hydrocarbons produced
from tile retained lease premises.
(b) If after the expiration of tile primary term, production from any well
should cease for any cause, this lease shall not terminate as to that
portion of the leased premises included in a proration unit for such well if
reworking operations are commenced within (90) days or actual drilling
operations are commenced within one hundred twenty (120) days from that date
such well ceased to produce and such operations are conducted continuously
with no cessation greater than this (30) days, and upon the termination of
such (30) day term upon which no operations have been conducted and no oil
and gas, or either of them is being produced in paying quantities, this
lease shall terminate as to that portion of the leased premises included in
the proration unit for such well upon which operations were so conducted.
(C) The right of continuous development provided for herein below shall be
commenced solely at Lessee's option and the actual date for commencement of
said continuous development shall be determined as follows. If Lessee has
drilled a dry hole on the leased premises within sixty (60) days prior to
the end of the primary term, the commencement date of the continuous
development shall be ninety (90) days from the date such well was plugged
and abandoned. If Lessee has completed a well on the leased premises capable
of producing oil and gas and other hydrocarbons produced with oil and gas in
commercial quantities prior to the end of the primary term, then the
commencement date of the continuous development shall be ninety (90) days
after the primary term. In the event a well has not been completed on the
leased premises prior to the end of the primary term, and no dry hole has
been drilled as provided above, then in order to commence the continuous
development Lessee must commence operations for drilling on the leased
premises before the end of the primary term. Once the continuous development
has commenced this lease shall remain in full force and effect as to the
lands as long as Lessee drills, or causes to be drilled, wells on the leased
premises with a lapse of not more than ninety (90) days between the
completion or abandonment of one well and the commencement of operations for
drilling of the next well. For the purposes of interpretation of this
provision a well shall be deemed to be commenced on that date actual
drilling first occurs for such well, and the completion or abandonment date
of a sell shall be deemed to be on that date the official Texas Railroad
Commission potential test occurs or that date that actual plugging occurs
for such well, but in no event more than one hundred twenty (120) days
following the commencement of actual drilling of such well.
(d) It is understood and agreed that should Lessee fail to commence timely
the continuous development or if at any time said maximum time for
commencement of operations for drilling a well under the continuous
development should expire without the commencement of operations for
drilling of any such additional well then it shall be considered that such
continuous development was discontinued at the expiration of said period.
The only penalty to Lessee for the discontinuance of such continuous
development shall be the termination of this lease, save and except as to
all acreage which is included in proration units allocated to either wells
which are capable of producing oil, gas and other minerals in commercial
quantities or wells upon which Lessee is then conducting operations to
establish or restore oil and/or gas production.
9. Notwithstanding anything herein to the contrary, Lessee shall have the
right of ingress and egress to and from the lease premises across any land
now or hereafter owned by Lessor, their heirs, successors or assigns solely
to the extent necessary to the operations of any lands covered by this
lease. Such ingress and egress shall be along such routes as Lessor and
Lessee shall mutually agree upon.
10. Lessee agrees to pay to Lessor surface damages in the amount of
$2,000.00 for each location drilled hereunder in proportion to Lessor's
surface ownership of said lands. Lessee shall pay such surface damages to
the surface owner(s)( in proportion to such ownership, as determined by
public record.
11. Lessor reserves the right to restrict Lessee's use of Lessor's above
ground water for drilling purposes. However, should Lessee accept Lessor's
offer to use such above ground water, then Lessee shall pay Lessor and the
other surface owners their proportionate part of an amount equal to twenty
cents ($0.20) per foot drilled in Lessee's well. Upon the termination
<PAGE>
of this Lease, any water well drilled and constructed on the premises for
the purposes of providing water for operations shall become the property of
Lessor.
12. Prior to the construction of any road on said property, Lessee shall
first advise Lessor of the- specific location or route thereof and obtain
Lessor's consent, which consent will not be unreasonably withheld. In the
event an existing road cannot be used to afford access by Lessee to a part
of the subject land (which access is necessary to Lessee's operations
thereon) and Lessee must construct an access road, it is agreed that any
such road shall be constructed and over such a route to minimize any
interference with Lessor's farming or other operations on the surface of
such land. Lessee shall install an adequate culvert system to facilitate
drainage under the road or through canals. Any access road not otherwise
maintained by the county or other governmental entity, whether existing or
newly constructed, shall be maintained in a workmanlike manner and at the
expense of Lessee, including but not limited to the installation of rock or
other suitable material necessary to inhibit erosion and promote access. At
such time said road is no longer necessary for the purpose for which it was
constructed (but in no event later than the termination of Lessee's activity
at the site to be accessed by such road), Lessee shall advise Lessor that
Lessee no longer intends to use such road, and (unless directed otherwise in
writing by Lessor) properly restore the surface of said land.
13. At the end of each drilling operation the Lessee shall proceed with
reasonable diligence to restore the surface of the leased premises to as
near its original condition as practicable, including the leveling of all
slush pits, excavations and ruts.
14. This lease including the Exhibit(s) attached hereto constitutes the
entire understanding between Lessor and Lessee with respect to the subject
matter hereof and supersedes all negotiations, prior discussions, and prior
agreements and understandings relating to such subject matter. No
representation, warranty, covenant, agreement, promise, inducement, or
statement, whether oral or written, has been made by Lessor or Lessee and
relied upon by the other that is not set forth herein or in any instrument
referred to herein, and neither Lessor nor Lessee, its agents or independent
contractors hired by Lessee shall be bound or liable for any alleged
representation, warranty, covenant, agreement, promise, inducement, or
statement not so set forth.
END OF EXHIBIT
SIGNED FOR IDENTIFICATION:
/s/Charlotte Walker Furman
OVERLOOK I
LEASE AGREEMENT
LANDLORD: CIGNA REAL ESTATE FUND T, Limited Partnership
c/o Carr Real Estate Services, Inc.
2849 Paces Ferry Road
Suite 700
Atlanta, Georgia 30339
TENANT: LAKOTA ENERGY, INC.
2849 Paces Ferry Road
Suite 710
Atlanta, Georgia 30339
DATE: December 17, 1996
<PAGE>
5. RENTAL
(a) Commencing on theDate, Tenant shall pay in advance to Landlord, at
Landlord's address: CIGNA RealFund T c/o Carr Real Estate Services, Inc.
2849 Paces Ferry Road, Suite 700, Atlanta, Georgia 30339, or at such other
place as Landlord shall designate in writing, promptly, without demand, on the
first day of each month during the Term, one-twelfth of an amount equal to the
product obtained by multiplying the total square footage of net rentable area
within the Premises (calculated in accordance with Paragraph 4 above) by [See
P. 38] Dollars (See Paragraph 38) per annum [See Paragraph 38] Dollars (See
Paragraph 38) per month. In the event the Term shall commence or terminate
an a day other than the first day of a month, the rental for the first and
last partial month shall be prorated. The Base Rental shall be due and payable
in all events, without any set-off or deduction whatsoever.
(b) Tenant shall pay to Landlord, as additional rental hereunder, Tenant's
Share (defined below) of any increases in the annual total cost of operation,
and maintenance of the Building and the surrounding land and parking facilities
(including, without limitation, taxes, water, sewer, electricity, lighting,
janitorial services and supplies, management fees, landscaping, window
cleaning, insurance, maintenance, painting, decorating, trash, snow and
ice removal, security services, heating, ventilating and air conditioning
maintenance and repair, elevator maintenance and repair, resurfacing,
patching, restriping and sweeping of drives, parking areas and walkways,
policing and regulating traffic, accounting and legal fees, administrative
costs, wages, salaries, taxes, insurance and all other similar payments made to
or on behalf of Landlord's employees, agents or contractors engaged in the
maintenance and operation of the Budding, the cost [amortized over the useful
life thereof as determined by Landlord in its reasonable judgment] of any
capital improvements (i) made to the Budding during the Term for the purpose
of reducing total operating costs, or (ii) made to the Building during the
Term and required under any governmental law or regulation not in effect as of
the date of this Lease, and all other costs associated with the operation and
maintenance of a first-class office building) over an annual amount equal to
the product of actual 1997 base year costs per square foot times the total net
rentable square footage of the Building. Commencing with the first day of
January first following the Date and for each calendar year thereafter, if
Landlord shall render a statement of Tenant's Share of such increases, as
estimated by Landlord in Landlords reasonable judgment, for such calendar year,
Tenant shall pay to Landlord such estimated Tenant Share of such increases in
advance, in equal monthly installments, on the first day of each month. Such
estimated Tenant's Share shall be subject to adjustment at the end of each
such calendar year on the basis of the actual Tenant's Share of such increases
Any additional amounts owing from Tenant to Landlord due to such adjustment
shall be due and payable within ten (10) days after Tenant's receipt of
Landlords statement setting forth Landlord's calculation of Tenant's Share of
such increases. Any amounts owing from Landlord to Tenant due to such
adjustment shall be credited against the payment(s) of Tenant's Share of such
increases or Landlords estimate of Tenant's Share of such increases, as the
case may be, next coming due Landlord will furnish such statement to Tenant
with ninety (90) days after the end of each such calendar year, or as soon
thereafter as is reasonably practical. For purposes hereof "Tenant Share"
shall mean the fraction obtained by dividing the net rentable area of the
premises by ninety-five percent (95%) of the net rentable area ofthe Building.
[1,278/130,749 =.0098].
The provision of this Paragraph 5 shall survive the expiration or earlier
termination of this Lease Within ninety (90) days following such expiration of
earlier termination, Landlord shall render a final statement, setting forth
all amounts due Landlord pursuant to this Lease, including any amounts owing
under this Paragraph 5. Tenant shall pay SUCH final statement to Landlord
within ten (10) days following the date Landlord raiders such final statement
6. RENTAL ADJUSTMENT [OMITTED]
<PAGE>
Within ninety (90) days following such expiration of earlier termination,
Landlord shall render a final statement setting forth all amounts due
Landlord pursuant to this Lease, including any amounts owing under this
Paragraph 6. Tenant shall pay such final statement to Landlord within ten.
(10) days following the date Landlord renders such final statement.
7. USE
Tenant shall occupy and use the Premises for general office space for the
purpose of engaging in the business of general office, and for no other
purpose or use. The Premises shall not be used for illegal purposes; nor in
violation of any regulation of any governmental body; nor in any manner to
create any nuisance or trespass; nor in any manner to vitiate the insurance
or increase the rate of insurance on the Premises or the Building Tenant
agrees, at its own expense, to promptly comply with any and all municipal
county, state mid federal statutes, regulations and/or requirements
applicable or in any way relating to the use and occupancy of the Premises,
including the use, storage, handling production or disposal of any
"Hazardous Materials" (hereinafter defined) on, from, under or about the
Premises. Hazardous Material shall mean any flammable substances,
explosives, radioactive materials, hazardous materials hazardous waste,
toxic substances, pollutants, oil or other petroleum products, or related
materials identified as such in any federal, state, or local statute,
ordinance or regulation.
8. TENANT'S ACCEPTANCE
Tenant acknowledges that is has been afforded an opportunity to inspect the
Premises and accepts the Premises "as is" and as suited for Tenant's
intended use thereof, subject only to the provisions of Paragraph 3. Upon
the tenth (10th) day after completion of the improvements contemplated by
Paragraph 3, or occupancy of the Premises by Tenant, whichever first occurs,
Tenant shall be deemed to have accepted all improvements made to the
9. ASSIGNMENT AND SUBLETTING
Tenant shall not voluntarily or involuntarily, whether by operation of law
or otherwise, assign, transfer, hypothecate or otherwise encumber this Lease
or any interest herein and shall not sublet or permit the use by others of
the Premises or any portion thereof without obtaining in each instance
landlords prior written consent; which consent shall not be unreasonably
withheld, which consent shall be granted or withheld as provided below
Landlords consent to one assignment sublease, transfer or hypothecation
shall not be construed as a consent to any other of further assignment;
sublease, transfer or hypothecation Any such assignment, sublease, transfer
or hypothecation without Landlords written consent shall be void and shall,
at Landlord's option, constitute a material breach of Tenant's obligations
under this Lease. No acceptance by Landlord of any rent or any other sum of
money from any assignee, sublessee or other category of transferee shall
release Tenant from any of its obligations hereunder or be deemed to constitute
Landlords consent to any assignment, sublease, transfer or hypothecation, and
in any event Tenant shall remain primarily liable on this Lease for the entire
Term hereof and shall in no way be released from the fulll and complete
performance of all the terms, conditions, covenants and agreements contained
herein. A transfer of a fifty percent (50%) or greater interest (whether stock
partnership interest, or otherwise) in Tenant, either in a single
transaction or in any series of transactions within a fourteen (14)
consecutive month period, shall be deemed to be an assignment of this Lease.
In the event Tenant should desire to assign this Lease or sublet the Premises
or any part thereof, Tenant shall give Landlord prior written notice, which
notice shall specify (a) the date on which Tenant desires to make such
assignment or sublease, (b) the name and business of the proposed assignee
or sublessee, (c) the amount and location of the space affected, (d) the
proposed effective date and duration of the subletting or assignment, (e)
the proposed rental to be paid to Tenant by such sublessee or assignee, and
(f) the full financial statements of the proposed assignee or sublessee.
Landlord shall then have a period of ten (10) days following the receipt of
such notice within which to notify Tenant in
<PAGE>
writing that Landlord elects either (i) to terminate this Lease as to the
space so affected as of the date so specified by Tenant, in which Tenant
shall, on that date, immediately surrender possession of such space and be
relieved of all further obligations to pay rat hereunder as to such space,
or (ii) to permit Tenant to assign or sublet such space, in which event if
the proposed rental between Tenant and sublessee is greater th an the Base
Rental as adjusted under this Lease, then seventy-five (75%) percent of such
excess rental shall be deemed additional rent owed by Tenant to Landlord
under this Lease and the amount of such excess shall be paid by Tenant to
Landlord in the same manner that Tenant pays the Base Rental hereunder and
in addition thereto, or (iii) to withhold consent to Tenant's assigning or
subleasing such space and to continue this Lease in full force and effect as
to the entire Premises. If Landlord should fail to notify Tenant in writing
of such election within said thirty (30) day period, Landlord shall be
deemed to have elected die option provided in clause (iii) above. Tenant
agrees to reimburse Landlord or Landlords reasonable attorneys' fees and
costs incurred in connection with the processing and documentation of any
request made pursuant to this Paragraph 9.
10. HOLDING OVER
Tenant agrees to surrender the Premises to Landlord at the end of the Term
in as good condition as existed at the of Tenant's occupancy, ordinary wear
and tear, and damage by fire, casualty and condemnation excepted. Tenant
shall pay to Landlord upon request, all damages that Landlord may suffer on
account of Tenant's failure to surrender possession as and when aforesaid
and shall indemnify Landlord against all claims, demand , damages,
liabilities, costs and expenses (including, without limitation, reasonable
attorneys' fees mid costs) arising out of Tenant's delay in so delivering
possession, including, but not limited to, claims of any other tenants or
prospective tenants of the Building. Without limiting Landlord's rights and
remedies, if Tenant holds over in possession of the Premises beyond the end
of die Term, Tenant shall pay, not as rent but for Tenant's use and
occupancy of the Premises, for each day that Tenant shall hold over, a sum
equal to two (2) times the monthly Base Rental previously payable by Tenant
under the terms of this Lease divided by thirty (30), plus all additional
rental previously payable under the term of this Lease.
11. ALTERATIONS AND IMPROVEMENTS
(a) No alterations in, or additions to, the Premises will be made
without first obtaining Landlord's prior written consent and any such work
consented to, although paid for by Tenant, will be performed by Landlord.
(b) In the event that Tenant's actions, omissions or occupancy of the
Premises shall cause the rate of fire or other insurance on Building or the
Premises to be increased, Tenant shall pay, as additional rent, the amount
of any such increase promptly upon demand by Landlord.
(c) All erections, additions, fixtures and improvements, whether temporary
or permanent in character (except only the movable office furniture of the
Tenant) made in or upon the Premises, shall be and remain the Landlord's
property, and shall remain upon the Premises at the termination or
expiration of this Leease, with no compensation to the Tenant Landlord reserves
the right to require Tenant to remove any such improvements or additions
upon the termination or expiration hereof Landlord will repair any damage
to the Premises or the Building caused by or in connection with the removal
of any articles of personal property, business or trade fixtures, alterations,
improvements and installations and all costs of such repairs shall be at
Tenant's expense.
12. REPAIRS TO THE PREMISES
Landlord shall not be required to make any repairs or improvements to the
Premises, except structural repairs necessary for safety and tenantability
Tenant shall take good care of the Premises and its fixtures and permit no
waste, except normal wear and tear with due consideration for the purpose
for which the Premises is leased.
<PAGE>
13. INSPECTIONS
Landlord hereby reserves to itself and its agents the right to exhibit the
Premises to prospective purchasers or tenants at reasonable hours, to
inspect the Premises to see that Tenant is complying with all its
obligations hereunder, to make repairs required of Landlord or Tenant under
the terms hereof, to make repairs or modifications to any adjoining space,
to maintain use, repair, and replace pipes, ducts, wires, meters and any
other equipment machinery, apparatus, and fixtures located within or without
the Premises which service the Building or the Premises, to make alterations
in and additions to the Building, and to enter upon the Premises for the
foregoing purposes.
14. DEFAULT AND REMEDIES
In addition to the circumstances hereinbefore set forth, the occurrence of
any of the following shall constitute a material breach and default of this
Lease by Tenant:
(a) The filing of any voluntary petition or similar pleading under any
section or sections of any bankruptcy or insolvency act by or against
Tenant, the institution of any voluntary or involuntary proceeding in any
court or tribunal to declare Tenant insolvent or unable to pay Tenant's
debts and, solely in the case of an involuntary petition or proceeding, such
petition or proceeding is not dismissed within thirty (30) days from the
date it is filed, the making of an assignment for the benefit of its
creditors by Tenant, or the appointment of a trustee or receiver for Tenant
or the Tenant's property.
(b) Tenant's failure to pay the Base Rental or any other sum due hereunder if
such non-payment continues for ten (10) or mom days after the same be due
and payable or Tenants default in the, prompt and full performance of any
other provision of this Lease and (unless such default involves a hazardous
condition, in which event such default shall be cured forthwith upon
Landlord's demand) such Tenant fails to cure such default within twenty (20)
days after written demand by Landlord that the default be cured.
(c) The levy upon Tenant's interest under this Lease or in the Premises
or the sa thereof by process of law.
In the event of any default as aforesaid by Tenant, the Landlord, in
addition to other rights or remedies it may have at law or in equity, shall
have the option of pursuing any one or more of the following non-exclusive
remedies:
(i) Landlord shall have the immediate right of re-entry and may remove all
property from the Premises to a warehouse or elsewhere at the cost of, and
for the account of, Tenant, all without being deemed guilty of trespass, or
becoming liable for any loss, damage or damages which may be occasioned
thereby:
(ii) Landlord may, from time to time without terminating this Lease, and
without releasing Tenant in whole or in part from Tenant's obligation to pay
Base Rental and all other amounts due under this Lease and to perform any and
all of the covenants, conditions and agreements to be performed by Tenant as
provided in this Lease, make such alterations and repairs as may be necessary
in order to relet the Premises. Landlord may, but shall not be obligated to,
relet the Premises or any part thereof for such term or terms (which may be
for a term extending beyond the Term of this Lease) at such rental or
rentals and upon such other term and conditions as Landlord in its sole
discretion may deem advisable or acceptable. Tenant shall pay Landlord as
soon as ascertained and upon demand all costs and expenses incurred by
Landlord in connection with such reletting and in making any alterations
and repairs, including without limitation, the value of any "free rent" and
rental concessions and the unamortized cost of tenant improvements or
allowances given to Tenant or made at Landlord's expense. Upon each
reletting all rentals received by Landlord from such reletting shall be
applied; first, to the payment of any indebtedness other than rent due
hereunder from Tenant to Landlord, second, to the payment of any unpaid
costs and expenses of such reletting, including brokerage fees and
attorney's fees and the costs of such alterations and repairs; third, to
the payment of the Base Rental due and unpaid hereunder, and fourth, the
residue, if any, shall be hold by Landlord and applied in payments of future
Base Rental and other additional rent or charges as the same may become due
and payable hereunder. In no event shall Tenant be entitled to any excess
rental
<PAGE>
received by Landlord over and above that which Tenant is obligated to pay
hereunder, including Base Rental, additional rent and all other charges. If
such rentals received from such reletting during any month be less than that
to be paid during such month by Tenant hereunder, including Base Rental,
additional rent and all other charges, Tenant shall pay any such deficiency
to Landlord. Such deficiency shall be calculated and paid monthly.
Notwithstanding any such reletting without termination, Landlord may at any
tune thereafter terminate this Lease for such previous breach;
(iii) Landlord may terminate this Lease, in winch event Tenant shall
immediately surrender possession of the Premises, and Landlord may recover
from Tenant all damages it may incur by reason of such breach, including the
cost of recovering the Premises, reasonable attorneys' few and costs, the
value of any "free rent" and rental concessions, the unamortized cost of
tenant improvements or allowances given to Tenant or made at Landlords
expense, and the present value of all rentals payable under tins Lease to
Landlord for the remainder of the Term, all of which amounts shall be
immediately due and payable from Tenant to Landlord.
Landlord's re-entry, demand for possession, notice that the tenancy hereby
created will be terminated on the date therein named, institution of an
action of forcible detainer, or ejectment or the entering of a judgment for
possession in such action or any other act or acts resulting in the
termination of Tenant's right to possession of the Premises shall not
relieve Tenant from Tenant's obligation to pay all sums due hereunder during
the balance of the. Term, except as herein expressly provided. Landlord may
collect and receive any Base Rental, additional rent, or charges due from
Tenant, and the payment thereof shall not constitute a waiver of or affect
any notice or demand given, and instituted or judgment obtained by Landlord,
or be held to waive, affect, change, modify or alter the rights or remedies
which Landlord has in equity or at law or by virtue of this Lease.
In the event Landlord commences any proceedings for non-payment of Base
Rental or other sums due hereunder, Tenant will not interpose any
counterclaim of whatever nature or description winch is not directly related
to the Lease in any such proceeding. This shall not, however, be construed as
a waiver of the Tenant's right to assert such claims in any separate action
or actions brought by the Tenant.
All sums past due under tins Lease shall bear interest at the lesser of a per
annum rate of eighteen percent (18%) or the maximum lawful rate, from due
date thereof until paid in full.
Except as expressly provided in this Lease, Tenant hereby waives any and every
form of demand and notice prescribed by statute or other law, including
without limitation the notice of any election of remedies made by Landlord
under this Paragraph, demand for payment of any rent or demand for possession.
All rights and remedies of Landlord created or otherwise existing at law are
cumulative and the exercise of one or mom rights or remedies shall not be
taken to exclude or waive the right to exercise any other.
Tenant shall and hereby agrees to pay all costs and expenses incurred by
Landlord in enforcing any of the covenants and agreements of this Lease, or
as a result of an action brought by Landlord against Tenant for an unlawful
detainer of the Premises, and all such costs, expenseds and attorney's fees
shall, if paid by Landlord, be paid by Tenant to Landlord within fifteen.
(15) days of Landlord's written demand therefor, together with interest at
the lesser of a per annum rate of eighteen percent (18%) or the maximum
lawful rate from the date of Landlord's payment thereof until payment in
full by Tenant.
15. SERVICES
(a) Landlord shall furnish the following services without charge, at the
proper season, during reasonable hours (8:00 am to 6:00 p.m. Monday through
Friday inclusive, and 8:30 a.m. to 1:00 p.m. on Saturdays) on normal business
days, except holidays observed by the National Banks in Atlanta, Georgia, as
legal holidays: (i) elevator service; (ii) air conditioning in Landlord's
judgment sufficient to reasonably cool or heat Premises; (iii) common use
restrooms, toilets; and (iv) cleaning services winch notwithstanding (a)
above need not be performed during business hours.
<PAGE>
(b) Landlord shall also furnish electric current on Premises for lighting
and for business machinery only (e.g. typewriters and other small office
equipment) using 110 volt, 20 AMP circuits. Tenant will not use any
electrical equipment which in Landlords opinion will overload the wiring
installations or interfere with the reasonable use thereof by other users in
Building. Tenant will not without Landlords prior written consent in each
instance (which shall not be unreasonably withheld) connect any additional
items to Building 's electrical distribution system, or make any alteration
or addition to such system. Should Landlord grant such consent, all
additional circuits or equipment required thereofv shall be provided by
Landlord and the reasonable cost of installation and use thereof shall be
paid by Tenant upon Landlords demand.
(c) If Tenant uses any of the services or electric current enumerated in
this Paragraph in an amount or for a period in excess of that provided for
herein, then Landlord reserves the right to charge Tenant as additional rent
a reasonable sum as reimbursement for the direct cost of such added services.
In the event of disagreement as to of such charge, the opinion of the
appropriate local utility company or a local independent professional
engineer shall prevail.
(d) Landlord shall in no way be liable for cessation of any of the above
services caused by strike, accident or breakdown, nor shall Landlord be
liable for damages from the stopping of elevators, or elevator service, or
any of the fixtures or equipment in Building being out of repair, or for
injury to person or property, caused by any defects in the electrical
equipment heating, ventilating and air conditioning system, elevators or
water apparatus, or for any damages arising out of failure to furnish the
services enumerated in this Paragraph 15.
(e) Notwithstanding anything to the contrary in subparagraph 15(b), Landlord
shall have the right, at any time, to install an electrical metering device
to monitor electrical consumption on the Premises. Should Landlord install
such a device, Tenant shall, from such time, pay upon receipt of an invoice
therefor, all direct charges for supplying electricity to the Premises. All
costs incurred by Landlord to install such device and related equipment
shall be borne by Tenant. Landlord's right to install a metering device
pursuant to this subparagraph 15(e) shall be in addition to Landlord's right
to install such a device pursuant to subparagraph 15(b) of this Law.
16. DESTRUCTION OF PREMISES
(a) If the Premises or the Building is rendered partially or wholly unfit
for occupancy by fire, the eLeaseents, act of God or other casualty (fire, the
eLeaseents, acts of God or other casualties hereinafter referred to as the
"Casualty') and if such damage cannot, in Landlord's reasonable opinion be
materially restored within ninety (90) days of the date of such Casualty or
if Landlord elects to demolish, substantially alter, or cease operating the
Building, then, in either such case, Landlord may, at its sole option,
terminate this Lease as of the date of such Casualty and the Term shall end
as of such date For purposes hereof, the Premises shall be deemed
"materially restored" if they are in such condition as would not Prevent or
materially interfere with Tenant's use of the Premises for the purpose for
which it was then being used. if this Lease is not terminated Pursuant to
the above provisions of this Paragraph 16(a), then Landlord shall proceed
with all due diligence, Wort receipt of all insurance proceeds due to
Landlord, to rebuild, repair and restore the Premises. in no event shall
Landlord be required to rebuild, repair, or replace any part of the
partitions, fixtures, additions or other property and improvements which may
have been placed in or about the Premises by Tenant If this Lease shall not
be terminated by Landlord pursuant to this Paragraph 16(a) and if the
Premises arc unfit for occupancy in whole or in part following such
Casualty, the rent payable during the period in which the Premises are unfit
for occupancy shall abate in proportion to the percentage of the rentable
area of the Premises rendered unusable by such Casualty; provided, however,
that no such abatement shall be made in the event such Casualty shall have
been caused through the negligence or willful misconduct of Tenant its
agents, employees, contractors, invitees licensees, tenants, or assignees.
If any such Casualty occurs, Landlord shall not be liable to Tenant for
inconvenience, annoyance, loss of profits, expenses, or any other type of
injury or damage resulting from the repair of any such Casualty, or from any
repair, modification, arranging, or rearranging of any portion of the
Premises or any part or all of the Building or for termination of this Lease
as provided in this Paragraph 16(a).
<PAGE>
Notwithstanding any language contained in this Lease to the contrary,
Landlord's obligations to repair and restore such damage shall be limited to
the amount of insurance proceeds made available to Landlord for such repair
and restoration (after any right of any mortgagee to said proceeds);
provided, that if, in Landlords reasonable judgment, the amount of such
insurance proceeds is not sufficient to materially restore the Premises and
the Building (except for any improvements, fixtures, finishes, or personalty
that may have bow placed in or about the Premises by Tenant), Landlord shall
have the right to terminate this Lease as of the date of such Casualty and
the Lease Term shall end as of such date. In the event of any Casualty
during the final year of the Lease Term of do Lease, Landlord, at Landlords
sole option, shall have the right to terminate this Lease as of the date of
such Casualty and the Lease Term shall end as of such date.
(b) If all of the Premises should be taken for any public or quasi-public
use under governmental law, ordinance, or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, and the taking would
prevent or materially interfere with the use of the Premises for the purpose
for which it is then being used, this Lease shall, at either Landlord's or
Tenant's option, terminate effective as of the date of such actual physical
taking. If part of the Premises is taken for any public or quasi-public use
under any governmental law, ordinance, or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, or if any part of the
Building is so taken and Landlord elects to demolish, substantially alter,
or cease operation of the Building, then, in other such case, Landlord shall
have the right to terminate this Lease effective as of the date of such
actual physical taking in the event that this Lease is not terminated as
provided above in this Paragraph 16(b), the rent payable hereunder during
the; unexpired portion of this Lease shall be reduced in proportion to the
percentage of the rentable area of the Premises rendered unusable by such
taking and Landlord shall undertake materially to restore the Premises.
Landlord or Tenant, as the case may be, shall exercise its right to
terminare this Lease provided above in this Paragraph 16(b) by written notice
to the other party within thirty (30) days of the date of such actual
physical taking. Notwithstanding any language contained in this Lease to the
contrary, Landlord's obligation to materially restore the Premises shall be
limited to the amount of condemnation proceeds made available to the
Landlord for such restoration and repair (after any right of any mortgagee
to said proceeds); provided, that if, in Landlord's reasonable judgment, the
amount of such proceeds is not sufficient to materially restore the Premises
and the Building (except for any improvements, fixtures, finishes, or
personally that may have been placed in or about the Premises by Tenant),
Landlord shall have the right to terminate this Lease effective as of the date
of such actual physical taking. Tenant shall not share in any condemnation
award or payment in lieu thereof or in any award for damages resulting from
any grade change of adjacent streets, the same being hereby assigned to
Landlord by Tenant; however, Tenant may separately clam and receive from the
condemning authority (but not from Landlord), if legally payable,
compensation for Tenant's removal and relocation costs and for Tenant's loss
of business and/or business interruption, provided that such clam and
recovery shall in no way diminish Landlord's recovery.
Notwithstanding anything to the contrary contained in this Paragraph 16(b),
if during the Term the use or occupancy of any part of the Building or
Premises shall be taken or appropriated temporarily for any public or
quasi-public use under any governmental law, ordinance, or regulation, or by
right of eminent domain, or by private agreement in lieu thereof, this Lease
shall be and remain unaffected by such taking or appropriation and Tenant
shall continue to pay in full all rent payable hereunder by Tenant during
the term of this Lease or private agreement in lieu thereof, in the event of
any such temporary appropriation or taking, Tenant shall be entitled to
receive that portion of any reward which represents compensation for the
loss of use or occupancy of the Premises during the term of this Lease, and
Landlord shall be entitled to receive that portion of any award which
represents the cost of restoration and compensatiuon for the loss of use or
occupancy of the Premises after the end of1he term of this Lease and of the
Building.
17. INSURANCE
(a) Tenant shall carry fire and extended coverage insurance insuring its
interest in the tenant improvements, and property placed in or about the
Premises, and any and all furniture, equipment, supplies, and other property
contained therein, such insurance coverage to be in the full replacement
value thereof, with reasonable deductible amounts.
<PAGE>
(b) Tenant also agrees to carry a policy or policies of worker's
compensation and comprehensive general liability insurance, including
personal injury and property damage, with contractual liability
endorsement, in the amount of Two Million Dollars ($2,000,000) for property
damage and Five Million Dollars ($5,000,000) per occurrence for personal
injuries or deaths of persons occurring in or about the Premises.
(c) Said insurance policies as described in the foregoing subparagraphs
17(a) and 17(b) shall; (i) name Landlord and Landlord's agent as an insured
and insure Landlords and Landlord's agents contingent liability under this
Lease (except for the worker's compensation policy, which shall instead include
a waiver of subrogation endorsement in favor of Landlord), (ii) be issued by
an insurance company which is reasonably acceptable to Landlord and licensed to
business in the State of Georgia, (iii) provide that said insurance shall
not be cancelled or amended unless thirty (30) days prior written notice shall
have been given to Landlord, and (iv) provide that the insurance company
issuing such policy waives all rights of subrogation against Landlord. Said
policy or policies, or certificates thereof, shall be delivered to Landlord by
Tenant upon commencement of the term of the Lease and upon each renewal of said
insurance. Tenant hereby waives any right of recovery against Landlord for
loss or injury to the extent Tenant would have been protected by the insurance
required to be maintained by Tenant under the terms of this Lease.
18. RULES AND REGULATIONS
The rules and regulations set forth in the attached Exhibit D, incorporated
herein by this reference, shall be and are hereby made a part of this Lease.
Tenant, its employees, and agents, will perform and abide by said rules and
regulations, and any amendments or additions to said rules and regulations
as may be made from time to time by Landlord.
19. USUFRUCT ONLY
This contract shall create the relationship of Landlord and Tenant between
Landlord and Tenant, no estate shall pass out of Landlord, Tenant has only a
usufruct, not subject to levy and sale.
20. WAIVER
The waiver by Landlord of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of any other term,
covenant or any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of Base Rental, or
additional rent or other sums due hereunder by Landlord shall not be deemed
to be a waiver of any preceding breach by Tenant of any term, covenant or
condition of do Lease, regardless of Landlords knowledge of such preceding
breach at the time of acceptance of such payment no covenant, term or
condition of this Lease shall be deemed to have been waived by Landlord,
unless such waiver be in writing by Landlord.
21. ENTIRE AGREEMENT
This Lease, sets forth all the covenants, promises, agreements, conditions
and undertakings between Landlord and Tenant concerning the Premises and
there am no covenants, promises, agreements, other than are herein set
forth. No subsequent alteration, amendment, change or addition to this Lease
except as to changes or additions to the Rules and Regulations, shall be
binding upon Landlord or Tenant unless reduced to writing and signed by
authorized representatives.
22. LANDLORD'S CONSENT
In every instance herein in which the Landlord is called upon to give as
consent; such consent may be withheld at Landlord's sole discretion, or if
granted, may subject to those conditions which Landlord deems appropriate.
<PAGE>
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seal,
the day and year first above written
LANDLORD:
CIGNA Real Estate Fund T, Limited Partnership
By: /s/Stephen J. Olstein
Its: Managing Director
Attest:/s/Nora A. Lees
Its: Admin. Asst.
TENANT:
Lakota Energy, Inc.
By: /s/Ken Honeyman
Its: President
Attest: /s/Howard Wilson
Its: Secretary
<PAGE>
EXHIBIT A
(Floor Plan)
[DIAGRAM] DRAWING OF THE FLOOR PLAN
<PAGE>
EXHIBIT B
(Legal Description)
TO FIND THE POINT OF BEGINNING, commence at the intersection of the
southerly right-of-way line of Mount Wilkinson Parkway, (right-of-way varies)
and the southeasterly right-of-way line of Cumberland Club Drive (a 50-foot
right-of-way) (hereinafter "Point A"); thence in a southwesterly direction
along said southeasterly right-of-way line of Cumberland Club Drive, a
distance of 509.12 feet to a nail and the POINT OF BEGINNING (the Point of
Beginning being located 488.97 feet from Point "A" as measured from Point
"A" on a line bearing South 04 19' 09" West); thence North 76 15' 21" East,
a distance of 764.12 feet to a pin; thence South 02 52' 08" East a distance
of 308.43 feet, to an iron pin; thence South 34 45' 21" West, a distance of
227.00 feet to an iron pin; thence South 33 50' 05" West, a distance of
109.22 feet, to a p.k. nail; thence North 54 33' 50" West a distance of
622.12 feet to an iron pin on said southeasterly right-of-way line of
Cumberland Club Drive North 30 19' 36" East, a distance of 72.00 feet to a
nail and the POINT OF BEGINNING; such tract being 6.25 acres of land as
shown on that certain as-built survey, to Which reference is hereby made,
prepared by Planners and Engineers Collaborative for CIGNA Red Estate Fund T
Limited Partnership, bearing the certification of Robert Lee White, G.
R.L.S., No. 2080, dated January 6, 1982, and last revised December 23, 1987.
<PAGE>
EXHIBIT C
(Plans and Specifications)
The following specifications shall be inrluded within the $3,600 allawanoe
as provided in Paragraph 40B herein.
Recarpet, install rubber base molding, and repaint entire premises as follows:
Carpet: Shaw -Cypress Point IV 30-36 oz carpet, #85860 "Caberet"
Paint Porter Paints #6739-1 (Flat finish throughout with semi-gloss on all door
frames).
Base: Roppe - #76: "Mauve"
In addition to the $3,600 Improvement allowance, Landlord at its cost and
expense, shall:
(a) construction of the demising wall between Suite 710 (premises) and
Suite 700,
(b) remove walls "A" and "B" as shown below on, this Exhibit C.
[DIAGRAM] DRAWING OF FLOOR PLAN
<PAGE>
11. Neither Tenant, nor any of Tenant's savants, employees, agents,visitors, or
licensees, shall at any time bring or keep upon the Premises any inflammable,
combustible or explosive fluid, or chemical substance, other than reasonable
amounts of cleaning fluids or solvents required in the normal operation of
Tenant's business offices.
12. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by Tenant, nor shall any changes be made in existing
locks or the mechanism thereof, without the prior written approval of
Landlord and unless and until a duplicate key is delivered to Landlord.
Tenant shall upon the termination of its tenancy, restore to Landlord all keys
of stores, offices and toilet rooms, either furnished to, or otherwise
procured by, Tenant, and in the event of the loss of any keys so furnished,
Tenant shall pay to Landlord the cost thereof.
13. Tenant shall not overload any floor Tenant shall obtain Landlord's
consent before bringing any safes, freight, furniture, or bulky articles into
the Building and Landlord can specify to Tenant the location for the
placement of such articles. All removals, or the carrying in our out of any
safes, freight, furniture, or bulky matter of any description must take place
during the hours which Landlord or its agent may determine from time to time.
Landlord reserves the right to inspect all freight to be brought into the
Building and to exclude from the Building all freight which violates any of
these Rules and Regulations or the Lease of which these Rules and Regulations
are a part.
14. Tenant shall not occupy or permit any portion of the Premises to be
occupied, without Landlords expressed prior written consent, as an office for
a public stenographer or typist, for the possession, storage, manufacture
or sale of liquor, narcotics, dope, tobacco in any form, or as a barber or
manicure shop, or as a public employment bureau or agency, or for a public
finance (personal loan) business. Tenant shall not advertise: for
laborers giving an address at the Building.
15. Landlord agrees to employ such janitorial contractor as Landlord may
from time to tune designate, for any waxing, polishing, and other maintenance
work of the Premises and of the Tenant's furniture, fixtures and equipment
Tenant agrees that it shall not employ any other cleaning and maintenance
contractor, nor any individual, firm or organization for such purpose without
Landlords prior written consent
16. Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlords opinion, tends to impair the reputation of the Building or
its desirability as a budding for offices, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
17. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
18. The requirements Of Tenant will be attended to only upon application
in writing to Landlord. Building employees shall not perform any work or do
anything outside of their regular duties, unless under special instructions
from the office of Landlord.
19. Canvassing, soliciting of other Tenants, and peddling in the
Building are prohibited and Tenant shall cooperate to prevent the same.
20. There shall not be used in any space, or in the public halls of any
building, either by Tenant or by its jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber
tires and side guards.
21. Tenant shall not remove any standard blinds which may be installed
in the Premises by Landlord.
<PAGE>
22. All paneling, grounds or other wood products not considered furniture shall
be of fire retardant materials. Before installation of any such materials,
certification of the materials fire retardant characteristics shall not
be submitted to Landlord or its agents, in a man= satisfactory to Landlord.
23. Tenant shall not install any vending machines in the Building or
Premises without Landlord's consent.
24. Tenant shall comply with the terms and conditions of all restrictive
covenants now or hereafter affecting title to the Premises.
25. Tenant shall not permit in or on the Premises any auction, tag,
sheriffs receiver's, bankruptcy, moving, relocation or "going out of business"
sale, flammable or explosive fluids or chemicals, nuisance, objectionable
noise, vibration or odor, cooking, coin operated or other vending machine,
public telephone or amusement device.
Whenever the above rules conflict with any of the rights or obligations of
Tenant pursuant to the provisions of the Paragraphs of the Lease, the
provisions of the Paragraphs shall govern.
<PAGE>
EXHIBIT "E"
SPECIAL STIPULATIONS
Insofar as the following Special Stipulations conflict with any of the
foregoing provisions, the following shall control:
Addendum to Overlook I Lease Agreement and between CIGNA Real Estate Fund T
Limited Partnership, as Landlord, and Lakota Energy, Inc. , as Tenant.
38. RENTAL:
In further reference to Paragraph 5, Tenant agrees to pay Landlord as Base
Rental for the Leased Premises:
RENTAL SCHEDULE:
Per Square Foot
Months (Annual) S.F. Monthly Yearly
1-12 $19.50 1,278 $2,076.75 $24,921.00
13-24 $20.28 1,278 $2,159.82 $25,917.94
25-36 $21.09 1,278 $2,246.21 $26,954.55
without deduction or setoff, in advance on the first day of each month
throughout the term of the lease.
39. AGENCY DISCLOSURE:
The parties hereto acknowledge and agree that Carr Real Estate Services,
Inc., is acting as agent for Lessor in connection with the transaction
described above and is to be paid a commission by Lessor.
Curt Bennett & Company has acted as agent for the Lessee in this transaction
and is to be paid a commission by the Lessor.
40. IMPROVEMENTS:
A. Final Plans - The approved plans are attached hereto as Exhibit C
("Plans & Specifications") and are hereby incorporated into this Lease.
B. Improvements- Lessor shall construct the tenant improvements (the
"Improvements") in accordance with the Plans & Specifications as provided
in paragraph 40A. Notwithstanding the foregoing, in no event will Lessor's
obligation hereunder to construct the Improvements exceed Three Thousand Six
Hundred and 00/100 ($3,600.00), (the "Improvements Allowance"). Lessee shall
be responsible for the costs of Improvements winch exceed the Improvements
Allowance.
C. Change - If Lessee desires to make any changes to the Final Plans,
Lessee shall request said change in writing to Lessor. If the requested change
is approved by Lessor, and if said change should increase the time required to
construct the Improvements, then Lessor's time to complete the Improvements to
the Premises shall be extended by the number of additional days required
because of said change. Any changes winch increase the cost above the
Improvements Allowance shall be at Lessees expense and Lessee shall pay to
Lessor within thirty (30) days after receipt of notice.
<PAGE>
D. Alterations - Notwithstanding anything contained in this Lease to the
contrary, Lessee shall not make any additions, alterations, improvements or
other modifications (collectively,"Alterations"), without the prior writren
consent of Lessor, which shall not be unreasonably withheld or delayed, except
for the installation of unattached, movable trade fixtures which may
be installed without drilling, cutting or otherwise defacing the leased
premises. Any approval by Lessor of or consent by Lessor to any plans,
specifications or other items to be submitted to and/or reviewed by Lessor
pursuant to this Lease shall be deemed to be strictly limited to an
acknowledgment of approval or consent by Lessor thereto and, whether or not
the work is performed by Lessor or by Lessee's contractor, such approval or
consent shall not constitute the assumption by Lessor or any responsibility
for the accuracy, sufficiency or feasibility of any plans, specifications or
other such hems and shall not imply any acknowledgment, representation or
warranty by Lessor that the design is safe, feasible, structurally sound or
will comply with any legal or governmental requirements, and Lessee shall be
responsible for all of the same. Lessee agrees to pay Lessor, upon demand as
additional rent, a fee for construction management in an amount equal to five
percent (5%) of the total cost of the Alterations, (if Alterations exceed
$10,000, excluding the "Initial Alterations" as provided in Paragraph 40B),
whether or not the work is performed by Lessor or by Lessee's contractor. No
alterations shall lessen the value of the Premises or cause expense to Lessor
at the termination of this Lease. In no event shall any work be done for
Lessor's account or in any way which would allow a lien to be placed against
the Premises; any such hen shall create a default of Lessee under this Lease if
not removed or lawfully bonded within ten (10) calendar days following
Lessor's discovery thereof All alterations made in or upon Premises, either by
Lessee or Lessor, shall be Lessor's property and shall remain upon Premises at
the termination of this Lease without compensation to Lessee.
<PAGE>
EXHIBIT "F"
Mr. Ken Honeyman
Lakota Energy, Inc.
2849 Paces Ferry Road
Suite 710
Atlanta, Georgia 30339
RE: Base Rental Schedule - Lease between Lakota Energy, Inc. as Lessee,
and CIGNA Real Estate Fund I Limited Partnership, by CIGNA Investments,
Inc., as Lessor, for the Premises located at 2849 Paces Ferry Road, Suite
710, Atlanta, Georgia 30339.
Dear Ken:
The Lease Commencement Date for the Lease Agreement dated December 17, 1996
between CIGNA Real Estate Fund T Limited Partnership, by CIGNA Investments,
Inc., as Lessor, and Lakota Energy, Inc., as Lessee, for the Premises
located at 2849 Paces Ferry Road, Suite 710, Atlanta, Georgia 30339 is
January 15, 1997, with an expiration date of January 14, 2000.
RENTAL SCHEDULE:
Per Square Foot
Months (Annual) S.F. Monthly Yearly
1-12 $19.50 1,278 $2,076.75 $24,921.00
13-24 $20.28 1,278 $2,159.82 $25,917.84
25-36 $21.09 1,278 $2,246.21 $26,954.55
Please acknowledge your acceptance of the above by signing below and
returning this letter to me. We look forward to having Lakota Energy, Inc.
as a tenant at Overlook I. Please do not hesitate to call if we can be of
assistance.
Sincerely,
Grace Wilson
General Manager
GW/lh
Agreed to this 17th day of December, 1996.
/s/ Ken Honeyman
Signature
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement"), effective as of June 1,
1999, between 2-Infinity.com, Inc., a Texas corporation (the
"Company"), and Majed Jalali ("Executive").
WITNESSETH:
WHEREAS, the Company is desirous of employing Executive, and
Executive is desirous of being employed by the Company, on the terms
and subject to the conditions sets forth in this Agreement:
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. The following terms shall have the
indicated meanings when used in this Agreement, unless the context
requires otherwise:
(a) "Base Salary Amount" shall mean $96,000.00 during the
Initial Period and during the first, second, and third Contract Years.
(b) "Benefit Plan" shall mean each vacation pay, sick
pay, retirement, welfare, medical, dental, disability, life
insurance or other employee benefit plan, program or arrangement.
In addition, at the sole discretion of the Board of Directors,
benefit plan may also include one or more of the following:
incentive compensation, bonus, stock option and restricted stock
plan, program or arrangement.
(c) "Board of Directors" and " Board" shall mean the
board of directors of the Company.
(d) "Cause" shall mean (i) the conviction of Executive of
a felony which can reasonably be expected to have a material adverse
impact on the Company's business or reputation or (ii) the
commission by Executive of an act of fraud or embezzlement involving
assets of the Company or its customers, suppliers or affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been
delivered to Executive all of the following; (a) a copy of a
resolution, duly adopted by the affirmative vote of not less than a
majority of the entire non-interested membership of the Board of
Directors at a meeting which the Board of Directors called and held
for the purpose of determining whether Cause exists (after
reasonable notice to Executive and opportunity for him, together
with his counsel, to be heard before the Board of Directors),
finding that, in the good faith opinion of the Board of Directors,
Executive was guilty of the conduct set forth in this Section and
specifying the particulars thereof in detail, (b) an affidavit sworn
to by the President or Secretary of the Company stating that such
resolution was in fact adopted by the affirmative vote of not less
than a majority of the entire non-interested membership of the Board
and Directors.
<PAGE>
(e) "Chairman of The Board" shall mean the Chairman of
the Board of Directors of the Company, as determined from time to
time by the Board of Directors.
(f) "Contract Year" shall mean each year during the term
hereof commencing on June 1 and ending on the immediately following
May 31.
(g) "Date of Termination" shall mean (A) if termination
of employment occurs by reason of death, the date of Executive's
death or (B) if termination of employment occurs for any other
reason, the date on which a Notice of Termination is delivered to
the other party; provided, however, that if, within 60 days after
any Notice of Termination is given, the party receiving such Notice
of Termination notifies the other party that a dispute exists
concerning the termination of employment, then the Date of
Termination shall be the date of the Notice unless such dispute is
otherwise determined by mutual agreement or court order in favor of
Executive, in which case the Date of Termination shall be the date
on which the dispute is finally determined, either by mutual written
agreement of the parties or by a final judgment, order or decree of
a court of competent jurisdiction ( the time for appeal therefrom
having expired and no appeal having been perfected).
(h) "Good Reason" shall mean (i) as to Executive (A) a
diminution in Executive's titles, responsibilities and/or duties,
(B) a change in the person or persons to whom Executive reports,
except as provided in Section 4(a), (C) a reassignment of Executive
to a location which increases Executive's commute from his existing
home by more than 100 miles on a daily round trip basis, (D) an
assignment of Executive to a location other than the principal
executive office of the Company, (E) the Company's failure to
continue or a substantial change in Executive's participation in any
Benefit Plans (subject to the Board's right to amend, modify or
terminate such plans), (F) the Company's failure to obtain the
agreement of any successor of the Company to assume this Agreement,
(G) any material breach of this Agreement by the Company which is
either not capable of correction or which in fact is not corrected
within (10) ten days after written notice by Executive specifying
such breach and (H) the failure to occur of any of the actions
discussed in Section 4(c); and (ii) as to the Company, the good
faith determination by a majority of the entire membership of the
Board of Directors that Executive has failed to perform his duties
as directed.
(i) "Initial Period" shall mean that portion of the term
hereof from the date of this Agreement through May 31, 1999.
(j) "Notice of Termination" shall mean a written notice
which shall indicate the specific provision in this Agreement relied
upon in connection with a termination of employment and which shall
set forth in reasonable detail the facts and circumstances claimed
to provide a basis for such termination under the provision so
indicated.
(k) "Performance Bonus" shall have the meaning ascribed
to that term in Section 6(b).
(l) "Severance Payments" shall mean any severance
payments made or to be made to Executive pursuant to any provision
of Section 7 below.
<PAGE>
2. EMPLOYMENT. The Company hereby employs Executive,
and Executive hereby accepts employment with the Company, on the
terms and subject to the conditions set forth herein.
3. TERM OF EMPLOYMENT. The term of employment hereunder
shall be for the Initial Period and thereafter for a period of three
(3) years, the term hereof therefore commencing on the date hereof
and ending on May 31, 2002, subject to earlier termination as herein
provided. During the Initial Period, Executive shall be employed by
Company upon the same terms, compensation and benefits as provided
hereunder, pro-rated to cover such period. During the 90-day period
immediately preceding the end of the third Contract Year, the
Company and Executive shall negotiate, in good faith, the terms and
conditions of a two year extension to this Agreement upon terms and
conditions no less favorable to Executive than the terms and
conditions applicable during the third Contract year; provided,
however, that the foregoing obligation to negotiate in good faith
shall not apply in the event that either the Company or Executive
gives written notice to the other during such 90-day period of its
or his desire to have this Agreement terminated at the end of the
initial three (3) year term. In no event shall this Agreement be
extended beyond the initial three-year term without the written
agreement of Company and Executive.
4. POSITION AND DUTIES.
(a) Executive shall serve as the President and Chief
Executive Officer of the Company, reporting only to the Board of
Directors. Subject to the authority of the Board of Directors,
Executive shall have supervision and control over, and
responsibility for, the general management and operation of the
Company and shall have such other powers and duties as may from time
to time be prescribed by the Board of Directors, provided that such
duties are reasonable and customary for a president and chief
executive officer. Executive shall devote his entire working time,
attention and energies to the business of the Company.
(b) Anything herein to the contrary notwithstanding,
nothing shall preclude the Executive from (i) serving the boards of
directors of a reasonable number of other corporations, or the
boards of a reasonable number of trade associations and/or
charitable organizations, (ii) engaging in charitable activities and
community affairs, and (iii) managing his personal, investments and
affairs, provided that such activities do not materially interfere
with the proper performance of his duties and responsibilities as
the Company's President and Chief Executive Officer.
(c) Executive shall serve on the Board of Directors
during the entire term hereof. If, at any time during the term of
his employment, the shareholders of the Company shall fail to elect
Executive to the Board of Directors, or the Board of Directors shall
fail to elect Executive to the office of President or Chief
Executive Officer of the Company, or shall remove him from either of
such offices, other than as provided for in this Agreement,
Executive shall have the right to terminate his services hereunder
for Good Reason pursuant to Section 7(d) and Executive shall have no
further obligation under this Agreement.
(d) Executive agrees to serve without additional
compensation, if elected or appointed thereto, in one or more
offices or as a director of any of the Company's subsidiaries;
<PAGE>
provided, however, that Executive shall not be required to serve as
an officer or director of any such subsidiary if such service would
expose him to potential adverse financial consequences.
5. PLACE OF PERFORMANCE.
In connection with his employment by the Company, Executive
shall be based at the Company's principal executive offices located
in Houston, Texas. In the event that Executive consents to any
relocation requested by the Company, the Company will promptly pay
or reimburse Executive for all reasonable moving expenses incurred
by Executive relating to a change of his principal residence.
6. COMPENSATION AND OTHER BENEFITS.
(a) BASE SALARY. During each Contract Year of the term
hereof, the Company shall pay to Executive the Base Salary Amount.
The Company shall compensate Executive for the Initial Period as
provided herein in Section 3 hereof. The Base Salary Amount shall
be paid to Executive in accordance with the Company's regular
payroll practices with respect to senior management compensation.
(b) ANNUAL PERFORMANCE BONUSES. In addition to the Base
Salary set forth above, within thirty (30) days of the end of the
Company's fiscal year (or as soon thereafter as is reasonably
possible) the Company shall pay to Executive a cash bonus equal to
four percent (4%) of the net income of the Company for the fiscal
year then ended as reported by the Company's accountants in
accordance with generally accepted accounting principles.
(c) EXPENSES. Executive shall be entitled to receive
prompt reimbursement for all documented business expenses incurred
by him in the performance of his duties hereunder, provided that
Executive properly accounts therefor in accordance with the
Company's reimbursement policy and practices of the Company as of
the date hereof.
(d) FRINGE BENEFITS. Executive shall be entitled to
participate in and receive benefits under all of the Company's
Benefit Plans or programs generally available to senior management
of the Company, including, but not limited to any retirement, stock
option plans, disability insurance plans and all other plans or
programs. Nothing paid to Executive under any Benefit Plan
presently in effect or made available in the future shall be deemed
to be in lieu of compensation payable to Executive hereunder.
Further the Company reserves the right to amend, modify or terminate
any and all such plans.
(e) LIFE INSURANCE. So long as Executive is insurable,
the Company agrees to maintain in effect during the term hereof
insurance on Executive's life payable to his estate or his named
beneficiary or beneficiaries in an amount not less than three (3)
times the Base Salary Amount. The ownership of such Insurance Policy
may, at the sole discretion of the Executive, be transferred to a
Trust for the benefit of his spouse or family.
<PAGE>
(f) VACATIONS. During the term hereof, Executive shall
be entitled to sick leave and paid holidays consistent with the
Company's sick leave and holiday policy for senior management and up
to four (4) weeks paid vacation during each Contract Year as
Executive deems reasonable. Any vacation time that is not taken in
a given Contract Year shall be carried forward to the following
Contract Year or Contract Years, as the case may be but in no event
more than one (1) week of vacation per year nor an accumulation of
more than five (5) weeks.
7. TERMINATION OF SERVICE.
(a) TERMINATION UPON DEATH. Executive's employment
hereunder shall terminate upon his death, in which event the Company
shall pay to such person as the Executive shall have designated in a
written notice filed with the Company, or if no such person shall
have been designated to his estate, as a lump sum death benefit an
amount equal to Performance Bonuses accrued through the Date of
Termination and all Base Salary Amounts, amounts due under Benefit
Plans and perquisites through the Date of Termination.
(b) TERMINATION UPON DISABILITY. If, as a result of a
permanent mental or physical disability, Executive shall have been
absent from his duties hereunder on a full-time basis for six (6)
consecutive months, ("Disability") and, within 30 days after the
Company notifies Executive in writing that it intends to replace
him, (which notice can be given at the end of the fifth month during
such six month period), Executive shall not have returned to the
performance of his duties on a full-time basis, the Company shall be
entitled to terminate Executive's employment. In addition,
executive shall, upon his Disability, have the right to terminate
his employment with Company. If such employment if terminated
(whether by the Company or by Executive) as a result of Executive's
Disability, the following shall apply:
(i) the Company shall pay Executive an amount equal to Performance Bonuses
and Base Salary Amount accrued through the Date of Termination;
(ii) the Company shall maintain in full force and effect, for the continued
benefit of Executive during the one-year period immediately following the Date
of Termination, all Benefit Plans in which Executive was entitled to
participate immediately prior to the Date of Termination to the extent
that Executive's continued participation is possible under the general
terms and conditions of such Benefit Plans. In the event that Executive's
participation in any such Benefit Plan is barred as a result of his
Disability, Executive shall be entitled to receive an amount equal
to the annual contributions, payments, credit or allocations which
would have been made by the Company to him, to his account or on his
behalf under such Benefit Plan from which his continued
participation is barred;
(iii) the Company shall maintain in full force and effect, for the continued
benefit of Executive's estate or dependents during the one-year period
immediately following the Date of Termination, any life, accident, disability
or health and dental insurance plans, vision care plans and any other similar
welfare plans of the Company in effect immediately prior to the Date of
Termination, or the Company shall provide equivalent benefits at no
cost to Executive's estate or his dependents.
<PAGE>
(c) TERMINATION FOR CAUSE. The Company shall be entitled
to terminate Executive's employment for Cause, in which event
Executive shall be entitled to all Base Salary amounts, amounts
under Benefit Plans and perquisites through the Date of Termination.
(d) TERMINATION FOR GOOD REASON. Executive shall be
entitled to terminate Executive's employment for Good Reason at any
time and the Company shall be entitled to terminate Executive's
Employment for Good Reason at any time after the end of the first
Contract Year. Upon the termination of Executive's employment by
Company for Good Reason after completion of the first Contract Year,
Executive shall be entitled to receive from the Company (i) a lump
sum payment in an amount equal to his Base Salary Amount and amounts
under Benefit Plans for the two-year period immediately following
the Date of Termination; plus (ii) an amount equal to Performance
Bonuses accrued through the Date of Termination and all Base Salary
Amounts, amounts under the Benefit Plans and perquisites through the
Date of Termination, all of which shall be payable by Company within
thirty (30) days after termination. Upon the termination of
Executive's employment by Executive for Good Reason all of the
aforesaid compensation, bonuses and benefits shall be paid to
Executive by the Company over the two-year period following the date
of termination.
(e) NOTICE OF TERMINATION. any termination of Executive's employment by
the Company or Executive pursuant to Sections 7(b), 7(c), or 7(d) shall
be communicated by a Notice of Termination to the other party.
(f) NO MITIGATION. Executive shall not be required to
mitigate the amount of any payment provided for in this Section 7 by
seeking other employment or otherwise, nor will the amount of
damages or severance benefits payable to Executive under this
Section 7 be reduced by reason of his securing other employment or
for any reason.
8. INDEMNIFICATION. The Company shall indemnify and defend Executive to the
fullest extent permitted under Texas Law and in accordance with the terms and
conditions of the Company Bylaws. This includes, but is not limited to, a duty
to indemnify Executive if he is made, or threatened to be made, a party to an
action or proceeding, to the fullest extent permitted by applicable law,
including an action by or in the right of the Company to procure a
judgment in its favor, by reason of the fact that Employee is or was
an officer, director or employee of the Company (or any of its
subsidiaries), against all costs and expenses resulting from or
related to such action or proceeding, or any appeal thereof, if
Executive acted in good faith for a purpose which he reasonably
believed to be in the best interests of the Company. The
termination of any such action or proceeding by judgment,
settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create the presumption that
Executive did not act in good faith for a purpose which he
reasonably believed to be in the best interest of the Company. As
used in this Section, (i) "cost and expenses" means any and all
costs, expenses and liabilities incurred by Executive, including but
not limited to (A) attorneys' fees, (B) amounts paid in settlement
of, or in the satisfaction of any order or judgment in, any action
or proceeding and (C) fines, penalties and assessment asserted or
adjudged in any action or proceeding, and (ii) "action or
proceeding" means any and all suits, claims, actions, investigations
or proceedings whether civil, criminal or administrative, heretofore
or hereafter instituted or asserted.
<PAGE>
9. GENERAL PROVISIONS.
(a) NOTICES. All notices, demands and other communications hereunder shall
be in writing and shall be given or made (and shall be deemed to have been
duly given or made upon receipt) by delivery in person, by overnight courier
service, by telecopy or by registered or certified mail to the respective
parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with in
Section):
a. If to the Company:
2-Infinity.com, Inc.
c/o Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
Attn: Board of Directors
Facsimile (770) 433-8260
with a copy to:
Law Offices of M. Richard Cutler
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: Brian A. Lebrecht, Esq.
Facsimile (949) 719-1988
b. If to Executive:
Majed Jalali
4828 Loop Central Drive, Suite 150
Houston, Texas 77081
Facsimile (713) 592-0378
(c) HEADINGS. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
(d) SUCCESSORS; BINDING AGREEMENT.
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by agreement in form and substance
satisfactory to Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
<PAGE>
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle
Executive to compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder if the Company terminated his
employment in the manner contemplated in Section 7(d), except that for purposes
of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(ii) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heir, devisees, legatees, executors,
administrators, successors and personal or legal representatives.
If Executive should die while any amounts would still be payable to him
hereunder if he had continued to live, all such amounts, unless otherwise
provided herein shall be paid in accordance with the terms of this Agreement
to Executive's designee or, if there be no terms of this Agreement
to the Executive's heir, devisees, legatees or executors or
administrators of Executive's estate, as appropriate.
(e) SEVERABILITY. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under existing or
future laws effective during the term of this Agreement, such
provisions shall be fully severable, the Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of this Agreement, and the
remaining provisions of this Agreement shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid
or unenforceable provision as may be possible and be legal, valid
and enforceable.
(f) ENTIRE AGREEMENT. Except for the relevant provisions
of the Reorganization Agreement referenced above, this Agreement
constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof and thereof and supersedes all prior
agreements and understandings both written and oral, between the
Company and the Executive with respect to the subject matter hereof
and thereof.
(g) ASSIGNMENT. This Agreement and the rights and duties
hereunder may not be assigned or assumed by operation of law of
otherwise without the express written consent of the Company and the
Executive (which consent may be granted or withheld in the sole
discretion of the Company or the Executive, as applicable).
(h) AMENDMENT; WAIVER. This Agreement may not be amended
or modified except by an instrument in writing signed by, or on
behalf of, the Company and Executive. Either party to this
Agreement may (a) extend the time for the performance of any of the
obligations or other acts of the other party or (b) waive compliance
with any of the agreements or conditions of the other party
contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party to be
bound thereby. Any waiver of any term or condition shall not be
construed as a waiver of any subsequent breach or a subsequent
waiver or the same term
<PAGE>
or condition, or a waiver of any other term or condition, of this Agreement.
The failure of any party to assert any of its rights hereunder shall not
constitute a waiver of any such rights.
(i) GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Texas,
applicable to contracts executed in and to be performed entirely
within the state.
(j) JURISDICTION AND VENUE. The parties agree that all
actions or proceedings initiated by any party hereto and arising
directly or indirectly out of this Agreements which are brought
pursuant to judicial proceedings shall be litigated in the District
Court of Harris County, Texas. The parties hereto expressly submit
and consent in advance to such jurisdiction and agree that service
of summons and complaint or other process or paper may be made by
registered or certified mail addressed to the relevant party at the
address to which notices are to be sent pursuant to Section 9(a).
(k) ATTORNEYS' FEES. If any legal action or other
proceeding is brought for the enforcement of this Agreement, the
prevailing party shall be entitled to recover reasonable attorney's
fees and other costs incurred in that action or proceeding, in
addition to any other relief to which he or it may be entitled.
(l) COUNTERPARTS. This Agreement may be executed in one
or more counterparts, and by the parties hereto in separate
counterparts, each of which when executed shall be deemed to be an
original while all of which taken together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the Company and Executive have executed
this Agreement as of the date and year first written above.
2-Infinity.com, Inc.
a Texas corporation
/s/R.K. Honeyman /s/Majed Jalali
By: R.K. (Ken) Honeyman Majed Jalali
Its: Chairman
Dated: May 28, 1999 Dated: May 28, 1999
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made effective the If day of June 1999, by and
between Voice Design, Inc., a Texas corporation, with principal offices
located at 2656 South Loop West, Suite 170, Houston, Texas 77054
(hereinafter referred to as "Employer"), and Charles Downey,
Jr., a resident of Harris County, Texas (hereinafter referred to as
"Employee").
WITNESSETH:
WHEREAS, the Company desires to employ Employee as its President and
Employee is desirous of undertaking such responsibilities;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DUTIES
1.1 Duties. During the term of this Agreement, the Company agrees to employ
Employee as the Company's President and Employee agrees to serve the Company
in such capacities or in such other capacities (subject to Employee's
termination rights under section 4.2) as the Board of Directors of the
Company may direct, all upon the terms and subject to the conditions set
forth in this Agreement.
1.2 Extent of Duties. Employee shall devote substantially all of his
business time, energy and skill to the affairs of the Company as the
Company, acting through its Board of Directors, shall reasonably deem
necessary to discharge Employee's duties in such capacities. Employee with
extensive local public service may participate in social, civic, charitable,
religious, business, education or professional associations, go long as such
participation would not materially detract from Employee's ability to
perform his duties under this Agreement. Employee shall not engage in any
other business activity during the term of this Agreement without prior
written consent of the Company, other than the passive management of
Employee's personal investment or activities which would not materially
detract from Employee's ability to perform his duties under this Agreement
(such as Employee's current positions with other companies and other future
positions of a similar nature.)
ARTICLE II
TERM OF EMPLOYMENT
The term of this AGREEMENT shall commence on the effective date and continue
for a period of three (3) years, except if terminated as provided herein.
This Agreement is subject to earlier termination as hereinafter provided .
Within six months from the expiration of the term, the parties agree to meet
to negotiate an extension of the employment agreement on terms mutually
acceptable to all parties.
<PAGE>
ARTICLE III
COMPENSATION
3.1 Annual Base Compensation. As compensation for services rendered under
this Agreement, Employee shall be entitled to receive from Company an
annual base salary (before standard deductions) of no less than $75,000
during the initial term of this Agreement. Employees' annual base salary
shall be subject to review and adjustment by the Compensation Committee of
the Company on an annual basis, provided that there shall not be any
downward adjustment. Employees' annual base salary shall be payable at
regular intervals in accordance with the prevailing practice and policy of
the Company.
3.2 Incentive Bonus. As additional compensation for services rendered under
this Agreement, the Compensation Committee may, in its sole discretion and
without any obligation to do so, declare that Employee shall be entitled to
an annual incentive bonus (whether payable in cash, stock, stock rights or
other property) as the Compensation Committee shall determine. If any such
bonus is declared, the bonus shall be payable in accordance with the terms
prescribed by the Compensation Committee. Should the Company change control,
the Compensation Committee may consider a bonus to the Employee as par of a
severance package
3.3 Other Benefits. Employee shall, in addition to the compensation
provided for in. Sections 3.1 and 3.2 above, be entitled to the following
additional benefits:
a) Life Insurance. the Company shall purchase term life insurance policies
in the aggregate amount of two times the Employee's annual salary to be owned
by Employee or his designee.
b) Medical, Health and Disability Benefits. Employee shall be entitled to
receive all of the medical, health and disability benefits that may, from
time to time, be provided by the Company.
c) Vacation Pay. Employee shall be entitled to an annual vacation as
determined in accordance with the prevailing practice and policy of the
Company but in no event less than two (2) weeks per calendar year during the
initial year of employment and three (3) weeks per calendar year in years two
and three of this Agreement.
d) Holidays. Employee shall be entitled to holidays in accordance with the
prevailing practice and policy of the Company.
e) Reimbursement Of Expenses. The Company shall reimburse Employee for
all expenses reasonably incurred by Employee on behalf of the Company
including, but not limited to, entertainment expenses and cellular phone
expenses in accordance with the prevailing practice and policy of the
Company. However, Employee shall obtain pre-approval for the expenditure
of any single expense in excess of $250.
<PAGE>
ARTICLE IV
TERMINATION
4.1 Termination by the Company Without Cause. Subject to the provisions of
this Section 4.1, this Agreement may be terminated by the Company without
cause upon 30 days prior written notice thereof given to Employee. In the
event of termination pursuant to this Section 4. 1, (a) the Company shall at
the election of Employee either (x) continue to pay Employee his then
effective base salary under Section 3.1 hereof and all benefits under
Sections 3.3 hereof through the expiration of the three-year term then in
effect or (y) pay Employee, within 45 days of such termination, a lump sum
payment equal to (without discounting present value) his then aggregate
effective base salary owed under Section 3.1 hereof through the expiration
of the three-year term then in effect. Employee must make elect -lion under
clause (a) above by giving the Company written notice thereof within 3 0
days after notice of termination is given pursuant to this section 4.1. If
Employee does not make such an election within the 30-day period, he will be
deemed to have elected to receive the payment described in clause (a)(x)
above. Payment or performance by the Company in accordance with this Section
shall constitute Employee's full severance pay and the Company shall have no
further obligation to Employee arising out of such termination.
4.2 Voluntary Termination by Employee for Good Reason. Employee may at any
time voluntarily terminate his employment for "good reason" (as defined
below) upon 30 days prior written notice thereof to the Company. In the
event of such voluntary termination for "good reason", (a) the Company shall
at the election of Employee either continue to pay Employee his then
effective base salary under Section 3.1 hereof and all benefits under
Section 3.3 hereof through the expiration of the three-year term then in
effect or pay Employee, within 45 days of such termination, a lump sum
payment equal to (without discounting to present value) his then effective
base salary under Section 3.1 hereof through the expiration of the
three-year term then in effect.
Employee must make his election under clause (a) above by giving the Company
written notice thereof with 30 days after notice of termination is given
pursuant to this Section 4.2. If Employee does not make such an election
within the 30-day period, he will be deemed to have elected to receive the
lump sum payment described in clause (a)(x) above.
For purposes of this Agreement, "good reason" shall mean the occurrence of
any of the following events:
a) Removal from the office(s) Employee holds on the date of this Agreement or
a material reduction in Employee's authority or responsibility, including,
without limitation, involuntary removal from the Board of Directors, but not
including termination of Employee for "cause", as defined below; or
b) Relocation of the Company's headquarters from its current location without
the approval of Employee; or
c) An involuntary reduction in the Employee's compensation; or
d) The Company otherwise commits a material breach of this Agreement.
<PAGE>
4.3 Termination by the Company for Cause. The Company may terminate. this
Agreement at any time if such termination is for "cause" (as defined below),
by delivering to Employee written notice describing the cause of termination
30 days before the effective date of such termination and by granting
Employee at least 30 days to cure the cause. In the event the employment of
Employee is terminated for "cause", Employee shall be entitled only to the
base salary earned pro rata to the date of such termination with no
entitlement to any base salary continuation payments or benefits
continuation (except as specifically provided by the terms of an employee
benefit plan of the Company). Except as otherwise provided in this
Agreement, the determination of whether Employee shall be terminated for
"cause' shall be made by the Board of Directors of the Company, in
reasonable exercise of its business judgment, and shall be limited to the
occurrence of the following events:
a) Conviction of or plea of nolo contendere to the charge of a felony (which,
through lapse of time or otherwise, is not subject to appeal);
b) Willful refusal without proper legal cause to perform, or gross negligence
in performing, Employee's duties and responsibilities;
c) Material breach of fiduciary duty to the Company through the
misappropriation of Company funds or property; or
d) The unauthorized absence of Employee from work (other than for sick leave
or disability) for 4 period of 15 business days or more during any period of
45 business days during the term of this Agreement.
4.4 Termination Upon Death or Permanent Disability. In the event that
Employee dies, this Agreement shall terminate upon the Employee's death.
Likewise, if the Employee becomes unable to perform the essential functions
of the position, with or without reasonable accommodation, on account of
illness, disability, or other reason whatsoever for a period of more than
six consecutive or nonconsecutive months in any twelve month period, this
Agreement shall terminate effective upon such incapacity, and Employee (or
his legal representatives/trust) shall be entitled only to the base salary
earned pro rata to the date of such termination with no entitlement to any
base salary continuation payments or benefits continuation (except as
specifically provided by the terms of an employee benefit plan of the Company.
4.5 Voluntary Termination by Employee. Employee may terminate this Agreement
at any time upon delivering 30 days wri en notice of resignation to the
Company. In the event of such voluntary termination other than for "good
reason" (as defined above), Employee shall be entitled to his base salary
earned pro fata to the date of his resignation, but no base salary
continuation payments or benefits continuation (except as specifically
provided by the terms of an employee benefit plan of the Company. On or
after the date the Company receives notice of Employee's resignation, the
Company may, at its option, pay Employee his base salary through the
effective date of his resignation and terminate his employment immediately.
4.6 Termination following Change of Control.
a) Notwithstanding anything to the contrary herein, should Employee at any time
within 12 months of the occurrence of a "change of control" (as defined below)
cease to be an employee of the Company (or its successor), by reason
<PAGE>
of (i) termination by the Company (or its successor) other than for "cause"
or (ii) voluntary termination by Employee for "good reason upon change of
control" (as defined below), then in any such event,
(1) If the Company is merged or acquires a company in a field outside of
the current product alignment, the Company and Employee could
consider the assignment of existing product lines and technology to
Employee or Employee's assignee as part of or in lieu of the value of
the settle m ent severance pay highlighted above.
(2) The Company shall at the election of Employee either continue to
pay Employee his then effective base salary, under Section 3.1 hereof and
all benefits under Sections 3.3 hereof through the expiration of the
term described then in effect or (y) pay Employee, within 45 days of
the severance of employment described in this Section 4.6, a lump
sum payment equal to (without discounting present value) his then
effective base salary under Section 3.1 hereof through the expiration
of the three-year term then in effect.
b) As used in this Section, voluntary termination by Employee "for good
reason upon change of control" shall mean (i) removal of Employee from the
offices Employee holds on the date of this Agreement, (ii) a material
reduction in Employee's authority or responsibility, including, without
limitation, involuntary removal from the Board of Directors, (iii) relocation
of the Company's headquarters from its then current location, (iv) a
involuntary reduction in Employee compensation without the approval of
Employee, or (v) the Company otherwise commits a breach of this Agreement.
c) As used in this Agreement, a "change of control" shall be deemed to have
occurred if (i) any "Person" (as such term is used in Sections 12(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
is or becomes a "beneficial owner" (as defined in Rule 12d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than 50% of the combined voting power of the Company's
then outstanding securities, or (ii) at any time during the 24 month period
after a tender offer, merger, consolidation, sale of assets or contested
election, or any combination of such transactions, at least a majority of
the Company's Board of Directors shall cease to consist of "continuing
directors" (meaning directors of the Company who either were directors prior
to such transaction or who subsequent1y became directors and whose election,
or nomination for election by the Company's stockholders, was approved by a
vote of a least two-thirds of the directors then still in office who were
directors prior to such transaction), or (iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity) at least 5 1 % of the total voting power represented
by the voting securities of the Company or such surviving entity outstanding
<PAGE>
immediately after such merger or consolidation, or (iv) the stockholders of
the Company approve a plan for complete liquidation of the Company or an
agreement of sale or disposition by the Company of all or substantially all
of the Company's as sets.
4.7 Exclusivity of Termination Provisions. The termination provisions of
this Agreement regarding the parties' respective obligations in the event
Employee's employment is terminated, are intended to be exclusive and in
lieu of any other rights or remedies to which Employee or the Company may
otherwise be entitled by law, in equity or otherwise. It is also agreed
that, although the personnel policies and I fringe benefit programs of the
Company may be unilaterally modified from time to time, the termination
provisions of the Agreement are not subject to modification, whether orally,
implied or in writing, unless any such modification is mutually agreed upon
and signed by the parties.
ARTICLE V
CONFIDENTIAL INFORMATION AND NONCOMPETITION
5.1 Nondisclosure. During the term of Agreement and thereafter, Employee
shall not, without the prior written consent of the Board of Directors,
disclose or use for any purpose (except in the course of his employment
under this Agreement and in furtherance of the business of the Company)
confidential information or proprietary data of the Company (or any of its
subsidiaries), except as required by applicable law or legal process,
provided, however, that confidential information shall not include any
information known generally to the public or ascertainable from public or
published information (other than as a result of unauthorized disclosure by
Employee) or any information of a type not otherwise considered confidential
by persons engaged in the same business or a business similar to that
conducted by the Company (or any of its subsidiaries).
5.2 Noncompetition. The Company and Employee agree that the services
rendered by Employee hereunder are unique and irreplaceable. Employee hereby
agrees that, during the term of this Agreement and for a period of 12 months
thereafter, he shall not (except in the course of his employment under this
Agreement and i furtherance of the business of the Company or any of its
subsidiaries), (i) engage in as principal, consultant or employee in any
segment of a business of a company, partnership or firm ("Business Segment")
that is directly competitive with any significant business of the Company in
one of its major commercial or geographic markets or (ii) hold an interest
(except as a holder of less than % interest in a publicly traded firm or
mutual funds, or as a minority stockholder or unitholder in a - form not
publicly traded) in a company, partnership or firm with a Business Segment
that is directly competitive, without the prior written consent of the Company.
5.3 Validity of Noncompetition. The foregoing provisions of Section 5.2
shall not be held invalid because of the scope of the territory covered, the
actions restricted thereby, or the period of time such covenant is
operative. Any judgment of a court of competent jurisdiction may define the
maximum territory, the actions subject to and restricted by Section 5.2 and
the period of time during which such agreement is enforceable.
5.4 Noncompetition Covenants Independent. The covenants of the Employee
contained in Section 5.2 will be construed as independent of any other
provision in this Agreement; and the existence of any claim or cause of
action by the Employee against the Company will not constitute a defense to
the enforcement by the Company of said covenants. The Employee
<PAGE>
understands that the covenants contained in Section 5.2 are essential
elements of the transaction contemplated by this Agreement and, bat for the
agreement for the Employee to Section 5.2, the Company would not have agreed
to enter into such transaction. The Employee has been advised to consult
with counsel in order to be in all respects concerning the reasonableness
and propriety of Section 5.2 and its provisions with specific regard to the
nature of the business conducted by the Company and the Employee
acknowledges that Section 5.2 and its provisions are reasonable in all
respects.
5.5 Confidential and Proprietary Information. This shall include, without
limitation, matters of a technical nature, such a know-how, formula,
computer programs, software and documentation, secret processes or machines,
inventions. Research projects, plans for further development and matters of
a business nature, such as information about costs, profits, markets, sales
lists of customers, and business data regarding customers, salaries, and
other personnel data, and any other information of a similar nature to the
extent not available to the public.
The Employee shall promptly disclose to the Employer or its designee any and
all ideas, inventions, improvements, discoveries, developments, innovations,
or works of authorship (hereinafter referred to as the "Inventions"),
whether patentable or unpatentable, copyrightable or uncopyrightable, made,
created, developed, discovered, worked on or conceived by the Employee,
either solely or jointly with others, Whether or not reduced to drawings,
written description, documentation, models or other intangible form, during
the Employment Period and for a period of 12 months thereafter that relate
to, or arise out of, any developments, services research or products of, or
pertain to the business of, the Employer.
5.6 Remedies. In the event a breach or threatened breach by the Employee of
Section 5.2 or its provisions, the Company shall be entitled to a temporary
restraining order and an injunction restraining the Employee from the
commission of such breach. Nothing herein shall be construed as prohibiting
the Company from pursuing any other remedies available to it for such breach
or threatened breach, including the recovery of money damages.
ARTICLE VI
ARBITRATION
Any controversy of any nature whatsoever, including but not limited to tort
claims or contract disputes, between the parties to this Agreement or
between the Employee, his heirs, executors, administrators, legal
representatives, successors, and assigns and the Company and its affiliates,
arising out of or related to the Employee's employment with the Company; any
resignation from or termination of such employment and/or the terms and
conditions of this Agreement, including the implementation, applicability
and interpretation thereof, shall, upon the written request of one party
served upon the other, be submitted to and settled by arbitration in
accordance with the provision of the Federal Arbitration Act, 9 U.S.C.
Section 1-15, as amended. Each of the parties to this Agreement shall
appoint one person as an arbitrator to hear and determine such disputes, and
if they should be unable to agree, then the two arbitrators shall chose a
third arbitrator from a panel made up of experienced arbitrators selected
pursuant to the procedures of the American Arbitration Association (the
"AAA") and, once chosen, the third arbitrator's decision shall be final,
binding and conclusive upon the parties to this Agreement. Each party shall
be responsible for the fees and expenses of its arbitrator and the fees and
expenses of th third arbitrator shall be shared equally by the parties. The
terms or the Commercial arbitration rules, of AAA shall apply except to the
extent they conflict with the provisions of this paragraph. It is further
agreed than any of the parties hereto may petition the United States
District Court for the Southern District of Texas, Houston Division, for a
judgment to be entered upon any award entered through such arbitration
proceedings.
<PAGE>
ARTICLE VII
MISCELLANEOUS
7.1 Complete Agreement. This Agreement constitutes the entire agreement
between the parties and cancels and supersedes all other er agreements
between the parties, which may have related to the subject matter contained
in this Agreement.
7.2 Modification; Amendment; Waiver. No modification, amendment or waiver of
any provisions of this Agreement shall be effective unless approved in
writing by booth parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall n l affect the right of either party thereafter to
enforce each and every provision hereof in accordance with its terms.
7.3 Governing Law; Jurisdiction. This Agreement and performance under it,
and all proceedings that may ensue from its br each, shall be construed in
accordance with and under the laws of the State of Texas.
7.4 Employee's Representation. Employee represents and warrants that he is
free to enter into this Agreement and to perform each of the terms and
covenants of it. Employee represents and warrants that he is not restricted
or prohibited, contractually or otherwise, from entering into and performing
this Agreement, and that his execution and performance of this Agreement is
not a violation or breach on any other agreement between Employee and any
other person or entity.
7.5 Company's Representation. Company represents and warrants that it is
free to enter into this Agreement and to perform each of the terms and
covenants of it. Company represents and warrants that it is not restricted
or prohibited, contractually or otherwise, from entering into and performing
this Agreement, and that i execution and performance of this Agreement is
not a violation or breach on any other agreement between Employee and any
other person or entity. The Company represents and warrants that th is
Agreement is a legal, valid and binding agreement of the Company,
enforceable in accordance with its terms.
7.6 Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
7.7 Assignment. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs, provided, however,
that neither the Company nor Employee assign any duties under this Agreement
without the prior written consent of the other.
7.8 Limitation. This Agreement shall not confer any right or impose any
obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate
Employee's employment.
7.9 Attorney's Fee and Costs. If any action at law or in equity is brought
to enforce or interpret the terms of this Agreement or any obligation owing
thereunder, venue will be in Harris County, Texas and the prevailing party
shall be entitled to reasonable attorney's fees and all costs and expenses
of the suit, including, without limitation, expert and accountant fees, and
such other relief which a court of competent jurisdiction may deem appropriate.
<PAGE>
7.10 Notices. All notices and other communications under this Agreement
shall be in writing and shall be given in person or by either personal
delivery, facsimile with confirmation of receipt, overnight delivery, or
first class mail, certified or registered with return receipt requested,
with postal or delivery charges prepaid, and shall be deemed to have been
duly given when delivery personally, or three days after mailing fir t
class, certified or registered with return receipt requested, to the
respective persons named below:
If to the Company:
Corporate Secretary
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
Fax (770) 433-8260
If to the Employee:
Charles Downey, Jr.
10166 Shady Hollow
Conroe, TX 77304
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the day and year indicated above.
COMPANY: LAKOTA ENERGY, INC.
By: /s/Ken Honeyman
Printed Name: Ken Honeyman
Title: President
EMPLOYEE:
By: /s/Charles Downey, Jr.
Charles Downey, Jr.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made effective the 14th day of June 1999, by
and between Voice Design, Inc., a Texas corporation, with principal offices
located at 2656 South Loop West, Suite 170, Houston, Texas 77054(hereinafter
referred to as "Employer"), and Patrick "Cody" Morgan, a resident of Harris
County, Texas (hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, the Company desires to employ Employee as its President and
Employee is desirous of undertaking such responsibilities;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DUTIES
1.1 Duties. During the term of this Agreement, the Company agrees to employ
Employee as the Company's President and Employee agrees to serve the Company
in such capacities or in such other capacities (subject to Employee's
termination rights under section 4.2) as the Board of Directors of the
Company may direct, all upon the terms and subject to the conditions set
forth in this Agreement.
1.2 Extent of Duties. Employee shall devote substantially all of his
business time, energy and skill to the affairs of the Company as the
Company, acting through its Board of Directors, shall reasonably deem
necessary to discharge Employee's duties in such capacities. Employee with
extensive local public service may participate in social, civic, charitable,
religious, business, education or professional associations, so long as such
participation would not materially detract from Employee's ability to perform
his duties under this Agreement. Employee shall not engage in any other
business activity during the term of this Agreement without prior written
consent of the Company, other than the passive management of Employee's
personal investment or activities which would not materially detract from
Employee's ability to perform his duties under this Agreement (such as
Employee's current positions with other companies and other future positions
of a similar nature.)
ARTICLE II
TERM OF EMPLOYMENT
The term of this AGREEMENT shall commence on the effective date and continue
for a period of three (3) years, except if terminated as provided herein.
This Agreement is subject to earlier termination as hereinafter provided.
Within six months from the expiration of the term, the parties agree to meet
to negotiate an extension of the employment agreement on terms mutually
acceptable to all parties.
<PAGE>
ARTICLE III
COMPENSATION
3.1 Annual Base Compensation. As compensation for services rendered under
this Agreement, Employee shall be entitled to receive from Company an annual
base salary (before standard deductions) of no less than $75,000 during the
initial term of this Agreement. Employees' annual base salary shall be
subject to review and adjustment by the Compensation Committee of the
Company on an annual basis, provided that there shall not be any downward
adjustment. Employees' annual base salary shall be payable at regular
intervals in accordance with the prevailing practice and policy of the Company.
3.2 Incentive Bonus. As additional compensation for services rendered under
this Agreement, the Compensation Committee may, in its sole discretion and
without any obligation to do so, declare that Employee shall be entitled to
an annual incentive bonus (whether payable in cash, stock, stock rights or
other property) as the Compensation Committee shall determine. If any such
bonus is declared, the bonus shall be payable in accordance with the terms
prescribed by the Compensation Committee. Should the Company change control,
the Compensation Committee may consider a bonus to the Employee as part of a
severance package
3.3 Other Benefits. Employee shall, in addition to the compensation
provided for in Sections 3.1 and 3.2 above, be entitled to the following
additional benefits:
a) Life Insurance. The Company shall purchase term life insurance policies in
the aggregate amount of two times the Employee's annual salary to be owned
by Employee or his designee.
b) Medical, Health and Disability Benefits. Employee shall be
entitled to receive all of the medical, health and disability benefits that
may, from time to time, be provided by the Company.
c) Vacation Pay. Employee shall be entitled to an annual vacation as
determined in accordance with the prevailing practice and policy
of the Company but in no: event less than two (2) weeks per calendar
year during the initial year of employment and three (3) weeks per calendar
year in years two and three of this Agreement.
d) Holidays. Employee shall be entitled to holidays in accordance with the
prevailing practice and policy of the Company.
e) Reimbursement of Expenses. The Company shall reimburse Employee for
all expenses reasonably incurred by Employee on behalf of the Company
including, but not limited to, entertainment expenses and cellular phone
expenses in accordance with the prevailing practice and policy of the
Company. However, Employee shall obtain pre-approval for the expenditure
of any single expense in excess of $250.
<PAGE>
ARTICLE IV
TERMINATION
4.1 Termination by the Company Without Cause. Subject to the provisions of
this Section 4. 1, this Agreement may be terminated by the Company without
cause upon 30 days prior written notice thereof given to Employee. In the
event of termination pursuant to this Section 4. 1, (a) the Company shall at
the election of Employee either (x) continue to pay Employee his then
effective base salary under Section 3.1 hereof and all benefits under
Sections 3.3 hereof through the expiration of the three-year term then in
effect or (y) pay Employee, within 45 days of such termination, a lump sum
payment equal to (without discounting present value) his then aggregate
effective base salary owed under Section 3.1 hereof through the expiration
of the three-year term then in effect. Employee must make election under
clause (a) above by giving the Company written notice thereof within 3 0
days after notice of termination is given pursuant to this section 4. 1. If
Employee does not make such an election within the 30-day period, he will be
deemed to have elected to receive the payment described in clause (a)(x)
above. Payment or performance by the Company in accordance with this Section
shall constitute Employee's full severance pay and the Company shall have no
further obligation to Employee arising out of such termination.
4.2 Voluntary Termination by Employee for Good Reason. Employee may at any
time voluntarily terminate his employment for "good reason" (as defined
below) upon 30 days prior written notice thereof to the Company. In the
event of such voluntary termination for "good reason". (a) the Company shall
at the election of Employee either continue to pay Employee his then
effective base salary under Section 3.1 hereof and all benefits under
Section 3.3 hereof through the expiration of the three-year term then in
effect or pay Employee, within 45 days of such termination, a lump sum
payment equal to (without discounting to present value) his then effective
base salary under Section 3.1 hereof through the expiration of the
three-year term then in effect.
Employee must make his election under clause (a) above by giving the Company
written notice thereof with 30 days after notice of termination is given
pursuant to this Section 4.2. If Employee does not make such an election
within the 30-day period, he will be deemed to have elected to receive the
lump sum payment described in clause (a)(x) above.
For purposes of this Agreement, "good reason" shall mean the occurrence of
any of the following events:
a) Removal from the office(s) Employee holds on the date of this
Agreement or a material reduction in Employee's authority or responsibility,
including, without limitation, involuntary removal from the Board of
Directors, but not including termination of Employee for "cause", as defined
below, or
b) Relocation of the Company's headquarters from its current location without
the approval of Employee; or
c) An involuntary reduction in the Employee's compensation; or
d) The Company otherwise commits a material breach of this Agreement.
<PAGE>
4.3 Termination by the Company for Cause. The Company may terminate this
Agreement at any time if such termination is for "cause" (as defined below),
by delivering to Employee written notice describing the cause of termination
30 days before the effective date of such termination and by granting Employee
at I : east 3 0 days to cure the cause. In the event the employment
of Employee is terminated for "cause", Employee shall be entitled only to
the base salary earned pro rata to the date of such termination with 0:0
entitlement to any base salary continuation payments or benefits continuation
(except as specifically provided by the terms of an employee benefit plan of
the Company). Except as otherwise provided in this Agreement, the
determination of whether Employee shall be terminated for "cause" shall be made
by the Board of Directors of the Company, in reasonable exercise of its
business judgment, and shall be limited to the occurrence of the following
events:
a) Conviction of or a~ plea of nolo contendere to the charge of a felony
(which, through lapse of time or otherwise, is not subject to appeal);
b) Willful refusal without proper legal cause to perform, or gross negligence
in performing, Employee's duties and responsibilities;
c) Material breach of fiduciary duty to the Company through the
misappropriation of Company funds or property; or
d) The unauthorized absence of Employee from work (other than for sick leave
or disability) for 4 period of 15 business days or more during any period of
45 business days during the term of this Agreement.
4.4 Termination Upon Death or Permanent Disability. In the event that Employee
dies, this Agreement shall terminate upon the Employee's death. Likewise, if
the Employee becomes unable to perform the essential functions of the position,
with or without reasonable accommodation, on account of illness, disability, or
other reason whatsoever for a period of more than six consecutive or
nonconsecutive months in any twelve month period, this Agreement shall
terminate effective upon such incapacity, and Employee (or his legal
representatives/trust) shall be entitled only to the base salary earned
pro rata to the date of s: ch termination with no entitlement to any base
salary continuation payments or benefits continuation (except as specifically
provided by the terms of an employee benefit plan of the Company.
4.5 Voluntary Termination by Employee. Employee may terminate this Agreement
at any time upon delivering 30 days written notice of resignation to the
Company. In the event of such voluntary termination other than for "good
reason" (as defined above), Employee shall be entitled to his base salary
earned pro rata to the date of his resignation, but no base salary
continuation payments or benefits continuation (except as specifically
provided by the terms of an employee benefit plan of the Company, on or after
the date the Company receives notice of Employee's resignation, the Company
may, at its option, pay Employee his base salary through the effective date
of his resignation and terminate his employment immediately.
4.6 Termination following Change of Control.
a) Notwithstanding anything to the contrary herein, should Employee at any
time within 12 months of the occurrence of a "change of control" (as defined
below) cease to be~ an employee of the Company (or its successor), by reason
<PAGE>
of (i) termination by the Company (or its successor) other than for "cause"
or (ii) voluntary termination by Employee for "good reason upon change of
control" (as defined below), then in any such event,
(1) If the Company is merged or acquires a company in a field outside of
the current product alignment, the Company and Employee could
consider the assignment of existing product lines and technology to
Employee or Employee's assignee as part of or in lieu of the value of
the settlement severance pay highlighted above.
(2) The Company shall at the election of Employee either continue to pay
Employee his then effective base salary, under Section 3.1 hereof and
all benefits under Sections 3.3 hereof through the expiration of the
term described then in effect or (y) pay Employee, within 45 days of
the severance of employment described in this Section 4.6, a lump
sum payment equal to (without discounting present value) his then
effective base salary under Section 3.1 hereof through the expiration
of the three-year term then in effect.
b) As used in this Section, voluntary termination by Employee "for good
reason upon change of control" shall mean (i) removal of Employee from the
offices Employee holds on the date of this Agreement, (ii) a material reduction
in Employee's authority or responsibility, including, without limitation,
involuntary removal from the Board of Directors, (iii) relocation of the.
Company's headquarters from its then current location, (iv) a involuntary
reduction in Employee compensation without the approval of Employee, or
(v) the Company otherwise commits a breach of this Agreement.
c) As used in this Agreement, a "change of control" shall be deemed to
have occurred if (i) any "'Person" (as such term is used in Sections 12(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), is or becomes a "beneficial owner" (as defined in Rule 12d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than 50% of the combined voting power of the Company's
then outstanding securities, or (ii) at any time during the 24 month period
after a tender offer, merger, consolidation, sale of assets or contested
election, or any combination of such transactions, at least a majority of the
Company's Board of Directors shall cease to consist of "continuing directors"
(meaning directors of the Company who either were directors prior to such
transaction or who subsequently became directors and whose election, or
nomination for election by the Company's stockholders, was approved by a vote
of a least two-thirds of the directors then still in office who were directors
prior to such transaction), or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other
than a merger or consolidation that would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity) at least 51% of the total voting power represented
by the voting securities :of the Company or such surviving entity outstanding
<PAGE>
immediately after such merger or consolidation, or (iv) the stockholders of the
Company approve a plan for complete liquidation of the Company or an agreement
of sale or disposition by the Company of all or substantially all of the
Company's assets.
4.7 Exclusivity of Termination Provisions. The termination provisions of
this Agreement regarding the parties' respective obligations in the event
Employee's employment is terminated, are intended to be exclusive and in
lieu of any other rights or remedies to which Employee or the Company may
otherwise be entitled by law, in equity or otherwise. It is also agreed
that, although the personnel policies and fringe benefit programs of the
Company may be unilaterally modified from time to time, the termination
provisions of the Agreement are not subject to modification, whether orally,
implied or in writing, unless any such modification is mutually agreed upon
and signed by the parties.
ARTICLE V
CONFIDENTIAL INFORMATION AND NONCOMPETITION
5.1 Nondisclosure. During the term of Agreement and thereafter, Employee
shall not, without the prior written consent of the Board of Directors,
disclose or use for any purpose (except in the course of his employment
under this Agreement and in furtherance of the business of the Company)
confidential information or proprietary data of the Company (or any of its
subsidiaries), except as required by applicable law or legal process,
provided, however, that confidential information shall not include any
information known generally to the public or ascertainable from public or
published information (other than as a result of unauthorized disclosure
by Employee) or any information of a type not otherwise considered
confidential by persons engaged in the same business or a business similar
to that conducted by the Company (or any of its subsidiaries).
5.2 Noncompetition. The Company and Employee agree that the services
rendered by Employee hereunder are unique and irreplaceable. Employee hereby
agrees that, during the term of this Agreement and for a period of 12 months
thereafter, he shall not (except in the course of his employment under this
Agreement and in furtherance of the business of the Company or any of its
subsidiaries), (i) engage in as principal, consultant or employee in any
segment of a business of a company, partnership or firm ("Business Segment")
that is directly competitive with any significant business of the Company in
one of its major commercial or geographic markets or (ii) hold an interest
(except as a holder of less than 5% interest in a publicly traded firm or
mutual funds, or as a minority stockholder or unitholder in a form not
publicly traded) in a company, partnership or firm with a Business Segment
that is directly competitive, without the prior written consent of the Company.
5.3 Validity of Noncompetition. The foregoing, provisions of Section 5.2
shall not be held invalid because of the scope of the territory covered, the
actions restricted thereby, or the period of time such covenant is
operative. Any judgment of a court of competent jurisdiction may define the
maximum territory, the actions subject to and restricted by Section 5.2 and
the period of time during which such agreement is enforceable.
5.4 Noncompetition Covenants Independent. The covenants of the Employee
contained in Section 5.2 will be construed as independent of any other
provision in this Agreement; and the existence of any claim or cause of
action by the Employee against the Company will not constitute a defense to
the enforcement by the Company of said covenants. The Employee
<PAGE>
understands that the covenants contained in Section 5.2 are essential
elements of the transaction contemplated by this Agreement and, but for the
agreement for the. Employee to Section 5.2, the Company would not have agreed
to enter into such transaction. The Employee has been advised to consult with
counsel in order to be informed in all respects concerning the reasonableness
and propriety of Section 5.2 and its provisions with specific regard to the
nature of the business conducted by the Company and the Employee acknowledges
that Section 5.2 and its provisions are reasonable in all respects.
5.5 Confidential and Proprietary Information. This shall include, without
limitation, matters of a technical nature, such a know-how, formula,
computer programs, software and documentation, secret processes or machines,
inventions. Research projects, plans for further development and matters of
a business nature, such as information about costs, profits, markets, sales
lists of customers, and business data regarding customers, salaries, and
other personnel data, and any other information of a similar nature to the
extent not available to the public.
The Employee shall promptly disclose to the Employer or its designee any
and all ideas, inventions, improvements, discoveries, developments,
innovations, or works of authorship (hereinafter referred to as the
"Inventions"), whether patentable or unpatentable, copyrightable or
uncopyrightable, made, created, developed, discovered, worked on or
conceived by the Employee, either solely or jointly with others, whether or
not reduced to drawings, written description, documentation, models or other
intangible form, during the Employment Period and for a period of
12 months thereafter that relate to, or arise out of, any developments,
services research or products of, or pertain to the business of, the Employer.
5.6 Remedies. In the event of a breach or threatened breach by the Employee
of Section 5.2 or its provisions, the Company shall be entitled to a
temporary restraining order and an injunction restraining the Employee from
the commission of such breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of money damages.
ARTICLE VI
ARBITRATION
Any controversy of any nature whatsoever, including but not limited to tort
claims or contract disputes, between the parties. to this Agreement or
between. the Employee, his heirs, executors, administrators, legal
representatives, successors, and assigns and the Company and its affiliates,
arising out of or related to the Employee's employment with the Company; any
resignation from or termination of such employment and/or the terms and
conditions of this Agreement, including the implementation, applicability
and interpretation thereof, shall, upon the written request of one party
served upon the other, be submitted to and settled by arbitration in
accordance with the provision of the Federal Arbitration Act, 9 U.S.C.
SectionSection1-15, as amended. Each of the parties to this Agreement shall
appoint one person as an arbitrator to hear and determine such disputes, and
if they should be unable to agree, then the two arbitrators shall chose a
third arbitrator from a panel made up of experienced arbitrators selected
pursuant to the procedures of the American Arbitration Association (the
"AAA") and, once chosen, the third arbitrator's decision shall be final,
binding and conclusive upon the parties to this Agreement. Each party shall
be responsible for the fees and expenses of its arbitrator and the fees and
expenses of the third arbitrator shall be shared equally by the parties. The
terms or the Commercial arbitration rules~ of AAA shall apply except to the
extent they conflict with the provisions of this paragraph. It is further
agreed than any of the parties hereto may petition the United States
District Court for the Southern District of Texas, Houston Division, for a
judgment to be entered upon any award entered through such arbitration
proceedings.
<PAGE>
ARTICLE VII
MISCELLANEOUS
7.1 Complete Agreement. This Agreement constitutes the entire agreement
between the parties and cancels and supersedes all other agreements between
the parties, which may have related to the subject matter contained in this
Agreement.
7.2 Modification; Amendment; Waiver. No modification, amendment or waiver of
any provisions of this Agreement shall be effective unless approved in
writing by booth parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of either party thereafter to
enforce each. and every provision hereof in accordance with its terms.
7.3 Governing Law; Jurisdiction. This Agreement and performance under it,
and all proceedings that may ensue from its breach, shall be construed in
accordance with and under the laws of the State of Texas.
7.4 Employee's Representation. Employee represents and warrants that he is
free to enter into this Agreement and to perform each of the terms and
covenants of it. Employee represents and warrants that he is not restricted
or prohibited, contractually or otherwise, from entering into and performing
this Agreement, and that his execution and performance of this Agreement is
not a violation or breach on any other agreement between Employee and any
other person or entity.
7.5 Company's Representation. Company represents and warrants that it is
free to enter into this Agreement and to perform each 6,f the terms and
covenants of it. Company represents and warrants that it is not restricted
or prohibited, contractually or otherwise, from entering into and performing
this Agreement, and that its' execution and performance of this Agreement
is not a violation or breach on any other agreement between Employee and any
other person or entity. The Company represents and warrants that this
Agreement is a legal, valid and binding agreement of the Company,
enforceable in accordance with its terms.
7.6 Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
7.7 Assignment. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs, provided, however,
that neither the Company nor Employee assign any duties under this Agreement
without the prior written consent of the other.
7.8 Limitation. This Agreement shall not confer any right or impose any
obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate
Employee's employment.
7.9 Attorney's Fee and Costs. If any action at law or in equity is brought
to enforce or interpret the terms of this Agreement or any obligation owing
thereunder, venue will be in Harris County, Texas and the prevailing party
shall be entitled to reasonable attorney's fees and all costs and expenses
of the suit, including, without limitation, expert and accountant fees, and
such other relief which a court of competent jurisdiction may deem appropriate.
<PAGE>
7.10 Notices. All notices and other communications under this Agreement
shall be in writing and shall be given in person or by either personal
delivery, facsimile with confirmation of receipt, overnight delivery, or
first class mail, certified or registered with return receipt requested,
with postal or delivery charges prepaid, and shall be deemed to have been
duly given when delivery personally, or three days after mailing first
class, certified or registered with return receipt requested, to the
respective persons named below:
If to the Company:
Corporate Secretary
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
Fax (770) 433-8260
If to the Employee:
Patrick "Cody" Morgan
2300 Old Spanish Trail # 1010
Houston, TX 77054
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the day and year indicated above.
COMPANY: LAKOTA ENERGY, INC.
By: /s/Ken Honeyman
Printed Name: Ken Honeyman
Title: President
EMPLOYEE:
By: /s/Patrick Morgan
Patrick "Cody" Morgan
LAKOTA ENERGY, INC.
a Colorado corporation
OMNIBUS STOCK OPTION PLAN
1. Name, Effective Date and Purpose.
1.1 This Plan document is intended to implement and govern two
separate stock option plans of LAKOTA ENERGY, INC. (the "Company"):
The Incentive Stock option plan ("Plan A") and the Nonstatutory
Stock Option Plan ("Plan B"). Plan A provides for the granting of
options that are intended to qualify as incentive stock options
("Incentive Stock Options") within the meaning of Section 422A(b) of
the Internal Revenue Code (the "Code"), as amended. Plan B provides
for the granting of options that are not intended to so qualify.
Unless specified otherwise, all the provisions of this Plan relate
equally to both Plan A and Plan B and are condensed for convenience
into one Plan document.
1.2 Plan A and Plan B are each established effective as of August
1, 1999. The purpose of Plan A and Plan B (sometimes together
referred to as the "Plan" or this "Plan") is to promote the growth
and general prosperity of the Company and its Affiliated Companies.
This Plan will permit the Company to grant options ("Options") to
purchase shares of its common stock ("Common Stock"). The granting
of Options will help the Company attract and retain the best
available persons for positions of substantial responsibility, and
will provide certain key employees with an additional incentive to
contribute to the success of the Company and its Affiliated
Companies. For purposes of this Plan, the term "Affiliated
Companies" shall mean any component member of a controlled group of
corporations, as defined under Code Section 1563, in which the
Company is also a component member.
2. Administration.
2.1 The Plan shall be administered solely by the Board of Directors
(the "Board"). All decisions, determinations and interpretations of
the Board shall be final and binding on all Optionees.
2.2 The Board shall have sole authority, in its absolute
discretion, to determine which of the eligible persons of the
Company and its Affiliated Companies shall receive Options
("Optionees"), and, subject to the express provisions and
restrictions of this Plan, shall have sole authority, in its
absolute discretion, to determine the time when Options shall be
granted, the terms and conditions of any Option other than those
terms and conditions fixed under this Plan, the number of shares
which may be issued upon exercise of an Option and the means of
payment for such shares, and shall have authority to do everything
necessary or appropriate to administer the Plan.
<PAGE>
2.3 Aggregate limitations with respect to all participants in the
Plan:
2.3.1 The Board shall not grant Options covering more than the
number of Available Shares of Common Stock to any employee in any
Plan Year.
2.4 Aggregate limitations with respect to the participation of
directors and officers in the Plan:
2.4.1 No more than the number of Available Shares of Common Stock
may be optioned and sold to directors of the Company under Plan A
and Plan B considered in the aggregate in any Plan Year.
2.4.2 No more than the Available Shares of Common Stock may be
optioned and sold to non-director officers of the Company under Plan
A and Plan B considered in the aggregate in any Plan Year.
2.5 Definitions:
2.5.1 Available Shares: Those shares specified in Section 4.1 as
available for issuance pursuant to this Plan in any Plan Year.
2.5.2 Officer: The chief executive officer, president, chief
financial officer, chief accounting officer, any vice president in
charge of a principal business function (such as sales,
administration, finance, or legal) and any other person who performs
similar policy-making functions for the Company.
2.5.3 Parent Corporation: A corporation as defined in Section
425(e) of the Code.
2.5.4 Plan Year: Any twelve (12) month period (or shorter period
during the final year of this Plan) commencing July 1 during the
term of this Plan.
2.5.5 Restricted Shareholder: An individual who, at the time an
Option is granted under either Plan A or Plan B, owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the employer corporation or of its Parent
Corporation or Subsidiary Corporation, with stock ownership to be
determined in light of the attribution rules set forth in Section
425(d) of the Code.
2.5.6 Subsidiary Corporation: A corporation as defined in Section
425(f) of the Code.
<PAGE>
3. Eligibility.
3.1 Plan A: The Board may, in its discretion, grant one or more
Options under Plan A to any key employee of the Company or its
Affiliated Companies, including any employee who is a director of
the Company or of any of its Affiliated Companies presently existing
or hereinafter organized or acquired. Such Options may be granted
to one or more such employees without being granted to other
eligible employees, as the Board may deem fit.
3.2 Plan B: The Board may, in its discretion, grant one or more
options under Plan B to any key management employee, any employee or
non-employee director of the Company or its Affiliated Companies,
including any employee who is a director of the Company or of any of
its Affiliated Companies presently existing or hereinafter organized
or acquired, or any person who performs consulting or other services
for the Company or its Affiliated Companies and who is designated by
the Board as eligible to participate in Plan B. Such Options may be
granted to one or more such persons without being granted to other
eligible persons, as the Board may deem fit.
4. Stock to be Optioned.
4.1 The aggregate number of shares which may be optioned
and sold under Plan A and Plan B in any Plan Year shall not exceed
the following amounts of the shares of Authorized Common Stock of
the Company:
Plan Year Available Shares
August 1, 1999 - September 30, 2000 3,000,000 shares
Each subsequent Plan Year 10% of outstanding stock on
beginning August 1, 2000 August 1 of each such Plan Year
The foregoing constitutes an absolute cumulative limitation on the
total number of shares, that may be optioned under both Plan A and
Plan B in any Plan Year. Therefore, at any particular date during a
Plan Year, the maximum aggregate number of shares which may be
optioned under either Plan A or Plan B or both is equal to the
Available Shares minus the number of shares previously optioned and
sold under both Plan A and Plan B during that Plan Year. All shares
to be optioned and sold under either Plan A or Plan B may be either
authorized but unissued shares or shares held in the treasury.
4.2 Shares of Common Stock that: (i) are repurchased by
the Company after issuance hereunder pursuant to the exercise of an
Option, or (ii) are not purchased by the Optionee prior to the
expiration or termination of the applicable Option, shall again
become available to be covered by Options to be issued hereunder and
shall not, as of the effective date of such repurchase or
expiration, be counted as covered by an outstanding Option for
purposes of the above-described maximum number of shares which may
be optioned hereunder.
<PAGE>
5. Option Price. The Option Price for shares of Common Stock
to be issued under either Plan A or Plan B shall be 100% of the fair
market value of such shares on the date on which the Option covering
such shares is granted by the Board (or the Committee, if authorized
by the Board), except that if on the date on which such Option is
granted the Optionee is a Restricted Shareholder, then such Option
Price for Options granted under Plan A shall be 110% of the fair
market value of the shares of Common Stock subject to the Option on
the date such Option is granted by the Board. The fair market value
of the shares of Common Stock for all purposes of this Plan is to be
determined by the Board in its sole discretion, exercised in good
faith.
6. Term of Plan. Plan A and Plan B shall become effective on
August 1, 1999. Both Plan A and Plan B shall continue in effect
until September 30, 2009 unless terminated earlier by action of the
Board. No Option may be granted hereunder after September 30, 2009.
7. Exercise of Option. Subject to the actions, conditions
and/or limitations set forth in this Plan document and/or any
applicable Stock Option Agreement entered into hereunder, Options
granted under this Plan shall be exercisable in accordance with the
following rules:
7.1 No Option granted under Plan A may be exercised in
whole or in part until six (6) months after the date on which the
Option is granted by the Board, or by the Committee if so authorized
(hereinafter the "Option Grant Date").
7.2 Subject to the specific provisions of this Section 7,
Options shall become exercisable at such times and in such
installments (which may be cumulative) as the Board shall provide in
the terms of each individual Option; provided, however, each Option
granted under the Plan shall become exercisable in installments of
not more than 20% of the number of shares covered by such Option
each year from the Option Grant Date; and provided, further, that by
a resolution adopted after an Option is granted the Board may, on
such terms and conditions as it may determine to be appropriate and
subject to the specific provisions of this section 7, accelerate the
time at which such Option or installment thereof may be exercised.
For purposes of this Plan, any accrued installment of an Option
granted hereunder shall be referred to as an "Accrued Installment."
7.3 Subject to the specific restrictions contained in
this Section 7, an Option may be exercised when Accrued Installments
accrue, as provided in the terms under which such Option was
granted, for a period of up to ten (10) years from the Option Grant
Date. In no event shall any Option be exercised on or after the
expiration of said maximum applicable period, regardless of the
circumstances then existing (including but not limited to the death
or termination of employment of the Optionee).
7.4 The Board shall fix the expiration date of the Option
(the "Option Expiration Date") at the time the Option grant is
authorized.
<PAGE>
8. Rules Applicable to Certain Dispositions.
8.1 Notwithstanding the foregoing provisions of Section
7, in the event the Company or the shareholders of the Company enter
into an agreement to dispose of all or substantially all of the
assets or capital stock of the Company by means of a sale, merger,
consolidation, reorganization, liquidation, or otherwise, an Option
shall become immediately exercisable with respect to the full number
of shares subject to that Option during the period commencing as of
the later of (i) date of execution of such agreement or (ii) six (6)
months after the Option Grant Date, and ending as of the earlier of:
8.1.1 the Option Expiration Date; or
8.1.2 the date on which the disposition of assets
or capital stock contemplated by the agreement is consummated.
The exercise of any Option made exercisable solely by reason of this
Section 8.1 shall be conditioned upon the consummation of the
disposition of assets or stock under the above referenced agreement.
Upon the consummation of any such disposition of assets or stock,
the Plan and any unexercised Options issued hereunder (or any
unexercised portion thereof) shall terminate and cease to be effective.
8.2 Notwithstanding the foregoing, in the event that any
such agreement shall be terminated without consummating the
disposition of said stock or assets, any unexercised non-vested
installments that had become exercisable solely by reason of the
provisions of section 8.1 shall again become non-vested and
unexercisable as of said termination of such agreement.
8.3 Notwithstanding the provisions set forth in Section
8.1, the Board may, at its election and subject to the approval of
the corporation purchasing or acquiring the stock or assets of the
Company (the "Surviving Corporation"), arrange for the Optionee to
receive upon surrender of Optionee's Option a new option covering
shares of the Surviving Corporation in the same proportion, at an
equivalent option price and subject to the same terms and conditions
as the old Option. For purposes of the preceding sentence, the
excess of the aggregate fair market value of the shares subject to
such new option immediately after consummation of such disposition
of stock or assets over the aggregate option price of such shares of
the Surviving Corporation shall not be more than the excess of the
aggregate fair market value of all shares subject to the old Option
immediately before consummation of such disposition of stock or
assets over the aggregate Option Price of such shares of the
Company, and the new option shall not give the Optionee additional
benefits which such Optionee did not have under the old Option or
deprive the Optionee of benefits which the Optionee had under the
old Option. If such substitution of options is effectuated, the
Optionee's rights under the old Option shall thereupon terminate.
<PAGE>
9. Mergers and Acquisitions.
9.1 If the Company at any time should succeed to the
business of another corporation through a merger or consolidation,
or through the acquisition of stock or assets of such corporation,
Options may be granted under the Plan to option holders of such
corporation or its subsidiaries, in substitution for options or
rights to purchase stock of such corporation held by them at the
time of succession. The Board shall have sole and absolute
discretion to determine the extent to which such substitute Options
shall be granted (if at all), the person or persons within the
eligible group to receive such substitute Options (who need not be
all option holders of such corporation), the number of Options to be
received by each person, the Option Price of such Option, and the
terms and conditions of such substitute Options; provided however,
that the terms and conditions of the substitute Options shall comply
with the provisions of Section 425 of the Code, such that the excess
of the aggregate fair market value of the shares subject to such
substitute Option immediately after the substitution or assumption
over the aggregate option price of such shares is not more than the
excess of the aggregate fair market value of all shares subject to
the substitution Option immediately before such substitution or
assumption over the aggregate option price of such shares, and the
substitution Option or the assumption of the old option does not
give the holder thereof additional benefits which he or she did not
have under such old option.
9.2 Notwithstanding anything to the contrary herein, no
Option shall be granted, nor any action taken, permitted or omitted,
which could cause the Plan, or any Options granted hereunder as to
which Rule 16b-3 under the Securities Exchange Act of 1934 may
apply, not to comply with such Rule.
10. Termination of Employment.
10.1 I n the event that the Optionee's employment,
directorship or consulting or other arrangement with the Company (or
Affiliated Company) is terminated for any reason other than death or
disability, any unexercised Accrued Installments of the Option
granted hereunder to such terminated Optionee shall expire and
become unexercisable as of the earlier of:
10.1.1 the applicable Option Expiration Date; or
10.1.2 a date 30 days after such termination occurs, provided, however,
that the Board may, in the exercise of its discretion, extend said date up
to and including a date three months following such termination with respect
to Options granted under Plan A, or up to and including a date two years
following such termination with respect to Options granted under Plan B.
10.2 In the event that Optionee's employment, directorship
or consulting or other arrangement with the Company is terminated
due to the death or disability of the Optionee, any unexercised
Accrued Installments of the Option granted hereunder to such
Optionee shall expire and become unexercisable as of the earlier of:
<PAGE>
10.2.1 the applicable Option Expiration Date; or
10.2.2 the first anniversary of the date of death of such Optionee
(if applicable); or
10.2.3 the first anniversary of the date of the termination of employment,
directorship or consulting or other arrangement by reason of disability
(if applicable). Any such Accrued Installments of a deceased Optionee may be
exercised prior to their expiration by (and only by) the person or persons to
whom the Optionee's Option right shall pass by will or by the laws of
descent and distribution, if applicable, subject, however, to all
the terms and conditions of this Plan and the applicable Stock
Option Agreement governing the exercise of Options granted hereunder.
10.3 For purposes of this section 10, an Optionee shall be
deemed employed by the Company (or Affiliated Company) during any
period of leave of absence from active employment as authorized by
the Company (or Affiliated Company).
11. Exercise of Options.
11.1 An Option shall be deemed exercised when written
notice of such exercise has been given to the Company at its
principal business office by the person entitled to exercise the
Option and full payment in cash or cash equivalents (or with shares
of Common Stock pursuant to section 14) for the shares with respect
to which the Option is exercised has been received by the Company.
The Board may cause the Company to give or arrange for financial
assistance (including without limitation direct loans, with or
without interest, secured or unsecured, or guarantees of third party
loans) to an Optionee for the purpose of providing funds for the
purchase of shares pursuant to the exercise of Options, when in the
judgment of the Board such assistance is in the best interests of
the Company, is consistent with the Certificate of Incorporation and
Bylaws of the Company and applicable laws, and will permit the
shares to be fully paid and nonassessable when issued.
11.2 An Option may be exercised in accordance with this
section 11 as to all or any portion of the shares covered by an
Accrued Installment of the Option from time to time during the
applicable Option period, but shall not be exercisable with respect
to fractions of a share.
11.3 As soon as practicable after any proper exercise of
an Option in accordance with the provisions of this Plan, the
Company shall deliver to the Optionee at the main office of the
Company, or such other place as shall be mutually acceptable, a
certificate or certificates representing the shares of Common Stock
as to which the Option has been exercised. The time of issuance and
delivery of the Common Stock may be postponed by the Company for
such period as may be required for it with reasonable diligence to
comply with any applicable listing requirements of any national or
regional securities exchange and any law or regulation applicable to
the issuance and delivery of such shares.
<PAGE>
12. Authorization to Issue Options and Shareholder Approval.
Unless in the judgment of counsel to the Company such permit is not
necessary with respect to particular grants, Options granted under
the Plan shall be conditioned upon the Company obtaining any
required permit from the California Department of Corporations
and/or other appropriate governmental agencies, free of any
conditions not acceptable to the Board, authorizing the Company to
grant such Options, provided, however, such condition shall lapse as
of the effective date of issuance of such permit(s) in a form to
which the Company does not object within sixty (60) days. The grant
of Options under the Plan also is conditioned on approval of the
Plan by the vote or consent of the holders of a majority of the
outstanding shares of the Company's Common Stock and no Option
granted hereunder shall be effective or exercisable unless and until
the Plan has been so approved.
13. Limit on Value of Optioned Shares. The aggregate fair
market value (determined as of the Option Grant Date) of the shares
of Common Stock to which Options granted under Plan A are
exercisable for the first time by any employee of the Company during
any calendar year under all incentive stock option plans of the
Company and its Affiliated Companies shall not exceed $100,000. The
limitation imposed by this section 13 shall not apply to Options
granted under Plan B.
14. Payment of Exercise Price with Company Stock. The Board
may provide that, upon exercise of the Option, the Optionee may
elect to pay for all or some of the shares of Common Stock
underlying the Option with shares of Common Stock of the Company
previously acquired and owned at the time of exercise by the
Optionee, subject to all restrictions and limitations of applicable
laws, rules and regulations, including Section 425(c)(3) of the
Code, and provided that the Optionee will make representations and
warranties satisfactory to the Company regarding his or her title to
the shares used to effect the purchase, including without limitation
representations and warranties that the Optionee has good and
marketable title to such shares free and clear of any and all liens,
encumbrances, charges, equities, claims, security interests, options
or restrictions, and has full power to deliver such shares without
obtaining the consent or approval of any person or governmental
authority other than those which have already given consent or
approval in a form satisfactory to the Company. The equivalent
dollar value of the shares used to effect the purchase shall be the
fair market value of the shares on the date of the purchase as
determined by the Board in its sole discretion, exercised in good
faith.
15. Stock Option Agreements. The terms and conditions of
Options granted under the Plan shall be evidenced by a Stock Option
Agreement (hereinafter referred to as the "Agreement") executed by
the Company and the person to whom the Option is granted. Each
agreement shall contain the following provisions:
15.1 A provision fixing the number of shares which may be
issued upon exercise of the Option;
15.2 A provision establishing the Option exercise price
per share;
<PAGE>
15.3 A provision establishing the times and the installments in
which Options may be exercised, provided, however, such times and
installments shall not be more than 20% of the number of shares covered
by such Option each year from the Option Grant Date;
15.4 A provision incorporating therein this Plan by reference;
15.5 A provision clarifying which Options are intended to
be Incentive Stock Options under Plan A and which are intended to be
nonstatutory stock options under Plan B;
15.6 A provision fixing the maximum duration of the Option
as not more than five (5) years from the Option Grant Date for
Options granted under Plan A and not more than ten (10) years from
the Option Grant Date for Options granted under Plan B;
15.7 Such representations and warranties by the Optionee
as may be required by section 25 of this Plan or as may be required
by the Board in its discretion;
15.8 Any other restriction (in addition to those
established under this Plan) as may be established by the Board with
respect to the exercise of the Option, the transfer of the Option,
and/or the transfer of the shares purchased by exercise of the
Option, provided that such restrictions are not in conflict with
this Plan; and
15.9 Such other terms and conditions consistent with this
Plan as may be established by the Board.
16. Taxes, Fees and Expenses. The Company shall pay all
original issue and transfer taxes (but not income taxes, if any)
with respect to the grant of Options and/or the issue and transfer
of shares pursuant to the exercise of such Options, and all other
fees and expenses necessarily incurred by the Company in connection
therewith, and will from time to time use its best efforts to comply
with all laws and regulations which, in the opinion of counsel for
the Company, shall be applicable thereto.
17. Withholding of Taxes. The grant of Options hereunder and
the issuance of Common Stock pursuant to the exercise of such
Options is conditioned upon the Company's reservation of the right
to withhold, in accordance with any applicable law, from any
compensation payable to the Optionee any taxes required to be
withheld by federal, state and local law as a result of the grant or
exercise of any such Option.
18. Amendment or Termination of the Plan.
18.1 The Board may amend this Plan from time to time in
such respects as the Board may deem advisable, provided, however,
that no such amendment shall operate to (i) affect adversely an
Optionee's rights under this Plan with respect to any Option granted
hereunder prior to the adoption of such amendment, except as may be
necessary, in the judgment of counsel to the
<PAGE>
Company, to comply with any applicable law, (ii) increase the maximum
aggregate number of shares which may be optioned and sold under the
Plan (unless shareholders approve such increase), (iii) change the manner
of determining the option exercise price, (iv) change the classes of
persons eligible to receive Options under the Plan, or (v) extend
the maximum duration of the Option or the Plan.
18.2 The Board may at any time terminate this Plan. Any
such termination of the Plan shall not, without the written consent
of the Optionee, alter the terms of Options already granted, and
such Options shall remain in full force and effect as if this Plan
had not been terminated.
19. Options Not Transferable. Options granted under this Plan
may not be sold, pledged, hypothecated, assigned, encumbered, gifted
or otherwise transferred or alienated in any manner, either
voluntarily or involuntarily by operation of law, other than by will
or the laws of descent of distribution, and may be exercised during
the lifetime of an Optionee only by such Optionee.
20. No Restrictions on Transfer of Stock. Common Stock issued
pursuant to the exercise of an Option granted under this Plan
(hereinafter "Optioned Stock"), or any interest in such Optioned
Stock, may be sold, assigned, gifted, pledged, hypothecated,
uncumbered or otherwise transferred or alienated in any manner by
the holder(s) thereof, subject, however, to any representations or
warranties requested under section 25 of this Plan and also subject
to compliance with any applicable federal, state or other local law,
regulation or rule governing the sale or transfer of stock or
securities.
21. Reservation of Shares of Common Stock. The Company,
during the term of this Plan, shall at all times reserve and keep
available such number of shares of its Common Stock sufficient to
satisfy the requirements of the Plan.
22. Restrictions on Issuance of Shares. The Company, during
the term of this Plan, shall use its best efforts to obtain from the
appropriate regulatory agencies any requisite authorization to grant
Options or issue and sell such number of shares of its Common Stock
as necessary to satisfy the requirements of the Plan. The inability
of the Company to obtain from any such regulatory agency having
jurisdiction thereof the authorization deemed by the Company's
counsel to be necessary to the lawful grant of Options or the
issuance and sale of any shares of its stock hereunder or the
inability of the Company to confirm to its satisfaction that any
grant of Options or issuance and sale of any shares of such stock
will meet applicable legal requirements shall relieve the Company of
any liability in respect of the non-issuance or sale of such stock
as to which such authorization or confirmation have not been obtained.
23. Notices. Any notice to be given to the Company pursuant
to the provisions of this Plan shall be addressed to the Company in
care of its Secretary at its principal office, and any notice to be
given to a person to whom an Option is granted hereunder shall be
addressed to him
<PAGE>
or her at the address given beneath his or her signature on his or her
Stock Option Agreement, or at such other address as such person or his
or her transferee (upon the transfer of Optioned Stock) may hereafter
designate in writing to the Company. Any such notice shall be deemed duly
given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, registered or certified, and deposited, postage and registry or
certification fee prepaid, in a post office or branch post office
regularly maintained by the United States Postal Service. It should
be the obligation of each Optionee and each transferee holding
optioned stock to provide the Secretary of the Company, by letter
mailed as provided hereinabove, with written notice of his or her
correct mailing address.
24. Adjustments Upon Changes in Capitalization. If the
outstanding shares of Common Stock of the Company are increased,
decreased, changed into or exchanged for a different number or kind
of shares of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock
split, then an appropriate and proportionate adjustment shall be
made in the number or kind of shares which may be issued upon
exercise or Options granted under the Plan; provided, however, that
no such adjustment need be made if, upon the advice of counsel, the
Board determines that such adjustment may result in the receipt of
federally taxable income to holders of Options granted hereunder or
the holders of Common Stock or other classes of the Company's
securities.
25. Representations and Warranties. As a condition to the
grant of any Option hereunder or the exercise of any portion of an
Option, the Company may require the person to be granted or
exercising such Option to make any representations and/or warranty
to the Company as may, in the judgment of counsel to the Company, be
required under any applicable law or regulation, including, but not
limited to, a representation and warranty that the Option and/or
shares issuable or issued upon exercise of such Option are being
acquired only for investment, for such person's own account and
without any present intention to sell or distribute such Option or
shares, as the case may be, if, in the opinion of counsel for the
Company, such representation is required under the Securities Act of
1933, the California Corporate Securities Law of 1968 or any other
applicable law, regulation or rule of any governmental agency.
26. No Enlargement of Employee Rights. This Plan is purely
voluntary on the part of the Company, and the continuance of the
Plan shall not be deemed to constitute a contract between the
Company and any employee, or to be consideration for or a condition
of the employment of any employee. Nothing contained in the Plan
shall be deemed to give any employee the right to be retained in the
employ of the Company or its Affiliated Companies, or to interfere
with the right of the Company or an Affiliated Company to discharge
any employee thereof at any time. No employee shall have any right
to or interest in Options authorized hereunder prior to the grant of
such an Option to such employee, and upon such grant he or she shall
have only such rights and interests as are expressly provided
herein, subject, however, to all applicable provisions of the
Company's Certificate of Incorporation, as the same may be amended
from time to time.
<PAGE>
27. Information to Option Holders. During the period any
options granted to employees of the Company remain outstanding, such
employee-option holders shall be entitled to receive, on an annual
or other periodic basis, financial and other information regarding
the Company. The Board shall exercise its discretion with regard to
the nature and extent of the financial information so provided,
giving due regard to the size and circumstances of the Company and,
if the Company provides annual reports to its shareholders, the
Company's practice in connection with such annual reports.
Notwithstanding the above, if the issuance of options under either
Plan A or Plan B is limited to key employees whose duties in
connection with the company assure their access to equivalent
information, this section 27 shall not apply to such employees and
plan. A copy of this Plan shall be delivered to the Secretary of
the Company and shall be shown by him or her to each eligible person
making reasonable inquiry concerning it. A copy of this Plan also
shall be delivered to each Optionee at the time his or her Options
are granted.
28. Legends on Stock Certificates. Each certificate
representing Common Stock issued under this Plan shall bear whatever
legends are required by federal or state law or by any governmental
agency. In particular, unless an appropriate registration statement
is filed pursuant to the Federal Securities Act of 1933, as amended,
with respect to the shares of Common Stock issuable under this Plan,
each certificate representing such Common Stock shall be endorsed on
its face with the following legend or its equivalent:
Neither the Option pursuant to which the shares
represented by this certificate are issued nor said shares
have been registered under the Securities Act of 1933, as
amended (the "Act"). Transfer or sale of such securities
or any interest therein is unlawful except after
registration, or pursuant to an exemption from the
registration requirements, as provided in the Act and the
regulations thereunder.
29. Specific Performance. The Options granted under this Plan
and the Optioned Stock issued pursuant to the exercise of such
Options cannot be readily purchased or sold in the open market, and,
for that reason among others, the Company and its shareholders will
be irreparably damaged in the event that this Plan is not
specifically enforced. In the event of any controversy concerning
the right or obligation to purchase or sell any such Option or
Optioned Stock, such right or obligation shall be enforceable in a
court of equity by a decree of specific performance. Such remedy
shall, however, be cumulative and not exclusive, and shall be in
addition to any other remedy which the parties may have.
30. Invalid Provision. In the event that any provision of
this Plan is found to be invalid or otherwise unenforceable under
any applicable law, such invalidity or enforceability shall not be
construed as rendering any other provisions contained herein invalid
or unenforceable, and all such other provisions shall be given full
force and effect to the same extent as though the invalid or
unenforceable provision was not contained herein.
<PAGE>
31. Applicable Law. This Plan shall be governed by and
construed in accordance with the laws of the State of California.
32. Successors and Assigns. This Plan shall be binding on and
inure to the benefit of the Company and the employees to whom an
Option is granted hereunder, and such employees' heirs, executors,
administrators, legatees, personal representatives, assignees and
transferees.
IN WITNESS WHEREOF, pursuant to the due authorization and
adoption of this Plan by the Board on June 11, 1999, the Company has
caused this Plan to be duly executed by its duly authorized officers.
LAKOTA ENERGY, INC.
/s/R.K. Honeyman
By: R.K. Honeyman
Its: President
PMR and ASSOCIATES
1042 North El Camino Real Suite #B-266
Encinitas, California, 92024
760-635-8695 Phone
760-635-8651 Fax
email: [email protected]
Ken Honeyman, President 1-27-98
Lakota Energy, Inc.
Thank you for your interest in PMR and Associates services in the investor
relations field. Below please find the details of the proposal. Should you
or your legal counsel have any questions please feel free to contact me.
PROPOSAL OUTLINE
PMR and Associates will provide full investor relations services for Lakota
Energy, Inc. (OTC BB "LAKO") (hereinafter referred to as "PUBLIC COMPANY")
Pursuant to the terms and conditions below.
COMPENSATION
A. RETAINER: $5,000 per month based on a month to month contract. B.
OPTIONS: "Public Company" agrees to grant Patrick AL Rost an option to
purchase 1,000,000 (one million) free trading shares of common stock for a
purchase price of $.14 (fourteen cents). "Public Company" agrees to grant
Patrick M. Rost an option to purchase 1,000,000 (one million) free trading
shares of common stock for a purchase price of $.16 (sixteen cents). "Public
Company" agrees to grant Patrick M. Rost an option to purchase 1,000,000
(one million) free trading shares of common stock for a purchase price of
$.18 (eighteen). "Public Company" agrees to grant Patrick M. Rost and option
to purchase 400,000 shares of free-trading common stock for a purchase price
of $.20 (twenty cents). It is also agreed upon that the options can be
exercised in a cashless transaction. These options am to one year from the
signing date of this agreement.
SERVICES PROVIDED
A. Assist in the creation of an investor package.
B. Broker/Dealer Relations: Disseminate IR packages and corporate profiles
to pre-qualified brokers.
C. Introduction to market makers interested in making a market in
the "Public Company" stock.
D. Increase awareness amongst institutional and individual investors.
E. Introduce industry analysts to the company.
F. Assist in the development of an investor relations web site.
G. Assist in the drafting and dissemination of press releases through
appropriate wire services.
H. Maintain broadcast fax list and mailing list for new press
releases and corporate updates
I. Answer all shareholder inquiries.
J. Organize and attend any conferences or industry forums on behalf of "Public
Company".
G. "Public Company" agrees to indemnify and hold harmless Patrick
M. Rost, PMR and Associates for any acts arising out of this transaction.
Thank you for your time and I look forward t oa successful future between our
companies.
AGREED Upon By: /s/Patrick M. Rost, Patrick M. Rost, PMR and Associates 2/8/99
AGREED Upon By: /s/Ken Honeyman, President:LAKO" Inc., 2-8-99
<PAGE>
March 1, 1999
PMR and Associates
1042 North El Camino Real, Ste. B-26
Encinitas, CA 92024
Dear Mr. Rost:
This letter will serve as an amendment to that certain consulting agreement
signed between PMR and Associates and Lakota Energy Inc., dated January 27,
1999.
As agreed upon by signatures below the terms and amounts to the options
shall now read:
1,000,000 (1 million shares) of free trading common stock for the purchase
price of .10 (ten cents) per share.
1,000,000 (1 million shares) of free trading common stock for the purchase
price of .14 (fourteen cents) per share.
1,000,000 (1 million shares) of free trading common stock for the purchase
price of .16 (sixteen cents) per share.
888,000 (eight hundred and eighty eight thousand shares) of free trading
common stock for the purchase price of .18 (eighteen cents) per share.
This amendment shall supercede all prior documents and agreements for
the prices and amounts only and shall not supercede all other terms,
conditions and covenants as per the original agreement date January 27, 1999.
/s/Ken Honeyman /s/Patrick M. Rost
Ken Honeyman Patrick M. Rost
President PMR and Associates
Lakota Energy, Inc.
Dated: 3-1-99 Dated: 3-1-99
LAKOTA
ENERGY INC.
June 4, 1999
Mr. David E. Bodie
Market Strategies
1472 Sandra Dr.
Endicott, NY 13760
Re: Contract for Investor Relations/Financial Public Relations Services
Lakota Energy, Inc. wishes to retain Market Strategies to perform
Investor Relations related functions for Lakota in the United States
and Canada. The term covered by this Contract shall be four (4)
months beginning with May and running through August, 1999. The
amount of compensation shall be $4,000.00 per month for a total of
$16,000.00 over the entire term. This monthly compensation shall be
inclusive of any and all expenses for telephone, faxes, postage, etc.
In addition to the above, the following Performance Compensation
Schedule is hereby made part of this Contract:
When Lakota's common stock closes at a price of $.50 or higher for
five (5) consecutive trading days, Lakota will instruct the transfer
agent to issue Market Strategies 50,000 restricted common shares of
Lakota stock;
When Lakota's common stock closes at a price of $.75 or higher for
five (5) consecutive trading days, Lakota will instruct the transfer
agent to issue Market Strategies 50, 000 restricted common shares of
Lakota stock;
When Lakota's common stock closes at a price of $1.00 or higher for
five (5) consecutive trading days, Lakota will instruct the transfer
agent to issue Market Strategies 50,000 restricted common shares of
Lakota stock.
<PAGE>
When Lakota's common stock closes at a price of $1.25 or higher for
five (5) consecutive trading days, Lakota will instruct the transfer
agent to issue Market Strategies 100,000 restricted common shares of
Lakota stock.
All of the above stock so issued will come with "piggyback
registration rights" to be included in any Registration Statement
undertaken by Lakota Energy, Inc.
Any extension of the terms of this Contract beyond August, 1999 must
be negotiated and mutually agreed upon between the parties prior to
any such extension.
/s/Ken Honeyman 6-4-99 /s/David E Bodie 6/5/99
Ken Honeyman Date David E. Bodie Date
Lakota Energy, Inc. Market Strategies
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the %8reement) is made and entered into
effective the date it is signed by the last to sign am set forth
below by and between RAPID RELEASE RESEARCH LLC., (the
"Consultant'); whose principal place of business is 1980 Post Oak
Boulevard, Suite 1777, Houston, TX 77056-3809 and Lakota Energy,
Inc., 2849 Paces Ferry Road Suite 710, Atlanta, Ga 30339.
WHEREAS, Consultant is in the business of providing services for
management consulting, business advisory, shareholder information
and public relations; and
WHEREAS, the Client deems it to be in its best interest to retain
Consultant to render to the Client such services may be needed; and
WHEREAS, Consultant is ready, willing and able to render such
consulting and advisory services to the Client as hereinafter
described an the terms and conditions more fully set forth below.
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth in this Agreement. the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows.
1. CONSULTING SERVICES. The Client hereby retains the Consultant as
an independent public relations and business consultant to the
Client and the Consultant hereby accepts and agrees to such
retention. The Consultant shall render to the Client such services
as set forth on Exhibit A. attached hereto and by reference
Incorporated herein.
It is acknowledged and agreed by the Client that Consultant carries
no professional licenses, other than any that may be listed on
Exhibit A; and is not agreeing to act as a marker-maker or render
legal advice or perform accounting services, nor act as an
investment advisor or broker-dealer within the meaning of applicable
ante and federal securities laws. It is further acknowledged and
agreed by the Client that the services to be provided to the Client
hereunder are presently not contemplated to be rendered in
connection with the offer and sale of Securities in it capital
raising transaction; although Client may request services of
Consultant therefor and We method it basis for compensation if such
additional services are rendered. The services of Consultant shall
not be Exclusive nor shall Consultant be required to render any
specific number of hours or assign specific personnel to the Client
or its projects.
2. INDEPENDENT CONTRACTOR, Consultant agrees to perform its
consulting duties hereto as aft independent contractor. Nothing
contained herein shall be considered as creating An
employer-employee relationship between the parties to this
Agreement. The Client shall not make social security, workers'
compensation or unemployment Insurance payments on behalf of
Consultant. The parties hereto acknowledge and agree that Consultant
cannot guarantee the results or effectiveness of any or the services
rendered or to be rendered by Consultant hereunder. Rather,
Consultant shall conduct its operations and provide its services in
a professional manner and in accordance with good industry practice.
Consultant will use its best efforts and does not promise results.
<PAGE>
3. TIME, PLACE AND MANNER OF PERFORMANCE, The Consultant shall be available
for advice and counsel to the officers and directors of the Client at such
reasonable and convenient times and places as may be mutually agreed upon.
Except as Aforesaid, the time, place and manner of performance of the
services hereunder, including the amount of time to be allocated by the
Consultant to any specific service, shall be determined at the sole
discretion of the Consultant.
4. TERM OF AGREEMENT. The term of this Agreement shall be Six (6) months
commencing on the date of this Agreement, both subject to prior termination
as, hereinafter provided.
5. COMPENSATION AND EXPENSES. In full consideration of the services to be
provided for the Client by the Consultant as fully set forth in Exhibit "A",
the Client agrees to compensate Consultant in the manner set forth in
Exhibit "B". In addition, the Client shall reimburse the Consultant for all
preapproved expenses and disbursements Incurred by the Consultant on behalf
of the Client in connection with the performance of consulting services
pursuant to this Agreement, Consultant shall be solely responsible for all
expenses and disbursements anticipated to be made in connection with its
performance under this Agreement. Compensation is not to be prorated over
the term of this Agreement and is non-refundable; Provided, If Consultant is
terminated for cause as provided below, then the Compensation shall be
prorated on a monthly basis,
6. DUTIES AND OBLIGATIONS OF CLIENT
(a) Client shall furnish to Consultant such current information and data as
necessary for Consultant to understand end base its advice to the Client,
and shall provide such current information on a regular basis, including at
a. minimum
(i) Financial Information
Balance Sheet, Income Statement, Cash Flow Analysis and Sales Projections;
Officers and Directors Resumes or Curriculum Vitae; and,
(ii) Shareholder Information;
Shareholder(s) List. Debenture or preferred Stock or Option or Warrant
Agreements which may affect the number of shares to be issued or outstanding.
(b) Client shall furnish Consultant with full and complete copies of all
filings with all Federal and States securities Agencies. with full and
complete copies of all Shareholder Reports and Communications whether or not
prepared with assistance of Consultant, with all data and information
supplied to any Analyst, Broker/Dealer, Market-Maker, or any other member of
the Financial Community, Including specifically most recently filed Form 10
or Form l5c2(11) or Offering documents (such as 504, 505 fir 506) or Private
Placement Documents.
(c) Client will notify Consultant of any private or public offering of
securities, including 6-8 or Regulation S or A, at least Ten (110) days
prior to making such an offering during the term of this Consulting Agreement.
<PAGE>
(d) Client will notify Consultant in writing at least 30 days prior
to any insider ailing of clients stock.
(e) Client will not cause to be affected a change or split of the
Client stock during the terms of this Agreement without prior
written notice to Consultant.
(f) Client shall be responsible for advising Consultant of any
information or facts which would affect the accuracy of any prior
data and information to Consultant so that Consultant.
7. TERMINATION
(a) Without cause. Consultant's relationship with the Client
hereunder may be terminated at any time by mutual written agreement
of the parties hereto.
(b) Without cause. this Agreement shall terminate upon the
dissolution, bankruptcy or insolvency of the Client.
(c) Without cause, and without excusing the Client's obligations
under Section 5 herein above. Consultant shall have the right and
discretion to terminate this Agreement should the Client violate any
law, ordinance, permit or regulation of any governmental entity,
except for violations which either singularly or in the aggregate do
not have or will not have a material adverse effect on the
operations of the Client.
(d) Without cause, this Agreement may be terminated by either party
upon giving written notice to the other party if the other patty Is
In default hereunder and such default is not reasonably cured within
fifteen (IS) days after written notice of such default.
(e) For cause(s) as set forth below, this Agreement may be
terminated by Client after giving written notice specifically
detailing all and any event(s) of default to Consultant, if such
specified event(s) of default Is not reasonably cured within fifteen
(15) days after receipt of written notice of such events of default(s):
(i) Any willful breach of duty by Consultant;
(ii) Any material breach by Consultant of the obligations in
Section 9;
(iii) Any material acts or events which inhibit Consultant from
fully performing its responsibilities under this Agreement in good
faith.
8. WORK PRODUCT. It is agreed that all information And materials
produced for the Client shall be the property or the Consultant,
free and clear of all claims thereto by the Client, and the Client
shall retain no claim of authorship therein,
9. CONFIDENTIALITY. The Consultant recognizes and acknowledges that it
has and will have access to certain confidential information of the Client
and its affiliates that are valuable.
<PAGE>
special and unique assets and property lot the Client and such
affiliates The Consultant will not, during the tam of this
Agreement, disclose, without the prior written consent or
authorization of the Client any of such information to any person,
for any region or purpose whatsoever. In this regard, the Client
agrees that ouch authorization or consent to disclose may be
conditioned upon the disclosure being made pursuant to a secrecy
agreement, protective order, provision of stoma, rule, regulation or
procedure under which the confidentiality of the information is
maintained in the hands of the person to whom the information is to
be disclosed or in compliance with the terms of a judicial order or
administrative process.
10. CONFLICT OF INTEREST. The Consultant shall be free to perform
services for other persons, The Consultant will notify the Client of
its performance of consultant services for any other person, which
could conflict with its obligations under the Agreement, Upon
receiving such notice, the Client may terminate this Agreement or
consent to the Consultant's outside consulting activities; failure to
terminate this Agreement. within seven (7) days of receipt of written
notice of conflict, shall constitute the Client's ongoing; consent to
the Consultant's outside consulting services.
11. DISCLAIMER OF RESPONSIBILITY FOR ACTS Of THE CLIENT.
The obligations of Consultant described in this Agreement consist solely
of the furnishing of information and advice to the Client in the form of
services. In no event shall Consultant be required by this Agreement
to represent or make management decisions for the Client, All final
decisions with respect to acts and omissions of the Client or any
affiliates and subsidiaries, shall be those of the Client or such
affiliates and subsidiaries, and Consultant shall under no
circumstances be liable for any expense incurred at lose suffered by
the Client as a consequence of such sets or omissions.
12. INDEMNIFICATION. The Client shall protect. defend, indemnify and
hold Consultant and its assigns and attorneys. accountants,
employees, officers and directors harmless from and against all
losses, liabilities, damages, judgments, claims, counterclaims,
demands, actions, proceedings, costs and expenses (including
reasonable attorneys' fees) of every kind and character resulting
from, relating to or arising out of (a) the inaccuracy,
non-fulfillment or breach of any representation, warranty, covenant
or agreement made by the Client, or (b) any legal action, including
any counterclaim based on any representation, warranty, covenant or
agreement made by the Client herein; or (C) negligence or willful
misconduct by the Client.
The Consultant shall protect, defend, indemnify and hold harmless
the Client and its assigns and attorneys, accountants, employees,
officers arid directors harmless from arid against all losses,
liabilities, damages, judgments, claims, counterclaims, demands,
actions, proceedings, costs and expenses (including reasonable
attorneys' fees) of every kind and character resulting from,
relating to or wising out of (a) the inaccuracy, non-fulfillment or
breach of any representation warranty covenant or agreement made by
the Consultant herein except those based on information furnished by
the Client or Its representatives; or (b) any legal action,
including any counterclaim, based on any representation, warranty,
covenant or agreement made by the Consultant herein; or (c)
negligent or willful misconduct by the Consultant.
13. NOTICES. Any notices required or permitted to be given under
this Agreement shall be sufficient if in writing and delivered or
sent by:
<PAGE>
(a) Registered or Certified Mail to the principal office of the
other party, postage prepaid with return receipt requested deposited
in a proper receptacle of the United States Postal Service or its
successors. Said notice shall be addressed to the Intended
recipient. A written notice sent in conformity with this provision
%hall be deemed delivered as of the date shown "delivered" on the
return receipt; or.
(b) Transmitted by Prepaid Telegram or by Telephone Facsimile
Transmission if receipt is acknowledged by the addressee. Notice so
transmitted by telegram or facsimile transmission &hall be effective
only if receipt of transmission is acknowledged by an appropriate machine
or written confirmation, and such notice shall be deemed effective
on the next business day after transmission; or,
(c) Notice given In any other manner shall be effective only
if and when proven to have been received by the addressee.
For purposes or notice, the address of each party shall be the
address set forth above; Provided, however, that each party shall
have the right to change his respective address for notices
hereunder to another location(s) within the continental United
States by giving 30 days' written notice to the other party in the
manner set forth hereinabove.
14. WAIVER OF BREACH. Any waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or
be construed as a waiver of any subsequent breach by any party.
15. ASSIGNMENT. This Agreement and the rights and obligations of the
Consultant hereunder shall not be assignable without the written consent
of the Client.
16. APPLICABLE LAW. It is the intention of the parties hereto that
this Agreement and the performance hereunder and all suits and
special proceedings hereunder be construed in accordance with and
under and pursuant to the laws of the State of Texas and that in any
action, special proceeding or other proceeding that may be brought
arising out of, in connection with or by reason of this Agreement,
the laws of the State of Texas shall be applicable and shall govern
to the exclusion of the law of any other forum, without regard to
the jurisdiction an which any action or special proceeding may be
instituted.
17. SEVERABILITY. All agreements and covenants contained herein are
severable, and in the event any of them shall be hold to be invalid
by any competent court, the Agreement shall be interpreted as if
such invalid agreements or covenants were not contained herein.
18. ENTIRE AGREEMENT This Agreement constitutes and embodies the
entire understanding and agreement of the parties and supersedes and
replaces all prior understanding, agreements and negotiations
between the parties.
19. WAIVER AND MODIFICATION. Any waiver. alteration, or modification
of any of the provisions of this Agreement shall be valid only if made
in writing and signed by the parties hereto.
<PAGE>
Each party hereto, may waive any of its rights hereunder without
affecting a waiver with respect to any subsequent occurrences or
transactions hereof.
20. BINDING ARBITRATION. As concluded by the panics hereto, any
controversy between the panics hereto involving any dispute or claim
by, through or under, or the construction or application of any
terms, Covenants or conditions of, this agreement, shall on rho
written request of ant party served upon the other, be submitted to
arbitration, and such arbitration shall comply with and be governed
by the provisions of the Federal Arbitration Act as it may be
amended; Provided, that Arbitration shall be conducted In Harris
County, Texas and be conducted by the American Arbitration
Association ("AAA"), The FAA rules shall apply, and the AAA rules
shall apply if nor in conflict with the FAA rules. All evidence
shall be subject to the Federal Rules of Civil Evidence.
21. COUNTERPARTS AND FACSIMILE SIGNATURE. This Agreement may be
executed simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which taken together shall
constitute one and the same instrument. Execution and delivery of
this Agreement by exchange of facsimile copies bearing the facsimile
signature of a party, hereto shall constitute a valid and binding
execution and delivery of this Agreement by much party. Such
facsimile copies shall constitute enforceable original documents,
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement, effective as of the date act forth above.
CLIENT:
LAKOTA ENERGY, INC.
BY: /s/Ken Honeyman
R.K. (Ken) Honeyman
Its Authorized Officer
Signed Date: 8-9-99
CONSULTANT
RAPID RELEASE RESEARCH, LLC.
BY: /s/Martin R. Nathan
Martin R. Nathan, President
Its Authorized Officer
Signed Date: 8-6-99
<PAGE>
"EXHIBIT A"
Consultant shall provide services to Client as an independent
management consultant Consultant shall make itself available to
consult with the board of directors officers, employees and
representatives and agents of the Client at reasonable times,
concerning matters, pertaining to the overall business and financial
operations of the Client, a well as the organization of the
administrative staff of the Client, the fiscal policy of the Client,
and in general, concerning any problem of importance concerning the
business affairs of the Client, Consultant may, at the request of
the Client, assist in the preparation of written reports on
financial, accounting, or marketing matters, review final
information, analyze markets rind report to the Client's Chairman of
the Board of Directors or Chief Executive Officer or President or a
Vice-President or Treasurer on proposed investment opportunities,
and develop short and long term strategic business plans. In
addition, Consultant shall provide liaison services to the Client
with respect to the Client's relationships with unaffiliated third
parties. Consultant does net undertake as part of this Agreement to
provide loans, investments or financing for the Client, although
such financial benefits may be made available to Client during the
course of Consultant's engagement. Consultant will not perform any
activities that could subject Consultant or Client to violations of
Federal or applicable state securities law.
<PAGE>
"EXHIBIT B"
Client shall compensate Consultant for its services tendered by
Consultant under this Agreement, as follows:
I. Client shall pay to Consultant's affiliate, Jacob International,
Inc., a fee equal to Four Point Nine Percent (4.9%) of the total issued
and outstanding common shares of the Client. Based on 4.9% of Lakota's
issued and outstanding common stock, the total amount of stock would be
1,715,000 shares, to be delivered in accordance with the following
Performance Compensation Schedule:
A. Upon signing, Lakota will deliver to Jacob International,
Inc., 428,000 common shares and two certificates in the name of
Jacob International, Inc., one for 428,000 and one for 857,000
common shares shall be delivered to an Escrow Agent designated by
Lakota who shall be irrevocably instructed and directed to deliver
the shares as follows:
1. When Lakota's common stock closes at a price of SO-50 or
higher for five (5) consecutive trading days, Lakota will cause
the Escrow Agent to deliver to Jacob International, Inc.,
428,000 common shares. provided such closing prior to the termination
of this Agreement.
2. When Lakota's common stock closes at a price of $1.00 or higher for
five (5) consecutive trading days, Lakota will cause the Escrow
Agent to deliver to Jacob International, Inc., 857,000 common shares;
provided such closing prices to the termination of this Agreement.
3. The shares shall be delivered to the person named below as Escrow
Agent on at before (10) business days after exercise of the Non-Qualified
Stock Option. The Escrow Agent shall be Bryan Lebrecht, whose address is
610 Newport Center Drive, Suite 800, Newport Beach, CA, 92660 (Telephone
949-719-1977; Fax 949-719-1988). The Consultant shall execute a stock
proxy execute a stock proxy an the escrowed stock in favor of the designee
of the Client to be effective while the stock is held La escrow. The
escrowed shares shall be returned to the Client if the Consultant is
not in compliance with this Agreement. The Escrow Agent shall be subject
to the written instructions of the Client and the Consultant until the
termination of this agreement, the Client lad consultant may change
or remove the Escrow Agent by written instrument, and the Client may
appoint another Escrow Agent with the written consent of the Consultant
the Client shall compensate the Escrow Agent for any expenses or costs
incurred for handling the Escrow.
B. THE SHARES TO RE ISSUED HEREUNDER OR TO BE RECEIVED BY
CONSULTANT OR ITS AFFILIATE HEREUNDER SHALL BE SUBJECT TO
RESTRICTIONS AS TO TRANSFER UNDER RULE 144 PROMULGATED BY THE
SECURITIES EXCHANGE COMMISSION ("SEC"). All of the above stock so
issued will come with "piggyback registration rights" to be included
in any Registration Statement undertaken by Lakota Energy, Inc.
Consultant shall have the right to "Piggyback" on any registration or
offering by the Client without cost or expense. The shares thereupon
shall be unrestricted as to t transferability and the Certificates
shall not bear any legends or restrictions.
<PAGE>
D. The parties acknowledge that the recent trading volume is not an a
fair indication of value for this transaction, It is hereby agreed
that the value of the stock for this transaction, based on the
number of shares and recent trading volume: is No Dollars and 2/100
cents ($.02) per share.
II. Client shall reimburse Consultant for reasonable "Costs" Incurred
of expended for and on behalf of the Client for those costs which the
Client for those costs which the Client approves in advance.
Consultant agrees to maintain written records of the time and effort or
costs incurred or expended by it on behalf of Client, which records shall
be available to Client upon request, "Costs" shall include, among those
items normally considered to be "costs", the actual sum or sums paid
or incurred by Consultant for or on behalf of Client for document
production, photocopying ,facsimile transmission, long distance telephone,
postage, delivery service, filing fees, publication costs, bond premiums,
computer time and charges, electronic, database and communications costs,
library charges, travel and transportation charges. Costs shall be
billed at the amount actually incurred to third party providers, or
if the cost is incurred "in-house", at the usual and regular charges for
the service provided made to other like clients or according to the fee and
charge schedule published or utilized from time to time by the
Consultant (which at the present time is the same as used by third
party providers such as Kinko's or Copy Club.) If the Consultant incurs or
expands costs for any item or items which are or can be used by other clients,
Consultant, in his sole discretion, may make a reasonable allocation of such
costs incurred or expended and Client agrees to pay such allocated amount
to Consultant.
III. Additional Compensation. In the Course of its services to Client,
Consultant may consult regarding various financial and/or strategic
options for consideration by Client. Such options may include
without limitation, acquisitions, asset sales or purchases, mergers,
consolidations, joint ventures, of other business combinations,
recapitalization, spin-offs, and equity and debt financing through
public offerings, Private placements, institutional borrowing or
otherwise, in each case involving Client and a third party or parties
introduced by Consultant an the other hand ("Transactions"). The parties
agree that the name of the third party or parties introduced by Consultant
hereunder shall be listed on a schedule which shall be annexed to
this Agreement.
(1) If one or more Transactions are consummated during the period
commencing on the date hereof and ending two (2) years from the date
this Agreement is terminated, then for each such Transaction. Client
shall pay to Consultant additional compensation for Consultant's
services for such Transaction(s), a fee equal to:
i. Ten (10%) percent of the first One Million Dollars and No Cents
($1,000,000.00) of aggregate consideration; and,
ii. Five Percent (5%) of the second One Million Dollars and No
Cents ($1,000,000.00 ) of aggregate consideration; and,
iii. Four Percent (4%) of the third One Million Dollars and No Cents
(1,000,000.00) of aggregate consideration, and,
<PAGE>
iv. Three Percent (3%) of the fourth One Million Dollars and No Cents
($1,000,000.00) of aggregate consideration; and,
v. Two Percent (2%) of the fifth One Million Dollars and No
Cents ($1,000,000.00) of aggregate consideration; and,
vi. One Percent (1%) of all amounts in excess of Six Million
Dollars and No Cents ($6,000,000.00) of aggregate consideration.
The term "Aggregate Consideration", its used herein, of the
Transaction, payable at the time and from time to time as such
consideration is received. For purposes hereof aggregate
consideration shall mean the total value of all cash, securities,
notes, rights under escrow arrangements, and any other consideration
paid or payable, directly or indirectly, in connection with a
Transaction, as well as institutional debt for borrowed money which
is being assumed in connection therewith. If a portion of
Consideration includes contingent payments, aggregate consideration
shall also include One Hundred Percent (100%) of the face value of
such payments, when and if made, in which event that portion of the
fee payable to Consultant hereunder shall be evidenced by a
promissory note(s) ("Note") secured by the contingent payment, said
Note payable to Consultant coincident with payment of such
contingent payments. Should regulatory requirements and/or economic
constraints indicate a lower percentage fee, then Client shall not
enter into any financing arrangement with a party named in the
schedule hereto without the prior written consent of Consultant, if
any of the aggregate consideration is to be made in the form other
than cash or good funds, then the Client shall deliver to Consultant
an assignment of a prorata portion of the aggregate consideration in
whichever form such aggregate consideration is to be paid (for
example, $1,000,000 cash and $1,000,000 note will be paid to
Consultant as follows:
Total compensation due: 10% of $1,000,000 and 5% of $1,000,000 -
$l50,000.
Cash portion (50% of $150,000) =$75,000 Cash at Closing
Deferred portion (50% of $ 150,000)=$75,000 Note
ESCROW AGREEMENT
This ESCROW AGREEMENT (the "Escrow Agreement") is entered
into as of August 11, 1999 by and between Lakota Technologies, Inc.,
a Colorado corporation f/k/a Lakota Energy, Inc. ("Lakota"), Rapid
Release Research, LLC ("Rapid"), and MRC LEGAL SERVICES CORPORATION,
a California corporation, as escrow agent ("Escrow Agent").
R E C I T A L S
A. Lakota and Rapid have entered into that certain
Consulting Agreement effective August 9, 1999, a copy of which has
been attached hereto as Exhibit A (the "Agreement").
B. As a condition of the Agreement, Lakota has agreed to
deposit with the Escrow Agent two (2) common stock certificates,
each bearing a Rule 144 restrictive legend, one in the amount of
428,000 shares (the "First Certificate") and the other in the amount
of 857,000 shares (the "Second Certificate"), to be released in
accordance with the terms and conditions of this Escrow Agreement.
C. Escrow Agent has agreed to act as the escrow agent
hereunder, in accordance with the terms and conditions set forth in
this Escrow Agreement.
NOW THEREFORE, for and in consideration of the foregoing and
of the mutual covenants and agreements hereinafter set forth, the
parties hereto hereby agree as follows:
1. APPOINTMENT OF ESCROW AGENT. The Parties hereby mutually appoint
and designate the Escrow Agent to receive, hold and release, as escrow
agent, the First Certificate and the Second Certificate and the Escrow
Agent hereby accepts such appointment and designation.
2. ESCROW DELIVERY. Within five (5) days of the date of
this Escrow Agreement, Lakota shall deliver or cause to be delivered
the First Certificate and the Second Certificate, each issued in the
name of Jacob International, Inc. and otherwise in form and
substance satisfactory to Rapid.
3. CONDITIONS OF ESCROW.
3.1 The Escrow Deposit. Escrow Agent shall hold and
release the First Certificate and the Second Certificate as follows:
a. Release of the First Certificate From Escrow. The Escrow
Agent shall release and distribute the First Certificate as follows:
i. to Rapid if, prior to February 9, 2000, the closing bid price
for the common stock of Lakota, as quoted on the Over the Counter
Bulletin Board or other recognized exchange, is $0.50 or higher for
a period of five (5) consecutive trading days.
<PAGE>
ii. to Lakota either (a) on February 10, 2000 if the condition set
forth in Section 3.1(a)(i) hereof has not been satisfied by that
date, or (b) in the event of a breach of the Agreement by Rapid.
iii. to Lakota or Rapid, as the case may be, pursuant to (a)
written instructions executed by both Lakota and Rapid, or (b) any
"final order" of a court of competent jurisdiction, any such order
being deemed to be "final" if (i) such order has not been reserved,
stayed, enjoined, set aside, annulled or suspended, (ii) no request
for a stay, suspension or an injunction, petition for
reconsideration or appeal, or sua sponte action with comparable
effect is pending with respect to the order, and (iii) the time for
filing any such request, petition or appeal or further taking of any
such sua sponte action has expired.
b. Release of the Second Certificate From Escrow. The Escrow Agent
shall release and distribute the Second Certificate as follows:
i. to Rapid if, prior to February 9, 2000, the closing bid price
for the common stock of Lakota, as quoted on the over the Counter
Bulletin Board or other recognized exchange, is $1.00 or higher for
a period of five (5) consecutive trading days.
ii. to Lakota either (a) on February 10, 2000 if the condition set
forth in Section 3.1(b)(i) hereof has not been satisfied by that
date, or (b) in the event of a breach of the Agreement by Rapid.
iii. to Lakota or Rapid, as the case may be, pursuant to (a)
written instructions executed by both Lakota and Rapid, or (b) any
"final order" of a court of competent jurisdiction, any such order
being deemed to be "final" if (i) such order has not been reserved,
stayed, enjoined, set aside, annulled or suspended, (ii) no request
for a stay, suspension or an injunction, petition for
reconsideration or appeal, or sua sponte action with comparable
effect is pending with respect to the order, and (iii) the time for
filing any such request, petition or appeal or further taking of any
such sua sponte action has expired.
3.2 Conflicting Instructions. If a controversy arises between the
Parties concerning the release of the First Certificate or the
Second Certificate hereunder, they shall notify the Escrow Agent.
In that event (or, in the absence of such notification, if in the
good faith judgment of the Escrow Agent such controversy
<PAGE>
exists), the Escrow Agent shall not be required to resolve such
controversy or take an action but shall be entitled to await resolution
of the controversy by joint instructions from the Parties. The Escrow
Agent may institute an interpleader action in state or federal court
in the State of California to resolve such controversy. If a suit
is commenced against the Escrow Agent, it may answer by way of
interpleader and name Lakota and Rapid as additional parties to such
action, and the Escrow Agent may tender the First Certificate and/or
the Second Certificate into such court for determination of the
respective rights, titles and interests of the Parties. Upon such
tender, the Escrow Agent shall be entitled to receive from the
Parties its reasonable attorneys' fees and expenses incurred in
connection with said interpleader action or in any related action or
suit. As between Lakota and Rapid, such fees, expenses and other
sums shall be paid by the party which fails to prevail in the
proceedings brought to determine the appropriate distribution of the
First Certificate and/or the Second Certificate. If and when the
Escrow Agent shall so interplead such Parties, or either of them,
and deliver the First Certificate and/or the Second Certificate to
the clerk of such court, all of its duties hereunder shall cease,
and it shall have no further obligation in this regard. Nothing
herein shall prejudice any right or remedy of the Escrow Agent.
4. CONCERNING ESCROW AGENT
4.1 Duties. Escrow Agent undertakes to perform all duties which
are expressly set forth herein; provided, however, that the Escrow
Agent shall not be required to make or be liable in any manner of
its failure to make any determination under the Agreement or any
other agreement, including whether Lakota or Rapid is entitled to
delivery of the First Certificate and the Second Certificate under
the Agreement.
4.2 Indemnification.
a. Escrow Agent may rely upon and shall be protected in acting or
refraining from acting upon any written notice, instructions or
request furnished to it hereunder and believed by it to be genuine
and authorized.
b. Escrow Agent shall not be liable for any action taken by it in
good faith and without gross negligence or wilful misconduct, and
believed by it to be authorized or within the rights or powers
conferred upon it by this Escrow Agreement, and may consult with
counsel of its own choice and shall have full and complete
authorization and protection for any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such
counsel.
c. Seller hereby agrees to indemnify the Escrow Agent for, and hold
the Escrow Agent harmless against, any loss, liability or expense
incurred without gross negligence or wilful misconduct or bad faith
on the part of the Escrow Agent, arising out of or in connection
with the Escrow Agent's entering into this Escrow Agreement and
carrying out the Escrow Agent's duties hereunder, including, without
limitation,
<PAGE>
costs and expenses of defending the Escrow Agent against
any claim or liability with respect thereto.
d. Escrow Agent shall have no implied obligations or
responsibilities hereunder, nor shall it have any obligation or
responsibility to collect funds or seek the deposit of money or
property, nor is the Escrow Agent a party to any other agreement
entered into among Purchaser and Seller.
4.3 Other Matters. Escrow Agent (and any successor escrow agent or
agents) reserves the right to resign as the Escrow Agent at any
time, provided fifteen (15) days' prior written notice is given to
the other parties hereto, and provided further that a mutually
acceptable successor Escrow Agent(s) within such fifteen (15) day
period, the Escrow Agent may petition any court in the State of
California having jurisdiction to designate a successor Escrow
Agent. The resignation of the Escrow Agent (and any successor
escrow agent or agents) shall be effective only upon delivery of the
Shares and/or the Purchase Price to the successor escrow agent(s).
The Parties reserve the right to jointly remove the Escrow Agent at
any time, provided fifteen (15) days' prior written notice is given
to the Escrow Agent. In the event of litigation or dispute by the
Parties in which the performance of the duties of the Escrow Agent
is at issue, the Escrow Agent shall take no action until such action
is agreed in writing by the Parties, or until receipt of any order
pursuant to 3.1(a)iii or 3.1(b)iii above directing the Escrow Agent
with respect to the action which is the subject of such litigation
or dispute.
5. Termination. This Escrow Agreement shall be terminated upon the
release of the First Certificate and the Second Certificate in
accordance with the terms and conditions of Section 3 hereof, or
otherwise by written mutual consent signed by all parties hereto.
6. Notice. All notices, demands, requests, or other communications
which may be or are required to be given, served or sent by any
party to any other party pursuant to this Escrow Agreement shall be
in writing and shall be hand delivered (including delivery by
courier), sent by facsimile, or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, addressed
as follows:
IF TO LAKOTA:
Lakota Technologies, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
Attn: Ken Honeyman, President
Facsimile (770) 433-9194
<PAGE>
IF TO RAPID:
Rapid Release Research, LLC
1980 Post Oak Boulevard, Suite 1777
Houston, TX 77056
Attn: Martin R. Nathan, President
Facsimile ( )
IF TO THE ESCROW AGENT:
MRC Legal Services Corporation
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: Brian A. Lebrecht, Esq.
Facsimile (949) 719-1988
or such other address as the addressee may indicate by written
notice to the other parties. Each notice, demand, request or
communication which shall be given or made in the manner described
above shall be deemed sufficiently given or made for all purposes at
such time as it delivered to the addressee (with the return receipt,
the delivery receipt or the affidavit of messenger being deemed
conclusive but not exclusive evidence of such delivery) or at such
time as delivery is refused by the addressee upon presentation.
7. Benefit and Assignment. This Escrow Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns as permitted hereunder. No person
or entity other than the parties hereto is or shall be entitled to
bring any action to enforce any provision in this Escrow Agreement
against any of the parties hereto, and the covenants and agreements
set forth in this Escrow Agreement shall be solely for the benefit
of, and shall be enforceable only by, the parties hereto or their
respective successors and assigns this Escrow Agreement or any
rights hereunder without the prior written consent of the parties
hereto.
8. Entire Agreement; Amendment. This Escrow Agreement and the
Consulting Agreement executed simultaneously herewith contain the
entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior oral or written agreements,
commitments or understandings with respect to such matters. This
Escrow Agreement may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement
of any waiver, change, modification, extension or discharge is sought.
9. Headings. The headings of the sections and subsections
contained in this Escrow Agreement are inserted for convenience only
and do not form a part or affect the meaning, construction or scope
thereof.
10. Governing Law; Venue. This Escrow Agreement shall be governed
and constructed under and in accordance with the laws of the State
of California (but not including the conflicts of laws and rules
thereof). For purposes of any action or proceeding involving this
Escrow Agreement
<PAGE>
each of the parties to this Escrow Agreement expressly submits to the
jurisdiction of the federal and state courts located in the State of
California and consents to the service of any process or paper by
registered mail or by personal service within or without the State
of California in accordance with applicable law, provided a reasonable
time for appearance is allowed.
11. Signature in Counterparts. This Escrow Agreement may be
executed in separate counterparts, none of which need contain the
signature of all parties, each of which shall be deemed to be an
original and all of which taken together constitute one and the same
instrument. It shall not be necessary in making proof of this
Escrow Agreement to produce or account for more than the number of
counterparts containing the respective signatures of, or on behalf
of, all of the parties hereto.
12. Attorney's Fees. Should any action be commenced between the
parties to this Agreement concerning the matters set forth in this
Agreement or the right and duties of either in relation thereto, the
prevailing party in such action shall be entitled, in addition to
such other relief as may be granted, to a reasonable sum as and for
its Attorney's Fees and Costs.
IN WITNESS WHEREOF, each of the parties has caused this
Escrow Agreement to be duly executed and delivered in its name and
on its behalf, all as of the date and year first above written.
"LAKOTA" "RAPID"
Lakota Technologies, Inc. Rapid Release Research, LLC
/s/Ken Honeyman /s/Martin R. Nathan
By: Ken Honeyman By: Martin R. Nathan
Its: President Its: President
"ESCROW AGENT"
MRC Legal Services Corporation
/s/M. Richard Cutler
By: M. Richard Cutler
Its: President
PROMISSORY NOTE
Principal Amount: $10,000 Date: February 12, 1999
FOR VALUE RECEIVED, Lakota Energy, Inc., (the Company), promises to pay to
the order of Paras Chokshi, (the Holder), the sum of ten thousand dollars,
($ 10,000), together with interest thereon at the rate of 9.75% per annum on
the unpaid balance. Said sum shall be paid in the manner: One payment of
$243.75 every three months, until such time as the principal amount is
converted into restricted common shares of the Company's stock.
The principal amount may be converted into shares of the Company's
restricted common stock no sooner than one year from the date of this note.
The principal amount of $10,000 shall be paid in the manner:
1) No payment of the principal amount shall be payable in cash.
2) The principal amount, upon the first anniversary of this note and at the
discretion of the Holder, may be converted into restricted common shares of
the Company's stock at 85% of the average bid price per share as reported
for five consecutive trading days prior to conversion on any applicable
market in which the Company's common stock trades.
3) The principal amount in ay be converted into shares of the Company's
restricted common stock no sooner than one year from the date of this note
and no later than three years from the date of this note.
4) In any event, if conversion of the principal amount has not occurred
prior to three years from the date of this note, the principal amount shall
automatically convert on this date into shares of the Company's restricted
common stock as per #2, as stated above.
5) At such time as the principal amount is converted into the Company's
restricted common stock, the principal amount of $ 10,000 shall be deemed
paid in full by both parties and no further interest payments are due to the
Holder.
This note shall, at the option of the Holder, be immediately due and payable
upon the failure of the Company to make any payment due hereunder within 60
days of its due date, or upon the dissolution, or liquidation of the
Company, or upon the filing by the Company of an assignment for the benefit
of bankruptcy, or other form of insolvency, or by suffering an involuntary
petition in bankruptcy, or receivership not vacated within thirty (30) days.
In the event this note shall be in default and placed for collection, the
Company agrees to pay all reasonable attorney's fees and costs of
collection. Payments not made within five,
<PAGE>
(5) days of the due date shall be subject to a late charge of" 10% of said
payment. All Payments hereunder shall be made to such address as may, from
time to time designated by the Holder.
The Company agrees to remain fully bound until this note shall be fully paid
and waive demand, presentment and protest and all notices hereto and further
agrees to remain bound notwithstanding any extension, modification, waiver,
or other indulgence or discharge or release of the Company or hereunder
exchange, substitution, or release of any collateral granted as security for
this note. No modification or indulgence by the Holder hereof shall be binding
unless in writing; and any indulgence on any one occasion shall not be an
indulgence for any other or future occasions. Any modification or change in
terms, hereunder granted by the Holder hereof, shall be valid and binding
upon the Company notwithstanding the acknowledgment of the Company. The
rights of the Holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed instrument and shall
be construed, governed and enforced with the laws of the state of Georgia.
Witnessed: February 12, 1999
/s/Unknown /s/Ken Honeyman
Witness Lakota Energy Inc.
/s/Dipak Bhatt /s/Paras Chokshi
Witness, Dipak Bhatt Paras Chokshi, Holder
6233 Gulfton Dr. #3202
Houston TX 77081
PROMISSORY NOTE
Principal Amount: $20,000 Date: February 12, 1999
FOR VALUE RECEIVED, Lakota Energy, Inc., (the Company), promises to pay to
the order of Dipak Bhatt, (the Holder), the sum of twenty thousand dollars,
($20,000), together with interest thereon at the rate of 9.75% per annum on
the unpaid balance. Said sum shall be paid in the manner: One payment of
$487.50 every three months, until such time as the principal amount is
converted into restricted common shares of the Company's stock.
The principal amount may be converted into shares of the Company's
restricted common stock no sooner than one year from the date of this note.
The principal amount of $20,000 shall be paid in the manner:
1) No payment of the principal amount shall be payable in cash.
2) The principal amount, upon the first anniversary of this note and at the
discretion of the Holder, may be converted into restricted common shares of
the Company's stock at 85% of the average bid price per share as reported
for five consecutive trading days prior to conversion on any applicable
market in which the Company's common stock trades.
3) The principal amount may be converted into shares of the Company's
restricted common stock no sooner than one year from the date of this note
and no later than three years from the date of this note.
4) In any event, if conversion of the principal amount has not occurred
prior to three years from the date of this note, the principal amount shall
automatically convert on this date into shares of the Company's restricted
common stock as per #2, as stated above.
5) At such time as the principal amount is converted into the Company's
restricted common stock, the principal amount of $20,000 shall be deemed
paid in full by both parties and no further interest payments are due to the
Holder.
This note shall, at the option of the Holder, be immediately due and payable
upon the failure of the Company to make any payment due hereunder within 60
days of its due date, or upon the dissolution, or liquidation of the
Company, or upon the filing by the Company of an assignment for the benefit
of bankruptcy, or other form of insolvency, or by suffering an involuntary
petition in bankruptcy, or receivership not vacated within thirty (30) days.
In the event this note shall be in default and placed for collection, the
Company agrees to pay all reasonable attorney's fees and costs of
collection. Payments not made within five,
<PAGE>
(5) days of the due date shall be subject to a late charge of 10% of said
payment, All payments hereunder shall be made to such address as may from
time to time, designated by the Holder.
The Company agrees to remain fully bound until this note shall be fully paid
and waive demand, presentment and protest and all notices hereto and further
agrees to remain. bound notwithstanding any extension, modification, waiver,
or other indulgence or discharge or release of the Company or hereunder
exchange, substitution, or release of any collateral granted as security for
this note. No modification or indulgence by the Holder hereof shall be
binding unless in writing; and any indulgence on any one occasion shall not
be an indulgence for any other or future occasions. Any modification or
change in terms, hereunder granted by the Holder hereof, shall be valid and
binding upon the Company notwithstanding the acknowledgment of the Company.
The rights of the Holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed instrument and shall be
construed, governed and enforced with the laws of the state of Georgia.
Witnessed: February 12, 1999
/s/Unknown /s/Ken Honeyman
Witness Lakota Energy Inc.
/s/Paras Chokski /s/Dipak Bhatt
Witness Dipak Bhatt, Holder
PROMISSORY NOTE
Principal Amount: $40,000
Date: April 29, 1999
FOR VALUE RECEIVED, Robert Kent Honeyman, promises to pay to the
order of Lakota Energy Inc., (the Holder), the sum of forty thousand
dollars, ($40,000), together with interest thereon at the rate of
9.75% per annum on the unpaid balance. Said sum shall be paid in
the manner. Once payment of $975.00 every three months, until such
time as the principal amount is re-paid. Said loan shall be
callable at the discretion of the Holder and Honeyman shall be given
60 days to re-pay said loan.
Said amount shall be collateralized by Honeyman's common stock in
Lakota Energy Inc. This amount, based on April 29, 1999 bid price
of .07 shall be 571,429 shares. This stock can not be sold,
hypothecated or otherwise disposed of in any manner except to
fulfill the terms of this agreement. All sales are to be made
according to Rule 144 of the Securities and Exchange Act of 1933.
This note shall, at the option of the Holder, be immediately due and
payable upon the failure of Honeyman to make any payment due
hereunder within 60 days of its due date, or upon the dissolution,
or liquidation of the assets of Honeyman, or upon the filing by
Honeyman of an assignment for the benefit of bankruptcy, or other
form of insolvency, or by suffering an involuntary petition in
bankruptcy, nor receivership not vacated within thirty (30) days.
In the event this note shall be in default and placed for
collection, Honeyman agrees to pay all reasonable attorney's fees
and costs of collection. Payments not made within five, (5) days of
the due date shall be subject to a late charge of 10% of said
payment. All payments hereunder shall be made to such address as
may, from time to time, designated by the Holder. Honeyman agrees
to remain fully bound until this note shall be fully paid and waive
demand, presentment and protest and all notices hereto and further
agrees to remain bound notwithstanding any extension, modification,
waiver, or other indulgence or discharge or release of Honeyman or
hereunder exchange, substitution, or release of any collateral
granted as security for this note. No modification or indulgence by
the Holder hereof shall be binding unless in writing; and any
indulgence on any one occasion shall not be an indulgence for any
other of future occasions. Any modification or change in terms,
hereunder granted by the Holder hereof, shall be valid and binding
upon Honeyman notwithstanding the acknowledgment of Honeyman. The
rights of the Holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed instrument and
shall be construed, governed and enforced wit the laws of the state
of Georgia.
Witnessed: April 29, 1999
/s/Unknown
/s/Robert Kent Honeyman
Robert Kent Honeyman
/s/Howard N. Wilson,
Howard N. Wilson for the
Board of Directors, Lakota Energy Inc.
SECURITIES SUBSCRIPTION AGREEMENT
THIS SECURITIES SUBSCRIPTION AGREEMENT, dated as of March
16, 1999 ("Agreement"), is executed in reliance upon the exemption
from registration afforded by Rule 504 promulgated under Regulation
D by the Securities and Exchange Commission ("SEC"), under the
Securities Act of 1933, as amended. Capitalized terms used herein
and not defined shall have the meanings given to them in Rule 504
and Regulation D.
This Agreement has been executed by the undersigned buyer
("Buyer") in connection with the private placement of 8% Series A
Senior Subordinated Convertible Debentures of Lakota Energy, Inc. a
corporation organized under the laws of Colorado, with its principal
executive offices located at 2849 Paces Ferry Road, Suite 710,
Atlanta, Georgia 30339 ("Seller"). Buyer hereby represents and
warrants to, and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM REGISTRATION PROVIDED BY SECTION 3(B) OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER (THE "1933 ACT"), AND RULE 504 OF REGULATION D
PROMULGATED THEREUNDER.
1. Agreement to Subscribe; Purchase Price.
(a) Subscription. The undersigned Buyer hereby
subscribes for and agrees to purchase the Seller's 8% Series A
Senior Subordinated Convertible Redeemable Debenture substantially
in the form of the Debenture attached as Exhibit A hereto and having
an aggregate original principal face amount of U.S. $183,500
(singly, a "Debenture," and collectively, the "Debentures"), at an
aggregate purchase price of 100% of the face amount of such
Debentures as set forth in subsection (b) herein.
(b) Payment. The Purchase Price for the Debenture
shall be one hundred eighty three thousand five hundred United
States Dollars (U.S. $183,500) ("Purchase Price"), which shall be
payable at closing, pursuant to paragraph c herein, in accordance
with the terms and conditions of an Escrow Agreement which is
attached hereto and shall be executed simultaneously with this
Agreement ("Escrow Agreement").
<PAGE>
(c) Closing. Subject to the satisfaction of the
conditions set forth in Sections 7 and 8 hereof, the Closing of the
transactions contemplated by this Agreement shall take place when
(i) Seller delivers the Debentures to the Escrow Agent, as defined
in an Escrow Agreement among Buyer, Seller and the Escrow Agent of
even date, (ii) Seller delivers signed Escrow Agreement and (iii)
Buyer pays $25,000 towards the Purchase Price for the Debentures
("Closing Date").
2. Buyer Representations and Covenants; Access to Information.
In connection with the purchase and sale of the Debenture,
Buyer represents and warrants to, and covenants and agrees with
Seller as follows:
(i) Buyer is not, and on the closing date will not be, an
affiliate of Seller;
(ii) Buyer is purchasing the Securities for its own account and
Buyer is qualified to purchase the Securities under the laws of its
jurisdiction of residence, and the offer and sale of the Securities
will not violate the securities laws or other laws of such
jurisdiction;
(iii) All offers and sales of any of the Securities by Buyer shall
be made in compliance with any applicable securities laws of any
applicable jurisdiction and in accordance with Rule 504, as
applicable, of Regulation D or pursuant to registration of
securities under the 1933 Act or pursuant to an exemption from
registration;
(iv) Buyer understands that the Securities are not registered
under the 1933 Act and are being offered and sold to it in reliance
on specific exclusions from the registration requirements of Federal
and State securities laws, and that Seller is relying upon the truth
and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Buyer set forth herein in
order to determine the applicability of such exclusions and the
suitability of Buyer and any purchaser from Buyer to acquire the
Securities;
(v) Buyer shall comply with Rule 504 promulgated under Regulation D;
(vi) Buyer has the full right, power and authority to enter into
this Agreement and to consummate the transaction contemplated
herein. This Agreement has been duly authorized, validly executed
and delivered on behalf of Buyer and is a valid and binding
agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
<PAGE>
(vii) The execution and delivery of this Agreement and the
consummation of the purchase of the Securities and the transactions
contemplated by this Agreement do not and will not conflict with or
result in a breach by Buyer of any of the terms or provisions of, or
constitute a default under, the articles of incorporation or by-laws
(or similar constitutive documents) of Buyer or any indenture,
mortgage, deed of trust, or other material agreement or instrument
to which Buyer is a party or by which it or any of its properties or
assets are bound, or any existing applicable law, rule or regulation
of the United States or any State thereof or any applicable decree,
judgment or order of any Federal or State court, Federal or State
regulatory body, administrative agency or other United States
governmental body having jurisdiction over buyer or any of its
properties or assets;
(viii) All invitations, offers and sales of or in respect of, any of
the Securities, by Buyer and any distribution by Buyer of any
documents relating to any invitation, offer or sale by it of any of
the Securities will be in compliance with applicable laws and
regulations, will be made in such a manner that no prospectus need
be filed and no other filing need by made by Seller with any
regulatory authority or stock exchange in any country or any
political sub-division of any country, and Buyer will make no
misrepresentations nor omissions of material fact in the invitation,
offer or resale of the Debentures;
(ix) The Buyer (or others for whom it is contracting hereunder)
has been advised to consult its own legal and tax advisors with
respect to applicable resale restrictions and applicable tax
considerations and it (or others for whom it is contracting
hereunder) is solely responsible (and the Seller is not in any way
responsible) for compliance with applicable resale restrictions and
applicable tax legislation;
(x) Buyer understands that no Federal or State or foreign
government agency has passed on or made any recommendation or
endorsement of the Securities;
(xi) Buyer has had an opportunity to discuss with the officers of
Seller, all matters relating to the securities, financial condition,
operations and prospects of Seller and any questions raised by Buyer
have been answered to Buyer's satisfaction.
(xii) Buyer acknowledges that the purchase of the Securities
involve a high degree of risk. Buyer has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of purchasing the Securities. Buyer
understands that the Securities are not being registered under the
1933 Act, and therefore, Buyer must bear the economic risk of this
investment for an indefinite period of time; and
<PAGE>
(xiii) Buyer is not a "10-percent Shareholder" (as defined in
Section 871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller.
3. Seller Representations and Covenants.
(a) Seller is a corporation duly organized and validly
existing under the laws of the State of Colorado, and is in good
standing under such laws. The Seller has all requisite corporate
power and authority to own, lease and operate its properties and
assets, and to carry on its business as presently conducted. The
Seller is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of
its business requires such qualification, except where failure to so
qualify would not have a material adverse effect on the Seller.
(b) There are 50,000,000 shares of Seller's Common Stock,
$0.001 par value per share ("Common Stock"), authorized and
approximately 20,000,000 as of March 15, 1999 outstanding. The
Common Stock trades on National Associates of Securities Dealers OTC
Bulletin Board. All issued and outstanding shares of Common Stock
have been authorized and validly issued and are fully paid and
assessable.
(c) The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default (with
or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation
or to a loss of a material benefit, under, any provision of the
Articles of Incorporation, and any amendments thereto, By-Laws,
Stockholders Agreements and any amendments thereto of the Seller or
any material mortgage, indenture, lease or other agreement or
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law ordinance, rule or regulation applicable to the
Seller, its properties or assets.
(d) The Seller is not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities and Exchange
Act, is not an investment company or a developmental stage company
that either has no specific business plan or purpose.
(e) There is no fact known to the Seller that has not
been publicly disclosed by the Seller or disclosed in writing to the
Buyer which could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise) or in the earnings,
business affairs, properties or assets of the Seller, or could
reasonably be expected to materially and adversely affect the
ability of the Seller to perform its obligations pursuant to this
Agreement.
(f) No consent, approval or authorization of or
designation, declaration or filing with any governmental authority
on the part of the Seller is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or
issuance of the debentures or Common
<PAGE>
Stock, or the consummation of any other transaction contemplated hereby,
except the filing with the SEC of Form D.
(g) There is no action, proceeding or investigation
pending, or to the Seller's knowledge, threatened, against the
Seller which might result, either individually or in the aggregate,
in any material adverse change in the business, prospects,
conditions, affairs or operations of the Seller ("Material Adverse
Change"). The Seller is not a party to or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit
proceeding or investigation by the Seller currently pending or which
the Seller intends to initiate. The SEC has not issued any order
suspending trading in the Seller's Common Stock. Seller will be
filing suit against Optima Investments, Houston, Texas, on the
grounds of breach of contract. Seller does not believe that the
filing of the suit or any potential counterclaim will result in a
Material Adverse Change.
(h) There are no other material outstanding debt or
equity securities presently convertible into Common Stock other than
the Debentures except for a unit offering of Series A and B
restricted common stock and warrants, which has been described in a
letter from Seller's counsel dated March 16, 1999 which has been
delivered to and reviewed by Buyer ("Units").
(i) The Seller has not sold any securities within the 12
month period prior to the date the Common Stock was first offered in
reliance on any exemption under Section 3(b) of the 1933 Act or in
violation of Section 5(a) of the 1933 Act except for the Units and
limited offerings of some securities which, aggregated with the
Debentures, meet the requirements under Rule 504 of Regulation D for
an exemption from registration..
(j) The issuance, sale and delivery of the Debentures
have been duly authorized by all required corporate action on the
part of the Seller, and when issued, sold and delivered in
accordance with the terms hereof and thereof for the consideration
expressed herein and therein, will be duly and validly issued, fully
paid and non-assessable. The Common Stock issuable upon conversion
of the Debenture has been duly and validly reserved for issuance and
upon issuance in accordance with the terms of the Debentures, shall
be duly and validly issued, fully paid, and non-assessable There
are no pre-emptive rights of any shareholder of Seller.
(k) This Agreement has been duly authorized, validly
executed and delivered on behalf of Seller and is a valid and
binding agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally. The Seller has all
requisite right, power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
All corporate action on the part of the Seller, its directors and
shareholders necessary for the authorization, execution, delivery
and performance of this Agreement and the Debentures has been taken.
Upon their issuance to the Buyer and delivery to the Escrow Agent,
as defined in and pursuant to the Escrow Agreement, the Debentures
will be validly issued and nonassessable, and will be free of any
liens or encumbrances.
<PAGE>
4. Exemption; Reliance on Representations. Buyer
understands that the offer and sale of the Securities are not being
registered under the 1933 Act. Seller and Buyer are relying on the
rules governing offers and sales made pursuant to Rule 504
promulgated under Regulation D.
5. Transfer Agent Instructions.
(a) Debentures. Upon the conversion of the Debentures,
the Buyer or holder shall give a notice of conversion to the Seller
and the Seller shall instruct its transfer agent to issue one or
more Certificates representing that number of shares of Common Stock
into which the Debenture or Debentures are convertible in accordance
with the provisions regarding conversion set forth in Exhibit A.
The Seller shall act as Debenture Registrar and shall maintain an
appropriate ledger containing the necessary information with respect
to each Debenture.
(b) Common Stock to be Issued Without Restrictive Legend.
Upon the conversion of any Debenture, Seller shall instruct
Seller's transfer agent to issue Stock Certificates up to the total
of the "Conversion Amount" (as defined in the Debenture) and any
"Interest Shares" (as defined in the Debenture) without restrictive
legend in the name of the Buyer (or its nominee) and in such
denominations to be specified at conversion representing the number
of shares of Common Stock issuable upon such conversion, as
applicable. The Common Stock shall be immediately freely
transferable on the books and records of Seller. Seller shall also
instruct its attorney to issue and render any legal opinion which is
required at any time by Seller's transfer agent to permit Seller's
transfer agent to issue any and all Stock Certificates without a
restrictive legend as required by this Agreement ("Opinion").
Seller's attorney has executed this Agreement to acknowledge and
accept his obligations to issue the Opinion when and as required by
the Seller and Seller's transfer agent.
6. Delivery Instructions. The Debentures being
purchased hereunder, and the Purchase Price, shall be delivered to
the Escrow Agent pursuant to the Escrow Agreement.
7. Conditions To Seller's Obligation To Sell. Seller's
obligation to sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this
Agreement as executed by Buyer.
(b) All of the representations and warranties of the
Buyer contained in this Agreement shall be true and correct on the
Payment Date with the same force and effect as if made on and as of
the Payment Date. The Buyer shall have performed or complied with
all agreements and satisfied all conditions on its part to be
performed, complied with or satisfied at or prior to the Payment Date.
(c) No order asserting that the transactions contemplated
by this Agreement are subject to the registration requirements of
the Act shall have been issued, and no proceedings for that
<PAGE>
purpose shall have been commenced or shall be pending or, to the
knowledge of the Seller, be contemplated. No stop order suspending
the sale of the Debentures or Common Stock shall have been issued,
and no proceedings for that purpose shall have been commenced or
shall be pending or, to the knowledge of the Seller, be contemplated.
(d) The funding by the Buyer of the Escrow Fund.
8. Conditions To Buyer's Obligation To Purchase.
Buyer's obligation to purchase the Debentures is conditioned upon:
(a) The confirmation of receipt and acceptance by Seller
of this Agreement as evidenced by execution of this Agreement of the
duly authorized officer of Seller.
(b) Delivery of the Debentures to the Escrow Agent.
9. No Shareholder Approval. Seller hereby agrees that
from the Closing Date until the issuance of Common Stock upon the
conversion of the Debentures, Seller will not take any action which
would require Seller to seek shareholder approval of such issuance
unless such shareholder approval is required by law or regulatory
body (including but not limited to the NASDAQ Stock Market, Inc.) as
a result of the issuance of the Securities hereunder.
10. Miscellaneous.
(a) This Agreement together with the Debentures and
Escrow Agreement, constitutes the entire agreement between the
parties, and neither party shall be liable or bound to the other in
any manner by any warranties, representations or covenants except as
specifically set forth herein. Any previous agreement among the
parties related to the transactions described herein is superseded
hereby. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the restrictive successors and
assigns of the parties hereto. Nothing in this Agreement, express
or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
(b) Buyer is an independent contractor and is not the
agent of Seller. Buyer is not authorized to bind Seller or to make
any representation or warranties on behalf of Seller.
(c) All representations and warranties contained in this
Agreement by Seller and Buyer shall survive the closing of the
transactions contemplated by this Agreement.
(d) This Agreement shall be construed in accordance with
the laws of New York applicable to contracts made and wholly to be
performed within the State of New York and shall be
<PAGE>
binding upon the successors and assigns of each party hereto.
Buyer and Seller hereby mutually waive trial by jury and consent to
exclusive jurisdiction and venue in the courts of the State of New York.
At Buyer's election, any dispute between the parties may be arbitrated
rather than litigated in the courts, before the arbitration board of
the American Arbitration Association in New York City and pursuant
to its rules. Upon demand made by the Buyer to the Seller, Seller
agrees to submit to and participate in such arbitration. This
Agreement may be executed in counterparts, and the facsimile
transmission of an executed counterpart to this Agreement shall be
effective as an original.
(e) Seller agrees to indemnify and hold Buyer harmless
from any and all claims, damages and liabilities arising from
Seller's breach of its representations and/or covenants set forth
herein.
(f) Buyer agrees to indemnify and hold Seller harmless
from any and all claims, damages and liabilities arising from
Buyer's breach of its representations and warranties set forth in
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Agreement as of the date first set forth above.
Official Signatory of Seller:
LAKOTA ENERGY, INC.
By: /s/Ken Honeyman
Ken Honeyman
Title: President
Accepted this 16th day of March, 1999
Official Signatory of Buyer:
Y.L. HIRSCH
By: /s/Y.L. Hirsch
Address of Buyer:
259 Batai Ungarin,
E. Jerusalem, Israel
Fax No.: 972-2-532-3598
Tel. No.: 972-2-582-7883
AS TO SECTION 5(b):
ACCEPTED AND AGREED TO:
By:/s/Brian A. Lebrecht
Attorney for Lakota Resources Inc.
SECURITIES SUBSCRIPTION AGREEMENT
THIS SECURITIES SUBSCRIPTION AGREEMENT, dated as of March
16, 1999 ("Agreement"), is executed in reliance upon the exemption
from registration afforded by Rule 504 promulgated under Regulation
D by the Securities and Exchange Commission ("SEC"), under the
Securities Act of 1933, as amended. Capitalized terms used herein
and not defined shall have the meanings given to them in Rule 504
and Regulation D.
This Agreement has been executed by the undersigned buyer
("Buyer") in connection with the private placement of 8% Series A
Senior Subordinated Convertible Debentures of Lakota Energy, Inc. a
corporation organized under the laws of Colorado, with its principal
executive offices located at 2849 Paces Ferry Road, Suite 710,
Atlanta, Georgia 30339 ("Seller"). Buyer hereby represents and
warrants to, and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL
NOT BE REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED BY SECTION 3(B) OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"),
AND RULE 504 OF REGULATION D PROMULGATED THEREUNDER.
1. Agreement to Subscribe; Purchase Price.
(a) Subscription. The undersigned Buyer hereby
subscribes for and agrees to purchase the Seller's 8% Series A
Senior Subordinated Convertible Redeemable Debenture substantially
in the form of the Debenture attached as Exhibit A hereto and having
an aggregate original principal face amount of U.S. $183,000
(singly, a "Debenture," and collectively, the "Debentures"), at an
aggregate purchase price of 100% of the face amount of such
Debentures as set forth in subsection (b) herein.
(b) Payment. The Purchase Price for the Debenture
shall be one hundred eighty three thousand United States Dollars
(U.S. $183,000) ("Purchase Price"), which shall be payable at
closing, pursuant to paragraph c herein, in accordance with the
terms and conditions of an Escrow Agreement which is attached hereto
and shall be executed simultaneously with this Agreement ("Escrow
Agreement").
<PAGE>
(c) Closing. Subject to the satisfaction of the
conditions set forth in Sections 7 and 8 hereof, the Closing of the
transactions contemplated by this Agreement shall take place when
(i) Seller delivers the Debentures to the Escrow Agent, as defined
in an Escrow Agreement among Buyer, Seller and the Escrow Agent of
even date, (ii) Seller delivers signed Escrow Agreement and (iii)
Buyer pays $25,000 towards the Purchase Price for the Debentures
("Closing Date").
2. Buyer Representations and Covenants; Access to Information.
In connection with the purchase and sale of the Debenture,
Buyer represents and warrants to, and covenants and agrees with
Seller as follows:
(i) Buyer is not, and on the closing date will not be, an
affiliate of Seller;
(ii) Buyer is purchasing the Securities for its own account and
Buyer is qualified to purchase the Securities under the laws of its
jurisdiction of residence, and the offer and sale of the Securities
will not violate the securities laws or other laws of such
jurisdiction;
(iii) All offers and sales of any of the Securities by Buyer shall
be made in compliance with any applicable securities laws of any
applicable jurisdiction and in accordance with Rule 504, as
applicable, of Regulation D or pursuant to registration of
securities under the 1933 Act or pursuant to an exemption from
registration;
(iv) Buyer understands that the Securities are not registered
under the 1933 Act and are being offered and sold to it in reliance
on specific exclusions from the registration requirements of Federal
and State securities laws, and that Seller is relying upon the truth
and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Buyer set forth herein in
order to determine the applicability of such exclusions and the
suitability of Buyer and any purchaser from Buyer to acquire the
Securities;
(v) Buyer shall comply with Rule 504 promulgated under Regulation D;
(vi) Buyer has the full right, power and authority to enter into
this Agreement and to consummate the transaction contemplated
herein. This Agreement has been duly authorized, validly executed
and delivered on behalf of Buyer and is a valid and binding
agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
<PAGE>
(vii) The execution and delivery of this Agreement and the
consummation of the purchase of the Securities and the transactions
contemplated by this Agreement do not and will not conflict with or
result in a breach by Buyer of any of the terms or provisions of, or
constitute a default under, the articles of incorporation or by-laws
(or similar constitutive documents) of Buyer or any indenture,
mortgage, deed of trust, or other material agreement or instrument
to which Buyer is a party or by which it or any of its properties or
assets are bound, or any existing applicable law, rule or regulation
of the United States or any State thereof or any applicable decree,
judgment or order of any Federal or State court, Federal or State
regulatory body, administrative agency or other United States
governmental body having jurisdiction over buyer or any of its
properties or assets;
(viii) All invitations, offers and sales of or in respect of, any of
the Securities, by Buyer and any distribution by Buyer of any
documents relating to any invitation, offer or sale by it of any of
the Securities will be in compliance with applicable laws and
regulations, will be made in such a manner that no prospectus need
be filed and no other filing need by made by Seller with any
regulatory authority or stock exchange in any country or any
political sub-division of any country, and Buyer will make no
misrepresentations nor omissions of material fact in the invitation,
offer or resale of the Debentures;
(ix) The Buyer (or others for whom it is contracting hereunder)
has been advised to consult its own legal and tax advisors with
respect to applicable resale restrictions and applicable tax
considerations and it (or others for whom it is contracting
hereunder) is solely responsible (and the Seller is not in any way
responsible) for compliance with applicable resale restrictions and
applicable tax legislation;
(x) Buyer understands that no Federal or State or foreign
government agency has passed on or made any recommendation or
endorsement of the Securities;
(xi) Buyer has had an opportunity to discuss with the officers of
Seller, all matters relating to the securities, financial condition,
operations and prospects of Seller and any questions raised by Buyer
have been answered to Buyer's satisfaction.
(xii) Buyer acknowledges that the purchase of the Securities
involve a high degree of risk. Buyer has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of purchasing the Securities. Buyer
understands that the Securities are not being registered under the
1933 Act, and therefore, Buyer must bear the economic risk of this
investment for an indefinite period of time; and
<PAGE>
(xiii) Buyer is not a "10-percent Shareholder" (as defined in
Section 871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller.
3. Seller Representations and Covenants.
(a) Seller is a corporation duly organized and validly
existing under the laws of the State of Colorado, and is in good
standing under such laws. The Seller has all requisite corporate
power and authority to own, lease and operate its properties and
assets, and to carry on its business as presently conducted. The
Seller is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of
its business requires such qualification, except where failure to so
qualify would not have a material adverse effect on the Seller.
(b) There are 50,000,000 shares of Seller's Common Stock,
$0.001 par value per share ("Common Stock"), authorized and
approximately 20,000,000 as of March 15, 1999 outstanding. The
Common Stock trades on National Associates of Securities Dealers OTC
Bulletin Board. All issued and outstanding shares of Common Stock
have been authorized and validly issued and are fully paid and
assessable.
(c) The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default (with
or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation
or to a loss of a material benefit, under, any provision of the
Articles of Incorporation, and any amendments thereto, By-Laws,
Stockholders Agreements and any amendments thereto of the Seller or
any material mortgage, indenture, lease or other agreement or
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law ordinance, rule or regulation applicable to the
Seller, its properties or assets.
(d) The Seller is not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities and Exchange
Act, is not an investment company or a developmental stage company
that either has no specific business plan or purpose.
(e) There is no fact known to the Seller that has not
been publicly disclosed by the Seller or disclosed in writing to the
Buyer which could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise) or in the earnings,
business affairs, properties or assets of the Seller, or could
reasonably be expected to materially and adversely affect the
ability of the Seller to perform its obligations pursuant to this
Agreement.
(f) No consent, approval or authorization of or
designation, declaration or filing with any governmental authority
on the part of the Seller is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or
issuance of the debentures or Common
<PAGE>
Stock, or the consummation of any other transaction contemplated hereby,
except the filing with the SEC of Form D.
(g) There is no action, proceeding or investigation
pending, or to the Seller's knowledge, threatened, against the
Seller which might result, either individually or in the aggregate,
in any material adverse change in the business, prospects,
conditions, affairs or operations of the Seller ("Material Adverse
Change"). The Seller is not a party to or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit
proceeding or investigation by the Seller currently pending or which
the Seller intends to initiate. The SEC has not issued any order
suspending trading in the Seller's Common Stock. Seller will be
filing suit against Optima Investments, Houston, Texas, on the
grounds of breach of contract. Seller does not believe that the
filing of the suit or any potential counterclaim will result in a
Material Adverse Change.
(h) There are no other material outstanding debt or
equity securities presently convertible into Common Stock other than
the Debentures except for a unit offering of Series A and B
restricted common stock and warrants, which has been described in a
letter from Seller's counsel dated March 16, 1999 which has been
delivered to and reviewed by Buyer ("Units").
(i) The Seller has not sold any securities within the 12
month period prior to the date the Common Stock was first offered in
reliance on any exemption under Section 3(b) of the 1933 Act or in
violation of Section 5(a) of the 1933 Act except for the Units and
limited offerings of some securities which, aggregated with the
Debentures, meet the requirements under Rule 504 of Regulation D for
an exemption from registration..
(j) The issuance, sale and delivery of the Debentures
have been duly authorized by all required corporate action on the
part of the Seller, and when issued, sold and delivered in
accordance with the terms hereof and thereof for the consideration
expressed herein and therein, will be duly and validly issued, fully
paid and non-assessable. The Common Stock issuable upon conversion
of the Debenture has been duly and validly reserved for issuance and
upon issuance in accordance with the terms of the Debentures, shall
be duly and validly issued, fully paid, and non-assessable There
are no pre-emptive rights of any shareholder of Seller.
(k) This Agreement has been duly authorized, validly
executed and delivered on behalf of Seller and is a valid and
binding agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally. The Seller has all
requisite right, power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
All corporate action on the part of the Seller, its directors and
shareholders necessary for the authorization, execution, delivery
and performance of this Agreement and the Debentures has been taken.
Upon their issuance to the Buyer and delivery to the Escrow Agent,
as defined in and pursuant to the Escrow Agreement, the Debentures
will be validly issued and nonassessable, and will be free of any
liens or encumbrances.
<PAGE>
4. Exemption; Reliance on Representations. Buyer
understands that the offer and sale of the Securities are not being
registered under the 1933 Act. Seller and Buyer are relying on the
rules governing offers and sales made pursuant to Rule 504
promulgated under Regulation D.
5. Transfer Agent Instructions.
(a) Debentures. Upon the conversion of the Debentures,
the Buyer or holder shall give a notice of conversion to the Seller
and the Seller shall instruct its transfer agent to issue one or
more Certificates representing that number of shares of Common Stock
into which the Debenture or Debentures are convertible in accordance
with the provisions regarding conversion set forth in Exhibit A.
The Seller shall act as Debenture Registrar and shall maintain an
appropriate ledger containing the necessary information with respect
to each Debenture.
(b) Common Stock to be Issued Without Restrictive Legend.
Upon the conversion of any Debenture, Seller shall instruct
Seller's transfer agent to issue Stock Certificates up to the total
of the "Conversion Amount" (as defined in the Debenture) and any
"Interest Shares" (as defined in the Debenture) without restrictive
legend in the name of the Buyer (or its nominee) and in such
denominations to be specified at conversion representing the number
of shares of Common Stock issuable upon such conversion, as
applicable. The Common Stock shall be immediately freely
transferable on the books and records of Seller. Seller shall also
instruct its attorney to issue and render any legal opinion which is
required at any time by Seller's transfer agent to permit Seller's
transfer agent to issue any and all Stock Certificates without a
restrictive legend as required by this Agreement ("Opinion").
Seller's attorney has executed this Agreement to acknowledge and
accept his obligations to issue the Opinion when and as required by
the Seller and Seller's transfer agent.
6. Delivery Instructions. The Debentures being
purchased hereunder, and the Purchase Price, shall be delivered to
the Escrow Agent pursuant to the Escrow Agreement.
7. Conditions To Seller's Obligation To Sell. Seller's
obligation to sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this
Agreement as executed by Buyer.
(b) All of the representations and warranties of the
Buyer contained in this Agreement shall be true and correct on the
Payment Date with the same force and effect as if made on and as of
the Payment Date. The Buyer shall have performed or complied with
all agreements and satisfied all conditions on its part to be
performed, complied with or satisfied at or prior to the Payment Date.
(c) No order asserting that the transactions contemplated
by this Agreement are subject to the registration requirements of
the Act shall have been issued, and no proceedings for that
<PAGE>
purpose shall have been commenced or shall be pending or, to the knowledge
of the Seller, be contemplated. No stop order suspending the sale of
the Debentures or Common Stock shall have been issued, and no
proceedings for that purpose shall have been commenced or shall be
pending or, to the knowledge of the Seller, be contemplated.
(d) The funding by the Buyer of the Escrow Fund.
8. Conditions To Buyer's Obligation To Purchase.
Buyer's obligation to purchase the Debentures is conditioned upon:
(a) The confirmation of receipt and acceptance by Seller
of this Agreement as evidenced by execution of this Agreement of the
duly authorized officer of Seller.
(b) Delivery of the Debentures to the Escrow Agent.
9. No Shareholder Approval. Seller hereby agrees that
from the Closing Date until the issuance of Common Stock upon the
conversion of the Debentures, Seller will not take any action which
would require Seller to seek shareholder approval of such issuance
unless such shareholder approval is required by law or regulatory
body (including but not limited to the NASDAQ Stock Market, Inc.) as
a result of the issuance of the Securities hereunder.
10. Miscellaneous.
(a) This Agreement together with the Debentures and
Escrow Agreement, constitutes the entire agreement between the
parties, and neither party shall be liable or bound to the other in
any manner by any warranties, representations or covenants except as
specifically set forth herein. Any previous agreement among the
parties related to the transactions described herein is superseded
hereby. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the restrictive successors and
assigns of the parties hereto. Nothing in this Agreement, express
or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
(b) Buyer is an independent contractor and is not the
agent of Seller. Buyer is not authorized to bind Seller or to make
any representation or warranties on behalf of Seller.
(c) All representations and warranties contained in this
Agreement by Seller and Buyer shall survive the closing of the
transactions contemplated by this Agreement.
(d) This Agreement shall be construed in accordance with
the laws of New York applicable to contracts made and wholly to be
performed within the State of New York and shall be
<PAGE>
binding upon the successors and assigns of each party hereto.
Buyer and Seller hereby mutually waive trial by jury and consent to
exclusive jurisdiction and venue in the courts of the State of New York.
At Buyer's election, any dispute between the parties may be arbitrated
rather than litigated in the courts, before the arbitration board of
the American Arbitration Association in New York City and pursuant
to its rules. Upon demand made by the Buyer to the Seller, Seller
agrees to submit to and participate in such arbitration. This
Agreement may be executed in counterparts, and the facsimile
transmission of an executed counterpart to this Agreement shall be
effective as an original.
(e) Seller agrees to indemnify and hold Buyer harmless
from any and all claims, damages and liabilities arising from
Seller's breach of its representations and/or covenants set forth
herein.
(f) Buyer agrees to indemnify and hold Seller harmless
from any and all claims, damages and liabilities arising from
Buyer's breach of its representations and warranties set forth in
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Agreement as of the date first set forth above.
Official Signatory of Seller:
LAKOTA ENERGY, INC.
By: /s/Ken Honeyman
Title: President
Accepted this 16th day of March, 1999
Official Signatory of Buyer:
AMRAM ROTHMAN
By: /s/unknown
Address of Buyer:
3 Rechov Ovadya 14,
Jerusalem, Israel
Fax No.: 972-2-538-8319
Tel. No.: 972-2-538-8319
AS TO SECTION 5(b):
ACCEPTED AND AGREED TO:
By:/s/Brian A. Lebrecht
Attorney for Lakota Resources Inc.
SECURITIES SUBSCRIPTION AGREEMENT
THIS SECURITIES SUBSCRIPTION AGREEMENT, dated as of March
16, 1999 ("Agreement"), is executed in reliance upon the exemption
from registration afforded by Rule 504 promulgated under Regulation
D by the Securities and Exchange Commission ("SEC"), under the
Securities Act of 1933, as amended. Capitalized terms used herein
and not defined shall have the meanings given to them in Rule 504
and Regulation D.
This Agreement has been executed by the undersigned buyer
("Buyer") in connection with the private placement of 8% Series A
Senior Subordinated Convertible Debentures of Lakota Energy, Inc. a
corporation organized under the laws of Colorado, with its principal
executive offices located at 2849 Paces Ferry Road, Suite 710,
Atlanta, Georgia 30339 ("Seller"). Buyer hereby represents and
warrants to, and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL
NOT BE REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED BY SECTION 3(B) OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"),
AND RULE 504 OF REGULATION D PROMULGATED THEREUNDER.
1. Agreement to Subscribe; Purchase Price.
(a) Subscription. The undersigned Buyer hereby
subscribes for and agrees to purchase the Seller's 8% Series A
Senior Subordinated Convertible Redeemable Debenture substantially
in the form of the Debenture attached as Exhibit A hereto and having
an aggregate original principal face amount of U.S. $183,500
(singly, a "Debenture," and collectively, the "Debentures"), at an
aggregate purchase price of 100% of the face amount of such
Debentures as set forth in subsection (b) herein.
(b) Payment. The Purchase Price for the Debenture
shall be one hundred eighty three thousand five hundred United
States Dollars (U.S. $183,500) ("Purchase Price"), which shall be
payable at closing, pursuant to paragraph c herein, in accordance
with the terms and conditions of an Escrow Agreement which is
attached hereto and shall be executed simultaneously with this
Agreement ("Escrow Agreement").
<PAGE>
(c) Closing. Subject to the satisfaction of the
conditions set forth in Sections 7 and 8 hereof, the Closing of the
transactions contemplated by this Agreement shall take place when
(i) Seller delivers the Debentures to the Escrow Agent, as defined
in an Escrow Agreement among Buyer, Seller and the Escrow Agent of
even date, (ii) Seller delivers signed Escrow Agreement and (iii)
Buyer pays $25,000 towards the Purchase Price for the Debentures
("Closing Date").
2. Buyer Representations and Covenants; Access to Information.
In connection with the purchase and sale of the Debenture,
Buyer represents and warrants to, and covenants and agrees with
Seller as follows:
(i) Buyer is not, and on the closing date will not be, an
affiliate of Seller;
(ii) Buyer is purchasing the Securities for its own account and
Buyer is qualified to purchase the Securities under the laws of its
jurisdiction of residence, and the offer and sale of the Securities
will not violate the securities laws or other laws of such
jurisdiction;
(iii) All offers and sales of any of the Securities by Buyer shall
be made in compliance with any applicable securities laws of any
applicable jurisdiction and in accordance with Rule 504, as
applicable, of Regulation D or pursuant to registration of
securities under the 1933 Act or pursuant to an exemption from
registration;
(iv) Buyer understands that the Securities are not registered
under the 1933 Act and are being offered and sold to it in reliance
on specific exclusions from the registration requirements of Federal
and State securities laws, and that Seller is relying upon the truth
and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Buyer set forth herein in
order to determine the applicability of such exclusions and the
suitability of Buyer and any purchaser from Buyer to acquire the
Securities;
(v) Buyer shall comply with Rule 504 promulgated under Regulation D;
(vi) Buyer has the full right, power and authority to enter into
this Agreement and to consummate the transaction contemplated
herein. This Agreement has been duly authorized, validly executed
and delivered on behalf of Buyer and is a valid and binding
agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
<PAGE>
(vii) The execution and delivery of this Agreement and the
consummation of the purchase of the Securities and the transactions
contemplated by this Agreement do not and will not conflict with or
result in a breach by Buyer of any of the terms or provisions of, or
constitute a default under, the articles of incorporation or by-laws
(or similar constitutive documents) of Buyer or any indenture,
mortgage, deed of trust, or other material agreement or instrument
to which Buyer is a party or by which it or any of its properties or
assets are bound, or any existing applicable law, rule or regulation
of the United States or any State thereof or any applicable decree,
judgment or order of any Federal or State court, Federal or State
regulatory body, administrative agency or other United States
governmental body having jurisdiction over buyer or any of its
properties or assets;
(viii) All invitations, offers and sales of or in respect of, any of
the Securities, by Buyer and any distribution by Buyer of any
documents relating to any invitation, offer or sale by it of any of
the Securities will be in compliance with applicable laws and
regulations, will be made in such a manner that no prospectus need
be filed and no other filing need by made by Seller with any
regulatory authority or stock exchange in any country or any
political sub-division of any country, and Buyer will make no
misrepresentations nor omissions of material fact in the invitation,
offer or resale of the Debentures;
(ix) The Buyer (or others for whom it is contracting hereunder)
has been advised to consult its own legal and tax advisors with
respect to applicable resale restrictions and applicable tax
considerations and it (or others for whom it is contracting
hereunder) is solely responsible (and the Seller is not in any way
responsible) for compliance with applicable resale restrictions and
applicable tax legislation;
(x) Buyer understands that no Federal or State or foreign
government agency has passed on or made any recommendation or
endorsement of the Securities;
(xi) Buyer has had an opportunity to discuss with the officers of
Seller, all matters relating to the securities, financial condition,
operations and prospects of Seller and any questions raised by Buyer
have been answered to Buyer's satisfaction.
(xii) Buyer acknowledges that the purchase of the Securities
involve a high degree of risk. Buyer has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of purchasing the Securities. Buyer
understands that the Securities are not being registered under the
1933 Act, and therefore, Buyer must bear the economic risk of this
investment for an indefinite period of time; and
<PAGE>
(xiii) Buyer is not a "10-percent Shareholder" (as defined in
Section 871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller.
3. Seller Representations and Covenants.
(a) Seller is a corporation duly organized and validly
existing under the laws of the State of Colorado, and is in good
standing under such laws. The Seller has all requisite corporate
power and authority to own, lease and operate its properties and
assets, and to carry on its business as presently conducted. The
Seller is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of
its business requires such qualification, except where failure to so
qualify would not have a material adverse effect on the Seller.
(b) There are 50,000,000 shares of Seller's Common Stock,
$0.001 par value per share ("Common Stock"), authorized and
approximately 20,000,000 as of March 15, 1999 outstanding. The
Common Stock trades on National Associates of Securities Dealers OTC
Bulletin Board. All issued and outstanding shares of Common Stock
have been authorized and validly issued and are fully paid and
assessable.
(c) The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default (with
or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation
or to a loss of a material benefit, under, any provision of the
Articles of Incorporation, and any amendments thereto, By-Laws,
Stockholders Agreements and any amendments thereto of the Seller or
any material mortgage, indenture, lease or other agreement or
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law ordinance, rule or regulation applicable to the
Seller, its properties or assets.
(d) The Seller is not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities and Exchange
Act, is not an investment company or a developmental stage company
that either has no specific business plan or purpose.
(e) There is no fact known to the Seller that has not
been publicly disclosed by the Seller or disclosed in writing to the
Buyer which could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise) or in the earnings,
business affairs, properties or assets of the Seller, or could
reasonably be expected to materially and adversely affect the
ability of the Seller to perform its obligations pursuant to this
Agreement.
(f) No consent, approval or authorization of or
designation, declaration or filing with any governmental authority
on the part of the Seller is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or
issuance of the debentures or Common
<PAGE>
Stock, or the consummation of any other transaction contemplated hereby,
except the filing with the SEC of Form D.
(g) There is no action, proceeding or investigation
pending, or to the Seller's knowledge, threatened, against the
Seller which might result, either individually or in the aggregate,
in any material adverse change in the business, prospects,
conditions, affairs or operations of the Seller ("Material Adverse
Change"). The Seller is not a party to or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit
proceeding or investigation by the Seller currently pending or which
the Seller intends to initiate. The SEC has not issued any order
suspending trading in the Seller's Common Stock. Seller will be
filing suit against Optima Investments, Houston, Texas, on the
grounds of breach of contract. Seller does not believe that the
filing of the suit or any potential counterclaim will result in a
Material Adverse Change.
(h) There are no other material outstanding debt or
equity securities presently convertible into Common Stock other than
the Debentures except for a unit offering of Series A and B
restricted common stock and warrants, which has been described in a
letter from Seller's counsel dated March 16, 1999 which has been
delivered to and reviewed by Buyer ("Units").
(i) The Seller has not sold any securities within the 12
month period prior to the date the Common Stock was first offered in
reliance on any exemption under Section 3(b) of the 1933 Act or in
violation of Section 5(a) of the 1933 Act except for the Units and
limited offerings of some securities which, aggregated with the
Debentures, meet the requirements under Rule 504 of Regulation D for
an exemption from registration..
(j) The issuance, sale and delivery of the Debentures
have been duly authorized by all required corporate action on the
part of the Seller, and when issued, sold and delivered in
accordance with the terms hereof and thereof for the consideration
expressed herein and therein, will be duly and validly issued, fully
paid and non-assessable. The Common Stock issuable upon conversion
of the Debenture has been duly and validly reserved for issuance and
upon issuance in accordance with the terms of the Debentures, shall
be duly and validly issued, fully paid, and non-assessable There
are no pre-emptive rights of any shareholder of Seller.
(k) This Agreement has been duly authorized, validly
executed and delivered on behalf of Seller and is a valid and
binding agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally. The Seller has all
requisite right, power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
All corporate action on the part of the Seller, its directors and
shareholders necessary for the authorization, execution, delivery
and performance of this Agreement and the Debentures has been taken.
Upon their issuance to the Buyer and delivery to the Escrow Agent,
as defined in and pursuant to the Escrow Agreement, the Debentures
will be validly issued and nonassessable, and will be free of any
liens or encumbrances.
<PAGE>
4. Exemption; Reliance on Representations. Buyer
understands that the offer and sale of the Securities are not being
registered under the 1933 Act. Seller and Buyer are relying on the
rules governing offers and sales made pursuant to Rule 504
promulgated under Regulation D.
5. Transfer Agent Instructions.
(a) Debentures. Upon the conversion of the Debentures,
the Buyer or holder shall give a notice of conversion to the Seller
and the Seller shall instruct its transfer agent to issue one or
more Certificates representing that number of shares of Common Stock
into which the Debenture or Debentures are convertible in accordance
with the provisions regarding conversion set forth in Exhibit A.
The Seller shall act as Debenture Registrar and shall maintain an
appropriate ledger containing the necessary information with respect
to each Debenture.
(b) Common Stock to be Issued Without Restrictive Legend.
Upon the conversion of any Debenture, Seller shall instruct
Seller's transfer agent to issue Stock Certificates up to the total
of the "Conversion Amount" (as defined in the Debenture) and any
"Interest Shares" (as defined in the Debenture) without restrictive
legend in the name of the Buyer (or its nominee) and in such
denominations to be specified at conversion representing the number
of shares of Common Stock issuable upon such conversion, as
applicable. The Common Stock shall be immediately freely
transferable on the books and records of Seller. Seller shall also
instruct its attorney to issue and render any legal opinion which is
required at any time by Seller's transfer agent to permit Seller's
transfer agent to issue any and all Stock Certificates without a
restrictive legend as required by this Agreement ("Opinion").
Seller's attorney has executed this Agreement to acknowledge and
accept his obligations to issue the Opinion when and as required by
the Seller and Seller's transfer agent.
6. Delivery Instructions. The Debentures being
purchased hereunder, and the Purchase Price, shall be delivered to
the Escrow Agent pursuant to the Escrow Agreement.
7. Conditions To Seller's Obligation To Sell. Seller's
obligation to sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this
Agreement as executed by Buyer.
(b) All of the representations and warranties of the
Buyer contained in this Agreement shall be true and correct on the
Payment Date with the same force and effect as if made on and as of
the Payment Date. The Buyer shall have performed or complied with
all agreements and satisfied all conditions on its part to be
performed, complied with or satisfied at or prior to the Payment Date.
(c) No order asserting that the transactions contemplated
by this Agreement are subject to the registration requirements of
the Act shall have been issued, and no proceedings for that
<PAGE>
purpose shall have been commenced or shall be pending or, to the knowledge
of the Seller, be contemplated. No stop order suspending the sale of
the Debentures or Common Stock shall have been issued, and no
proceedings for that purpose shall have been commenced or shall be
pending or, to the knowledge of the Seller, be contemplated.
(d) The funding by the Buyer of the Escrow Fund.
8. Conditions To Buyer's Obligation To Purchase.
Buyer's obligation to purchase the Debentures is conditioned upon:
(a) The confirmation of receipt and acceptance by Seller
of this Agreement as evidenced by execution of this Agreement of the
duly authorized officer of Seller.
(b) Delivery of the Debentures to the Escrow Agent.
9. No Shareholder Approval. Seller hereby agrees that
from the Closing Date until the issuance of Common Stock upon the
conversion of the Debentures, Seller will not take any action which
would require Seller to seek shareholder approval of such issuance
unless such shareholder approval is required by law or regulatory
body (including but not limited to the NASDAQ Stock Market, Inc.) as
a result of the issuance of the Securities hereunder.
10. Miscellaneous.
(a) This Agreement together with the Debentures and
Escrow Agreement, constitutes the entire agreement between the
parties, and neither party shall be liable or bound to the other in
any manner by any warranties, representations or covenants except as
specifically set forth herein. Any previous agreement among the
parties related to the transactions described herein is superseded
hereby. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the restrictive successors and
assigns of the parties hereto. Nothing in this Agreement, express
or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
(b) Buyer is an independent contractor and is not the
agent of Seller. Buyer is not authorized to bind Seller or to make
any representation or warranties on behalf of Seller.
(c) All representations and warranties contained in this
Agreement by Seller and Buyer shall survive the closing of the
transactions contemplated by this Agreement.
(d) This Agreement shall be construed in accordance with
the laws of New York applicable to contracts made and wholly to be
performed within the State of New York and shall be
<PAGE>
binding upon the successors and assigns of each party hereto.
Buyer and Seller hereby mutually waive trial by jury and consent to
exclusive jurisdiction and venue in the courts of the State of New York.
At Buyer's election, any dispute between the parties may be arbitrated
rather than litigated in the courts, before the arbitration board of
the American Arbitration Association in New York City and pursuant
to its rules. Upon demand made by the Buyer to the Seller, Seller
agrees to submit to and participate in such arbitration. This
Agreement may be executed in counterparts, and the facsimile
transmission of an executed counterpart to this Agreement shall be
effective as an original.
(e) Seller agrees to indemnify and hold Buyer harmless
from any and all claims, damages and liabilities arising from
Seller's breach of its representations and/or covenants set forth
herein.
(f) Buyer agrees to indemnify and hold Seller harmless
from any and all claims, damages and liabilities arising from
Buyer's breach of its representations and warranties set forth in
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Agreement as of the date first set forth above.
Official Signatory of Seller:
LAKOTA ENERGY, INC.
By: /s/Ken Honeyman
Ken Honeyman
Accepted this 16th day of March, 1999 Title: President
Official Signatory of Buyer:
JOSHUA HEIMLICH
By: /s/Joshua Heimlich
Address of Buyer:
3 Rechov Meah Sha'arim,
Jerusalem, E. Israel
Fax No.: 972-2-627-2683
Tel. No.: 972-2-538-7769
AS TO SECTION 5(b):
ACCEPTED AND AGREED TO:
By:/s/Brian A. Lebrecht
Attorney for Lakota Resources Inc.
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL
NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
BY SECTION 3(B) OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER (THE "1933 ACT"), AND RULE 504 OF REGULATION D
PROMULGATED THEREUNDER.
A-001 US $183,500
LAKOTA ENERGY, INC.
8% SERIES A SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURE
DUE MARCH 15, 2000
THIS DEBENTURE of Lakota Energy, Inc. , a corporation duly
organized and existing under the laws of Colorado ("Company"),
designated as its 8% Series A Senior Subordinated Convertible
Redeemable Debentures Due March 15, 2000, in an aggregate principal
face amount not exceeding One Hundred Eighty Three Thousand Five
Hundred Dollars (U.S. $183,500), which Debentures are being
purchased at 100% of the face amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to Y.L. Hirsch
the registered holder hereof and his authorized successors and
permitted assigns ("Holder"), the aggregate principal face sum not
to exceed One Hundred Eighty Three Thousand Five Hundred Dollars
(U.S. $183,500) on March 15, 2000 ("Maturity Date"), and to pay
interest on the principal sum outstanding at the rate of 8% per
annum commencing June 15, 1999 and due in full at the Maturity Date
pursuant to paragraph 4(b) herein. Accrual of outstanding principal
sum has been made or duly provided for. The interest so payable
will be paid to the person in whose name this Debenture is
registered on the records of the Company regarding registration and
transfers of the Debentures ("Debenture Register"); provided,
however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is
made in accordance with the terms and conditions of the Securities
Subscription Agreement dated as of March 16, 1999 between the
Company and Y.L. Hirsch ("Subscription Agreement"). The principal
of, and interest on, this Debenture are payable at the address last
appearing on the Debenture Register of the Company as designated in
writing by the Holder hereof from time to time. The Company will
pay the outstanding principal due upon this Debenture before or on
the Maturity Date, less any amounts
<PAGE>
required by law to be deducted or withheld, to the Holder of this
Debenture by check if paid more than 10 days prior to the Maturity Date
or by wire transfer and addressed to such Holder at the last address
appearing on the Debenture Register. The forwarding of such check or
wire transfer shall constitute a payment of outstanding principal hereunder
and shall satisfy and discharge the liability for principal on this
Debenture to the extent of the sum represented by such check or wire
transfer. Interest shall be payable in Common Stock (as defined
below) pursuant to paragraph 4(b) herein.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten
Thousand Dollars (US$10,000) and integral multiples thereof. The
Debentures are exchangeable for an equal aggregate principal amount
of Debentures of different authorized denominations, as requested by
the Holders surrendering the same, but not less than U.S. $10,000.
No service charge will be made for such registration or transfer or
exchange, except that Holder shall pay any tax or other governmental
charges payable in connection therewith.
2. The Company shall be entitled to withhold from all
payments any amounts required to be withheld under the applicable laws.
3. This Debenture may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended ("Act") and
applicable state securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company
may treat the person in whose name this Debenture is duly registered
on the Company's Debenture Register as the owner hereof for all
other purposes, whether or not this Debenture be overdue, and
neither the Company nor any such agent shall be affected or bound by
notice to the contrary. Any Holder of this Debenture, electing to
exercise the right of conversion set forth in Section 4(a) hereof,
in addition to the requirements set forth in Section 4(a), and any
prospective transferee of this Debenture, are also required to give
the Company written confirmation that the Debenture is being
converted ("Notice of Conversion") in the form annexed hereto as
Exhibit I.
4. (a) The Holder of this Debenture is entitled, at its
option, at any time immediately following execution of this
Agreement and delivery of the Debenture hereof, to convert all or
any amount over $10,000 of the principal face amount of this
Debenture then outstanding into shares of Common Stock, $0.001 par
value per share, of the Company ("Common Stock"), at a conversion
price ("Conversion Price") for each share of Common Stock equal to
75% of the closing bid price of the Common Stock as reported on the
National Association of Securities Dealers Electronic Bulletin Board
("OTC Bulletin Board") for the day immediately preceding the date of
receipt by the Company of Notice of Conversion ("Conversion
Shares"). If the number of resultant Conversion Shares would as a
matter of law or pursuant to regulatory authority require the
Company to seek shareholder approval of such issuance, the Company
shall, as soon as practicable, take the necessary steps to seek such
approval. Such conversion shall be effectuated, as provided in a
certain Escrow Agreement executed simultaneously with this
Debenture, by the Company delivering the Conversion Shares to the
Holder within 5 business days of receipt by the Company of the
Notice of
<PAGE>
Conversion. Once the Holder has received such Conversion
Shares, the Escrow Agent shall surrender the Debentures to be
converted to the Company, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a
specified portion hereof, and accompanied by proper assignment
hereof in blank. Accrued but unpaid interest shall be subject to
conversion. No fractional shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share.
(b) Interest at the rate of 8% per annum shall be paid by
issuing Common Stock of the Company as follows: Based on the
closing bid price of the Common Stock as reported on the OTC
Bulletin Board for the day immediately preceding the date of the
monthly interest payment due ("Market Price"), the Company shall
issue to the Holder shares of Common Stock in an amount equal to the
total monthly interest accrued and due divided by 75% of the Market
Price ("Interest Shares"). The dollar amount of interest payable
pursuant to this paragraph 4(b) shall be calculated based upon the
total amount of payments actually made by the Holder in connection
with the purchase of the Debentures at the time any interest payment
is due. If such payment is made by check, interest shall accrue
beginning 10 days from the date the check is received by the
Company. If such payment is made by wire transfer directly into the
Company's account, interest shall accrue beginning on the date the
wire transfer is received by the Company. Common Stock issued
pursuant hereto shall be issued pursuant to Rule 504 of Regulation D
in accordance with the terms of the Subscription Agreement.
(c) At any time after 90 days the Company shall have the
option to pay to the Holder 125% of the principal amount of the
Debenture, in full, to the extent conversion has not occurred
pursuant to paragraph 4(a) herein, or pay upon maturity if the
Debenture is not converted. The Company shall give the Holder 5 days
written notice and the Holder during such 5 days shall have the
option to convert the Debenture or any part thereof into shares of
Common Stock at the Conversion Price set forth in paragraph 4(a) of
this Debenture. Any shares issued pursuant to this paragraph 4(c)
shall be issued pursuant to Rule 504 of Regulation D.
5. No provision of this Debenture shall alter or impair
the obligation of the Company, which is absolute and unconditional,
to pay the principal of, and interest on, this Debenture at the
time, place, and rate, and in the form, herein prescribed.
6. The Company hereby expressly waives demand and
presentment for payment, notice of non-payment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to
accelerate, and diligence in taking any action to collect amounts
called for hereunder and shall be directly and primarily liable for
the payment of all sums owing and to be owing hereto.
7. The Company agrees to pay all costs and expenses,
including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Debenture.
8. If one or more of the following described "Events of
Default" shall occur and
<PAGE>
continue for 30 days, unless a different time frame is noted below:
(a) The Company shall default in the payment of principal or
interest on this Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate or
financial or other written statements heretofore or hereafter
furnished by or on behalf of the Company in connection with the
execution and delivery of this Debenture or the Subscription
Agreement shall be false or misleading in any material respect at
the time made; or
(c) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement
or obligation of the Company under this Debenture and such failure
shall continue uncured for a period of thirty (30) days after notice
from the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing
its inability to pay its debts generally as they mature; (3) make an
assignment for the benefit of creditors or commence proceedings for
its dissolution; or (4) apply for or consent to the appointment of a
trustee, liquidator or receiver for its or for a substantial part of
its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within thirty (30)
days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or
assets of the Company; or
(g) Any money judgment, writ or warrant of attachment, or similar
process, in excess of One Hundred Thousand ($100,000) Dollars in the
aggregate shall be entered or filed against the Company or any of
its properties or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of fifteen (15) days or in any
event later than five (5) days prior to the date of any proposed
sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings, or other proceedings for relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or
against the Company and, if instituted against the Company; or
<PAGE>
(i) The Company shall have its Common Stock delisted from the
over-the-counter market; or
(j) The Company shall not deliver to the Buyer the Common Stock
pursuant to paragraph 4 herein without restrictive legend within 5
business days.
Then, or at any time thereafter, unless cured, and in each and every
such case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent default) at the option of the Holder and in
the Holder's sole discretion, the Holder may consider this Debenture
immediately due and payable, without presentment, demand, protest or
(further) notice of any kind (other than notice of acceleration),
all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately, and without expiration of any period
of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law.
9. This Debenture represents a prioritized obligation of
the Company. However, no recourse shall be had for the payment of
the principal of, or the interest on, this Debenture, or for any
claim based hereon, or otherwise in respect hereof, against any
incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
10. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to the
maximum extent possible, and the validity and enforceability of the
remaining provisions of this Debenture will not in any way be
affected or impaired thereby.
11. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject
hereof. Neither this Debenture nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument
signed by the Company and the Holder.
12. This Debenture shall be governed by and construed in
accordance with the laws of New York applicable to contracts made
and wholly to be performed within the State of New York and shall be
binding upon the successors and assigns of each party hereto. The
Holder and the Company hereby mutually waive trial by jury and
consent to exclusive jurisdiction and venue in the courts of the
State of New York. At Holder's election, any dispute between the
parties may be arbitrated rather than litigated in the courts,
before the American Arbitration Association in New York City and
pursuant to its rules. Upon demand made by the Holder to the
Company, the Company agrees to submit to and participate in such
arbitration. This Agreement may be executed
<PAGE>
in counterparts, and the facsimile transmission of an executed
counterpart to this Agreement shall be effective as an original.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed by an officer thereunto duly authorized.
Dated: March 16, 1999
LAKOTA ENERGY, INC.
By: /s/Ken Honeyman
Ken Honeyman
Title: President
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert
$ of the above Debenture No. into Shares of
Common Stock of Lakota Energy, Inc. according to the conditions set
forth in such Debenture, as of the date written below.
If Shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer and
other taxes and charges payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL
NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
BY SECTION 3(B) OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER (THE "1933 ACT"), AND RULE 504 OF REGULATION D
PROMULGATED THEREUNDER.
A2-001 US $183,000
LAKOTA ENERGY, INC.
8% SERIES A SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURE
DUE MARCH 15, 2000
THIS DEBENTURE of Lakota Energy, Inc. , a corporation duly
organized and existing under the laws of Colorado ("Company"),
designated as its 8% Series A Senior Subordinated Convertible
Redeemable Debentures Due March 15, 2000, in an aggregate principal
face amount not exceeding One Hundred Eighty Three Thousand Dollars
(U.S. $183,000), which Debentures are being purchased at 100% of the
face amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to Amram
Rothman the registered holder hereof and his authorized successors
and permitted assigns ("Holder"), the aggregate principal face sum
not to exceed One Hundred Eighty Three Thousand Dollars (U.S.
$183,000) on March 15, 2000 ("Maturity Date"), and to pay interest
on the principal sum outstanding at the rate of 8% per annum
commencing June 15, 1999 and due in full at the Maturity Date
pursuant to paragraph 4(b) herein. Accrual of outstanding principal
sum has been made or duly provided for. The interest so payable
will be paid to the person in whose name this Debenture is
registered on the records of the Company regarding registration and
transfers of the Debentures ("Debenture Register"); provided,
however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is
made in accordance with the terms and conditions of the Securities
Subscription Agreement dated as of March 16, 1999 between the
Company and Amram Rothman ("Subscription Agreement"). The principal
of, and interest on, this Debenture are payable at the address last
appearing on the Debenture Register of the Company as designated in
writing by the Holder hereof from time to time. The Company will
pay the outstanding principal due upon this Debenture before or on
the Maturity Date, less any amounts required by law to be
<PAGE>
deducted or withheld, to the Holder of this Debenture by check if paid
more than 10 days prior to the Maturity Date or by wire transfer and
addressed to such Holder at the last address appearing on the
Debenture Register. The forwarding of such check or wire transfer
shall constitute a payment of outstanding principal hereunder and
shall satisfy and discharge the liability for principal on this
Debenture to the extent of the sum represented by such check or wire
transfer. Interest shall be payable in Common Stock (as defined
below) pursuant to paragraph 4(b) herein.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten
Thousand Dollars (US$10,000) and integral multiples thereof. The
Debentures are exchangeable for an equal aggregate principal amount
of Debentures of different authorized denominations, as requested by
the Holders surrendering the same, but not less than U.S. $10,000.
No service charge will be made for such registration or transfer or
exchange, except that Holder shall pay any tax or other governmental
charges payable in connection therewith.
2. The Company shall be entitled to withhold from all
payments any amounts required to be withheld under the applicable laws.
3. This Debenture may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended ("Act") and
applicable state securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company
may treat the person in whose name this Debenture is duly registered
on the Company's Debenture Register as the owner hereof for all
other purposes, whether or not this Debenture be overdue, and
neither the Company nor any such agent shall be affected or bound by
notice to the contrary. Any Holder of this Debenture, electing to
exercise the right of conversion set forth in Section 4(a) hereof,
in addition to the requirements set forth in Section 4(a), and any
prospective transferee of this Debenture, are also required to give
the Company written confirmation that the Debenture is being
converted ("Notice of Conversion") in the form annexed hereto as
Exhibit I.
4. (a) The Holder of this Debenture is entitled, at its
option, at any time immediately following execution of this
Agreement and delivery of the Debenture hereof, to convert all or
any amount over $10,000 of the principal face amount of this
Debenture then outstanding into shares of Common Stock, $0.001 par
value per share, of the Company ("Common Stock"), at a conversion
price ("Conversion Price") for each share of Common Stock equal to
75% of the closing bid price of the Common Stock as reported on the
National Association of Securities Dealers Electronic Bulletin Board
("OTC Bulletin Board") for the day immediately preceding the date of
receipt by the Company of Notice of Conversion ("Conversion
Shares"). If the number of resultant Conversion Shares would as a
matter of law or pursuant to regulatory authority require the
Company to seek shareholder approval of such issuance, the Company
shall, as soon as practicable, take the necessary steps to seek such
approval. Such conversion shall be effectuated, as provided in a
certain Escrow Agreement executed simultaneously with this
Debenture, by the Company delivering the Conversion Shares to the
Holder within 5 business days of receipt by the Company of the
Notice of
<PAGE>
Conversion. Once the Holder has received such Conversion
Shares, the Escrow Agent shall surrender the Debentures to be
converted to the Company, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a
specified portion hereof, and accompanied by proper assignment
hereof in blank. Accrued but unpaid interest shall be subject to
conversion. No fractional shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share.
(b) Interest at the rate of 8% per annum shall be paid by
issuing Common Stock of the Company as follows: Based on the
closing bid price of the Common Stock as reported on the OTC
Bulletin Board for the day immediately preceding the date of the
monthly interest payment due ("Market Price"), the Company shall
issue to the Holder shares of Common Stock in an amount equal to the
total monthly interest accrued and due divided by 75% of the Market
Price ("Interest Shares"). The dollar amount of interest payable
pursuant to this paragraph 4(b) shall be calculated based upon the
total amount of payments actually made by the Holder in connection
with the purchase of the Debentures at the time any interest payment
is due. If such payment is made by check, interest shall accrue
beginning 10 days from the date the check is received by the
Company. If such payment is made by wire transfer directly into the
Company's account, interest shall accrue beginning on the date the
wire transfer is received by the Company. Common Stock issued
pursuant hereto shall be issued pursuant to Rule 504 of Regulation D
in accordance with the terms of the Subscription Agreement.
(c) At any time after 90 days the Company shall have the
option to pay to the Holder 125% of the principal amount of the
Debenture, in full, to the extent conversion has not occurred
pursuant to paragraph 4(a) herein, or pay upon maturity if the
Debenture is not converted. The Company shall give the Holder 5 days
written notice and the Holder during such 5 days shall have the
option to convert the Debenture or any part thereof into shares of
Common Stock at the Conversion Price set forth in paragraph 4(a) of
this Debenture. Any shares issued pursuant to this paragraph 4(c)
shall be issued pursuant to Rule 504 of Regulation D.
5. No provision of this Debenture shall alter or impair
the obligation of the Company, which is absolute and unconditional,
to pay the principal of, and interest on, this Debenture at the
time, place, and rate, and in the form, herein prescribed.
6. The Company hereby expressly waives demand and
presentment for payment, notice of non-payment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to
accelerate, and diligence in taking any action to collect amounts
called for hereunder and shall be directly and primarily liable for
the payment of all sums owing and to be owing hereto.
7. The Company agrees to pay all costs and expenses,
including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Debenture.
8. If one or more of the following described "Events of
Default" shall occur and
<PAGE>
continue for 30 days, unless a different time frame is noted below:
(a) The Company shall default in the payment of principal or
interest on this Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate or
financial or other written statements heretofore or hereafter
furnished by or on behalf of the Company in connection with the
execution and delivery of this Debenture or the Subscription
Agreement shall be false or misleading in any material respect at
the time made; or
(c) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement
or obligation of the Company under this Debenture and such failure
shall continue uncured for a period of thirty (30) days after notice
from the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing
its inability to pay its debts generally as they mature; (3) make an
assignment for the benefit of creditors or commence proceedings for
its dissolution; or (4) apply for or consent to the appointment of a
trustee, liquidator or receiver for its or for a substantial part of
its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within thirty (30)
days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or
assets of the Company; or
(g) Any money judgment, writ or warrant of attachment, or similar
process, in excess of One Hundred Thousand ($100,000) Dollars in the
aggregate shall be entered or filed against the Company or any of
its properties or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of fifteen (15) days or in any
event later than five (5) days prior to the date of any proposed
sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings, or other proceedings for relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or
against the Company and, if instituted against the Company; or
<PAGE>
(i) The Company shall have its Common Stock delisted from the
over-the-counter market; or
(j) The Company shall not deliver to the Buyer the Common Stock
pursuant to paragraph 4 herein without restrictive legend within 5
business days.
Then, or at any time thereafter, unless cured, and in each and every
such case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent default) at the option of the Holder and in
the Holder's sole discretion, the Holder may consider this Debenture
immediately due and payable, without presentment, demand, protest or
(further) notice of any kind (other than notice of acceleration),
all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately, and without expiration of any period
of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law.
9. This Debenture represents a prioritized obligation of
the Company. However, no recourse shall be had for the payment of
the principal of, or the interest on, this Debenture, or for any
claim based hereon, or otherwise in respect hereof, against any
incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
10. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to the
maximum extent possible, and the validity and enforceability of the
remaining provisions of this Debenture will not in any way be
affected or impaired thereby.
11. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject
hereof. Neither this Debenture nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument
signed by the Company and the Holder.
12. This Debenture shall be governed by and construed in
accordance with the laws of New York applicable to contracts made
and wholly to be performed within the State of New York and shall be
binding upon the successors and assigns of each party hereto. The
Holder and the Company hereby mutually waive trial by jury and
consent to exclusive jurisdiction and venue in the courts of the
State of New York. At Holder's election, any dispute between the
parties may be arbitrated rather than litigated in the courts,
before the American Arbitration Association in New York City and
pursuant to its rules. Upon demand made by the Holder to the
Company, the Company agrees to submit to and participate in such
arbitration. This Agreement may be executed
<PAGE>
in counterparts, and the facsimile transmission of an executed counterpart
to this Agreement shall be effective as an original.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed by an officer thereunto duly authorized.
Dated: March 16, 1999
LAKOTA ENERGY, INC.
By: /s/Ken Honeyman
Ken Honeyman
Title: President
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert
$ of the above Debenture No. into Shares of
Common Stock of Lakota Energy, Inc. according to the conditions set
forth in such Debenture, as of the date written below.
If Shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer and
other taxes and charges payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL
NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
BY SECTION 3(B) OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER (THE "1933 ACT"), AND RULE 504 OF REGULATION D
PROMULGATED THEREUNDER.
A3-001 US $183,500
LAKOTA ENERGY, INC.
8% SERIES A SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURE
DUE MARCH 15, 2000
THIS DEBENTURE of Lakota Energy, Inc. , a corporation duly
organized and existing under the laws of Colorado ("Company"),
designated as its 8% Series A Senior Subordinated Convertible
Redeemable Debentures Due March 15, 2000, in an aggregate principal
face amount not exceeding One Hundred Eighty Three Thousand Five
Hundred Dollars (U.S. $183,500), which Debentures are being
purchased at 100% of the face amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to Joshua
Heimlich the registered holder hereof and his authorized successors
and permitted assigns ("Holder"), the aggregate principal face sum
not to exceed One Hundred Eighty Three Thousand Five Hundred Dollars
(U.S. $183,500) on March 15, 2000 ("Maturity Date"), and to pay
interest on the principal sum outstanding at the rate of 8% per
annum commencing June 15, 1999 and due in full at the Maturity Date
pursuant to paragraph 4(b) herein. Accrual of outstanding principal
sum has been made or duly provided for. The interest so payable
will be paid to the person in whose name this Debenture is
registered on the records of the Company regarding registration and
transfers of the Debentures ("Debenture Register"); provided,
however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is
made in accordance with the terms and conditions of the Securities
Subscription Agreement dated as of March 16, 1999 between the
Company and Joshua Heimlich ("Subscription Agreement"). The
principal of, and interest on, this Debenture are payable at the
address last appearing on the Debenture Register of the Company as
designated in writing by the Holder hereof from time to time. The
Company will pay the outstanding principal due upon this Debenture
before or on the Maturity Date, less any amounts
<PAGE>
required by law to be deducted or withheld, to the Holder of this
Debenture by check if paid more than 10 days prior to the Maturity Date
or by wire transfer and addressed to such Holder at the last address
appearing on the Debenture Register. The forwarding of such check or wire
transfer shall constitute a payment of outstanding principal
hereunder and shall satisfy and discharge the liability for
principal on this Debenture to the extent of the sum represented by
such check or wire transfer. Interest shall be payable in Common
Stock (as defined below) pursuant to paragraph 4(b) herein.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten
Thousand Dollars (US$10,000) and integral multiples thereof. The
Debentures are exchangeable for an equal aggregate principal amount
of Debentures of different authorized denominations, as requested by
the Holders surrendering the same, but not less than U.S. $10,000.
No service charge will be made for such registration or transfer or
exchange, except that Holder shall pay any tax or other governmental
charges payable in connection therewith.
2. The Company shall be entitled to withhold from all
payments any amounts required to be withheld under the applicable laws.
3. This Debenture may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended ("Act") and
applicable state securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company
may treat the person in whose name this Debenture is duly registered
on the Company's Debenture Register as the owner hereof for all
other purposes, whether or not this Debenture be overdue, and
neither the Company nor any such agent shall be affected or bound by
notice to the contrary. Any Holder of this Debenture, electing to
exercise the right of conversion set forth in Section 4(a) hereof,
in addition to the requirements set forth in Section 4(a), and any
prospective transferee of this Debenture, are also required to give
the Company written confirmation that the Debenture is being
converted ("Notice of Conversion") in the form annexed hereto as
Exhibit I.
4. (a) The Holder of this Debenture is entitled, at its
option, at any time immediately following execution of this
Agreement and delivery of the Debenture hereof, to convert all or
any amount over $10,000 of the principal face amount of this
Debenture then outstanding into shares of Common Stock, $0.001 par
value per share, of the Company ("Common Stock"), at a conversion
price ("Conversion Price") for each share of Common Stock equal to
75% of the closing bid price of the Common Stock as reported on the
National Association of Securities Dealers Electronic Bulletin Board
("OTC Bulletin Board") for the day immediately preceding the date of
receipt by the Company of Notice of Conversion ("Conversion
Shares"). If the number of resultant Conversion Shares would as a
matter of law or pursuant to regulatory authority require the
Company to seek shareholder approval of such issuance, the Company
shall, as soon as practicable, take the necessary steps to seek such
approval. Such conversion shall be effectuated, as provided in a
certain Escrow Agreement executed simultaneously with this
Debenture, by the Company delivering the Conversion Shares to the
Holder within 5 business days of receipt by the Company of the
Notice of
<PAGE>
Conversion. Once the Holder has received such Conversion
Shares, the Escrow Agent shall surrender the Debentures to be
converted to the Company, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a
specified portion hereof, and accompanied by proper assignment
hereof in blank. Accrued but unpaid interest shall be subject to
conversion. No fractional shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share.
(b) Interest at the rate of 8% per annum shall be paid by
issuing Common Stock of the Company as follows: Based on the
closing bid price of the Common Stock as reported on the OTC
Bulletin Board for the day immediately preceding the date of the
monthly interest payment due ("Market Price"), the Company shall
issue to the Holder shares of Common Stock in an amount equal to the
total monthly interest accrued and due divided by 75% of the Market
Price ("Interest Shares"). The dollar amount of interest payable
pursuant to this paragraph 4(b) shall be calculated based upon the
total amount of payments actually made by the Holder in connection
with the purchase of the Debentures at the time any interest payment
is due. If such payment is made by check, interest shall accrue
beginning 10 days from the date the check is received by the
Company. If such payment is made by wire transfer directly into the
Company's account, interest shall accrue beginning on the date the
wire transfer is received by the Company. Common Stock issued
pursuant hereto shall be issued pursuant to Rule 504 of Regulation D
in accordance with the terms of the Subscription Agreement.
(c) At any time after 90 days the Company shall have the
option to pay to the Holder 125% of the principal amount of the
Debenture, in full, to the extent conversion has not occurred
pursuant to paragraph 4(a) herein, or pay upon maturity if the
Debenture is not converted. The Company shall give the Holder 5 days
written notice and the Holder during such 5 days shall have the
option to convert the Debenture or any part thereof into shares of
Common Stock at the Conversion Price set forth in paragraph 4(a) of
this Debenture. Any shares issued pursuant to this paragraph 4(c)
shall be issued pursuant to Rule 504 of Regulation D.
5. No provision of this Debenture shall alter or impair
the obligation of the Company, which is absolute and unconditional,
to pay the principal of, and interest on, this Debenture at the
time, place, and rate, and in the form, herein prescribed.
6. The Company hereby expressly waives demand and
presentment for payment, notice of non-payment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to
accelerate, and diligence in taking any action to collect amounts
called for hereunder and shall be directly and primarily liable for
the payment of all sums owing and to be owing hereto.
7. The Company agrees to pay all costs and expenses,
including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Debenture.
8. If one or more of the following described "Events of
Default" shall occur and
<PAGE>
continue for 30 days, unless a different time frame is noted below:
(a) The Company shall default in the payment of principal or
interest on this Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate or
financial or other written statements heretofore or hereafter
furnished by or on behalf of the Company in connection with the
execution and delivery of this Debenture or the Subscription
Agreement shall be false or misleading in any material respect at
the time made; or
(c) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement
or obligation of the Company under this Debenture and such failure
shall continue uncured for a period of thirty (30) days after notice
from the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing
its inability to pay its debts generally as they mature; (3) make an
assignment for the benefit of creditors or commence proceedings for
its dissolution; or (4) apply for or consent to the appointment of a
trustee, liquidator or receiver for its or for a substantial part of
its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within thirty (30)
days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or
assets of the Company; or
(g) Any money judgment, writ or warrant of attachment, or similar
process, in excess of One Hundred Thousand ($100,000) Dollars in the
aggregate shall be entered or filed against the Company or any of
its properties or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of fifteen (15) days or in any
event later than five (5) days prior to the date of any proposed
sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings, or other proceedings for relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or
against the Company and, if instituted against the Company; or
<PAGE>
(i) The Company shall have its Common Stock delisted from the
over-the-counter market; or
(j) The Company shall not deliver to the Buyer the Common Stock
pursuant to paragraph 4 herein without restrictive legend within 5
business days.
Then, or at any time thereafter, unless cured, and in each and every
such case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent default) at the option of the Holder and in
the Holder's sole discretion, the Holder may consider this Debenture
immediately due and payable, without presentment, demand, protest or
(further) notice of any kind (other than notice of acceleration),
all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately, and without expiration of any period
of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law.
9. This Debenture represents a prioritized obligation of
the Company. However, no recourse shall be had for the payment of
the principal of, or the interest on, this Debenture, or for any
claim based hereon, or otherwise in respect hereof, against any
incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
10. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to the
maximum extent possible, and the validity and enforceability of the
remaining provisions of this Debenture will not in any way be
affected or impaired thereby.
11. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject
hereof. Neither this Debenture nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument
signed by the Company and the Holder.
12. This Debenture shall be governed by and construed in
accordance with the laws of New York applicable to contracts made
and wholly to be performed within the State of New York and shall be
binding upon the successors and assigns of each party hereto. The
Holder and the Company hereby mutually waive trial by jury and
consent to exclusive jurisdiction and venue in the courts of the
State of New York. At Holder's election, any dispute between the
parties may be arbitrated rather than litigated in the courts,
before the American Arbitration Association in New York City and
pursuant to its rules. Upon demand made by the Holder to the
Company, the Company agrees to submit to and participate in such
arbitration. This Agreement may be executed
<PAGE>
in counterparts, and the facsimile transmission of an executed
counterpart to this Agreement shall be effective as an original.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed by an officer thereunto duly authorized.
Dated: March 16, 1999
LAKOTA ENERGY, INC.
By: /s/Ken Honeyman
Ken Honeyman
Title: President
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert
$ of the above Debenture No. into Shares of
Common Stock of Lakota Energy, Inc. according to the conditions set
forth in such Debenture, as of the date written below.
If Shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer and
other taxes and charges payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
ESCROW AGREEMENT
ESCROW AGREEMENT ("Escrow Agreement") dated as of March 16,
1999 by and among LAKOTA ENERGY, INC., a Colorado corporation, with
a principal place of business at 2849 Paces Ferry Road, Atlanta,
Georgia 30339 ("Lakota"), and Y.L. HIRSCH, AMRAM ROTHMAN and JOSHUA
HEIMLICH (collectively "Purchaser" or "Purchasers"), and EDWARD H.
BURNBAUM, ESQ., having a principal place of business at 300 East
42nd Street, New York, New York 10017 ("Escrow Agent").
WHEREAS:
A. Each of the Purchasers and Lakota entered into
Securities Subscription Agreements dated as of March 16, 1999
("Agreement" or "Agreements"), in which, inter alia, the Purchasers
agreed to purchase Lakota's 8% Series A Senior Subordinated
Convertible Redeemable Debentures ("Debentures");
B. Pursuant to the Agreement, the Debentures are to be
delivered to the Escrow Agent to hold and administer in accordance
with the terms and conditions of this Escrow Agreement.
NOW THEREFORE, in consideration of the respective premises,
mutual covenants and agreements of the parties hereto, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Escrow Agent. Escrow Agent is hereby
appointed as escrow agent and the Escrow Agent hereby accepts such
appointment. The Escrow Agent shall act in accordance with the
instructions set forth in this Escrow Agreement and any further
instructions given to it by written instrument signed by Lakota and
Purchaser.
2. Initial Funding. On the date hereof, the Purchaser shall
transfer to Lakota the sum of USD$75,000, less any fees which Lakota
has agreed to pay by virtue of a separate agreement.
3. Issuance and Delivery of the Debentures and Confession of Judgment
to the Escrow Agent.
(a) On the date hereof, Lakota shall issue in the name of the
Purchaser and deposit with the Escrow Agent the Debenture in the
face amount of $550,000 as provided in the Agreement. If Lakota is
not paid the full Purchase Price for the Debenture, as provided in
this Escrow Agreement, then the Debenture, or any portion of the
Debenture which is not paid for at the time when payment is due to
be made, shall be canceled by Lakota, and the Escrow Agent, upon
written notice of such cancellation from Lakota, shall promptly
return the Debenture to Lakota. Upon such cancellation and return
of the Debenture, the parties shall have no further obligations or
liabilities each to the other under this Escrow Agreement, the
Agreement or the Debenture.
<PAGE>
(b) On the date hereof, Lakota shall deliver to the Escrow
Agent a resolution in the form annexed hereto as Exhibit A
("Resolution"), instructing Lakota's transfer agent, American Stock
Transfer,1825 Lawrence Street, Suite 444, Denver, Colorado 80202
("Transfer Agent") to issue to Purchaser shares of Lakota's common
stock registered in the name of the Purchaser, without restrictive
legend as provided in Section 5(b) of the Agreement, in an amount
equal up to $550.000, or at some lesser amount as the Escrow Agent,
in his sole discretion may direct the transfer agent, at a price per
share which is 75% of the closing bid price of Lakota's common stock
as reported on the National Association of Securities Dealers
Electronic Bulletin Board on the day immediately preceding the date
of receipt of the Resolution by transfer agent, and providing that
Lakota shall not change its transfer agent from the Transfer Agent,
without the express written consent and directive of the Escrow
Agent. The Resolution may be delivered by the Escrow Agent to the
Transfer Agent in the event that, for any reason whatsoever, Lakota
fails to honor any Notice of Conversion as provided in the
Debentures and this Escrow Agreement, or Lakota commits a material
breach of the Agreement, the Debentures, or this Escrow Agreement,
or in the event that Lakota changes or attempts to change its
transfer agent from Jersey Transfer and Trust Company without the
express written consent of the Purchasers ("Default"). Upon written
demand from the Purchasers, Escrow Agent shall deliver the
resolution to the Transfer Agent as provided in this Section 3(b).
Delivery of the Resolution to the Transfer Agent and the issuance of
shares by the Transfer Agent in accordance with the Resolution shall
not preclude the Purchasers from exercising any and all other
remedies available to the Purchasers against Lakota for a breach of
the Agreement, the Debentures, or this Escrow Agreement. Escrow
Agent shall be entitled to honor any such written demand from the
Purchasers and shall ignore any demand or instructions to the
contrary from Lakota.
(c) On the date hereof, Lakota shall deliver to the
Escrow Agent a confession of judgment, in the form annexed hereto as
Exhibit B, in the amount of $687,500 ("Confession of Judgment"),
which shall be filed by the Escrow Agent against Lakota in the event
of a Default for all sums which Purchasers would have been entitled
to under the Agreement, the Debentures, and this Escrow Agreement,
including liquidated damages as provided in Section 5(b) below.
Upon written demand from the Purchasers, Escrow Agent shall deliver
the Confession of Judgment to the Purchasers who may thereafter file
the Confession of Judgment and seek enforcement of the judgment
against Lakota wherever Lakota maintains assets. Filing and
enforcing the Confession of Judgment shall not preclude the
Purchasers from exercising any and all other remedies available to
the Purchasers against Lakota for a breach of the Agreement, the
Debentures or this Escrow Agreement. Escrow Agent shall be entitled
to honor any such written demand from the Purchasers and shall
ignore any demand or instructions to the contrary from Lakota.
4. Custody and Disposition of the Debentures. The
Escrow Agent shall hold and dispose of the Debentures only in
accordance with the terms of this Escrow Agreement.
5. Conversion of Debentures and Payment of Escrow Fund.
(a) As provided in paragraph 4 of the Debentures,
Purchaser may give Notice of Conversion of the Debentures to Lakota
by facsimile to the number set forth in Section 10 below.
<PAGE>
Conversion of Debentures may take place at any time until the
Maturity Date of the Debentures, as defined in the Debentures. As
provided in paragraph 4 of the Debentures, within 5 business days of
receipt of the Notice of Conversion, Lakota shall deliver to the
Purchaser, or to an account designated by Purchaser in the Notice of
Conversion, certificates representing the shares of common stock to
which the Purchaser shall be entitled by reason of the conversion
("Certificates"). Notwithstanding anything to the contrary contained
in paragraph 4 of the Debenture, Lakota may demand, in writing, that
the Purchaser pay outstanding principal amounts of the Debenture
("Demand") even though Purchaser has not converted all or any amount
of the Debenture into shares of common stock, as provided in
subsections (A) and (B) below. The Demand is a provision for
payment of the Debenture only. Conversions of the Debenture into
shares of common stock shall be done in accordance with paragraph 4
of the Debenture, and may be in an amount which is no less than
$10,000 but not necessarily as much as the Demand. However, (A) a
Demand may only be made in increments of $25,000 no less than 10
business days from last Demand, provided that the closing bid price
for Lakota's publicly traded common stock for the day preceding the
Demand is equal to or greater than $.03, or (B) no Demand may be
made if the average closing bid price of Lakota's publicly traded
common stock falls below $.03.
(b) If Lakota fails to timely deliver Certificates, as
provided in Section 5(a) above, then Lakota shall pay Purchaser $150
per day for each day late in delivering Certificates up to and
including the 10th late day, and $500 per day for each day late in
delivering the Certificates after the 10th late day ("Liquidated
Damages"). Any Liquidated Damages incurred by Lakota shall be
payable immediately and in cash upon demand in writing by Purchaser,
or its agent, to Lakota . However, such Liquidated Damages may be
deducted from any amounts owed to Lakota by Purchaser pursuant to
this Section 5. Notwithstanding anything contained in the Agreement
to the contrary, including but not limited to the provisions of
Section 6 regarding the registration of restricted Conversion
Shares, Purchaser shall be required to pay the Liquidated Damages
set forth in this Section 5(c).
6. Bankruptcy. In the event any proceeding under the
Bankruptcy Laws of the United States or any proceedings under any
state laws for the protection of debtors or creditors, are filed,
voluntarily or involuntarily, by or on behalf of Lakota, then the
Purchaser shall not be required to make any payment under the
Debenture or to honor any Demand.
7. Indemnification. Purchaser and Lakota agree, jointly
and severally to indemnify, defend and hold harmless the Escrow
Agent from and against any and all costs (including, without
limitation, legal fees and expenses), liabilities, claims and losses
arising out of or in connection with this Escrow Agreement or any
action or failure to act by the Escrow Agent under this Escrow
Agreement, except as provided in paragraph 8 below.
8. Concerning the Escrow Agent. To induce the Escrow
Agent to act hereunder, it is further agreed by the undersigned that:
(a) This Escrow Agreement expressly sets forth all the
duties of the Escrow Agent with respect to any and all matters
pertinent hereto. No implied duties or obligations shall on the
<PAGE>
part of the Escrow Agent shall be read into this Escrow Agreement.
The Escrow Agent shall not be bound by the provisions of any
agreement among the other parties hereto except this Escrow Agreement.
(b) The Escrow Agent shall not be liable for any action
or failure to act in its capacity as Escrow Agent hereunder unless
such action or failure to act shall constitute willful misconduct on
the part of the Escrow Agent, in which case there shall be no
indemnification obligations.
(c) The Escrow Agent shall be entitled to rely upon any
order, judgment, certification, demand, notice, instrument or other
writing delivered to it hereunder without being required to
determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of the service thereof. The
Escrow Agent may act in reliance upon any instrument or signature
believed by it to be genuine and may assume, unless he has actual
knowledge to the contrary, that any person purporting to give notice
or receipt or advice or make any statement or execute any document
in connection with the provisions hereof has been duly authorized to
do so.
(d) The Escrow Agent may act pursuant to the advice of
counsel with respect to any matter relating to this Escrow Agreement
and shall not be liable for any action taken or omitted in
accordance with such advice, except as provided in paragraph 8(b)
above.
(e) The Escrow Agent does not have any interest in the
Debentures, Conversion Shares, Escrow Fund or any other property
deposited hereunder but is serving as escrow holder only and having
only possession thereof, and is not charged with any duty or
responsibility to determine the validity or enforceability of any
such documents.
(f) The Escrow Agent (and any successor Escrow Agent) may
at any time resign as such by delivering the Debentures to any
successor Escrow Agent, jointly designated by the other parties
hereto in writing, or to any court of competent jurisdiction,
whereupon the Escrow Agent shall be discharged of and from any and
all further obligations arising in connection with this Escrow
Agreement thereafter. The resignation of the Escrow Agent will take
effect on the earlier of (a) the appointment of a successor
(including a court of competent jurisdiction) or (b) the day which
is 30 days after the date of delivery of its written notice of
resignation to the other parties hereto. If at that time the Escrow
Agent has not received a designation of a successor Escrow Agent,
the Escrow Agent's sole responsibility after that time shall be to
safekeep the Debentures and not make delivery or disposition thereof
until receipt of a designation of successor Escrow Agent or a joint
written disposition instruction by the other parties hereto or a
final order of a court of competent jurisdiction.
(g) In the event of any disagreement among the parties
hereto resulting in adverse claims or demands being made in
connection with the Debentures, or in the event that the Escrow
Agent otherwise determines that the Debentures should be retained,
then the Escrow Agent may retain the Debentures until the Escrow
Agent shall have received (i) a final nonappealable order of a court
of competent jurisdiction directing delivery of the Debentures, or
(ii) a written agreement executed by the other parties hereto
directing delivery of the Debentures, in which case the Escrow
<PAGE>
Agent shall promptly deliver the Debentures in accordance with such order
or agreement. Any court order referred to in (i) above shall be
accompanied by a legal opinion by counsel for the presenting party
reasonably satisfactory to the Escrow Agent to the effect that said
court order is final and nonappealable. The Escrow Agent shall act
on such court order and legal opinion without further question.
(h) This Escrow Agreement shall be binding upon and inure
solely to the benefit of the parties hereto an their respective
successors (including successors by way of merger) and assigns,
heirs, administrators and representatives and shall not be
enforceable by or inure to the benefit of any third party except as
provided in paragraph (g) with respect to a resignation by the
Escrow Agent.
(i) This Escrow Agreement may be modified by a writing
signed by all the parties hereto, and no waiver hereunder shall be
effective unless in a writing signed by the party to be charged.
(j) The Escrow Agent has the right to rely on any notice received from
Y. L. Hirsch on behalf of all Purchasers without the necessity of
receiving notices to act separately from each Purchaser, and each
Purchaser and Lakota agree that Escrow Agent may act upon the
instructions or written notice or demand received from Y. L. Hirsch
alone.
9. Governing Law. This Escrow Agreement shall be
governed in all respects by the internal laws of the State of New
York. The parties agree to submit to the jurisdiction and venue of
any state or federal court in New York City having subject matter
jurisdiction over the matter. Service may be made by certified
mail, return receipt requested, to the parties at the addresses set
forth in paragraph 10 below, but the parties shall not be precluded
from making service in any other manner permitted by law.
10. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be delivered by
hand or sent by U.S. Express Mail, Fedex or some other reliable
overnight courier service for next day delivery. Each such notice
or other communication shall for all purposes of this Escrow
Agreement be treated as effective or having been given when
delivered if delivered personally, or, if sent by overnight express
mail service, 1 day after the same has been deposited with the U.S.
Postal Service, Fedex or the overnight courier. All such notices
must also be sent by facsimile on the same day to the parties as
follows:
If to Lakota :
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, Georgia 30339
Att'n: Ken Honeyman
Fax: 770-433-8260
<PAGE>
with a copy to:
Brian A. Lebrecht, Esq.
610 Newport Center Drive
Suite 800
Newport Beach, California 92660
Fax: 949-719-1988
If to Purchaser:
Y.L. Hirsch
259 Batai Ugarian
Jerusalem, Israel
Fax: 011-972-2-532-3598
with a copy to:
Portfolio investment Strategies Corp.
6 Lake Street, Suite 1800
Monroe, New York 10950
Fax: 914-774-7275
If to Escrow Agent:
Edward H. Burnbaum, Esq.
Lynch Rowin Novack Burnbaum & Crystal, P.C.
300 East 42nd Street
New York, New York 10017
Fax: 212-986-2907
11. Counterparts. This Escrow Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the
same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Escrow Agreement to be duly executed and delivered, as of the day
and year first above written.
LAKOTA ENERGY, INC.
By: /s/Ken Honeyman
Ken Honeyman
President
PURCHASERS:
/s/Y.L.HIRSCH
/s/AMRAM ROTHMAN
/s/JOSHUA HEMLICH
ESCROW AGENT:
EDWARD H. BURNBAUM, ESQ.
By: /s/Edward H. Burnbaum
SECURITIES SUBSCRIPTION AGREEMENT
THIS SECURITIES SUBSCRIPTION AGREEMENT, dated as of July 23,
1999 ("Agreement"), is executed in reliance upon the exemption from
registration afforded by Rule 504 promulgated under Regulation D by
the Securities and Exchange Commission ("SEC"), under the Securities
Act of 1933, as amended. Capitalized terms used herein and not
defined shall have the meanings given to them in Rule 504 and
Regulation D.
This Agreement has been executed by the undersigned buyer
("Buyer") in connection with the private placement of 1% Series B
Senior Subordinated Convertible Debentures of Lakota Energy, Inc., a
corporation organized under the laws of Colorado, with its principal
executive offices located at 2849 Paces Ferry Road, Atlanta, Georgia
30339 ("Seller"). Buyer hereby represents and warrants to, and
agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL
NOT BE REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED BY SECTION 3(B) OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"),
AND RULE 504 OF REGULATION D PROMULGATED THEREUNDER.
1. Agreement to Subscribe; Purchase Price.
(a) Subscription. The undersigned Buyer hereby
subscribes for and agrees to purchase the Seller's 1% Series B
Senior Subordinated Convertible Redeemable Debenture substantially
in the form of the Debenture attached as Exhibit A hereto and having
an aggregate original principal face amount of Seventy Four Thousand
United States dollars $74,000 (singly, a "Debenture," and
collectively, the "Debentures"), at an aggregate purchase price of
100% of the face amount of such Debentures as set forth in
subsection (b) herein.
(b) Payment. The Purchase Price for the Debenture
shall be Seventy Four United States Dollars (U.S. $74,000)
("Purchase Price"), which shall be payable at closing, pursuant to
paragraph c herein, in accordance with the terms and conditions of
an Escrow Agreement which shall be executed simultaneously with this
Agreement ("Escrow Agreement").
(c) Closing. Subject to the satisfaction of the
conditions set forth in Sections 7 and 8 hereof, the Closing of the
transactions contemplated by this Agreement shall take place when
(i) Seller delivers the Debentures to the Escrow Agent, as defined
in an Escrow Agreement among
<PAGE>
Buyer, Seller and the Escrow Agent of even date, (ii) Seller delivers
the signed Escrow Agreement and accompanying documents, (iii) Buyer pays
the Purchase Price for the Debentures ("Closing Date"), and (iv) Buyer
delivers signed Escrow Agreement.
2. Buyer Representations and Covenants;
Access to Information
In connection with the purchase and sale of the Debenture,
Buyer represents and warrants to, and covenants and agrees with
Seller as follows:
(a) Buyer is not, and on the closing date will not be, an affiliate
of Seller;
(b) Buyer is an "accredited investor" as defined in Rule 501 of Regulation
D promulgated under the 1933 Act, and is purchasing the Shares for
its own account and Buyer is qualified to purchase the Shares under
the laws of the State of Colorado;
(c) All offers and sales of any of the Debentures by Buyer shall be made
in compliance with any applicable securities laws of any applicable
jurisdiction and in accordance with Rule 504, as applicable, of
Regulation D or pursuant to registration of securities under the
1933 Act or pursuant to an exemption from registration;
(d) Buyer understands that the Debentures are not registered under
the 1933 Act and are being offered and sold to it in reliance on specific
exemptions from the registration requirements of Federal and State
securities laws, and that Seller is relying upon the truth and
accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Buyer set forth herein in
order to determine the applicability of such exemptions and the
suitability of Buyer and any purchaser from Buyer to acquire the
Debentures;
(e) Buyer shall comply with Rule 504 promulgated under Regulation D;
(f) Buyer has the full right, power and authority to enter into this
Agreement and to consummate the transaction contemplated herein. This
Agreement has been duly authorized, validly executed and delivered on behalf
of Buyer and is a valid and binding agreement in accordance with its
terms, subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors' rights generally;
(g) The execution and delivery of this Agreement and the
consummation of the purchase of the Debentures and the transactions
contemplated by this Agreement do not and will not conflict with or result
in a breach by Buyer of any of the terms or provisions of, or constitute a
default under, the articles of incorporation or by-laws (or similar
constitutive documents) of Buyer or any indenture, mortgage, deed of
trust, or other material agreement or instrument to which Buyer is a
party or by which it or any of its properties or assets are bound,
or any existing applicable law,
<PAGE>
rule or regulation of the United States or any State thereof or any
applicable decree, judgment or order of any Federal or State court, Federal
or State regulatory body, administrative agency or other United States
governmental body having jurisdiction over buyer or any of its properties
or assets;
(h) All invitations, offers and sales of or in respect of, any of the
Debentures, by Buyer and any distribution by Buyer of any documents
relating to any invitation, offer or sale by it of any of the Debentures
will be in compliance with applicable laws and regulations, will be made
in such a manner that no prospectus need be filed and no other filing
need be made by Seller with any regulatory authority or stock
exchange in any country or any political sub-division of any
country, and Buyer will make no misrepresentations nor omissions of
material fact in the invitation, offer or resale of the Debentures;
(i) The Buyer (or others for whom it is contracting hereunder) has been
advised to consult its own legal and tax advisors with respect to applicable
resale restrictions and applicable tax considerations and it (or
others for whom it is contracting hereunder) is solely responsible
(and the Seller is not in any way responsible) for compliance with
applicable resale restrictions and applicable tax legislation;
(j) Buyer understands that no Federal or State or foreign government
agency has passed on or made any recommendation or endorsement of the
Debentures;
(k) Buyer has had an opportunity to receive and review
all material information and financial data and to discuss with the
officers of Seller, all matters relating to the securities,
financial condition, operations and prospects of Seller and any
questions raised by Buyer have been answered to Buyer's satisfaction.
(l) Buyer acknowledges that the purchase of the Debentures involve a high
degree of risk. Buyer has such knowledge and experience in
financial and business matters that it is capable of evaluating the
merits and risks of purchasing the Debentures. Buyer understands
that the Debentures are not being registered under the 1933 Act, or
under any state securities laws, and therefore, Buyer must bear the
economic risk of this investment for an indefinite period of time;
(m) Buyer is not a "10-percent Shareholder" (as defined in Section
871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller; and
(n) Buyer acknowledges and agrees that the transactions contemplated
by this Agreement have taken place solely and exclusively within the
State of Colorado.
3. Seller Representations and Covenants.
(a) Seller is a corporation duly organized and validly
existing under the laws of the State of Colorado, and is in good
standing under such laws. The Seller has all requisite corporate
<PAGE>
power and authority to own, lease and operate its properties and
assets, and to carry on its business as presently conducted. The
Seller is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of
its business requires such qualification, except where failure to so
qualify would not have a material adverse effect on the Seller.
(b) There are 50,000,000 shares of Seller's common stock,
$0.001 par value per share ("Common Stock"), authorized and
approximately 35,932,581 as of July 23, 1999 outstanding. The
Common Stock is quoted on National Association of Securities Dealers
OTC Electronic Bulletin Board under the symbol"LAKO" All issued and
outstanding shares of Common Stock have been authorized and validly
issued and are fully paid and non-assessable.
(c) The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default (with
or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation
or to a loss of a material benefit, under, any provision of the
Articles of Incorporation, and any amendments thereto, By-Laws,
Stockholders Agreements and any amendments thereto of the Seller or
any material mortgage, indenture, lease or other agreement or
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law ordinance, rule or regulation applicable to the
Seller, its properties or assets. There is no action, suit or
proceeding pending, or to the knowledge of the Seller, threatened
against the Seller, before any court or arbitrator or any government
body, agency or official, which would have a material adverse affect
on Seller's operations or financial condition.
(d) The Seller is not subject to the reporting requirements of Sections
13 or 15(d) of the Securities and Exchange Act, is not an investment company
or a developmental stage company that either has no specific business plan or
purpose. The Debentures and Common Stock when issued, will be issued in
compliance with all applicable U.S. federal and state securities laws.
The Seller understands and acknowledges that, in certain, circumstances, the
issuance of the Shares could dilute the ownership interests of other
stockholders of the Seller. The execution and delivery by the
Seller of this Agreement and the issuance of the Debentures and
Common Stock will not contravene or constitute a default under any
provision of applicable law or regulation. The Seller is in
compliance with and conforms to all statutes, laws, ordinances,
rules, regulations, orders, restrictions and all other legal
requirements of any domestic or foreign government or any
instrumentality thereof having jurisdiction over the conduct of its
businesses or the ownership of its properties
(e) There is no fact known to the Seller that has not been publicly
disclosed by the Seller or disclosed in writing to the
Buyer which could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise) or in the earnings,
business affairs, properties or assets of the Seller, or could
reasonably be expected to materially and adversely affect the
ability of the Seller to perform its obligations pursuant to this
Agreement. The information furnished by
<PAGE>
the Seller to Buyer for purposes of or in connection with this Agreement
or any transaction contemplated hereby, does not contain any untrue
statement of material fact or omit to state a material fact necessary in
order to make the statements contained therein, in light of the circumstances
under which they are made, not misleading.
(f) No consent, approval or authorization of or designation, declaration
or filing with any governmental authority on the part of the Seller is
required in connection with the valid execution and delivery of this
Agreement, or the offer, sale or issuance of the debentures or Common Stock,
or the consummation of any other transaction contemplated hereby, except the
filing with the SEC of Form D.
(g) There is no action, proceeding or investigation
pending, or to the Seller's knowledge, threatened, against the
Seller which might result, either individually or in the aggregate,
in any material adverse change in the business, prospects,
conditions, affairs or operations of the Seller. The Seller is not
a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit proceeding or
investigation by the Seller currently pending or which the Seller
intends to initiate. The SEC has not issued any order suspending
trading in the Seller's Common Stock and the Seller is not under
investigation by the SEC or the National Association of Securities
Dealers, and there are no proceedings pending or threatened before
either regulatory body.
(h) There are no other material outstanding debt or
equity securities presently convertible into Common Stock other than
the Debentures and warrants or commitments to acquire approximately
18,000,000 shares.
(i) The Seller has not sold more than $926,000 worth of
securities within the 12 month period prior to the date the Common
Stock was first offered in reliance on any exemption under Section
3(b) of the 1933 Act, Regulation D or its rules or in violation of
Section 5(a) of the 1933 Act.
(j) The issuance, sale and delivery of the Debentures
have been duly authorized by all required corporate action on the
part of the Seller, and when issued, sold and delivered in
accordance with the terms hereof and thereof for the consideration
expressed herein and therein, will be duly and validly issued, fully
paid and non-assessable. The Common Stock issuable upon conversion
of the Debenture has been duly and validly reserved for issuance and
upon issuance in accordance with the terms of the Debentures, shall
be duly and validly issued, fully paid, and non-assessable There
are no pre-emptive rights of any shareholder of Seller.
(k) This Agreement has been duly authorized, validly
executed and delivered on behalf of Seller and is a valid and
binding agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally. The Seller has all
requisite right, power and authority to execute and deliver this
<PAGE>
Agreement and to consummate the transactions contemplated hereby.
All corporate action on the part of the Seller, its directors and
shareholders necessary for the authorization, execution, delivery
and performance of this Agreement and the Debentures has been taken.
Upon their issuance to the Buyer and delivery to the Escrow Agent,
as defined in and pursuant to the Escrow Agreement, the Debentures
will be validly issued and nonassessable, and will be free of any
liens or encumbrances.
(l) Seller acknowledges and agrees that the transactions contemplated
by this the Agreement have taken place solely and exclusively within
the State of Colorado.
4. Exemption; Reliance on Representations. Buyer understands that the
offer and sale of the Securities are not being registered under the 1933
Act. Seller and Buyer are relying on the rules governing offers and sales
made pursuant to Rule 504 promulgated under Regulation D. The offer and
sale of the Shares are made solely within the State and jurisdiction of
Colorado and without general solicitation.
5. Transfer Agent Instructions.
(a) Debentures. Upon the conversion of the Debentures,
the Buyer or holder shall give a notice of conversion to the Seller
and the Seller shall instruct its transfer agent to issue one or
more Certificates representing that number of shares of Common Stock
into which the Debenture or Debentures are convertible in accordance
with the provisions regarding conversion set forth in Exhibit A.
The Seller shall act as Debenture Registrar and shall maintain an
appropriate ledger containing the necessary information with respect
to each Debenture. There shall be no need for the Purchaser to
surrender the original Debentures to the Seller until the Debentures
have been paid by the Seller or converted into Common Stock, as the
case may be.
(b) Common Stock to be Issued Without Restrictive Legend.
Upon the conversion of any Debenture, Seller shall instruct
Seller's transfer agent to issue Stock Certificates up to the total
of the "Conversion Amount" (as defined in the Debenture) and any
"Interest Shares" (as defined in the Debenture) without restrictive
legend of any nature in the name of the Buyer (or its nominee) and
in such denominations to be specified at conversion representing the
number of shares of Common Stock issuable upon such conversion, as
applicable. The Common Stock shall be immediately freely
transferable on the books and records of Seller. Seller shall also
instruct its attorney to issue and render any legal opinion which is
required at any time by Seller's transfer agent to permit Seller's
transfer agent to issue any and all Stock Certificates without a
restrictive legend as required by this Agreement.
6. Registration. If upon conversion of the Debentures
effected by the Buyer pursuant to the terms of this Agreement or
payment of interest pursuant to the Debenture the Seller fails to
issue certificates for shares of Common Stock issuable upon such
conversion ("Underlying Shares") or the Interest Shares to the Buyer
bearing no restrictive legend for any reason, then the Seller shall
be required, at the request of the Buyer and at the Seller's
expense, to effect the
<PAGE>
registration of the Underlying Shares and/or Interest Shares issuable
upon conversion of the Debentures and payment of interest under the Act
and relevant Blue Sky laws as promptly as is practicable. The Seller
and the Buyer shall cooperate in good faith in connection with the
furnishings of information required for such registration and the taking
of such other actions as may be legally or commercially necessary in order
to effect such registration. The Seller shall file such a
registration statement within 30 days of Buyer's demand and shall
use its good faith diligent efforts to cause such registration
statement to become effective as soon as practicable thereafter.
Such good faith diligent efforts shall include, but not be limited
to, promptly responding to all comments received from the staff of
the SEC, providing Buyer's counsel with a contemporaneous copy of
all written communications from and to the staff of the SEC with
respect to such registration statement and promptly preparing and
filing amendments to such registration statement which are
responsive to the comments received from the staff of the SEC. Once
declared effective by the SEC, the Seller shall cause such
registration statement to remain effective until the earlier of (i)
the sale by the Buyer of all Underlying Shares registered or (ii)
120 days after the effective date of such registration statement.
In the event the Seller undertakes to file a Registration Statement
in connection with the Common Stock, upon the effectiveness of such
Registration, Buyer shall have the option to sell the Common Stock
pursuant thereto.
7. Delivery Instructions. The Debentures being
purchased hereunder, and the Purchase Price, shall be delivered to
the Escrow Agent pursuant to the Escrow Agreement.
8. Conditions To Seller's Obligation To Sell. Seller's
obligation to sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this
Agreement as executed by Buyer.
(b) All of the representations and warranties of the
Buyer contained in this Agreement shall be true and correct on the
Closing Date with the same force and effect as if made on and as of
the Closing Date. The Buyer shall have performed or complied with
all agreements and satisfied all conditions on its part to be
performed, complied with or satisfied at or prior to the Closing Date.
(c) No order asserting that the transactions contemplated
by this Agreement are subject to the registration requirements of
the Act shall have been issued, and no proceedings for that purpose
shall have been commenced or shall be pending or, to the knowledge
of the Seller, be contemplated. No stop order suspending the sale of
the Debentures or Common Stock shall have been issued, and no
proceedings for that purpose shall have been commenced or shall be
pending or, to the knowledge of the Seller, be contemplated.
(d) Delivery of Escrow Agreement by Buyer.
<PAGE>
9. Conditions To Buyer's Obligation To Purchase.
Buyer's obligation to purchase the Debentures is conditioned upon:
(a) The confirmation of receipt and acceptance by Seller
of this Agreement as evidenced by execution of this Agreement of the
duly authorized officer of Seller.
(b) Delivery of the Debentures and the Escrow Agreement
to the Escrow Agent.
10. No Shareholder Approval and No Dilution.
(a) Seller hereby agrees that from the Closing Date until the issuance of
Common Stock upon the conversion of the Debentures, Seller will not
take any action which would require Seller to seek shareholder
approval of such issuance unless such shareholder approval is
required by law or regulatory body (including but not limited to the
NASDAQ Stock Market, Inc.) as a result of the issuance of the
Debentures or Common Stock hereunder.
(b) Provided the Debentures, or any Seller Debentures from a series which
predate the Debentures remain outstanding and unpaid, or if there is
any portion of any such Debentures which have not been converted
into the Seller's Common Stock, then the Seller shall not split nor
reverse split the Common Stock, nor consolidate the outstanding
number of shares of Common Stock into a small number of shares.
11. Miscellaneous.
(a) This Agreement together with the Debentures and
Escrow Agreement, constitutes the entire agreement between the
parties, and neither party shall be liable or bound to the other in
any manner by any warranties, representations or covenants except as
specifically set forth herein. Any previous agreement among the
parties related to the transactions described herein is superseded
hereby. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the restrictive successors and
assigns of the parties hereto. Nothing in this Agreement, express
or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
(b) Buyer is an independent contractor and is not the
agent of Seller. Buyer is not authorized to bind Seller or to make
any representation or warranties on behalf of Seller.
(c) All representations and warranties contained in this
Agreement by Seller and Buyer shall survive the closing of the
transactions contemplated by this Agreement.
(d) This Agreement shall be construed in accordance with
the laws of Colorado applicable to contracts made and wholly to be
performed within the State of Colorado and shall be
<PAGE>
binding upon the successors and assigns of each party hereto.
Buyer and Seller hereby mutually waive trial by jury and consent to
exclusive jurisdiction and venue in the courts of the State of Colorado.
At Buyer's election, any dispute between the parties may be arbitrated
rather than litigated in the courts, before the arbitration board of
the American Arbitration Association in Denver and pursuant to its
rules. Upon demand made by the Buyer to the Seller, Seller agrees
to submit to and participate in such arbitration. This Agreement
may be executed in counterparts, and the facsimile transmission of
an executed counterpart to this Agreement shall be effective as an
original.
(e) Seller agrees to indemnify and hold Buyer harmless
from any and all claims, damages and liabilities arising from
Seller's breach of its representations and/or covenants set forth
herein.
(f) Buyer agrees to indemnify and hold Seller harmless
from any and all claims, damages and liabilities arising from
Buyer's breach of its representations and warranties set forth in
this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Agreement as of the date first set forth above.
Official Signatory of Seller:
LAKOTA ENERGY, INC.
By:/s/Ken Honeyman
Title: President
Accepted this day 23rd day of July, 1999
Official Signatory of Buyer:
HLKT HOLDINGS, L.L.C.
By:/s/Unknown
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND
WILL NOT BE REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED BY SECTION 3(B) OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"),
AND RULE 504 OF REGULATION D PROMULGATED THEREUNDER.
B-001 US $74,000
LAKOTA ENERGY, INC.
1% SERIES B SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE
DEBENTURE DUE JULY 23 , 2001
THIS DEBENTURE of Lakota Energy, Inc., a corporation duly
organized and existing under the laws of Colorado ("Company"),
designated as its 1% Series B Senior Subordinated Convertible
Redeemable Debentures Due July 23, 2001, in an aggregate principal
face amount not exceeding Seventy Four Thousand Dollars (U.S.
$74,000), which Debentures are being purchased at 100% of the face
amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to HLKT
Holdings, L.L.C. the registered holder hereof and his authorized
successors and permitted assigns ("Holder"), the aggregate principal
face sum not to exceed Seventy Four Thousand Dollars (U.S. $74,000)
on July 13, 2001 ("Maturity Date"), and to pay interest on the
principal sum outstanding, at the rate of 1% per annum commencing
September 13, 1999 and due in full at the Maturity Date pursuant to
paragraph 4(b) herein. Accrual of outstanding principal sum has
been made or duly provided for. The interest so payable will be
paid to the person in whose name this Debenture is registered on the
records of the Company regarding registration and transfers of the
Debentures ("Debenture Register"); provided, however, that the
Company's obligation to a transferee of this Debenture arises only
if such transfer, sale or other disposition is made in accordance
with the terms and conditions of the Securities Subscription
Agreement dated as of July 23, 1999 between the Company and HLKT
Holdings, L.L.C. ("Subscription Agreement"). The principal of,
and interest on, this Debenture are payable at the address last
appearing on the Debenture Register of the Company as
<PAGE>
designated in writing by the Holder hereof from time to time. The
Company will pay the outstanding principal due upon this Debenture before
or on the Maturity Date, less any amounts required by law to be deducted
or withheld, to the Holder of this Debenture by check if paid more
than 10 days prior to the Maturity Date or by wire transfer and
addressed to such Holder at the last address appearing on the
Debenture Register. The forwarding of such check or wire transfer
shall constitute a payment of outstanding principal hereunder and
shall satisfy and discharge the liability for principal on this
Debenture to the extent of the sum represented by such check or wire
transfer. Interest shall be payable in Common Stock (as defined
below) pursuant to paragraph 4(b) herein.
This Debenture is subject to the following additional
provisions:
1. The Debentures are issuable in denominations of Ten
Thousand Dollars (US$10,000) and integral multiples thereof. The
Debentures are exchangeable for an equal aggregate principal amount
of Debentures of different authorized denominations, as requested by
the Holders surrendering the same, but not less than U.S. $10,000.
No service charge will be made for such registration or transfer or
exchange, except that Holder shall pay any tax or other governmental
charges payable in connection therewith.
2. The Company shall be entitled to withhold from all
payments any amounts required to be withheld under the applicable laws.
3. This Debenture may be transferred or exchanged only
in compliance with the Securities Act of 1933, as amended ("Act")
and applicable state securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company
may treat the person in whose name this Debenture is duly registered
on the Company's Debenture Register as the owner hereof for all
other purposes, whether or not this Debenture be overdue, and
neither the Company nor any such agent shall be affected or bound by
notice to the contrary. Any Holder of this Debenture, electing to
exercise the right of conversion set forth in Section 4(a) hereof,
in addition to the requirements set forth in Section 4(a), and any
prospective transferee of this Debenture, are also required to give
the Company written confirmation that the Debenture is being
converted ("Notice of Conversion") in the form annexed hereto as
Exhibit I.
4. (a) The Holder of this Debenture is entitled, at
its option, at any time immediately following execution of this
Agreement and delivery of the Debenture hereof, to convert all or
any amount over $10,000 of the principal face amount of this
Debenture then outstanding into shares of Common Stock, $0.01 par
value per share, of the Company freely tradeable and without
restrictive legend of any kind ("Common Stock"), at a conversion
price ("Conversion Price") for each share of Common Stock equal to
50% of the closing bid price of the Common Stock as reported on the
National Association of Securities Dealers Electronic Bulletin Board
("OTC- Bulletin Board") for the trading day immediately preceding
the date of receipt by the Company of Notice of Conversion
("Conversion Shares"). If the number of resultant Conversion Shares
would as a matter of law or pursuant to regulatory authority require
the Company to seek shareholder approval of such
<PAGE>
issuance, the Company shall, as soon as practicable, take the necessary
steps to seek such approval. Such conversion shall be effectuated, as
provided in a certain Escrow Agreement executed simultaneously with
this Debenture, by the Company delivering the Conversion Shares to
the Holder within 5 business days of receipt by the Company of the
Notice of Conversion. Once the Holder has received such Conversion
Shares, the Escrow Agent shall surrender the Debentures to be
converted to the Company, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a
specified portion hereof, and accompanied by proper assignment
hereof in blank. Accrued but unpaid interest shall be subject to
conversion. No fractional shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share.
(b) Interest at the rate of 1% per annum shall be paid by
issuing Common Stock of the Company as follows: Based on the
closing bid price of the Common Stock for the trading day
immediately preceding the date of the monthly interest payment due
as reported on the OTC-Bulletin Board ("Market Price"), the Company
shall issue to the Holder shares of Common Stock in an amount equal
to the total monthly interest accrued and due divided by 50% of the
Market Price ("Interest Shares"). The dollar amount of interest
payable pursuant to this paragraph 4(b) shall be calculated based
upon the total amount of payments actually made by the Holder in
connection with the purchase of the Debentures at the time any
interest payment is due. If such payment is made by check, interest
shall accrue beginning 10 days from the date the check is received
by the Company. If such payment is made by wire transfer directly
into the Company's account, interest shall accrue beginning on the
date the wire transfer is received by the Company. Common Stock
issued pursuant hereto shall be issued pursuant to Rule 504 of
Regulation D in accordance with the terms of the Subscription
Agreement and shall be freely tradeable and without restrictive
legend of any kind.
(c) At any time after 90 days the Company shall have the
option to pay to the Holder 125% of the principal amount of the
Debenture, in full, to the extent conversion has not occurred
pursuant to paragraph 4(a) herein, or pay upon maturity if the
Debenture is not converted. The Company shall give the Holder 5 days
written notice and the Holder during such 5 days shall have the
option to convert the Debenture or any part thereof into shares of
Common Stock at the Conversion Price set forth in paragraph 4(a) of
this Debenture.
5. No provision of this Debenture shall alter or impair
the obligation of the Company, which is absolute and unconditional,
to pay the principal of, and interest on, this Debenture at the
time, place, and rate, and in the form, herein prescribed.
6. The Company hereby expressly waives demand and
presentment for payment, notice of non-payment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to
accelerate, and diligence in taking any action to collect amounts
called for hereunder and shall be directly and primarily liable for
the payment of all sums owing and to be owing hereto.
<PAGE>
7. The Company agrees to pay all costs and expenses,
including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Debenture.
8. If one or more of the following described "Events of
Default" shall occur and continue for 30 days, unless a different
time frame is noted below:
(a) The Company shall default in the payment of principal or
interest on this Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate or
financial or other written statements heretofore or hereafter
furnished by or on behalf of the Company in connection with the
execution and delivery of this Debenture or the Subscription
Agreement shall be false or misleading in any material respect at
the time made or the Company shall violate any covenants in the
Subscription Agreement including but not limited to Section 5(b) or
10; or
(c) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement
or obligation of the Company under this Debenture, the Subscription
Agreement or the Escrow Agreement and such failure shall continue
uncured for a period of thirty (30) days after notice from the
Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing
its inability to pay its debts generally as they mature; (3) make an
assignment for the benefit of creditors or commence proceedings for
its dissolution; (4) apply for or consent to the appointment of a
trustee, liquidator or receiver for its or for a substantial part of
its property or business; (5) file a petition for bankruptcy
relief, consent to the filing of such petition or have filed against
it an involuntary petition for bankruptcy relief, all under federal
or state laws as applicable; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within thirty (30)
days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or
assets of the Company; or
<PAGE>
(g) Any money judgment, writ or warrant of attachment, or similar
process, in excess of One Hundred Thousand ($100,000) Dollars in the
aggregate shall be entered or filed against the Company or any of
its properties or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of fifteen (15) days or in any
event later than five (5) days prior to the date of any proposed
sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings, or other proceedings for relief under any bankruptcy
law or any law for the relief of debtors shall be instituted
voluntarily by or involuntarily against the Company; or
(i) The Company shall have its Common Stock delisted from the
over-the-counter market or other market or exchange on which the
Common Stock is or becomes listed or trading in the Common Stock
shall be suspended for more than 10 consecutive days; or
(j) The Company shall not deliver to the Buyer the Common Stock
pursuant to paragraph 4 herein without restrictive legend within 5
business days.
Then, or at any time thereafter, unless cured, and in each and every
such case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent default) at the option of the Holder and in
the Holder's sole discretion, the Holder may consider this Debenture
immediately due and payable, without presentment, demand, protest or
(further) notice of any kind (other than notice of acceleration),
all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately, and without expiration of any period
of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law.
9. This Debenture represents a prioritized obligation of
the Company. However, no recourse shall be had for the payment of
the principal of, or the interest on, this Debenture, or for any
claim based hereon, or otherwise in respect hereof, against any
incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
10. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to the
maximum extent possible,
and the validity and enforceability of the remaining provisions of this
Debenture will not in any way be affected or impaired thereby.
11. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject
hereof. Neither this Debenture nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument
signed by the Company and the Holder.
12. This Debenture shall be governed by and construed in
accordance with the laws of Colorado applicable to contracts made
and wholly to be performed within the State of Colorado and shall be
binding upon the successors and assigns of each party hereto. The
Holder and the Company hereby mutually waive trial by jury and
consent to exclusive jurisdiction and venue in the courts of the
State of Colorado. At Holder's election, any dispute between the
parties may be arbitrated rather than litigated in the courts,
before the American Arbitration Association in Denver and pursuant
to its rules. Upon demand made by the Holder to the Company, the
Company agrees to submit to and participate in such arbitration.
This Agreement may be executed in counterparts, and the facsimile
transmission of an executed counterpart to this Agreement shall be
effective as an original.
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed by an officer thereunto duly authorized.
Dated: July 23, 1999
LAKOTA ENERGY, INC.
By:/s/Ken Honeyman
Title: President
<PAGE>
B SERIES EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert
$ of the above Debenture No. into Shares of
Common Stock of Lakota Energy, Inc. according to the conditions set
forth in such Debenture, as of the date written below.
If Shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer and
other taxes and charges payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
ESCROW AGREEMENT
ESCROW AGREEMENT ("Escrow Agreement") dated as of July 23,
1999 by and among LAKOTA ENERGY, INC., a Colorado corporation, with
a principal executive office at 2849 Paces Ferry Road, Atlanta,
Georgia 30339 ("Lakota"), and HLKT HOLDINGS, L.L.C. ("Purchaser"),
and EDWARD H. BURNBAUM, ESQ., having a principal place of business
at 300 East 42nd Street, New York, New York 10017 ("Escrow Agent").
WHEREAS:
A. The Purchaser and Lakota entered into a Securities
Subscription Agreement dated as of July 14, 1999 ("Agreement"), in
which, inter alia, the Purchaser agreed to purchase Lakota's 1%
Series B Senior Subordinated Convertible Redeemable Debentures
("Debentures");
B. Pursuant to the Agreement, the Debentures are to be
delivered to the Escrow Agent to hold and administer in accordance
with the terms and conditions of this Escrow Agreement.
NOW THEREFORE, in consideration of the respective premises,
mutual covenants and agreements of the parties hereto, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Escrow Agent. Escrow Agent is hereby
appointed as escrow agent and the Escrow Agent hereby accepts such
appointment. The Escrow Agent shall act in accordance with the
instructions set forth in this Escrow Agreement and any further
instructions given to it by written instrument signed by Lakota and
Purchaser.
2. Initial Funding. On the date hereof, the Purchaser
shall transfer to Lakota the sum of USD$74,000 by wire transfer,
less any fees which Lakota has agreed to pay by virtue of a separate
agreement.
3. Issuance and Delivery of the Debentures and Resolution to the
Escrow Agent
(a) On the date hereof, Lakota shall issue in the name of
the Purchaser and deposit with the Escrow Agent the Debentures in
the face amount of $74,000 as provided in the Agreement. If Lakota
is not paid the full Purchase Price for the Debentures, as provided
in this Escrow Agreement, then the Debenture, or any portion of the
Debentures which is not paid for at the time when payment is due to
be made, shall be canceled by Lakota, and the Escrow Agent, upon
written notice of such cancellation from Lakota, shall promptly
return the Debentures to Lakota. Upon such cancellation and return
of the Debentures, the parties shall have no further obligations or
liabilities each to the other under this Escrow Agreement, the
Agreement or the Debentures.
(b) On the date hereof, Lakota shall deliver to the
Escrow Agent a resolution in
<PAGE>
the form annexed hereto as Exhibit A ("Resolution"), instructing Lakota's
transfer agent, American Stock Transfer, 1825 Lawrence Street, Suite 444,
Denver, Colorado 80202 ("Transfer Agent") to issue to Purchaser shares of
Lakota's common stock registered in the name of the Purchaser, without
restrictive legend as provided in Section 5(b) of the Agreement, in an amount
equal up to $74,000, or at some lesser amount as the Escrow Agent,
in his sole discretion may direct the Transfer Agent, at a price per
share which is 50% of the closing bid price of Lakota's common stock
as reported on the National Association of Securities Dealers
Electronic Bulletin Board for the day immediately preceding the
date of receipt of the Resolution by transfer agent, and providing
that Lakota shall not change its transfer agent from the Transfer
Agent, without the express written consent and directive of the
Escrow Agent. The Resolution may be delivered by the Escrow Agent
to the Transfer Agent in the event that, for any reason whatsoever,
Lakota fails to honor any Notice of Conversion as provided in the
Debentures and this Escrow Agreement, or Lakota commits a material
breach of the Agreement, the Debentures, or this Escrow Agreement,
or in the event that Lakota changes or attempts to change its
transfer agent from the Transfer Agent without the express written
consent of the Purchaser. Upon written demand from the Purchaser,
Escrow Agent shall deliver the resolution to the Transfer Agent as
provided in this Section 3(b). Delivery of the Resolution to the
Transfer Agent and the issuance of shares by the Transfer Agent in
accordance with the Resolution shall not preclude the Purchaser from
exercising any and all other remedies available to the Purchaser
against Lakota for a breach of the Agreement, the Debentures, or
this Escrow Agreement. Escrow Agent shall be entitled to honor any
such written demand from the Purchaser and shall ignore any demand
or instructions to the contrary from Lakota.
4. Custody and Disposition of the Debentures. The
Escrow Agent shall hold and dispose of the Debentures only in
accordance with the terms of this Escrow Agreement.
5. Conversion of Debentures and Payment of Escrow Fund.
(a) As provided in paragraph 4 of the Debentures,
Purchaser may give Notice of Conversion of the Debentures to Lakota
by facsimile to the number set forth in Section 10 below.
Conversion of Debentures may take place at any time until the
Maturity Date of the Debentures, as defined in the Debentures. As
provided in paragraph 4 of the Debentures, within 5 business days of
receipt of the Notice of Conversion, Lakota shall deliver to the
Purchaser, or to an account designated by Purchaser in the Notice of
Conversion, certificates representing the shares of common stock to
which the Purchaser shall be entitled by reason of the conversion
("Certificates").
(b) If Lakota fails to timely deliver Certificates, as
provided in Section 5(a) above, then Lakota shall pay Purchaser $150
per day for each day late in delivering Certificates up to and
including the 10th late day, and $500 per day for each day late in
delivering the Certificates after the 10th late day ("Liquidated
Damages"). Any Liquidated Damages incurred by Lakota shall be
payable immediately and in cash upon demand in writing by Purchaser,
or its agent, to Lakota. However, such Liquidated Damages may be
deducted from any amounts owed to Lakota by Purchaser pursuant to
this Section 5. Notwithstanding anything contained in the Agreement
to the contrary, including but not limited to the provisions of
Section 6 regarding the registration of restricted Conversion
Shares, Purchaser shall be required to pay the Liquidated Damages
set forth in this Section 5(c).
<PAGE>
6. Bankruptcy. In the event any proceeding under the
Bankruptcy Laws of the United States or any proceedings under any
state laws for the protection of debtors or creditors, are filed,
voluntarily or involuntarily, by or on behalf of Lakota, then the
Purchaser shall not be precluded from making any conversions of the
Debenture.
7. Indemnification. Purchaser and Lakota agree, jointly
and severally to indemnify, defend and hold harmless the Escrow
Agent from and against any and all costs (including, without
limitation, legal fees and expenses), liabilities, claims and losses
arising out of or in connection with this Escrow Agreement or any
action or failure to act by the Escrow Agent under this Escrow
Agreement, except as provided in paragraph 8 below.
8. Concerning the Escrow Agent. To induce the Escrow
Agent to act hereunder, it is further agreed by the undersigned that:
(a) This Escrow Agreement expressly sets forth all the
duties of the Escrow Agent with respect to any and all matters
pertinent hereto. No implied duties or obligations on the part of
the Escrow Agent shall be read into this Escrow Agreement. The
Escrow Agent shall not be bound by the provisions of any agreement
among the other parties hereto except this Escrow Agreement.
(b) The Escrow Agent shall not be liable for any action
or failure to act in its capacity as Escrow Agent hereunder unless
such action or failure to act shall constitute willful misconduct on
the part of the Escrow Agent, in which case there shall be no
indemnification obligations.
(c) The Escrow Agent shall be entitled to rely upon any
order, judgment, certification, demand, notice, instrument or other
writing delivered to it hereunder without being required to
determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of the service thereof. The
Escrow Agent may act in reliance upon any instrument or signature
believed by it to be genuine and may assume, unless he has actual
knowledge to the contrary, that any person purporting to give notice
or receipt or advice or make any statement or execute any document
in connection with the provisions hereof has been duly authorized to
do so.
(d) The Escrow Agent may act pursuant to the advice of
counsel with respect to any matter relating to this Escrow Agreement
and shall not be liable for any action taken or omitted in
accordance with such advice, except as provided in paragraph 8(b)
above.
(e) The Escrow Agent does not have any interest in the
Debentures, Conversion Shares, Escrow Fund or any other property
deposited hereunder but is serving as escrow holder only and having
only possession thereof, and is not charged with any duty or
responsibility to determine the validity or enforceability of any
such documents.
(f) The Escrow Agent (and any successor Escrow Agent) may
at any time resign as such by delivering the Debentures to any
successor Escrow Agent, jointly designated by the other parties
hereto in writing, or to any court of competent jurisdiction,
whereupon the Escrow Agent
<PAGE>
shall be discharged of and from any and all further obligations arising
in connection with this Escrow Agreement thereafter. The resignation of
the Escrow Agent will take effect on the earlier of (a) the appointment
of a successor (including a court of competent jurisdiction) or (b) the
day which is 30 days after the date of delivery of its written notice of
resignation to the other parties hereto. If at that time the Escrow
Agent has not received a designation of a successor Escrow Agent,
the Escrow Agent's sole responsibility after that time shall be to
safekeep the Debentures and not make delivery or disposition thereof
until receipt of a designation of successor Escrow Agent or a joint
written disposition instruction by the other parties hereto or a
final order of a court of competent jurisdiction.
(g) In the event of any disagreement among the parties
hereto resulting in adverse claims or demands being made in
connection with the Debentures, or in the event that the Escrow
Agent otherwise determines that the Debentures should be retained,
then the Escrow Agent may retain the Debentures until the Escrow
Agent shall have received (i) a final nonappealable order of a court
of competent jurisdiction directing delivery of the Debentures, or
(ii) a written agreement executed by the other parties hereto
directing delivery of the Debentures, in which case the Escrow Agent
shall promptly deliver the Debentures in accordance with such order
or agreement. Any court order referred to in (i) above shall be
accompanied by a legal opinion by counsel for the presenting party
reasonably satisfactory to the Escrow Agent to the effect that said
court order is final and nonappealable. The Escrow Agent shall act
on such court order and legal opinion without further question.
(h) This Escrow Agreement shall be binding upon and inure
solely to the benefit of the parties hereto and their respective
successors (including successors by way of merger) and assigns,
heirs, administrators and representatives and shall not be
enforceable by or inure to the benefit of any third party except as
provided in paragraph (g) with respect to a resignation by the
Escrow Agent.
(i) This Escrow Agreement may be modified by a writing
signed by all the parties hereto, and no waiver hereunder shall be
effective unless in a writing signed by the party to be charged.
(j) Lakota acknowledges and agrees that in any dispute involving the
Agreement, Debentures or this Escrow Agreement, that Escrow Agent may
represent Purchaser's interests and shall not have a conflict of interest
due to the fact that Escrow Agent is also acting as an escrow agent
pursuant to this Escrow Agreement and Lakota hereby waives any right
which it may have had to assert a conflict of interest in the
absence of this Section 8(j).
9. Governing Law. This Escrow Agreement shall be
governed in all respects by the internal laws of the State of
Colorado. The parties agree to submit to the jurisdiction and venue
of any state or federal court in Denver having subject matter
jurisdiction over the matter. Service may be made by certified
mail, return receipt requested, to the parties at the addresses set
forth in paragraph 10 below, but the parties shall not be precluded
from making service in any other manner permitted by law.
<PAGE>
10. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be delivered by
hand or sent by U.S. Express Mail, Fedex or some other reliable
overnight courier service for next day delivery. Each such notice
or other communication shall for all purposes of this Escrow
Agreement be treated as effective or having been given when
delivered if delivered personally, or, if sent by overnight express
mail service, 1 day after the same has been deposited with the U.S.
Postal Service, Fedex or the overnight courier. All such notices
must also be sent by facsimile on the same day to the parties as
follows:
If to Lakota :
Lakota Energy, Inc. Corporation
2849 Paces Ferry Road, Suite 710
Atlanta, Georgia 30339
Att'n: Ken Honeyman
Fax: 770-433-9194
with a copy to:
Brian Lebrecht, Esq.
c/o M. Richard Cutler, Esq.
610 Newport Center Drive
Suite 800
Newport Beach, California 92660
Fax: 949-719-1988
If to Purchaser:
HLKT Holdings, LLC
1015 South Gaylord Street- Room 603A
Denver, Colorado 80209
Fax: 888-774-7949
If to Escrow Agent:
Edward H. Burnbaum, Esq.
Lynch Rowin Novack Burnbaum & Crystal, P.C.
300 East 42nd Street
New York, New York 10017
Fax: 212-986-2907
11. Counterparts. This Escrow Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the
same instrument.
<PAGE>
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Escrow Agreement to be duly executed and delivered, as of the day
and year first above written.
LAKOTA ENERGY, INC.
By:/s/Ken Honeyman
President
HLKT HOLDINGS, LLC
By:/s/Unknown
As to Escrow Only:
ESCROW AGENT:
EDWARD H. BURNBAUM, ESQ.
By:/s/Edward H. Burnbaum
THE SECURITIES DESCRIBED IN THIS AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE, AND ARE OFFERED IN RELIANCE UPON THE
EXEMPTIONS FROM REGISTRATION PROVIDED BY RULE 504 PROMULGATED UNDER
REGULATION D OF THE 1933 ACT, AND EXEMPTIONS UNDER APPLICABLE STATE
LAWS. THESE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED BY AND
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY, NOR
HAVE SUCH AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SPECULATIVE, AND AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SUBSCRIPTION AGREEMENT
This Subscription Agreement is made by and between Lakota
Technologies, Inc., a Colorado corporation (the "Company") and HLKT
Holdings, LLC (the "Investor").
The parties hereto agree as follows:
Article 1
The Securities
Section 1.01. The Securities. The securities offered hereby
shall consist of that certain Lakota Technologies, Inc. 3%
Convertible Debenture Due August 27, 2000 (the "Debenture"), with a
principal face amount of $23,500.
Section 1.02. Purchase Price. The purchase price ("Purchase
Price") to be paid for the Debenture shall be the sum of Twenty
Three Thousand Five Hundred Dollars ($23,500).
Section 1.03. Closing Date. The purchase and sale of the
Debenture (hereinafter referred to as the "Closing") shall take
place at The Law Offices of M. Richard Cutler, 610 Newport Center
Drive, Suite 800, Newport Beach, CA 92660 on or before August 31,
1999, or at such other time and location as the Investor and the
Company shall agree.
Section 1.04. Delivery. On or before the Closing, the
Investor shall deliver the Purchase Price to the Company and the
Company shall deliver to the Investor the Debenture as set forth
herein.
Section 1.05. Expenses. Irrespective of whether the Closing
is effected, the Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery, and
performance of this Agreement and the transactions contemplated
hereby, including without limitation, the cost of any required
filings under the Act, the Exchange Act or any "blue sky" laws,
rules and regulations.
<PAGE>
Article II
Representations and Warranties
Section 2.01. Investor Representations and Warranties. The
undersigned Investor hereby makes each and every one of the
representations and warranties set forth below:
(a) Investor has the full right, power and authority to
enter into this Agreement and to carry out and consummate the
transactions contemplated herein. This Agreement constitutes the
legal, valid and binding obligation of the Investor.
(b) Investor is an "Accredited Investor" as that term is
defined in Section 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act").
(c) Investor has the financial ability to bear the
economic risk of Investor's investment, can afford to sustain a
complete loss of such investment, has adequate means of providing
for Investor's current needs and personal contingencies and has no
need for liquidity in Investor's Investment in the Company.
(d) Investor will acquire the Debenture for Investor's own
account (or for the joint account of Investor and Investor's spouse
either in joint tenancy, tenancy by the entirety or tenancy in
common) for investment and not with a view to the sale or
distribution thereof or the granting of any participation therein,
and Investor has no present intention of distributing or selling to
others any of such interest or granting any participation therein,
other than pursuant to an effective registration statement under the
Act.
(e) Investor has been given the opportunity to ask
questions of and to receive answers from persons acting on the
Company's behalf concerning the terms and conditions of this
transaction and also has been given the opportunity to obtain any
additional information which the Company possesses or can acquire
without unreasonable effort or expense. As a result, the Investor
is cognizant of the financial condition, capitalization, use of
proceeds from this financing and the operations and financial
condition of the Company, has available full information concerning
its affairs and has been able to evaluate the merits and risks of
the investment in the Debenture.
(f) The funds provided for the Investor's purchase are
either separate property, community property over which the
signatory(ies) hereto has or have the right of control or are
otherwise funds as to which the undersigned has the sole right of
management.
(g) Investor is not an associated person or affiliate of
any member firm of the National Association of Securities Dealers,
Inc.
(h) Investor is a resident of the State of Colorado, and
was not solicited by the Company or its agents with respect to the
Investment.
<PAGE>
Article III
Notices
Section 3.01. Notices. All notices provided for in this
Agreement shall be in writing signed by the party giving such
notice, and delivered personally or sent by overnight courier or
messenger or sent by registered or certified mail (air mail if
overseas), return receipt requested, or by telex, facsimile
transmission, telegram or similar means of communication. Notices
shall be deemed to have been received on the date of personal
delivery, telex, facsimile transmission, telegram or similar means
of communication, or if sent by overnight courier or messenger,
shall be deemed to have been received on the next delivery day after
deposit with the courier or messenger, or if sent by certified or
registered mail, return receipt requested, shall be deemed to have
been received on the third business day after the date of mailing.
Notices shall be sent to the addresses of record for the parties.
Article IV
Miscellaneous
Section 4.01.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY THEREIN,
WITHOUT GIVING EFFECT TO THE RULES OF CONFLICTS OF LAW.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns.
(c) This Agreement represents the entire agreement between
the parties relating to the subject matter hereof, superseding any
and all prior to contemporaneous oral and prior written agreements
and understandings. This Agreement may not be modified or amended
nor may any right be waived except by a writing signed by the party
against whom the modification or waiver is sought to be enforced.
(d) The warranties, representations and covenants of the
Company and the Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement
and the Closing.
(e) The captions and headings contained herein are solely for
convenience of reference and do not constitute a part of this
Agreement.
(f) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement and as of the 27th day of August, 1999.
"Company" "Investor"
Lakota Technologies, Inc. HLKT Holdings, LLC
By: /s/Ken Honeyman By:/s/Unknown
Its: President Its:
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT
BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT
TO AN EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 3(B) OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), AND RULE
504 OF REGULATION D PROMULGATED THEREUNDER.
US $ 23,500
LAKOTA TECHNOLOGIES, INC.
3% CONVERTIBLE DEBENTURE
DUE AUGUST 27, 2000
THIS DEBENTURE of Lakota Technologies, Inc., a corporation
duly organized and existing under the laws of Colorado ("Company"),
designated as its 3% Convertible Debenture Due August 27, 2000, in
an aggregate principal face amount not exceeding Twenty Three
Thousand Five Hundred Dollars (U.S. $23,500), which Debenture is
being purchased at 100% of the face amount of such Debenture.
FOR VALUE RECEIVED, the Company promises to pay to HLKT
Holdings, LLC, the registered holder hereof and his authorized
successors and permitted assignes ("Holder"), the aggregate
principal face sum not to exceed Twenty Three Thousand Five Hundred
Dollars (U.S. $23,500) on August 27, 2000 ("Maturity Date"), and to
pay interest on the principal sum outstanding, at the rate of 3% per
annum commencing September 31, 1999 and due in full at the Maturity
Date pursuant to paragraph 4(b) herein. Accrual of outstanding
principal sum has been made or duly provided for. The interest so
payable will be paid to the person in whose name this Debenture is
registered on the records of the Company regarding registration and
transfers of the Debentures ("Debenture Register"); provided,
however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is
made in accordance with the terms and conditions of the Subscription
Agreement dated as of August 27, 1999 between the Company and HLKT
Holdings, Inc. ("Subscription Agreement"). The principal of, and
interest on, this Debenture are payable at the address last
appearing on the Debenture Register of the Company as designated in
writing by the Holder hereof from time to time. The Company will
pay the outstanding principal due upon this Debenture before or on
the Maturity Date, less any amounts required by law to be deducted
or withheld, to the Holder of this Debenture by check if paid more
than 10 days prior to the Maturity Date or by wire transfer and
addressed to such Holder at the last address appearing on the
Debenture Register. The forwarding of such check or wire transfer
shall constitute a payment of outstanding principal hereunder and
shall satisfy and discharge the liability for principal on this
Debenture to the extent of the sum represented by such
<PAGE>
check or wire transfer. Interest shall be payable in Common Stock
(as defined below) pursuant to paragraph 4(b) herein.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten
Thousand Dollars (US$10,000) and integral multiples thereof. The
Debentures are exchangeable for an equal aggregate principal amount
of Debentures of different authorized denominations, as requested by
the Holders surrendering the same, but not less than U.S. $10,000.
No service charge will be made for such registration or transfer or
exchange, except that Holder shall pay any tax or other governmental
charges payable in connection therewith.
2. The Company shall be entitled to withhold from all
payments any amounts required to be withheld under the applicable laws.
3. This Debenture may be transferred or exchanged only
in compliance with the Securities Act of 1933, as amended ("Act")
and applicable state securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company
may treat the person in whose name this Debenture is duly registered
on the Company's Debenture Register as the owner hereof for all
other purposes, whether or not this Debenture be overdue, and
neither the Company nor any such agent shall be affected or bound by
notice to the contrary. Any Holder of this Debenture, electing to
exercise the right of conversion set forth in Section 4(a) hereof,
in addition to the requirements set forth in Section 4(a), and any
prospective transferee of this Debenture, as also required to give
the Company written confirmation that the Debenture is being
converted ("Notice of Conversion") in the form annexed hereto as
Exhibit I.
4. (a) The Holder of this Debenture is entitled, at
its option, at any time immediately following execution of this
Agreement and delivery of the Debenture hereof, to convert all or
any amount over $10,000 of the principal face amount of this
Debenture then outstanding, plus any accrued interest, into shares
of Common Stock, no par value per share, of the Company ("Common
Stock") at a conversion price ("Conversion Price") for each share of
Common Stock equal to 50% of the average closing bid price of the
Common Stock for the day immediately preceding the date of receipt
by the Company of Notice of Conversion ("Conversion Shares"). If
the number of resultant Conversion Shares would as a matter of law
or pursuant to regulatory authority require the Company to seek
shareholder approval of such issuance, the Company shall, as soon as
practicable, take the necessary steps to seek such approval. Such
conversion shall be effectuated, by the Company delivering the
Conversion Shares to the Holder within 5 business days of receipt by
the Company of the Notice of Conversion and the Debenture, executed
by the Holder of this Debenture evidencing such Holder's intention
to convert this Debenture or a specified portion hereof, and
accompanied by proper assignment hereof in blank. Accrued but
unpaid interest shall be subject to conversion. No fractional
shares or script representing fractions of shares will be issued on
conversion, but the number of share issuable shall be rounded to the
nearest whole share.
(b) Interest at the rate of 3% per annum shall be paid by
issuing Common Stock of the Company . The dollar amount of interest
payable pursuant to this paragraph 4(b) shall be
<PAGE>
calculated based upon the total amount of payments actually made by
the Holder in connection with the purchase of the Debentures at the
time any interest payment is due. If such payment is made by check,
interest shall accrue beginning 10 days from the date the check is
received by the Company. If such payment is being made by wire transfer
directly into the Company's account, interest shall accrue beginning
on the date the wire transfer is received by the Company. Common
Stock issued pursuant hereto shall be issued pursuant to Rule 504 of
Regulation D in accordance with the terms of the Subscription
Agreement.
(c) At any time after execution of this Debenture the
Company shall have the option to pay to the Holder 110% of the
principal amount of the Debenture, in full, to the extent conversion
has not occurred pursuant to paragraph 4(a) herein or pay upon
maturity if the Debenture is not converted. The Company shall give
the Holder 5 days written notice and the Holder during such 5 days
shall have the option to convert the Debenture of any part thereof
into shares of Common Stock at the Conversion Price set forth in
paragraph 4(a) of this Debenture. Any shares issued pursuant to
this paragraph 4(c) shall be issued pursuant to Rule 504 of
Regulation D.
5. No provisions of this Debenture shall alter or impair
the obligation of the Company, which is absolute and unconditional,
to pay the principal of, and interest on, this Debenture at the
time, place, and rate, and in the form, herein prescribed.
6. The Company hereby expressly waives demand and
presentment for payment, notice of non-payment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to
accelerate, and diligence in taking any action to collect amounts
called for hereunder and shall be directly an primarily liable for
the payment of all sums owing and to be owing hereto.
7. The Company agrees to pay all costs and expenses,
including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Debenture.
8. If one or more of the following described "Events of
Default" shall occur and continue for 30 days, unless a different
time frame is noted below:
(a) The Company shall default in the payment of principalor interest
on this Debenture; or
(b) Any of the representations or warranties made by the Company herein,
in the Subscription Agreement, or in any certificate or financial or other
written statements heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and delivery of this Debenture or
the Subscription Agreement shall be false or misleading
in any material respect at the time made; or
(c) The Company shall fail to perform or observe in any material respect,
any other covenant, term, provision, condition, agreement or obligation
of the Company under this Debenture and such failure shall continue
uncured for a period of thirty (30) days after notice form the Holder of
such failure; or
<PAGE>
(d) The Company shall (1) become insolvent; (2) admit
in writing its inability to pay its debts generally as they
mature; (3) make an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (4) apply for or consent
to the appointment of a trustee, liquidator or receiver for its or
for a substantial part of its property or business; or
(e) A Trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within thirty (30) days after such
appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company; or
(g) Any money judgment, writ or warrant of attachment, or
similar process, in excess of One Hundred Thousand
($100,000) Dollars in the aggregate shall be entered
or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of fifteen (15)
days or in any event later than five (5) days prior
to the date of any proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings, or other proceedings for relief under
any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Company
and, if instituted against the Company; or
(i) The Company shall have its Common Stock delisted from
the over-the-counter market; or
(j) The Company shall not deliver to the Buyer the Common
Stock pursuant to paragraph 4 herein without
restrictive legend.
Then, or at any time thereafter, unless cured, and in each and every
such case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent default) at the option of the holder and in
the Holder's sole discretion, the Holder may consider this Debenture
immediately due and payable, without presentment, demand, protest or
(further) notice of any kind (other than notice of acceleration),
all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately, and without expiration of any period
of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law.
9. This Debenture represents a prioritized obligation of
the Company. However, no recourse shall be had for the payment of
the principal of, or the interest on, this Debenture, or for any
<PAGE>
claim based hereon, or otherwise in respect hereof, against any
incorporator, shareholder, officer, or director, as such, past,
present or future, or the Company or any successor corporation,
whether by virtue or any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
10. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to the
maximum extent possible, and the validity and enforceability of the
remaining provisions of this Debenture will not in any way be
affected or impaired thereby.
11. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject
hereof. Neither this Debenture nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument
signed by the Company and the Holder.
12. This Debenture shall be governed by and construed in
accordance with the Law of New York applicable to contracts made and
wholly to be performed within the State of New York and shall be
binding upon the successors and assigns of each party hereto. The
Holder and the Company hereby mutually waive trial by jury and
consent to exclusive jurisdiction and venue in the courts of the
State of New York. This Agreement may be executed in counterparts,
and the facsimile transmission of an executed counterpart to this
Agreement shall be effective as an original.
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed by an officer thereunto duly authorized.
Dated: August 27, 1999
LAKOTA TECHNOLOGIES, INC.
By: /s/Ken Honeyman
Ken Honeyman, President
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debenture)
The undersigned hereby irrevocably elects to convert $ of the above
Debenture No. into Shares of Common Stock of Lakota Technologies,
Inc. ("Company") according to the conditions set forth in such
Debenture, as of the date written below.
If Shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer and other
taxes and charges payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature [Print Name of Holder and Title of Signer]
Address
SSN or EIN
Shares are to be registered in the following name:
Name
Address
Telephone
Facsimile
SSN or EIN
Shares are to be sent or delivered to the following account
Account Name
Address
SECURITIES PURCHASE AGREEMENT
dated as of
August 24, 1999
by and among
LAKOTA TECHNOLOGIES, INC.
as the Issuer,
and
THE PURCHASERS LISTED ON SCHEDULE I ATTACHED HERETO
<PAGE>
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of August 24, 1999, among Lakota
Technologies, Inc., a Colorado corporation (the "Company"), and the
Purchasers listed on Schedule I attached hereto (each a "Purchaser"
and collectively, the "Purchasers").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to the
Purchasers, and the Purchasers desire to purchase from the Company,
$750,000 aggregate principal amount of the Company's 8% Convertible
Notes due August 24, 2001 (the "Convertible Notes"), with terms and
conditions as set forth in the form of Convertible Note attached
hereto as Exhibit A; and
WHEREAS, the Convertible Notes will be convertible into
shares of the Company's common stock, no par value per share (the
"Common Stock"); and
WHEREAS, in order to induce the Purchasers to enter into the
transactions described in this Agreement, the Company desires to
issue to the Purchasers warrants to purchase an aggregate of
5,000,000 shares of Common Stock on the terms and conditions
described in the form of the common stock purchase warrant attached
hereto as Exhibit B ("Warrants"); and
WHEREAS, the Purchasers will have certain registration rights
with respect to shares of Common Stock issuable (i) as interest
under, and upon conversion of, the Convertible Notes (collectively,
the "Conversion Shares"), and (ii) upon exercise of the Warrants
(the "Warrant Shares"), all as set forth in the Registration Rights
Agreement in the form attached hereto as Exhibit C; and
NOW, THEREFORE, in consideration of the foregoing premises
and the covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used
herein, have the following meanings:
"Affiliate" means, with respect to any Person (the "Subject
Person"), (i) any other Person (a "Controlling Person") that
directly, or indirectly through one or more intermediaries, Controls
the Subject Person or (ii) any other Person (other than the Subject
Person) which is Controlled by or is under common Control with a
Controlling Person.
"Agreement" means this Securities Purchase Agreement, as
amended, supplemented or otherwise modified from time to time in
accordance with its terms.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
<PAGE>
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan
or a Multiemployer Plan and which is maintained or otherwise
contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in the City of New York are
authorized or required by law to close.
"Capital Reorganization" has the meaning set forth in Section
7.13.
"Closing Bid Price" shall mean for any security as of any
date, the lowest closing bid price as reported by Bloomberg, L.P.
("Bloomberg") on the principal securities exchange or trading market
where such security is listed or traded or, if the foregoing does
not apply, the lowest closing bid price of such security in the
over-the-counter market on the electronic bulletin board, or, if no
lowest trading price is reported for such security by the electronic
bulletin board, then the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc.
"Closing Date" has the meaning set forth in Section 2.2(c).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or
any entity succeeding to all of its material functions.
"Common Stock" means the common stock, no par value per
share, of the Company.
"Company" means Lakota Technologies, Inc., a Colorado
corporation, and its successors.
"Company Corporate Documents" means the articles of
incorporation and by-laws of the Company.
"Control" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and under "common Control with"), as
used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise .
"Conversion Date" shall mean the date of delivery (including
delivery via telecopy) of a Notice of Conversion for all or a
portion of a Convertible Note by the holder thereof to the Company
as specified in each Convertible Note.
"Conversion Price" has the meaning set forth in the
Convertible Notes.
"Conversion Shares" has the meaning set forth in the Recitals.
<PAGE>
"Convertible Notes" means the Company's 8% Convertible Notes
due August 24, 2001 in the form attached hereto as Exhibit A hereto.
"Debt" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes, or
other similar instruments issued by such Person, (iii) all
obligations of such Person as lessee which (x) are capitalized in
accordance with GAAP or (y) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in
respect of letters of credit or other similar instruments, (v) all
Debt of others secured by a Lien on any asset of such Person,
whether or not such Debt is otherwise an obligation of such Person
and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an
Event of Default or which with the giving of notice or lapse of time
or both would, unless cured or waived, become an Event of Default.
"Default Conversion Price" has the meaning set forth in the
Convertible Notes.
"Directors" means the individuals then serving on the Board
of Directors or similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or other governmental restrictions
relating to the environment or to emissions, discharges or releases
of pollutants, contaminants, petroleum or petroleum products,
chemicals or industrial, toxic or hazardous substances or wastes
into the environment, including, without limitation, ambient air,
surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants,
petroleum or petroleum products, chemicals or industrial, toxic or
hazardous substances or wastes or the cleanup or other remediation
thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means the Company and all members of a
controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together
with the Company, are treated as a single employer under the Code.
"Escrow Agent" means Lynch Rowin Novack Burnbaum & Crystal.
"Escrow Agreement" means a certain Escrow Agreement executed
simultaneously herewith among Escrow Agent, the Company and Purchasers.
"Event of Default" has the meaning set forth in Article XI
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing
(whether by virtue of partnership arrangements, by agreement to keep
well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain a minimum net worth, financial ratio or
similar requirements, or otherwise) any Debt of any other Person
and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or (ii) entered into for the
purpose of assuring in any other manner the holder of such Debt of
the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term
Guarantee shall not include endorsements for collection or deposit
in the ordinary course of business. The term Guarantee used as a
verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials,
hazardous wastes, hazardous constituents, hazardous or toxic
substances or petroleum products (including crude oil or any
derivative or fraction thereof), defined or regulated as such in or
under any Environmental Laws.
"Holder" or "Holders" has the meaning set forth in the
Convertible Notes.
"Intellectual Property" has the meaning set forth in Section
4.18.
"Investment" means any investment in any Person, whether by
means of share purchase, partnership interest, capital contribution,
loan, time deposit or otherwise.
"Lien" means, any lien, mechanic's lien, materialmen's lien,
lease, easement, charge, encumbrance, mortgage, conditional sale
agreement, title retention agreement, agreement to sell or convey,
option, claim, title imperfection, encroachment or other survey
defect, pledge, restriction, security interest or other adverse
claim, whether arising by contract or under law or otherwise
(including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and
the filing of any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction in respect of any of the
foregoing).
"Majority Holders" means (i) as of the Closing Date, the
Purchasers and (ii) at any time thereafter, the holders of more than
50% in aggregate principal amount of the Convertible Notes
outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common
Stock preceding the date of determination.
"Material Plan" means at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the
Convertible Notes; specifically, August 24, 2001.
<PAGE>
"Notice of Conversion" means the form to be delivered by a
holder of a Convertible Note upon conversion of all or a portion
thereof to the Company in the form of Exhibit I to the form of
Convertible Note.
"Notice of Exercise" means the form to be delivered by a
holder of a Warrant upon exercise of all or a portion thereof to the
Company in the form of Exhibit A to the form of Warrant.
"Officer's Certificate" shall mean a certificate executed by
the President, chief executive officer or chief financial officer of
the Company in the form of Exhibit D attached hereto.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses,
franchises, grants, authorizations, permits, easements, variances,
exemptions, consents, certificates, orders and approvals necessary
to own, lease and operate the properties of, and to carry on the
business of the Company.
"Person" means an individual, corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or any agency or political
subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan
which is covered by Title IV of ERISA or subject to the minimum
funding standards under the Code and either (i) is maintained, or
contributed to, by any member of the ERISA group for employees of
any member of the ERISA group or (ii) has at any time within the
preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA Group for
employees of any Person which was at such time a member of the ERISA
group.
"Purchase Price" means the purchase price for the Securities
set forth in Section 2.2(a) hereof.
"Purchasers" means, collectively, those entities listed on
the signature page hereto and their successors and assigns,
including holders from time to time of the Convertible Notes.
"Registrable Securities" has the meaning set forth in Section
10.2(a).
"Registration Statement" has the meaning set forth in Section
10.2(b).
"Registration Rights Agreement" means the agreement between
the Company and the Purchasers dated the date hereof in the form set
forth in Exhibit C attached hereto.
"SEC Reports" shall have the meaning set forth in Section 4.7.
<PAGE>
"Securities" means the Convertible Notes, the Warrants and,
as applicable, the Conversion Shares and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which (x) a majority of the capital
stock or other ownership interests having ordinary voting power to
elect a majority of the Board of Directors or other persons
performing similar functions are at the time directly or indirectly
owned by such Person or (y) the results of operations, the assets
and the liabilities of which are consolidated with such Person under
GAAP.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day on which the
automated quotation system or exchange on which the Common Stock is
then traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the
Convertible Notes, the Warrants, and the Registration Rights Agreement.
"Transfer" means any disposition of Securities that would
constitute a sale thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all
benefits under such Plan exceeds (ii) the fair market value of all
Plan assets allocable to such benefits (excluding any accrued but
unpaid contributions), all determined as of the then most recent
valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA
Group to the PBGC or any other Person under Title IV of ERISA.
"Warrants" means the Common Stock Purchase Warrants issued to
the Purchasers for 5,000,000 shares of Common Stock in the aggregate
on the Closing Date in the form of Exhibit B attached hereto.
"Warrant Shares" has the meaning set forth in the Recitals.
SECTION 1.2. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall
be interpreted, all accounting determinations hereunder shall be
made, and all financial statements required to be delivered
hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a
consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"). All references to
"dollars," "Dollars" or "$" are to United States dollars unless
otherwise indicated.
<PAGE>
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. Authorization of Securities.
(a) The Company has duly authorized the issuance of its
8% Convertible Notes due August 24, 2001 in the original aggregate
principal amount of up to $750,000, in the form annexed hereto as
Exhibit A.
(b) The Company has duly authorized the issuance of
Warrants to purchase up to 5,000,000 shares of Common Stock in the
form annexed hereto as Exhibit B. The Warrants shall be exercisable
at any time during the period commencing September 1, 1999 and
ending on or before August 24, 2002 at the purchase price specified
in the Warrants.
SECTION 2.2. Purchase and Sale of Debentures.
(a) Subject to the terms and conditions set forth herein,
the Company agrees to issue and sell to each Purchaser, and each
Purchaser severally agrees to purchase from the Company, on the
Closing Date (as hereinafter defined), Convertible Notes in the
principal amount set opposite its name on Schedule I for a purchase
price of 100% of the principal amount thereof (the "Purchase
Price"). Each Purchaser shall deliver a check in payment of the
Purchase Price to the Escrow Agent.
(b) In connection with the Purchasers agreement to
purchase the Convertible Notes, the Company shall issue and deliver
to the Purchasers Warrants to purchase the number of shares of
Common Stock set forth opposite its name on Schedule I. No part of
the purchase price of the Convertible Notes shall be allocated to
the Warrants.
(c) The closing for the purchase and sale of the
Convertible Notes shall be held on such date (the "Closing Date"),
not later than August 30, 1999, that the Escrow Agent receives the
Purchase Price (in cleared funds) from the Purchasers and the
Convertible Notes and Warrants registered in the names of the
Purchasers in the principal amounts and numbers, respectively, set
forth on Schedule I, duly executed by the Company.
SECTION 2.3. Deliveries.
On the Closing Date, subject to the satisfaction of all terms
and conditions set forth herein, the Escrow Agent shall deliver:
(a) to the Company, $500,000 of the total Purchase Price, the
balance to be paid in accordance with the terms and conditions of
the Escrow Agreement.
(b) to each Purchaser, Convertible Notes duly executed on behalf of
the Company registered in the name of such Purchaser in the
principal amount set opposite its name on Schedule I annexed hereto,
together with Warrants duly executed on behalf of the Company to
purchase the number of shares of Common Stock set forth
<PAGE>
opposite the name of such Purchaser on Schedule 1, registered in
the name of such Purchaser.
ARTICLE III
PAYMENT TERMS OF CONVERTIBLE NOTE
SECTION 3.1. Payment of Principal and Interest. The
Company will pay all amounts due on each Convertible Note by the
method and at the address specified for such purpose by the
applicable Purchaser in writing, without the presentation or
surrender of any Convertible Note or the making of any notation
thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment
in full of the Convertible Note, the holder shall surrender the
Convertible Note for cancellation, reasonably promptly after any
such request, to the Company at its principal executive office.
Prior to any sale or other disposition of any Convertible Note, the
holder thereof will, at its election, either endorse thereon the
amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the Convertible Note to the
Company in exchange for a new Convertible Note or Convertible Notes.
The Company will afford the benefits of this Section 3.1 to any
direct or indirect transferee of the Convertible Note purchased
under this Agreement and that has made the same agreement relating
to this Convertible Note as the Purchaser has in this Section 3.1;
provided that such transferee is an "accredited investor" under Rule
501 of the Securities Act.
SECTION 3.2 Payment of Interest. Interest shall accrue on
the outstanding principal amount of each Convertible Note and shall
be payable monthly on the last day of each calendar month of each
year, commencing October 31, 1999, in the manner set forth in the
Convertible Note.
SECTION 3.3. Voluntary Prepayment. For so long as no Event
of Default shall have occurred and is continuing, the Company may,
at its option, repay, in whole or in part, the Convertible Notes at
130% of the principal amount thereof, plus accrued but unpaid
interest through the date of prepayment following at least five (5)
Business Days prior written notice to the Purchasers (the expiration
of such five (5) Business Day period being referred to as the
"prepayment date"); provided, however, that if such date is not a
Business Day, the prepayment date shall be the next Business Day
thereafter. Partial prepayments shall be in an aggregate principal
amount of at least $100,000 and a principal amount of at least
$10,000 or a multiple thereof for the Convertible Notes purchased
from any Holder, unless all of the Convertible Notes registered in
the name of the Holder are to be redeemed.
<PAGE>
SECTION 3.4. Mandatory Prepayments.
Upon (i) a transfer of all or substantially all of the
assets of the Company to any Person in a single transaction or
series of related transactions, or (ii) a consolidation, merger or
amalgamation of the Company with or into another Person in which the
Company is not the surviving entity (other than a merger which is
effected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock solely into shares of Common
Stock) (each of items (i) and (ii) being referred to as a "Sale
Event"), then, in each case, the Company shall, upon request of any
Holder, redeem the Convertible Notes registered in the name of such
Holder in cash for 130% of the principal amount, plus accrued but
unpaid interest through the date of redemption, or at the election
of the Holder, such Holder may convert the unpaid principal amount
of such Convertible Notes (together with the amount of accrued but
unpaid interest) into shares of Common Stock at the Conversion Price.
SECTION 3.5. Prepayment Procedures.
(a) Any permitted prepayment or redemption of the Convertible Notes
pursuant to Sections 3.3 or 3.4 above shall be deemed to be
effective and consummated (for purposes of determining the time at
which the Purchasers shall thereafter not be entitled to deliver a
Notice of Conversion for the Convertible Notes) as follows:
(i) A prepayment pursuant to Section 3.3, the "prepayment date"
specified therein;
(ii) A redemption pursuant to Section 3.4, the date of consummation
of the applicable Sale Event;
(b) On the Maturity Date and on the effective date of a repayment
or redemption of the Convertible Notes as specified in Section
3.5(a) above, the Company shall deliver by wire transfer of funds
the repayment/redemption price to each Purchaser of the Convertible
Notes subject to redemption. Should any Purchaser not receive
payment of any amounts due on redemption of its Convertible Notes by
reason of the Company's failure to make payment at the times
prescribed above for any reason, the Company shall pay to the
applicable holder on demand (x) interest on the sums not paid when
due at an annual rate equal to the lesser of (i) the maximum lawful
rate and (ii) 2% per annum, compounded at the end of each thirty
(30) days, until the applicable holder is paid in full and (y) all
costs of collection, including, but not limited to, reasonable
attorneys' fees and costs, whether or not suit or other formal
proceedings are instituted.
(c) The Company shall select the Convertible Notes to be redeemed
in any redemption in which not all of the Convertible Notes are to
be redeemed so that the ratio of the Convertible Notes of each
holder selected for redemption to the total Convertible Notes owned
by that holder shall be the same as the ratio of all such
Convertible Notes selected for redemption bears to the total of all
then outstanding Convertible Notes. Should any Convertible Notes
required to be redeemed under the terms hereof not be redeemed
solely
<PAGE>
by reason of limitations imposed by law, the applicable
Convertible Notes shall be redeemed on the earliest possible dates
thereafter to the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by any Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date
or (y) effective date of a voluntary repayment pursuant to Section
3.3 or a mandatory prepayment pursuant to Section 3.4 as specified
in Section 3.5(a) above), shall be honored by the Company and the
conversion of the Convertible Notes shall be deemed effected on the
Conversion Date. In addition, between the effective date of a
voluntary prepayment pursuant to Section 3.3 or a mandatory
prepayment pursuant to Section 3.4 as specified in Section 3.5(a)
above and the date the Company is required to deliver the redemption
proceeds in full to the Purchasers, the Purchasers may deliver a
Notice of Conversion to the Company. Such notice will be (x) of no
force or effect if the Company timely pays the redemption proceeds
to the Purchasers when due or (y) honored on or as of the date the
Notice of Conversion if the Company fails to timely pay the
redemption proceeds to the Purchasers when due.
SECTION 3.6 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the
Convertible Notes to any Purchaser and each "qualified assignee"
thereof shall be made free and clear of and without deduction or
withholding for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities
with respect thereto (all such taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to
as "Taxes") unless such Taxes are required by law or the
administration thereof to be deducted or withheld. If the Company
shall be required by law or the administration thereof to deduct or
withhold any Taxes from or in respect of any sum payable under the
Convertible Notes (i) the holders of Convertible Notes subject to
such Taxes shall have the right, but not the obligation, for a
period of thirty (30) days commencing upon the day it shall have
received written notice form the Company that it is required to
withhold Taxes to transfer all or any portion of the Convertible
Notes to a qualified assignee to the extent such transfer can be
effected in accordance with the other provisions of this Agreement
and applicable law; (ii) the Company shall make such deductions or
withholdings; (iii) the sum payable shall be increased as may be
necessary so that after making all required deductions or
withholdings (including deductions or withholdings applicable to
additional amounts paid under this Section 3.6) such Purchaser
receives an amount equal to the sum it would have received if no
such deduction or withholding had been made; and (iv) the Company
shall forthwith pay the full amount deducted or withheld to the
relevant taxation or other authority in accordance with applicable
law. A "qualified assignee" of a Purchaser is a Person that is (x)
organized under the laws of (i) the United States or (ii) any
jurisdiction other than the United States or any political
subdivision thereof and that (y) represents and warrants to the
Company that payments of the Company to such assignee under the laws
in existence on the date of this Agreement would not be subject to
any Taxes and (z) from time to time, as and when requested by the
Company, executes and delivers to the Company and the Internal
Revenue Service forms, and provides the Company with any information
necessary to establish such assignee's continued exemption from
Taxes under applicable law.
<PAGE>
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies (all such taxes, charges and levies hereinafter
referred to as "Other Taxes") which arise from any payment made
under any of the Transaction Agreements or from the execution,
delivery or registration of, or otherwise with respect to, this
Agreement other than Taxes payable solely as a result of the
transfer from the Purchasers to a Person of any Security.
(c) The Company shall indemnify each Purchaser, or qualified
assignee, for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.6) paid by each
Purchaser, or qualified assignee, and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto, unless such Taxes or Other Taxes are required by law to be
deducted or withheld. Payment under this indemnification shall be
made within 30 days from the date such Purchaser or assignee makes
written demand therefor. A certificate as to the amount of such
Taxes or Other Taxes submitted to the Company by such Purchaser or
assignee shall be conclusive evidence of the amount due from the
Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the
Company will furnish to each Purchaser the original or a certified
copy of a receipt evidencing payment thereof.
(e) Each Purchaser shall provide to the Company a Form W-8, stating
that it is a non-U.S. person, together with any additional tax forms
which may be required under the Code, as amended after the date
hereof, to allow interest payments to be made to it without deduction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers, and
each of them, as of the Closing Date the following:
SECTION 4.1. Organization and Qualification. The Company
is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with
full power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned,
leased, used, operated and conducted. The Company has no
Subsidiaries except as set forth on Schedule 4.1 . The Company is
duly qualified to conduct business as a foreign corporation and is
in good standing in every jurisdiction in which the nature of the
business conducted by it makes such qualification necessary, except
where such failure would not have a Material Adverse Effect. A
"Material Adverse Effect" means any material adverse effect on the
operations, results of operations, properties, assets or condition
(financial or otherwise) of the Company, or on the transactions
contemplated hereby or by the agreements or instruments to be
entered into in connection herewith.
<PAGE>
SECTION 4.2. Authorization and Execution.
(a) The Company has all requisite corporate power and authority to
enter into and perform each Transaction Agreement and to consummate
the transactions contemplated hereby and thereby and to issue the
Securities in accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the
Securities have been duly and validly authorized and no further
consent or authorization of the Company, its Board of Directors or
its shareholders is required.
(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the other Transaction Agreements
will constitute, a valid and binding agreement of the Company, in
each case enforceable against the Company in accordance with its
respective terms.
SECTION 4.3. Capitalization. As of the date hereof, the
authorized shares of Common Stock are 100,000,000 shares, and as of
August 24, 1999 the issued and outstanding common stock of the
Company is approximately 36,000,000 shares. All of such outstanding
shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and non-assessable. No
shares of capital stock of the Company are subject to preemptive
rights or similar rights of the stockholders of the Company or any
liens or encumbrances imposed through the actions or failure to act
of the Company. Other than as set forth on Schedule 4.3 hereto, as
of the date hereof, (i) there are no outstanding options, warrants,
scrip, rights to subscribe for, puts, calls, rights of first
refusal, agreements, understandings, claims or other commitments or
rights of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital
stock of the Company, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the
Company, and (ii) there are no agreements or arrangements under
which the Company is obligated to register the sale of any of its
securities under the Securities Act (except pursuant to the
Registration Rights Agreement) and (iii) there are no anti-dilution
or price adjustment provisions contained in any security issued by
the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Convertible
Notes, Conversion Shares, Warrants or Warrant Shares. The Company
has furnished to Purchasers true and correct copies of the Company's
Corporate Documents, and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
SECTION 4.4. Governmental Authorization. The execution and
delivery by the Company of the Transaction Agreements does not and
will not, the issuance and sale by the Company of the Securities
does not and will not, and the consummation of the transactions
contemplated hereby and by the other Transaction Agreements will
not, require any action by or in respect of, or filing with, any
governmental body, agency or governmental official except (a) such
actions or filings that have been undertaken or made prior to the
date hereof and that will be in full
<PAGE>
force and effect (or as to which all applicable waiting periods have
expired) on and as of the date hereof or which are not required to
be filed on or prior to the Closing Date, (b) such actions or filings
that, if not obtained, would not result in a Material Adverse Effect,
and (c) the filing of a "Form D" as described in Section 7.12 below.
SECTION 4.5. Issuance of Shares. Upon conversion in
accordance with the terms of the Convertible Notes or upon exercise
in accordance with the terms of the Warrants (assuming the payment
of the exercise price set forth in the Warrants), the Conversion
Shares and Warrant Shares shall be duly and validly issued and
outstanding, fully paid and nonassessable, free and clear of any
Taxes, Liens and charges with respect to issuance except as set
forth in Article IX below and shall not be subject to preemptive
rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of the Purchasers herein
are true and correct in all material respects, each of the
Securities will have been issued in material compliance with all
applicable U.S. federal and state securities laws. The Company
understands and acknowledges that, in certain circumstances, the
issuance of Conversion Shares and Warrant Shares could dilute the
ownership interests of other stockholders of the Company. The
Company further acknowledges that its obligation to issue Conversion
Shares upon conversion of the Convertible Notes, and Warrant Shares
upon exercise of the Warrants, is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the
ownership interests of other stockholders of the Company.
SECTION 4.6. No Conflicts. The execution and delivery by
the Company of the Transaction Agreements to which it is a party did
not and will not, the issuance and sale by the Company of the
Securities did not and will not and the consummation of the
transactions contemplated hereby and by the other Transaction
Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii)
the Company Corporate Documents, (iii) any agreement, judgment,
injunction, order, decree or other instrument binding upon the
Company or any its assets, or result in the creation or imposition
of any Lien on any asset of the Company. The Company is in
compliance with and conforms to all statutes, laws, ordinances,
rules, regulations, orders, restrictions and all other legal
requirements of any domestic or foreign government or any
instrumentality thereof having jurisdiction over the conduct of its
businesses or the ownership of its properties, except where such
failure would not have a Material Adverse Effect.
SECTION 4.7. Financial Information. The Company has
delivered to each Purchaser true and complete copies of its
financial statements and schedules included therein through and
including December, 31, 1998 and June 30, 1999 ("Financial
Statements"), and such Financial Statements and schedules do not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not
misleading. There have been no material adverse changes in the
Company's business, properties, results of operations, condition
(financial or otherwise) or prospects since the date of the
Financial Statements which have not been disclosed to the Purchasers
in writing. The Financial Statements, including the footnotes
thereto, except as indicated therein, (i) complied in all material
respects with applicable accounting requirements and the published
rules and regulations of the Commission with respect thereto and
(ii) have been prepared in accordance with GAAP consistently applied
throughout the periods indicated, except that the unaudited
financial statements do not contain notes and may be subject to
normal audit adjustments and normal annual
<PAGE>
adjustments. Such financial statements fairly present the financial
condition of the Company at the dates indicated and its results of
their operations and cash flows for the periods then ended and,
except as indicated therein, reflect all claims against and all
Debts and liabilities of the Company, fixed or contingent. Since
June 30, 1999 (the "Balance Sheet Date"), there has been (x) no
Material Adverse Change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of
operations or prospects, of the Company, whether as a result of any
legislative or regulatory change, revocation of any license or rights
to do business, fire, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation, act of God, public force
or otherwise and (y) no Material Adverse Change in the assets or
liabilities, or in the business or condition, financial or otherwise,
or in the results of operations or prospects, of the Company, except
in the ordinary course of business; and no fact or condition exists or is
contemplated or threatened which might cause such a change in the
future.
SECTION 4.8. Litigation. There is no action, suit or
proceeding pending or, to the knowledge of the Company, threatened
against the Company, before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely
affect the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or which
challenges the validity of any Transaction Agreements.
SECTION 4.9. Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its
obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the
Code with respect to each Plan. No member of the ERISA Group has (i)
sought a waiver of the minimum funding standard under Section 412 of
the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in
respect of any Benefit Arrangement, or made any amendment to any
Plan or Benefit Arrangement, which has resulted or could result in
the imposition of a Lien or the posting of a bond or other security
under ERISA or the Code or (iii) incurred any liability under Title
IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above
(including profit sharing, deferred compensation, stock option,
employee stock purchase, bonus, retirement, health or insurance
plans, collectively the "Benefit Plans") relating to the employees
of the Company are duly registered where required by, and are in
good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under
the Benefit Plans to the date hereof have been made, the respective
fund or funds established under the Benefit Plans are funded in
accordance with applicable laws, and no past service funding
liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities,
either on a "going concern" or "winding up" basis and determined in
accordance with all applicable laws and actuarial practices and
using actuarial assumptions and methods that are reasonable in the
circumstances. No event has occurred and no condition exists with
respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration
revoked or wound up (in
<PAGE>
whole or in part) or refused for the purposes of any applicable laws
or being placed under the administration of any relevant pension
benefits regulatory authority or being required to pay any taxes or
penalties (in any material amounts) under any applicable laws.
SECTION 4.10. Environmental Matters. The costs and
liabilities associated with Environmental Laws (including the cost
of compliance therewith) are unlikely to have a material adverse
effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Company.
The Company conducts its businesses in compliance in all material
respects with all applicable Environmental Laws.
SECTION 4.11. Taxes. All United States federal, state,
county, municipality local or foreign income tax returns and all
other material tax returns (including foreign tax returns) which are
required to be filed by or on behalf of the Company have been filed
and all material taxes due pursuant to such returns or pursuant to
any assessment received by the Company have been paid, except those
being disputed in good faith and for which adequate reserves have
been established. The charges, accruals and reserves on the books of
the Company in respect of taxes or other governmental charges have
been established in accordance with GAAP.
SECTION 4.12. Investments, Joint Ventures. Except as set
forth on Schedule 4.1, the Company does not have a direct or
indirect Investment in any Person, and the Company is not a party to
any partnership, management, shareholders' or joint venture or
similar agreement.
SECTION 4.13. Not an Investment Company. The Company is
not an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 4.14. Full Disclosure. The information heretofore
furnished by the Company to the Purchasers for purposes of or in
connection with this Agreement or any transaction contemplated
hereby does not, and all such information hereafter furnished by the
Company to the Purchasers will not (in each case taken together and
on the date as of which such information is furnished), contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the
light of the circumstances under which they are made, not misleading.
SECTION 4.15. No solicitation; No Integration with Other
Offerings. No form of general solicitation or general advertising
was used by the Company or, to the best of its actual knowledge, any
other Person acting on behalf of the Company, in connection with the
offer and sale of the Securities. Neither the Company, nor, to its
knowledge, any Person acting on behalf of the Company, has, either
directly or indirectly, sold or offered for sale to any Person
(other than the Purchasers) any of the Securities or, within the six
months prior to the date hereof, any other similar security of the
Company except as contemplated by this Agreement, and the Company
represents that neither itself nor any Person authorized to act on
its behalf (except that the Company makes no representation as to
the Purchasers and their Affiliates) will sell or offer for sale any
such security to, or solicit any offers to buy any such security
from, or otherwise approach or negotiate in respect thereof with,
any Person or Persons so as thereby to cause the issuance or sale of
any of the Securities to be in violation of any of the provisions of
Section 5 of the Securities Act.
<PAGE>
SECTION 4.16. Permits. (a) The Company has all material
Permits; (b) all such Permits are in full force and effect, and the
Company has fulfilled and performed all material obligations with
respect to such Permits; (c) no event has occurred which allows, or
after notice or lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material
impairment of the rights of the holder of any such Permit; and (d)
the Company has no reason to believe that any governmental body or
agency is considering limiting, suspending or revoking any such Permit.
SECTION 4.17. ABSENCE OF ANY UNDISCLOSED LIABILITIES OR
CAPITAL CALLS. There are no liabilities of the Company of any kind
whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected
to result in such a liability, other than (i) those liabilities
provided for in the financial statements delivered pursuant to
Section 4.7 hereof and (ii) other undisclosed liabilities which,
individually or in the aggregate, would not have a Material Adverse
Effect.
SECTION 4.18. Intellectual Property Rights. The Company
owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how
and processes (collectively, "Intellectual Property") used in, or
necessary for the conduct of its business; no claims have been
asserted by any Person to the use of any such Intellectual Property
or challenging or questioning the validity or effectiveness of any
license or agreement related thereto. To the best of the Company's
knowledge, there is no valid basis for any such claim and the use of
such Intellectual Property by the Company will not infringe upon the
rights of any Person.
SECTION 4.19. Insurance. The Company maintains, with
financially sound and reputable insurance companies, insurance in at
least such amounts and against such risks such that any uninsured
loss would not have a Material Adverse Effect. All insurance
coverages of the Company are in full force and effect and there are
no past due premiums in respect of any such insurance.
SECTION 4.20. Title to Properties. The Company has good and
marketable title to all its properties reflected on the financial
statements referred to in Section 4.7, free and clear of all Liens,
other than Liens set forth on the Financial Statements or Schedule
4.20.
SECTION 4.21. Internal Accounting Controls. The Company
maintains a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide
reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
SECTION 4.22. Foreign Practices. Neither the Company nor,
to the Company's knowledge, any employee or agent of the Company has
made any payments of funds of the
<PAGE>
Company, or received or retained any funds, in each case (x) in
violation of any law, rule or regulation or (y) of a character required
to be disclosed by the Company in any of the SEC Reports.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 5.1. Purchasers. Each Purchaser severally (and not
jointly) hereby represents and warrants to the Company solely as to
such Purchaser that:
(a) the Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act and the Securities to be
acquired by it pursuant to this Agreement are being acquired for its
own account and, as of the date hereof, not with a view toward, or
for sale in connection with, any distribution thereof except in
compliance with applicable United States federal and state
securities law; provided that the disposition of the Purchaser's
property shall at all times be and remain within its control;
(b) if the Purchaser is a corporation or partnership, the
execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant hereto are within the
Purchaser's corporate or partnership powers, as applicable, and have
been duly and validly authorized by all requisite corporate or
partnership action;
(c) this Agreement has been duly executed and delivered by the
Purchaser.
(d) the execution and delivery by the Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of
the transactions contemplated hereby and thereby will not,
contravene or constitute a default under or violation of (i) any
provision of applicable law or regulation, or (ii) any agreement,
judgment, injunction, order, decree or other instrument binding upon
such Purchaser;
(e) such Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or
sold except as specified in this Agreement or the remaining
Transition Agreements;
(f) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable
principles of general applicability;
(g) the Purchaser has such knowledge and experience in financial
and business matters so as to be capable of evaluating the merits
and risks of its investment in the Securities and the Purchaser is
capable of bearing the economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and experienced
in business and financial matters; the Purchaser has previously
invested in securities similar to the
<PAGE>
Securities and fully understands the limitations on transfer described
herein; the Purchaser has been afforded access to information about the
Company and the financial condition, results of operations, property,
management and prospects of the Company sufficient to enable it to
evaluate its investment in the Securities; the Purchaser has been
afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the
Securities and the merits and the risks of investing in the
Securities; and the Purchaser has been afforded the opportunity to
obtain such additional information which the Company possesses or
can acquire that is necessary to verify the accuracy and
completeness of the information given to the Purchaser concerning
the Company. The foregoing does not in any way relieve the Company
of its representations and other undertakings hereunder, and shall
not limit any Purchaser's ability to rely thereon; and
(i) no part of the source of funds used by the Purchaser to acquire
the Securities constitutes assets allocated to any separate account
maintained by the Purchaser in which any employee benefit plan (or
its related trust) has any interest.
(J) Purchaser is not a citizen of the United States.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1. Conditions Precedent to the Purchasers' Obligation
to Purchase. The obligation of each Purchaser hereunder
to purchase the Convertible Notes at the Closing is subject to the
satisfaction, on or before the Closing Date of each of the following
conditions, provided that these conditions are for such Purchaser's
sole benefit and may be waived by such Purchaser at any time in its
sole discretion:
(a) The Company shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Purchasers;
(b) The Company shall have delivered to the Escrow Agent duly
executed certificates representing the Convertible Notes and the
Warrants in accordance with Section 2.3(b) hereof;
(c) The representations and warranties of the Company contained in
each Transaction Agreement shall be true and correct in all material
respects as of the date when made and as of the Closing Date as
though made at such time (except for representations and warranties
that speak as of a specified date) and the Company shall have
performed, satisfied and complied with all covenants, agreements and
conditions required by such Transaction Agreements to be performed,
satisfied or complied with by it at or prior to the Closing Date.
The Purchasers' shall have received an Officer's Certificate
executed by the chief executive officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by the Purchasers, including
but not limited
<PAGE>
to certificates with respect to the Company Corporate Documents,
resolutions relating to the transactions contemplated hereby and the
incumbencies of certain officers and Directors of the Company.
The form of such certificate is attached hereto as Exhibit D;
(d) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals
necessary or desirable in connection with the issuance and sale of
the Securities;
(e) All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having
been taken by any competent authority that could restrain, prevent
or impose any materially adverse conditions thereon or that could
seek or threaten any of the foregoing;
(f) No law or regulation shall have been imposed or enacted that,
in the judgment of the Purchasers, could adversely affect the
transactions set forth herein or in the other Transaction
Agreements, and no law or regulation shall have been proposed that
in the reasonable judgment of Purchasers could reasonably have any
such effect;
(g) The Company Corporate Documents shall be in full force and
effect and no term or condition thereof shall have been amended,
waived or otherwise modified without the prior written consent of
the Purchasers;
(h) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company since June 30,
1999;
(i) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any
arbitrator or governmental instrumentality that challenges the
validity of or purports to affect this Agreement or any other
Transaction Agreement, or other transaction contemplated hereby or
thereby or that could reasonably be expected to have a Material
Adverse Effect, or any material adverse effect on the enforceability
of the Transaction Agreements or the Securities or the rights of the
holders of the Securities or the Purchasers hereunder;
(j) The Purchasers shall have confirmed receipt of the Convertible
Notes and the Warrants to be issued, duly executed by the Company in
the denominations and registered in the names of the Purchasers
specified in or pursuant to Schedule I;
(k) There shall not have occurred any disruption or adverse change
in the financial or capital markets generally, or in the market for
the Common Stock (including but not limited to any suspension or
delisting), which the Purchasers reasonably deem material in
connection with the purchase of the Securities;
(l) Immediately before and after the Closing Date, no Default or
Event of Default shall have occurred and be continuing; and
<PAGE>
(m) The Purchasers shall have received all other certificates,
instruments, agreements or other documents as they shall reasonably
request.
SECTION 6.2. Conditions to the Company's Obligations. The
obligations of the Company to issue and sell the Securities to the
Purchasers pursuant to this Agreement are subject to the
satisfaction, at or prior to any Closing Date, of the following
conditions:
(a) The representations and warranties of the Purchasers contained
herein shall be true and correct in all material respects on the
Closing Date and the Purchasers shall have performed and complied in
all material respects with all agreements required by this Agreement
to be performed or complied with by the Purchasers at or prior to
the Closing Date;
(b) The issue and sale of the Securities by the Company shall not
be prohibited by any applicable law, court order or governmental
regulation;
(c) Receipt by the Company of duly executed counterparts of this
Agreement and the Registration Rights Agreement signed by the
Purchasers; and
(d) The Escrow Agent shall have received payment of the Purchase
Price in cleared funds.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date
hereof for so long as any Convertible Notes remain outstanding
(except for Sections 7.1, 7.9, 7.10 and 7.11, which shall apply for
so long as any Convertible Notes or Warrants remain outstanding) and
for the benefit of the Purchasers:
SECTION 7.1. Information. The Company will deliver to each
holder of the Convertible Notes:
(a) promptly upon the filing thereof, copies of (i) all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent), and (ii)
when the Company becomes a "reporting company" under the Exchange
Act all reports on Forms 10-K, 10-Q and 8-K (or their equivalents)
which the Company has filed with the Commission; and
(b) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and
proxy statements so mailed and any other document generally
distributed to shareholders.
<PAGE>
SECTION 7.2. Payment of Obligations. The Company will, pay
and discharge, at or before maturity, all its liabilities, except
where the same may be contested in good faith by appropriate
proceedings and will maintain, in accordance with GAAP, appropriate
reserves for the accrual of any of the same.
SECTION 7.3. Maintenance of Property; Insurance. The
Company will keep all property useful and necessary in its business
in good working order and condition, ordinary wear and tear
excepted. In addition, the Company will maintain insurance in at
least such amounts and against such risks as it has insured against
as of the Closing Date.
SECTION 7.4. Maintenance of Existence. The Company will
continue to engage in business of the same general type as now
conducted by it, and will preserve, renew and keep in full force and
effect its corporate existence and its material rights, privileges
and franchises necessary or desirable in the normal conduct of
business.
SECTION 7.5. Compliance with Laws. The Company will
comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules,
regulations, municipal by-laws, codes and requirements of
governmental authorities (including, without limitation,
Environmental Laws and ERISA and the rules and regulations
thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected, in the aggregate, to
have a material adverse effect on the business, condition (financial
or otherwise), operations, properties or prospects of the Company.
SECTION 7.6. Inspection of Property, Books and Records.
The Company will keep proper books of record and account in which
full, true and correct entries shall be made of all dealings and
transactions in relation to its business and activities; and will
permit, during normal business hours, a representative of the
Purchasers to visit and inspect any of its properties, upon
reasonable prior notice, to examine and make abstracts from any of
its books and records and to discuss its affairs, finances and
accounts with its executive officers and independent public
accountants (and by this provision the Company authorizes its
independent public accountants to disclose and discuss with the
Purchasers the affairs, finances and accounts of the Company), all
at such reasonable times.
SECTION 7.7. Investment Company Act. The Company will not
be or become an open-end investment trust, unit investment trust or
face-amount certificate company that is or is required to be
registered under Section 8 of the Investment Company Act of 1940, as
amended.
SECTION 7.8. Use of Proceeds. The proceeds from the
issuance and sale of the Convertible Notes by the Company shall be
used for working capital purposes. None of the proceeds from the
issuance and sale of the Convertible Notes by the Company pursuant
to this Agreement will be used directly or indirectly for the
purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.
<PAGE>
SECTION 7.9. Reserved Shares. The Company shall at all
times have authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the full
conversion of the outstanding Convertible Notes and issuance of the
Conversion Shares and the exercise in full of the Warrants and the
issuance of the Warrant Shares.
SECTION 7.10. Irrevocable Instructions. Upon receipt of a
Notice of Conversion or Notice of Exercise, as applicable, the
Company shall immediately issue irrevocable instructions to its
transfer agent to issue certificates, registered in the name of each
Purchaser or its nominee, for the Conversion Shares or Warrant
Shares, as applicable, in such amounts as specified from time to
time by each Purchaser to the Company upon proper conversion of the
Convertible Notes or exercise of the Warrants. Upon conversion of
any Convertible Notes in accordance with their terms and/or exercise
of any Warrants in accordance with their terms, the Company will,
and will use its best lawful efforts to cause its transfer agent to,
issue one or more certificates representing shares of Common Stock
in such name or names and in such denominations specified by a
Purchaser in a Notice of Conversion or Notice of Exercise, as the
case may be. As long as the Registration Statement contemplated by
the Registration Rights Agreement shall remain effective, the shares
of Common Stock issuable upon conversion of any Convertible Notes or
exercise of any Warrants shall be issued to any transferee of such
shares from a Purchaser without any restrictive legend. The Company
further warrants and agrees that no instructions other than these
instructions have been or will be given to its transfer agent.
Nothing in this Section 7.10 shall affect in any way a Purchaser's
obligation to comply with all securities laws applicable to such
Purchaser upon resale of such shares of Common Stock, including any
prospectus delivery requirements.
SECTION 7.11. Maintenance of Reporting Status; Supplemental
Information. So long as any of the Securities are outstanding, when
the Company becomes a "reporting company" under the Exchange Act,
the Company shall timely file all reports required to be filed with
the Commission pursuant to the Exchange Act. The Company shall not
terminate its status as an issuer required to file reports under the
Exchange Act, even if the Exchange Act or the rules and regulations
thereunder would permit such termination. If at anytime the Company
is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company will promptly furnish at its expense, upon
request, for the benefit of the holders from time to time of
Securities, and prospective purchasers of Securities, information
satisfying the information requirements of Rule 144 under the
Securities Act.
SECTION 7.12. Form D; Blue Sky Laws. The Company agrees to
file a "Form D" with respect to the Securities as required under
Regulation D of the Securities Act and to provide a copy thereof to
each Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale
to the Purchasers at the Closing pursuant to this Agreement under
applicable securities or "blue sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to each Purchaser
on or prior to the Closing Date.
SECTION 7.13. Capital Reorganization. If and whenever there
shall occur:
<PAGE>
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the share of Common Stock into other shares, or,
(ii) a Sale Event.
(any such event being herein called a "Capital Reorganization"),
then in each such case the holder who exercises the right to convert
Convertible Notes or exercise the Warrants after the effective date
of such Capital Reorganization shall be entitled to receive and
shall accept, upon the exercise of such right, in lieu of the number
of shares of Common Stock to which such holder was theretofore
entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the
Company or of the body corporate resulting from such Capital
Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date
thereof, such holders had been the holder of the number of shares of
Common Stock to which such holder was theretofore entitled upon
conversion; provided, however, that no such Capital Reorganization
shall be consummated in effect unless all necessary steps shall have
been taken so that such holders shall thereafter be entitled to
receive such number of shares or other securities of the Company or
of the body corporate resulting from such Capital Reorganization,
subject to adjustment thereafter in accordance with provisions the
same, as nearly as may be possible, as those contained above.
SECTION 7.14. Notice to Noteholders.
The Company shall give the registered holders of the
Convertible Notes and Warrants written notice of any record, not
less than 10 Business Days prior to such record date or, if no
record date is fixed, not less than 10 Business Days prior to the
effective date of such event, which notice shall set forth the
particulars of the proposed event or the extent that such
particulars have been determined at the time of giving the notice.
ARTICLE VIII
NEGATIVE COVENANTS
The Company hereby agrees that, from and after the date
hereof for so long as any Convertible Notes, and in the case of
Section 8.1, the Warrants remain outstanding and for the benefit of
the Purchasers:
SECTION 8.1. No Reverse Stock Split. The Company will not
consolidate the outstanding shares of Common Stock into a smaller
number of shares.
SECTION 8.2. Limitation on Future Financing. The Company
agrees that it will not, without the consent of the registered
holders of the Convertible Notes, enter into any financing at a
discount to Market Price exceeding 25% until six months after the
effective date of the Registration Statement; provided, however,
anything to the contrary appearing herein notwithstanding, neither
this Section nor any other provision hereof shall be construed to
restrict or
<PAGE>
prohibit the Company's right to restructure, amend or
modify any facility existing on the date hereof that does not
materially impair the rights of the holders of the Convertible Notes.
ARTICLE IX
RESTRICTIVE LEGENDS
SECTION 9.1 Restrictions on Transfer. From and after
their respective dates of issuance, none of the Securities shall be
transferable except upon the conditions specified in this Article
IX, which conditions are intended to ensure compliance with the
provisions of the Securities Act in respect of the Transfer of any
of such Securities or any interest therein. Each Purchaser will use
its best efforts to cause any proposed transferee of any Securities
held by it to agree to take and hold such Securities subject to the
provisions and upon the conditions specified in this Article IX.
SECTION 9.2. Restrictive legends.
(a) Each certificate for Securities issued to a Purchaser
or to a subsequent transferee shall (except as contemplated by
Section 7.10 and Section 9.1 hereof) include a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR
THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B)
PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT.
SECTION 9.3. Notice of Proposed Transfers. Prior to any
proposed Transfer of the Securities (other than a Transfer (i)
registered or exempt from registration under the Securities Act,
(ii) to an affiliate of a Purchaser which is an "accredited
investor" within the meaning of Rule 501(a) under the Securities
Act, provided that any such transferee shall agree to be bound by
the terms of this Agreement and the Registration Rights Agreement,
or (iii) to be made in reliance on Rule 144 under the Securities
Act), the holder thereof shall give written notice to the Company of
such holder's intention to effect such Transfer, setting forth the
manner and circumstances of the proposed Transfer, which shall be
accompanied by (A) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a
violation of the Securities Act, (B) representation letters in form
and substance reasonably satisfactory to the Company to ensure
compliance with the provisions of the Securities Act and (C) letters
in form and substance reasonably satisfactory to the Company from
each such transferee stating such transferee's agreement to be bound
by the terms of this Agreement and the Registration Rights
Agreement. Such proposed Transfer may be effected only if the
Company shall have received such notice of transfer, opinion of
counsel, representation letters and other letters referred to in the
immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in
accordance with the terms of the notice delivered by the holder to
the Company.
<PAGE>
ARTICLE X
ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1. Conversion Limit. Notwithstanding the
conversion rights under the Convertible Notes and exercise rights
under the Warrants, unless the Purchaser delivers a waiver in
accordance with the immediately following sentence, in no event
shall the Purchaser be entitled to convert any portion of the
Convertible Notes or exercise any portion of the Warrants, in excess
of that portion of the Convertible Notes or Warrants upon conversion
and exercise, as applicable, of which the sum of (i) the number of
shares of Common Stock beneficially owned by the Purchaser and its
Affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion
of the Convertible Note and unexercised portion of the Warrants, or
other Derivative Securities convertible into or exchangeable for
shares of Common Stock which contain a limitation similar to that
set forth in this Section 10.1), and (ii) the number of shares of
Common Stock issuable upon the conversion of the portion of the
Convertible Note or issuable upon exercise the portion of the
Warrants with respect to which this determination is being made,
would result in beneficial ownership by the Purchaser and its
Affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of this Section 10.1, beneficial ownership
shall be determined in accordance with Rule 13d-3 of the Exchange
Act and Regulations 13 D-G thereunder, except as otherwise provided
in this Section 10.1. The foregoing limitation shall not apply and
shall be of no further force or effect (i) immediately preceding and
upon the occurrence of any voluntary or mandatory redemption or
repayment transaction described herein or in the Convertible Notes,
(ii) on the Maturity Date or (iii) following the occurrence of any
Event of Default which is not cured within the greater of the
applicable time period specified in either (A) such written notice
of Purchaser or (B) Section 11.1 hereof.
SECTION 10.2 Registration Rights.
(a) The Company shall grant the Purchasers registration rights
covering the Conversion Shares and Warrant Shares (the "Registrable
Securities") on the terms set forth in the Registration Rights
Agreement and herein.
(b) The Company shall prepare and file as soon as practicable
following the Closing Date a registration statement (the
"Registration Statement") on Form SB-2 (or such other form as is
then available for registration) covering the sale of the
Registrable Securities. The Company shall use its best efforts to
cause the Registration Statement to be declared effective by the
Commission. The Company shall pay all expenses of registration,
other than underwriting fees and discounts, if any, in respect of
Registrable Securities offered and sold under such Registration
Statement by the Purchasers.
<PAGE>
ARTICLE XI
EVENTS OF DEFAULT
SECTION 11.1. Events of Default. If one or more of the
following events (each an "Event of Default") shall have occurred
and be continuing:
(a) failure by the Company to pay or prepay when due, all or any
part of the principal on any of the Convertible Notes (whether by
virtue of the agreements specified in this Agreement or the
Convertible Notes);
(b) failure on the part of the Company to observe or perform in any
material respect any covenant contained in Sections 7.9, 7.10, 7.11
or 8.1 of this Agreement;
(c) trading in the Common Stock shall have been suspended by the
Commission or by the OTC Bulletin Board (except for any suspension
of trading of limited duration solely to permit dissemination of
material information regarding the Company and except if, at the
time there is any suspension on the OTC Bulletin Board, the Common
Stock is then listed and approved for trading on either the Nasdaq
Stock Market's SmallCap Market or the Nasdaq Stock Market's National
Market or a stock exchange within ten (10) Trading Days thereof);
(d) the Company shall have its Common Stock delisted from the OTC
Bulletin Board for at least ten (10) consecutive Trading Days and is
unable to obtain a listing on either the Nasdaq Stock Market's
SmallCap Market or the Nasdaq Stock Market's National Market or a
stock exchange within such ten (10) Trading Days thereof;
(e) the Company has commenced a voluntary case or other proceeding
seeking liquidation, winding-up, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency,
moratorium or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or has consented to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or has
made a general assignment for the benefit of creditors, or has
failed generally to pay its debts as they become due, or has taken
any corporate action to authorize any of the foregoing;
(f) an involuntary case or other proceeding has been commenced
against the Company seeking liquidation, winding-up, reorganization
or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or
hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period
of 90 days, or an order for relief has been entered against the
Company under the federal bankruptcy laws as now or hereafter in
effect;
<PAGE>
(g) default in any provision (including payment) of any agreement
governing the terms of any Debt of the Company in excess of
$100,000, which has not been cured within any applicable period of
grace associated therewith;
(h) judgments or orders for the payment of money which in the
aggregate at any one time exceed $200,000 and are not covered by
insurance have been rendered against the Company by a court of
competent jurisdiction and such judgments or orders shall continue
unsatisfied and unstayed for a period of 90 days.
(i) failure of the Company to have the Registration Statement
referred to in Section 10.2 of this Agreement declared effective
within 120 days from the date of this Agreement.
then, and in every such occurrence, any Purchaser may, with respect
to an Event of Default specified in paragraph (a), and the Majority
Holders may, with respect to any other Event of Default, by notice
to the Company, declare the Convertible Notes to be, and the
Convertible Notes shall thereon become immediately due and payable;
provided that in the case of any of the Events of Default specified
in paragraph (e) or (f) above with respect the Company, then,
without any notice to the Company or any other act by any Holder,
the entire amount of the Convertible Notes shall become immediately
due and payable, provided further, if any Event of Default has
occurred and is continuing, and irrespective of whether any
Convertible Note has been declared immediately due and payable
hereunder, any Holder of Convertible Notes may proceed to protect
and enforce the rights of such Holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Convertible
Note, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted
hereby or thereby or by law or otherwise, and provided further, in
the case of any Event of Default other than those specified in
paragraphs (e) and (f), the amount declared due and payable on the
Convertible Notes shall be 130% of the principal amount thereof,
including accrued but unpaid interest through the date of payment,
except that any Holder may convert the unpaid principal amount of
any Convertible Note (including the amount of accrued but unpaid
interest) into shares of Common Stock at the Conversion Price.
SECTION 11.2. Powers and Remedies Cumulative. No right or
remedy herein conferred upon or reserved to the Purchasers is
intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion
or employment of any other appropriate right or remedy. Every power
and remedy given by the Convertible Notes or by law may be exercised
from time to time, and as often as shall be deemed expedient, by the
Purchasers.
<PAGE>
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. Notices. All notices, demands and other
communications to any party hereunder shall be in writing (including
telecopier or similar writing) and shall be given to such party at
its address set forth on the signature pages hereof, or such other
address as such party may hereafter specify for the purpose to the
other parties. Each such notice, demand or other communication shall
be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page
hereof, (ii) if given by mail, four days after such communication is
deposited in the mail with first class postage prepaid, addressed as
aforesaid or (iii) if given by any other means, when delivered at
the address specified in or pursuant to this Section.
SECTION 12.2. No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in
writing and is signed by the Company and the Majority Holders;
provided, that without the consent of each holder of any Convertible
Note affected thereby, an amendment or waiver may not (a) reduce the
aggregate principal amount of Convertible Notes whose holders must
consent to an amendment or waiver, (b) reduce the rate or extend the
time for payment of interest on any Convertible Note, (c) reduce the
principal amount of or extend the stated maturity of any Convertible
Note or (d) make any Convertible Note payable in money or property
other than as stated in such Convertible Note. In determining
whether the holders of the requisite principal amount of Convertible
Notes have concurred in any direction, consent, or waiver as
provided in any Transaction Agreement, Convertible Notes which are
owned by the Company or any other obligor on or guarantor of the
Convertible Notes, or by any Person Controlling, Controlled by, or
under common Control with any of the foregoing, shall be disregarded
and deemed not to be outstanding for the purpose of any such
determination; and provided further that no such amendment,
supplement or waiver which affects the rights of the Purchasers and
their affiliates otherwise than solely in their capacities as
holders of Convertible Notes shall be effective with respect to them
without their prior written consent.
SECTION 12.3. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Purchaser, its Affiliates, and each Person, if any, who controls
such Purchaser, or any of its Affiliates, within the meaning of the
Securities Act or the Exchange Act (each, a "Controlling Person"),
and the respective partners, agents, employees, officers and
Directors of each Purchaser, their Affiliates and any such
Controlling Person (each an "Indemnified Party" and collectively,
<PAGE>
the "Indemnified Parties"), from and against any and all losses,
claims, damages, liabilities and expenses (including, without
limitation and as incurred, reasonable costs of investigating,
preparing or defending any such claim or action, whether or not such
Indemnified Party is a party thereto, provided that the Company
shall not be obligated to advance such costs to any Indemnified
Party other than the Purchasers unless it has received from such
Indemnified Party an undertaking to repay to the Company the costs
so advanced if it should be determined by final judgment of a court
of competent jurisdiction that such Indemnified Party was not
entitled to indemnification hereunder with respect to such costs)
which may be incurred by such Indemnified Party in connection with
any investigative, administrative or judicial proceeding brought or
threatened that relates to or arises out of, or is in connection
with any activities contemplated by any Transaction Agreement or any
other services rendered in connection herewith; provided that the
Company will not be responsible for any claims, liabilities losses,
damages or expenses that are determined by final judgment of a court
of competent jurisdiction to result from such Indemnified Party's
gross negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party
with respect to which indemnity may be sought against the Company
under this Agreement, such Indemnified Party shall promptly notify
the Company in writing and the Company, at its option, may, assume
the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified
Party under this Agreement or otherwise unless the Company is
materially adversely affected by such failure. Such Indemnified
Party shall have the right to employ separate counsel in such action
and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party,
unless: (i) the Company has failed to assume the defense and employ
counsel or (ii) the named parties to any such action (including any
impleaded parties) include such Indemnified Party and the Company,
and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are
different from or additional to those available to the Company, in
which case, if such Indemnified Party notifies the Company in
writing that it elects to employ separate counsel at the expense of
the Company, the Company shall not have the right to assume the
defense of such action or proceeding on behalf of such Indemnified
Party, provided, however, that the Company shall not, in connection
with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be
responsible hereunder for the reasonable fees and expenses of more
than one such firm of separate counsel, in addition to any local
counsel, which counsel shall be designated by the Purchasers. The
Company shall not be liable for any settlement of any such action
effected without the written consent of the Company (which shall not
be unreasonably withheld) and the Company agrees to indemnify and
hold harmless each Indemnified Party from and against any loss or
liability by reason of settlement of any action effected with the
consent of the Company. In addition, the Company will not, without
the prior written consent of the Purchasers, settle or compromise or
consent to the entry of any judgment in or otherwise seek to
terminate any pending or threatened action, claim, suit or
proceeding in respect to which indemnification or contribution may
be sought hereunder (whether or not any Indemnified Party is a party
thereto) unless such settlement, compromise, consent or termination
includes an express unconditional release of the Purchasers and the
other Indemnified Parties, satisfactory in form and substance to the
Purchasers, from all liability arising out of such action, claim,
suit or proceeding.
<PAGE>
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to
an Indemnified Party or insufficient to hold an Indemnified Party
harmless, then in lieu of indemnifying such Indemnified Party, the
Company shall contribute to the amount paid or payable by such
Indemnified Party as a result of such claims, liabilities, losses,
damages, or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one
hand and by the Purchasers on the other from the transactions
contemplated by this Agreement or (ii) if the allocation provided by
clause (i) is not permitted under applicable law, in such proportion
as is appropriate to reflect not only the relative benefits received
by the Company on the one hand and the Purchasers on the other, but
also the relative fault of the Company and the Purchasers as well as
any other relevant equitable considerations. Notwithstanding the
provisions of this Section 12.3, the aggregate contribution of all
Indemnified Parties shall not exceed the amount of interest and fees
actually received by the Purchasers pursuant to this Agreement. It
is hereby further agreed that the relative benefits to the Company
on the one hand and the Purchasers on the other with respect to the
transactions contemplated hereby shall be determined by reference
to, among other things, whether any untrue or alleged untrue
statement of material fact or the omission or alleged omission to
state a material fact related to information supplied by the Company
or by the Purchasers and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 12.3 (i) shall be in addition
to any liability the Company may have to any Indemnified Party at
common law or otherwise, (ii) shall survive the termination of this
Agreement and the other Transaction Agreements and the payment in
full of the Convertible Notes and (iii) shall remain operative and
in full force and effect regardless of any investigation made by or
on behalf of the Purchasers or any other Indemnified Party.
SECTION 12.4. Expenses. The Company and each of the
Purchasers agrees to pay their own expenses in connection with the
negotiation and preparation of the Transaction Agreements.
SECTION 12.5. Successors and Assigns. This Agreement shall
be binding upon the Company and upon the Purchasers and their
respective successors and assigns; provided that the Company shall
not assign or otherwise transfer its rights or obligations under
this Agreement to any other Person without the prior written consent
of the Majority Holders. All provisions hereunder purporting to give
rights to Purchasers and their affiliates or to holders of
Securities are for the express benefit of such Persons and their
successors and assigns.
<PAGE>
SECTION 12.6. Brokers. The Company agrees to pay any
brokerage, finder's or other fee or commission payable in connection
with the sale of the Securities.
SECTION 12.7. New York Law; Submission to Jurisdiction;
Waiver of Jury Trial. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN
THE FOREGOING, AT THE ELECTION OF A HOLDER, ANY DISPUTE BETWEEN THE
HOLDER AND THE COMPANY MAY BE ARBITRATED, RATHER THAN LITIGATED IN
THE COURTS, BEFORE AND IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION IN NEW YORK CITY. THE COMPANY AGREES TO
SUBMIT TO AND PARTICIPATE IN ANY SUCH ARBITRATION.
SECTION 12.8. Severability. If any term, provision,
covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated unless a failure of
consideration would result thereby.
SECTION 12.9. Survival. All provisions contained in this
Agreement (unless specifically noted to the contrary) shall survive
the payment in full of the Convertible Notes and shall remain
operative and in full force and effect.
<PAGE>
SECTION 12.10. Counterparts. This Agreement may be executed
by telecopy signature and in any number of counterparts each of
which shall be an original with the same effect as if the signatures
there to and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers, as of the date first above written.
LAKOTA TECHNOLOGIES, INC.
By:/s/Ken Honeyma
PURCHASER:
/s/Y.L. HIRSCH
/s/SHOLEM LIEBENTHAL
/s/AVRAM ROTHMAN
/s/JOSHUA HEIMLICH
/s/ZVI Y. ZELIKOVITZ
<PAGE>
EXHIBITS
Exhibit A - Form of Convertible Note
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Officer's Certificate
<PAGE>
SCHEDULE I
Aggregate Principal Amount Number of
Name/Address of Notes Purchase Price Warrant Shares
Y.L Hirsch $150,000 $150,000 1,000,000
259 Batai Ungarin
Jerusalem, Israel
Sholem Liebenthal $150,000 $150,000 1,000,000
2 Hachoma Hashlishit
East Jerusalem, Israel
Avram Rothman $150,000 $150,000 1,000,000
Rechov Ovadya 14
Jerusalem E., Israel
Joshua Heimlich $150,000 $150,000 1,000,000
3 Rechov Meah Sha'arim
Jerusalem, Israel
Zvi Y. Zelikovitz $150,000 $150,000 1,000,000
P.O. Box 50468
Jerusalem, Israel
Totals $750,000 $750,000 5,000,000
<PAGE>
SCHEDULE 4.1
(SUBSIDIARIES)
1. Lakota Oil and Gas, Inc., a Texas corporation
2. Air Nexus, Inc., a Texas corporation
3. 2-Infiniti.com, Inc., a Texas corporation
4. West Bolt Energy, Inc., a Texas corporation
<PAGE>
SCHEDULE 4.3
(OTHER SECURITIES)
1. Warrants for 8,127,800 shares of Rule 144 common stock at exercise
prices varying from $.30 to $3.00 with no registration rights.
2. Options to purchase 250,000 shares of common stock with "piggyback"
registration rights.
3. 75,000 shares of common stock having "piggyback" registration rights.
4. Options to purchase 9,000 shares of common stock with no registration
rights.
5. A Senior Subordinated Convertible Redeemable Debenture in the principal
sum of $74,000.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR
THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT,
DATED AS OF THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM
THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT
LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS OF THE
HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT
AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF
DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING
HEREUNDER MAY BE ACCELERATED.
No. 1 $150,000.00
LAKOTA TECHNOLOGIES, INC.
8% Convertible Note due August 24, 2001
LAKOTA TECHNOLOGIES, INC., a Colorado corporation (together
with its successors, the "Company"), for value received hereby
promises to pay to Y.L. Hirsch or his registered assigns, the
principal sum of One Hundred Fifty Thousand Dollars ($150,000.00)
or, if less, the principal amount of this Note then outstanding, on
the Maturity Date to the Holder in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, and to pay
interest, monthly in arrears from September 30, 1999, on (i) the
last day of each calendar month of each year until the Maturity
Date, commencing October 31, 1999 (unless such day is not a Business
Day, in which event on the next succeeding Business Day) (each an
"Interest Payment Date"), (ii) the Maturity Date, (iii) each
Conversion Date, as hereafter defined, and (iv) the date the
principal amount of the Convertible Notes shall be declared to be or
shall automatically become due and payable, on the principal sum
hereof outstanding in like coin or currency, at the rates per annum
set forth below, from the most recent Interest Payment Date to which
interest has been paid on this Convertible Note, or if no interest
has been paid on this Convertible Note, from the date of this
Convertible Note until payment in full of the principal sum hereof
has been made.
<PAGE>
The interest rate shall be eight percent (8%) per annum (the
"Interest Rate") or, if less, the maximum rate permitted by
applicable law. Past due amounts (including interest, to the extent
permitted by law) will also accrue interest at the Interest Rate
plus 2% per annum or, if less, the maximum rate permitted by
applicable law, and will be payable on demand ("Default Interest").
Interest on this Convertible Note will be calculated on the basis of
a 360-day year of twelve 30 day months. All payments of principal
and interest hereunder shall be made for the benefit of the Holder
pursuant to the terms of the Agreement (hereafter defined). Except
as otherwise provided in this Convertible Note, the interest payable
on each Interest Payment Date shall be added to the outstanding
principal amount of this Convertible Note on such date and
thereafter be considered part of the outstanding principal amount.
The Company may elect to pay the interest payable on any Interest
Payment Date in cash, provided it gives the registered holder
written notice of such election at least five (5) Business Days
prior to the applicable Interest Payment Date and pays the same by
such date. On each Conversion Date, interest shall be paid in
shares of Common Stock on the portion of the principal balance of
the Convertible Note then being converted. The number of shares of
Common Stock issued as interest shall be determined by dividing the
dollar amount of interest due on the applicable Interest Payment
Date by the Conversion Price or Default Conversion Price then in
effect.
This Convertible Note (this "Convertible Note") is one of a
duly authorized issuance of $750,000 original aggregate principal
amount of Convertible Notes of the Company referred to in that
certain Securities Purchase Agreement dated as of the date hereof
between the Company and the Purchasers named therein (the
"Agreement"). The Agreement contains certain additional agreements
among the parties with respect to the terms of this Convertible
Note, including, without limitation, provisions which (A) limit the
conversion rights of the Holder, (B) specify voluntary and mandatory
repayment, prepayment and redemption rights and obligations and (C)
specify Events of Default following which the remaining balance due
and owing hereunder may be accelerated. All such provisions are an
integral part of this Convertible Note and are incorporated herein
by reference. This Convertible Note is transferable and assignable
to one or more Persons, in accordance with the limitations set forth
in the Agreement.
The Company shall keep a register (the "Register") in which
shall be entered the names and addresses of the registered holder of
this Convertible Note and particulars of this Convertible Note held
by such holder and of all transfers of this Convertible Note.
References to the Holder or "Holders" shall mean the Person listed
in the Register as the registered holder of such Convertible Notes.
The ownership of this Convertible Note shall be proven by the Register.
1. CERTAIN TERMS DEFINED. All terms defined in the
Agreement and not otherwise defined herein shall have for purposes
hereof the meanings provided for in the Agreement.
2. COVENANTS. Unless the Majority Holders otherwise
consent in writing, the Company covenants and agrees to observe and
perform each of its covenants, obligations and undertakings
contained in the Agreement, which obligations and undertakings are
expressly assumed herein by the Company and made for the benefit of
the holder hereof.
<PAGE
3. PAYMENT OF PRINCIPAL. The Company shall repay the
remaining unpaid balance on this Convertible Note on the Maturity
Date. The Company may, and shall be obligated to, prepay
all or a portion of this Convertible Note on the terms specified in
the Agreement.
4.1 CONVERSION OF CONVERTIBLE NOTE. The Holder shall
have the right, at its option, at any time from and after the
earlier to occur of (x) September 1, 1999, or (y) the date the
Registration Statement has been declared effective by the Securities
and Exchange Commission, to convert the principal amount of this
Convertible Note, or any portion of such principal amount, into that
number of fully paid and nonassessable shares of Common Stock (as
such shares shall then be constituted) determined pursuant to this
Section 4.1. The number of shares of Common Stock to be issued upon
each conversion of this Convertible Note shall be determined by
dividing the Conversion Amount (as defined below) by the Conversion
Price in effect on the date (the "Conversion Date") a Notice of
Conversion is delivered to the Company by the Holder by facsimile or
other reasonable means of communication dispatched prior to 5:00
p.m., New York Time. The term "Conversion Amount" means, with
respect to any conversion of this Convertible Note, the sum of (1)
the principal amount of this Convertible Note to be converted in
such conversion plus (2) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this
Convertible Note to the Conversion Date plus (3) Default Interest,
if any, on the interest referred to in the immediately preceding
clause (2); the term "Conversion Price" means 75% of the Market
Price; the term "Default Conversion Price" means 35% of the Market
Price; and the term "Market Price" means the closing bid price of a
share of Common Stock as reported by the National Association of
Securities Dealers Electronic Bulletin Board ("OTC Bulletin Board")
for the trading day immediately preceding the date of receipt by the
Company of Notice of Conversion. If on any Conversion Date the
Common Stock is not listed or traded on the OTC Bulletin Board, the
Market Price shall be determined by reference to the Nasdaq Stock
Market or the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, L.P., or
the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holders of a majority
in interest of Convertible Notes being converted for which the
calculation of the closing bid price is required in order to
determine the Conversion Price or Default Conversion Price of such
Convertible Notes.
4.2 IRREVOCABLE INSTRUCTIONS TO TRANSFER AGENT.
Consistent with Section 7.10 of the Agreement, the Company
(i) shall promptly irrevocably instruct its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this
Convertible Note and (ii) agrees that its issuance of this
Convertible Note shall constitute full authority to its officers and
agents who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common
Stock in accordance with the terms and conditions of this
Convertible Note.
<PAGE>
4.3 METHOD OF CONVERSION
(a) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Convertible Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender
this Convertible Note to the Company unless the entire unpaid
principal amount of this Convertible Note is so converted. Rather,
records showing the principal amount converted (or otherwise repaid)
and the date of such conversion or repayment shall be maintained on
a ledger substantially in the form of Annex A attached hereto (a
copy of which shall be delivered to the Company or transfer agent
with each Notice of Conversion). It is specifically contemplated
that the Company hereof shall act as the calculation agent for
conversions and repayments. In the event of any dispute or
discrepancies, such records maintained by the Company shall be
controlling and determinative in the absence of manifest error. The
Holder and any assignee, by acceptance of this Convertible Note,
acknowledge and agree that, by reason of the provisions of this
paragraph, following a conversion of a portion of this Convertible
Note, the principal amount represented by this Convertible Note will
be the amount indicated on Annex A attached hereto (which may be
less than the amount stated on the face hereof).
(b) The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock or other securities or property
on conversion of this Convertible Note in a name other than that of
the Holder (or in street name), and the Company shall not be
required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be
held for the Holder's account) requesting the issuance thereof shall
have paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that such tax has
been paid.
(c) Upon receipt by the Company of a Notice of Conversion, the
Holder shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, the outstanding principal
amount and the amount of accrued and unpaid interest on this
Convertible Note shall be reduced to reflect such conversion, and,
unless the Company defaults on its obligations under this Article 4,
all rights with respect to the portion of this Convertible Note
being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets,
as herein provided, on such conversion. If the Holder shall have
given a Notice of Conversion as provided herein, the Company's
obligation to issue and deliver the certificates for shares of
Common Stock shall be absolute and unconditional, irrespective of
the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the
recovery of any judgment against any person or any action by the
Holder to enforce the same, any failure or delay in the enforcement
of any other obligation of the Company to the Holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder of any obligation to the
Company, and
<PAGE>
irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in
connection with such conversion. The date of receipt (including
receipt via telecopy) of such Notice of Conversion shall be the
Conversion Date so long as it is received before 5:00 p.m., New York
Time, on such date.
5. MISCELLANEOUS. This Convertible Note shall be deemed to be a
contract made under the laws of the State of New York, and for all
purposes shall be governed by and construed in accordance with the
laws of said State. The parties hereto, including all guarantors or
endorsers, hereby waive presentment, demand, notice, protest and all
other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Convertible Note,
except as specifically provided herein, and assent to extensions of
the time of payment, or forbearance or other indulgence without
notice. The Company hereby submits to the exclusive jurisdiction of
the United States District Court for the Southern District of New
York and of any New York state court sitting in New York City for
purposes of all legal proceedings arising out of or relating to this
Convertible Note. The Company irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum. The Company
hereby irrevocably waives any and all right to trial by jury in any
legal proceeding arising out of or relating to this Convertible
Note. Notwithstanding anything to the contrary in the foregoing, at
the election of the Holder, any dispute between the Holder and the
Company may be arbitrated, rather than litigated in the courts,
before and in accordance with the rules of the American Arbitration
Association in New York City. The Company agrees to submit to and
participate in any such arbitration.
The Holder of this Convertible Note by acceptance of this
Convertible Note agrees to be bound by the provisions of this
Convertible Note which are expressly binding on such Holder.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: August 24, 1999
LAKOTA TECHNOLOGIES, INC.
/s/Ken Honeyman
<PAGE>
ANNEX A
CONVERSION AND REPAYMENT LEDGER
[TABLE]
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Convertible Note)
The undersigned hereby irrevocably elects to convert $ of the above
Convertible Note into shares of Common Stock of Lakota Technologies,
Inc. ("Company") according to the conditions set forth
in such Convertible Note, as of the date written below.
If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer and other taxes and
charges payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
Tel:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR
THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT,
DATED AS OF THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM
THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT
LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS OF THE
HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT
AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF
DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING
HEREUNDER MAY BE ACCELERATED.
No. 2 $150,000.00
LAKOTA TECHNOLOGIES, INC.
8% Convertible Note due August 24, 2001
LAKOTA TECHNOLOGIES, INC., a Colorado corporation (together
with its successors, the "Company"), for value received hereby
promises to pay to Sholem Liebenthal or his registered assigns, the
principal sum of One Hundred Fifty Thousand Dollars ($150,000.00)
or, if less, the principal amount of this Note then outstanding, on
the Maturity Date to the Holder in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, and to pay
interest, monthly in arrears from September 30, 1999, on (i) the
last day of each calendar month of each year until the Maturity
Date, commencing October 31, 1999 (unless such day is not a Business
Day, in which event on the next succeeding Business Day) (each an
"Interest Payment Date"), (ii) the Maturity Date, (iii) each
Conversion Date, as hereafter defined, and (iv) the date the
principal amount of the Convertible Notes shall be declared to be or
shall automatically become due and payable, on the principal sum
hereof outstanding in like coin or currency, at the rates per annum
set forth below, from the most recent Interest Payment Date to which
interest has been paid on this Convertible Note, or if no interest
has been paid on this Convertible Note, from the date of this
Convertible Note until payment in full of the principal sum hereof
has been made.
<PAGE>
The interest rate shall be eight percent (8%) per annum (the
"Interest Rate") or, if less, the maximum rate permitted by
applicable law. Past due amounts (including interest, to the extent
permitted by law) will also accrue interest at the Interest Rate
plus 2% per annum or, if less, the maximum rate permitted by
applicable law, and will be payable on demand ("Default Interest").
Interest on this Convertible Note will be calculated on the basis of
a 360-day year of twelve 30 day months. All payments of principal
and interest hereunder shall be made for the benefit of the Holder
pursuant to the terms of the Agreement (hereafter defined). Except
as otherwise provided in this Convertible Note, the interest payable
on each Interest Payment Date shall be added to the outstanding
principal amount of this Convertible Note on such date and
thereafter be considered part of the outstanding principal amount.
The Company may elect to pay the interest payable on any Interest
Payment Date in cash, provided it gives the registered holder
written notice of such election at least five (5) Business Days
prior to the applicable Interest Payment Date and pays the same by
such date. On each Conversion Date, interest shall be paid in
shares of Common Stock on the portion of the principal balance of
the Convertible Note then being converted. The number of shares of
Common Stock issued as interest shall be determined by dividing the
dollar amount of interest due on the applicable Interest Payment
Date by the Conversion Price or Default Conversion Price then in
effect.
This Convertible Note (this "Convertible Note") is one of a
duly authorized issuance of $750,000 original aggregate principal
amount of Convertible Notes of the Company referred to in that
certain Securities Purchase Agreement dated as of the date hereof
between the Company and the Purchasers named therein (the
"Agreement"). The Agreement contains certain additional agreements
among the parties with respect to the terms of this Convertible
Note, including, without limitation, provisions which (A) limit the
conversion rights of the Holder, (B) specify voluntary and mandatory
repayment, prepayment and redemption rights and obligations and (C)
specify Events of Default following which the remaining balance due
and owing hereunder may be accelerated. All such provisions are an
integral part of this Convertible Note and are incorporated herein
by reference. This Convertible Note is transferable and assignable
to one or more Persons, in accordance with the limitations set forth
in the Agreement.
The Company shall keep a register (the "Register") in which
shall be entered the names and addresses of the registered holder of
this Convertible Note and particulars of this Convertible Note held
by such holder and of all transfers of this Convertible Note.
References to the Holder or "Holders" shall mean the Person listed
in the Register as the registered holder of such Convertible Notes.
The ownership of this Convertible Note shall be proven by the Register.
1. Certain Terms Defined. All terms defined in the
Agreement and not otherwise defined herein shall have for purposes
hereof the meanings provided for in the Agreement.
2. Covenants. Unless the Majority Holders otherwise
consent in writing, the Company covenants and agrees to observe and
perform each of its covenants, obligations and undertakings
contained in the Agreement, which obligations and undertakings are
expressly assumed herein by the Company and made for the benefit of
the holder hereof.
<PAGE>
3. Payment of Principal. The Company shall repay the
remaining unpaid balance on this Convertible Note on the Maturity
Date. The Company may, and shall be obligated to, prepay
all or a portion of this Convertible Note on the terms specified in
the Agreement.
4.1 Conversion of Convertible Note. The Holder shall
have the right, at its option, at any time from and after the
earlier to occur of (x) September 1, 1999, or (y) the date the
Registration Statement has been declared effective by the Securities
and Exchange Commission, to convert the principal amount of this
Convertible Note, or any portion of such principal amount, into that
number of fully paid and nonassessable shares of Common Stock (as
such shares shall then be constituted) determined pursuant to this
Section 4.1. The number of shares of Common Stock to be issued upon
each conversion of this Convertible Note shall be determined by
dividing the Conversion Amount (as defined below) by the Conversion
Price in effect on the date (the "Conversion Date") a Notice of
Conversion is delivered to the Company by the Holder by facsimile or
other reasonable means of communication dispatched prior to 5:00
p.m., New York Time. The term "Conversion Amount" means, with
respect to any conversion of this Convertible Note, the sum of (1)
the principal amount of this Convertible Note to be converted in
such conversion plus (2) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this
Convertible Note to the Conversion Date plus (3) Default Interest,
if any, on the interest referred to in the immediately preceding
clause (2); the term "Conversion Price" means 75% of the Market
Price; the term "Default Conversion Price" means 35% of the Market
Price; and the term "Market Price" means the closing bid price of a
share of Common Stock as reported by the National Association of
Securities Dealers Electronic Bulletin Board ("OTC Bulletin Board")
for the trading day immediately preceding the date of receipt by the
Company of Notice of Conversion. If on any Conversion Date the
Common Stock is not listed or traded on the OTC Bulletin Board, the
Market Price shall be determined by reference to the Nasdaq Stock
Market or the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, L.P., or
the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holders of a majority
in interest of Convertible Notes being converted for which the
calculation of the closing bid price is required in order to
determine the Conversion Price or Default Conversion Price of such
Convertible Notes.
4.2 Irrevocable Instructions to Transfer Agent.
Consistent with Section 7.10 of the Agreement, the Company
(i) shall promptly irrevocably instruct its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this
Convertible Note and (ii) agrees that its issuance of this
Convertible Note shall constitute full authority to its officers and
agents who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common
Stock in accordance with the terms and conditions of this
Convertible Note.
<PAGE>
4.3 Method of Conversion
(a) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Convertible Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender
this Convertible Note to the Company unless the entire unpaid
principal amount of this Convertible Note is so converted. Rather,
records showing the principal amount converted (or otherwise repaid)
and the date of such conversion or repayment shall be maintained on
a ledger substantially in the form of Annex A attached hereto (a
copy of which shall be delivered to the Company or transfer agent
with each Notice of Conversion). It is specifically contemplated
that the Company hereof shall act as the calculation agent for
conversions and repayments. In the event of any dispute or
discrepancies, such records maintained by the Company shall be
controlling and determinative in the absence of manifest error. The
Holder and any assignee, by acceptance of this Convertible Note,
acknowledge and agree that, by reason of the provisions of this
paragraph, following a conversion of a portion of this Convertible
Note, the principal amount represented by this Convertible Note will
be the amount indicated on Annex A attached hereto (which may be
less than the amount stated on the face hereof).
(b) The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock or other securities or property
on conversion of this Convertible Note in a name other than that of
the Holder (or in street name), and the Company shall not be
required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be
held for the Holder's account) requesting the issuance thereof shall
have paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that such tax has
been paid.
(c) Upon receipt by the Company of a Notice of Conversion, the
Holder shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, the outstanding principal
amount and the amount of accrued and unpaid interest on this
Convertible Note shall be reduced to reflect such conversion, and,
unless the Company defaults on its obligations under this Article 4,
all rights with respect to the portion of this Convertible Note
being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets,
as herein provided, on such conversion. If the Holder shall have
given a Notice of Conversion as provided herein, the Company's
obligation to issue and deliver the certificates for shares of
Common Stock shall be absolute and unconditional, irrespective of
the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the
recovery of any judgment against any person or any action by the
Holder to enforce the same, any failure or delay in the enforcement
of any other obligation of the Company to the Holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder of any obligation to the
Company, and
<PAGE>
irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in
connection with such conversion. The date of receipt (including
receipt via telecopy) of such Notice of Conversion shall be the
Conversion Date so long as it is received before 5:00 p.m., New York
Time, on such date.
5. Miscellaneous. This Convertible Note shall be deemed to be a
contract made under the laws of the State of New York, and for all
purposes shall be governed by and construed in accordance with the
laws of said State. The parties hereto, including all guarantors or
endorsers, hereby waive presentment, demand, notice, protest and all
other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Convertible Note,
except as specifically provided herein, and assent to extensions of
the time of payment, or forbearance or other indulgence without
notice. The Company hereby submits to the exclusive jurisdiction of
the United States District Court for the Southern District of New
York and of any New York state court sitting in New York City for
purposes of all legal proceedings arising out of or relating to this
Convertible Note. The Company irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum. The Company
hereby irrevocably waives any and all right to trial by jury in any
legal proceeding arising out of or relating to this Convertible
Note. Notwithstanding anything to the contrary in the foregoing, at
the election of the Holder, any dispute between the Holder and the
Company may be arbitrated, rather than litigated in the courts,
before and in accordance with the rules of the American Arbitration
Association in New York City. The Company agrees to submit to and
participate in any such arbitration.
The Holder of this Convertible Note by acceptance of this
Convertible Note agrees to be bound by the provisions of this
Convertible Note which are expressly binding on such Holder.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: August 24, 1999
LAKOTA TECHNOLOGIES, INC.
/s/Ken Honeyman
<PAGE>
ANNEX A
CONVERSION AND REPAYMENT LEDGER
[TABLE]
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Convertible Note)
The undersigned hereby irrevocably elects to convert $ of the above
Convertible Note into shares of Common Stock of Lakota Technologies,
Inc. ("Company") according to the conditions set forth
in such Convertible Note, as of the date written below.
If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer and other taxes
and charges payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
Tel:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR
THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT,
DATED AS OF THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM
THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT
LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS OF THE
HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT
AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF
DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING
HEREUNDER MAY BE ACCELERATED.
No. 3 $150,000.00
LAKOTA TECHNOLOGIES, INC.
8% Convertible Note due August 24, 2001
LAKOTA TECHNOLOGIES, INC., a Colorado corporation (together
with its successors, the "Company"), for value received hereby
promises to pay to Amram Rothman or his registered assigns, the
principal sum of One Hundred Fifty Thousand Dollars ($150,000.00)
or, if less, the principal amount of this Note then outstanding, on
the Maturity Date to the Holder in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, and to pay
interest, monthly in arrears from September 30, 1999, on (i) the
last day of each calendar month of each year until the Maturity
Date, commencing October 31, 1999 (unless such day is not a Business
Day, in which event on the next succeeding Business Day) (each an
"Interest Payment Date"), (ii) the Maturity Date, (iii) each
Conversion Date, as hereafter defined, and (iv) the date the
principal amount of the Convertible Notes shall be declared to be or
shall automatically become due and payable, on the principal sum
hereof outstanding in like coin or currency, at the rates per annum
set forth below, from the most recent Interest Payment Date to which
interest has been paid on this Convertible Note, or if no interest
has been paid on this Convertible Note, from the date of this
Convertible Note until payment in full of the principal sum hereof
has been made.
<PAGE>
The interest rate shall be eight percent (8%) per annum (the
"Interest Rate") or, if less, the maximum rate permitted by
applicable law. Past due amounts (including interest, to the extent
permitted by law) will also accrue interest at the Interest Rate
plus 2% per annum or, if less, the maximum rate permitted by
applicable law, and will be payable on demand ("Default Interest").
Interest on this Convertible Note will be calculated on the basis of
a 360-day year of twelve 30 day months. All payments of principal
and interest hereunder shall be made for the benefit of the Holder
pursuant to the terms of the Agreement (hereafter defined). Except
as otherwise provided in this Convertible Note, the interest payable
on each Interest Payment Date shall be added to the outstanding
principal amount of this Convertible Note on such date and
thereafter be considered part of the outstanding principal amount.
The Company may elect to pay the interest payable on any Interest
Payment Date in cash, provided it gives the registered holder
written notice of such election at least five (5) Business Days
prior to the applicable Interest Payment Date and pays the same by
such date. On each Conversion Date, interest shall be paid in
shares of Common Stock on the portion of the principal balance of
the Convertible Note then being converted. The number of shares of
Common Stock issued as interest shall be determined by dividing the
dollar amount of interest due on the applicable Interest Payment
Date by the Conversion Price or Default Conversion Price then in
effect.
This Convertible Note (this "Convertible Note") is one of a
duly authorized issuance of $750,000 original aggregate principal
amount of Convertible Notes of the Company referred to in that
certain Securities Purchase Agreement dated as of the date hereof
between the Company and the Purchasers named therein (the
"Agreement"). The Agreement contains certain additional agreements
among the parties with respect to the terms of this Convertible
Note, including, without limitation, provisions which (A) limit the
conversion rights of the Holder, (B) specify voluntary and mandatory
repayment, prepayment and redemption rights and obligations and (C)
specify Events of Default following which the remaining balance due
and owing hereunder may be accelerated. All such provisions are an
integral part of this Convertible Note and are incorporated herein
by reference. This Convertible Note is transferable and assignable
to one or more Persons, in accordance with the limitations set forth
in the Agreement.
The Company shall keep a register (the "Register") in which
shall be entered the names and addresses of the registered holder of
this Convertible Note and particulars of this Convertible Note held
by such holder and of all transfers of this Convertible Note.
References to the Holder or "Holders" shall mean the Person listed
in the Register as the registered holder of such Convertible Notes.
The ownership of this Convertible Note shall be proven by the Register.
1. Certain Terms Defined. All terms defined in the
Agreement and not otherwise defined herein shall have for purposes
hereof the meanings provided for in the Agreement.
2. Covenants. Unless the Majority Holders otherwise
consent in writing, the Company covenants and agrees to observe and
perform each of its covenants, obligations and undertakings
contained in the Agreement, which obligations and undertakings are
expressly assumed herein by the Company and made for the benefit of
the holder hereof.
<PAGE>
3. Payment of Principal. The Company shall repay the
remaining unpaid balance on this Convertible Note on the Maturity
Date. The Company may, and shall be obligated to, prepay
all or a portion of this Convertible Note on the terms specified in
the Agreement.
4.1 Conversion of Convertible Note. The Holder shall
have the right, at its option, at any time from and after the
earlier to occur of (x) September 1, 1999, or (y) the date the
Registration Statement has been declared effective by the Securities
and Exchange Commission, to convert the principal amount of this
Convertible Note, or any portion of such principal amount, into that
number of fully paid and nonassessable shares of Common Stock (as
such shares shall then be constituted) determined pursuant to this
Section 4.1. The number of shares of Common Stock to be issued upon
each conversion of this Convertible Note shall be determined by
dividing the Conversion Amount (as defined below) by the Conversion
Price in effect on the date (the "Conversion Date") a Notice of
Conversion is delivered to the Company by the Holder by facsimile or
other reasonable means of communication dispatched prior to 5:00
p.m., New York Time. The term "Conversion Amount" means, with
respect to any conversion of this Convertible Note, the sum of (1)
the principal amount of this Convertible Note to be converted in
such conversion plus (2) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this
Convertible Note to the Conversion Date plus (3) Default Interest,
if any, on the interest referred to in the immediately preceding
clause (2); the term "Conversion Price" means 75% of the Market
Price; the term "Default Conversion Price" means 35% of the Market
Price; and the term "Market Price" means the closing bid price of a
share of Common Stock as reported by the National Association of
Securities Dealers Electronic Bulletin Board ("OTC Bulletin Board")
for the trading day immediately preceding the date of receipt by the
Company of Notice of Conversion. If on any Conversion Date the
Common Stock is not listed or traded on the OTC Bulletin Board, the
Market Price shall be determined by reference to the Nasdaq Stock
Market or the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, L.P., or
the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holders of a majority
in interest of Convertible Notes being converted for which the
calculation of the closing bid price is required in order to
determine the Conversion Price or Default Conversion Price of such
Convertible Notes.
4.2 Irrevocable Instructions to Transfer Agent.
Consistent with Section 7.10 of the Agreement, the Company
(i) shall promptly irrevocably instruct its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this
Convertible Note and (ii) agrees that its issuance of this
Convertible Note shall constitute full authority to its officers and
agents who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common
Stock in accordance with the terms and conditions of this
Convertible Note.
<PAGE>
4.3 Method of Conversion
(a) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Convertible Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender
this Convertible Note to the Company unless the entire unpaid
principal amount of this Convertible Note is so converted. Rather,
records showing the principal amount converted (or otherwise repaid)
and the date of such conversion or repayment shall be maintained on
a ledger substantially in the form of Annex A attached hereto (a
copy of which shall be delivered to the Company or transfer agent
with each Notice of Conversion). It is specifically contemplated
that the Company hereof shall act as the calculation agent for
conversions and repayments. In the event of any dispute or
discrepancies, such records maintained by the Company shall be
controlling and determinative in the absence of manifest error. The
Holder and any assignee, by acceptance of this Convertible Note,
acknowledge and agree that, by reason of the provisions of this
paragraph, following a conversion of a portion of this Convertible
Note, the principal amount represented by this Convertible Note will
be the amount indicated on Annex A attached hereto (which may be
less than the amount stated on the face hereof).
(b) The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock or other securities or property
on conversion of this Convertible Note in a name other than that of
the Holder (or in street name), and the Company shall not be
required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be
held for the Holder's account) requesting the issuance thereof shall
have paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that such tax has
been paid.
(c) Upon receipt by the Company of a Notice of Conversion, the
Holder shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, the outstanding principal
amount and the amount of accrued and unpaid interest on this
Convertible Note shall be reduced to reflect such conversion, and,
unless the Company defaults on its obligations under this Article 4,
all rights with respect to the portion of this Convertible Note
being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets,
as herein provided, on such conversion. If the Holder shall have
given a Notice of Conversion as provided herein, the Company's
obligation to issue and deliver the certificates for shares of
Common Stock shall be absolute and unconditional, irrespective of
the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the
recovery of any judgment against any person or any action by the
Holder to enforce the same, any failure or delay in the enforcement
of any other obligation of the Company to the Holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder of any obligation to the
Company, and
<PAGE>
irrespective of any other circumstance which might otherwise limit
such obligation of the Company to the Holder in connection with such
conversion. The date of receipt (including receipt via telecopy) of
such Notice of Conversion shall be the Conversion Date so long as it
is received before 5:00 p.m., New York Time, on such date.
5. Miscellaneous. This Convertible Note shall be deemed
to be a contract made under the laws of the State of New York, and
for all purposes shall be governed by and construed in accordance
with the laws of said State. The parties hereto, including all
guarantors or endorsers, hereby waive presentment, demand, notice,
protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this
Convertible Note, except as specifically provided herein, and assent
to extensions of the time of payment, or forbearance or other
indulgence without notice. The Company hereby submits to the
exclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York state court
sitting in New York City for purposes of all legal proceedings
arising out of or relating to this Convertible Note. The Company
irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim
that any such proceeding brought in such a court has been brought in
an inconvenient forum. The Company hereby irrevocably waives any and
all right to trial by jury in any legal proceeding arising out of or
relating to this Convertible Note. Notwithstanding anything to the
contrary in the foregoing, at the election of the Holder, any
dispute between the Holder and the Company may be arbitrated, rather
than litigated in the courts, before and in accordance with the
rules of the American Arbitration Association in New York City. The
Company agrees to submit to and participate in any such arbitration.
The Holder of this Convertible Note by acceptance of this
Convertible Note agrees to be bound by the provisions of this
Convertible Note which are expressly binding on such Holder.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: August 24, 1999
LAKOTA TECHNOLOGIES, INC.
/s/Ken Honeyman
<PAGE>
ANNEX A
CONVERSION AND REPAYMENT LEDGER
[TABLE]
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Convertible Note)
The undersigned hereby irrevocably elects to convert $ of the above
Convertible Note into shares of Common Stock of Lakota Technologies,
Inc. ("Company") according to the conditions set forth in such
Convertible Note, as of the date written below.
If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer and other taxes
and charges payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
Tel:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR
THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT,
DATED AS OF THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM
THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT
LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS OF THE
HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT
AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF
DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING
HEREUNDER MAY BE ACCELERATED.
No. 4 $150,000.00
LAKOTA TECHNOLOGIES, INC.
8% Convertible Note due August 24, 2001
LAKOTA TECHNOLOGIES, INC., a Colorado corporation (together
with its successors, the "Company"), for value received hereby
promises to pay to Joshua Heimlich or his registered assigns, the
principal sum of One Hundred Fifty Thousand Dollars ($150,000.00)
or, if less, the principal amount of this Note then outstanding, on
the Maturity Date to the Holder in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, and to pay
interest, monthly in arrears from September 30, 1999, on (i) the
last day of each calendar month of each year until the Maturity
Date, commencing October 31, 1999 (unless such day is not a Business
Day, in which event on the next succeeding Business Day) (each an
"Interest Payment Date"), (ii) the Maturity Date, (iii) each
Conversion Date, as hereafter defined, and (iv) the date the
principal amount of the Convertible Notes shall be declared to be or
shall automatically become due and payable, on the principal sum
hereof outstanding in like coin or currency, at the rates per annum
set forth below, from the most recent Interest Payment Date to which
interest has been paid on this Convertible Note, or if no interest
has been paid on this Convertible Note, from the date of this
Convertible Note until payment in full of the principal sum hereof
has been made.
<PAGE>
The interest rate shall be eight percent (8%) per annum (the
"Interest Rate") or, if less, the maximum rate permitted by
applicable law. Past due amounts (including interest, to the extent
permitted by law) will also accrue interest at the Interest Rate
plus 2% per annum or, if less, the maximum rate permitted by
applicable law, and will be payable on demand ("Default Interest").
Interest on this Convertible Note will be calculated on the basis of
a 360-day year of twelve 30 day months. All payments of principal
and interest hereunder shall be made for the benefit of the Holder
pursuant to the terms of the Agreement (hereafter defined). Except
as otherwise provided in this Convertible Note, the interest payable
on each Interest Payment Date shall be added to the outstanding
principal amount of this Convertible Note on such date and
thereafter be considered part of the outstanding principal amount.
The Company may elect to pay the interest payable on any Interest
Payment Date in cash, provided it gives the registered holder
written notice of such election at least five (5) Business Days
prior to the applicable Interest Payment Date and pays the same by
such date. On each Conversion Date, interest shall be paid in
shares of Common Stock on the portion of the principal balance of
the Convertible Note then being converted. The number of shares of
Common Stock issued as interest shall be determined by dividing the
dollar amount of interest due on the applicable Interest Payment
Date by the Conversion Price or Default Conversion Price then in
effect.
This Convertible Note (this "Convertible Note") is one of a
duly authorized issuance of $750,000 original aggregate principal
amount of Convertible Notes of the Company referred to in that
certain Securities Purchase Agreement dated as of the date hereof
between the Company and the Purchasers named therein (the
"Agreement"). The Agreement contains certain additional agreements
among the parties with respect to the terms of this Convertible
Note, including, without limitation, provisions which (A) limit the
conversion rights of the Holder, (B) specify voluntary and mandatory
repayment, prepayment and redemption rights and obligations and (C)
specify Events of Default following which the remaining balance due
and owing hereunder may be accelerated. All such provisions are an
integral part of this Convertible Note and are incorporated herein
by reference. This Convertible Note is transferable and assignable
to one or more Persons, in accordance with the limitations set forth
in the Agreement.
The Company shall keep a register (the "Register") in which
shall be entered the names and addresses of the registered holder of
this Convertible Note and particulars of this Convertible Note held
by such holder and of all transfers of this Convertible Note.
References to the Holder or "Holders" shall mean the Person listed
in the Register as the registered holder of such Convertible Notes.
The ownership of this Convertible Note shall be proven by the Register.
1. Certain Terms Defined. All terms defined in the
Agreement and not otherwise defined herein shall have for purposes
hereof the meanings provided for in the Agreement.
2. Covenants. Unless the Majority Holders otherwise
consent in writing, the Company covenants and agrees to observe and
perform each of its covenants, obligations and undertakings
contained in the Agreement, which obligations and undertakings are
expressly assumed herein by the Company and made for the benefit of
the holder hereof.
<PAGE>
3. Payment of Principal. The Company shall repay the
remaining unpaid balance on this Convertible Note on the Maturity
Date. The Company may, and shall be obligated to, prepay
all or a portion of this Convertible Note on the terms specified in
the Agreement.
4.1 Conversion of Convertible Note. The Holder shall
have the right, at its option, at any time from and after the
earlier to occur of (x) September 1, 1999, or (y) the date the
Registration Statement has been declared effective by the Securities
and Exchange Commission, to convert the principal amount of this
Convertible Note, or any portion of such principal amount, into that
number of fully paid and nonassessable shares of Common Stock (as
such shares shall then be constituted) determined pursuant to this
Section 4.1. The number of shares of Common Stock to be issued upon
each conversion of this Convertible Note shall be determined by
dividing the Conversion Amount (as defined below) by the Conversion
Price in effect on the date (the "Conversion Date") a Notice of
Conversion is delivered to the Company by the Holder by facsimile or
other reasonable means of communication dispatched prior to 5:00
p.m., New York Time. The term "Conversion Amount" means, with
respect to any conversion of this Convertible Note, the sum of (1)
the principal amount of this Convertible Note to be converted in
such conversion plus (2) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this
Convertible Note to the Conversion Date plus (3) Default Interest,
if any, on the interest referred to in the immediately preceding
clause (2); the term "Conversion Price" means 75% of the Market
Price; the term "Default Conversion Price" means 35% of the Market
Price; and the term "Market Price" means the closing bid price of a
share of Common Stock as reported by the National Association of
Securities Dealers Electronic Bulletin Board ("OTC Bulletin Board")
for the trading day immediately preceding the date of receipt by the
Company of Notice of Conversion. If on any Conversion Date the
Common Stock is not listed or traded on the OTC Bulletin Board, the
Market Price shall be determined by reference to the Nasdaq Stock
Market or the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, L.P., or
the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holders of a majority
in interest of Convertible Notes being converted for which the
calculation of the closing bid price is required in order to
determine the Conversion Price or Default Conversion Price of such
Convertible Notes.
4.2 Irrevocable Instructions to Transfer Agent.
Consistent with Section 7.10 of the Agreement, the Company
(i) shall promptly irrevocably instruct its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this
Convertible Note and (ii) agrees that its issuance of this
Convertible Note shall constitute full authority to its officers and
agents who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common
Stock in accordance with the terms and conditions of this
Convertible Note.
<PAGE>
4.3 Method of Conversion
(a) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Convertible Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender
this Convertible Note to the Company unless the entire unpaid
principal amount of this Convertible Note is so converted. Rather,
records showing the principal amount converted (or otherwise repaid)
and the date of such conversion or repayment shall be maintained on
a ledger substantially in the form of Annex A attached hereto (a
copy of which shall be delivered to the Company or transfer agent
with each Notice of Conversion). It is specifically contemplated
that the Company hereof shall act as the calculation agent for
conversions and repayments. In the event of any dispute or
discrepancies, such records maintained by the Company shall be
controlling and determinative in the absence of manifest error. The
Holder and any assignee, by acceptance of this Convertible Note,
acknowledge and agree that, by reason of the provisions of this
paragraph, following a conversion of a portion of this Convertible
Note, the principal amount represented by this Convertible Note will
be the amount indicated on Annex A attached hereto (which may be
less than the amount stated on the face hereof).
(b) The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock or other securities or property
on conversion of this Convertible Note in a name other than that of
the Holder (or in street name), and the Company shall not be
required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be
held for the Holder's account) requesting the issuance thereof shall
have paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that such tax has
been paid.
(c) Upon receipt by the Company of a Notice of Conversion, the
Holder shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, the outstanding principal
amount and the amount of accrued and unpaid interest on this
Convertible Note shall be reduced to reflect such conversion, and,
unless the Company defaults on its obligations under this Article 4,
all rights with respect to the portion of this Convertible Note
being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets,
as herein provided, on such conversion. If the Holder shall have
given a Notice of Conversion as provided herein, the Company's
obligation to issue and deliver the certificates for shares of
Common Stock shall be absolute and unconditional, irrespective of
the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the
recovery of any judgment against any person or any action by the
Holder to enforce the same, any failure or delay in the enforcement
of any other obligation of the Company to the Holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder of any obligation to the
Company, and
<PAGE.
irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in
connection with such conversion. The date of receipt (including
receipt via telecopy) of such Notice of Conversion shall be the
Conversion Date so long as it is received before 5:00 p.m., New York
Time, on such date.
5. Miscellaneous. This Convertible Note shall be deemed
to be a contract made under the laws of the State of New York, and
for all purposes shall be governed by and construed in accordance
with the laws of said State. The parties hereto, including all
guarantors or endorsers, hereby waive presentment, demand, notice,
protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this
Convertible Note, except as specifically provided herein, and assent
to extensions of the time of payment, or forbearance or other
indulgence without notice. The Company hereby submits to the
exclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York state court
sitting in New York City for purposes of all legal proceedings
arising out of or relating to this Convertible Note. The Company
irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim
that any such proceeding brought in such a court has been brought in
an inconvenient forum. The Company hereby irrevocably waives any and
all right to trial by jury in any legal proceeding arising out of or
relating to this Convertible Note. Notwithstanding anything to the
contrary in the foregoing, at the election of the Holder, any
dispute between the Holder and the Company may be arbitrated, rather
than litigated in the courts, before and in accordance with the
rules of the American Arbitration Association in New York City. The
Company agrees to submit to and participate in any such arbitration.
The Holder of this Convertible Note by acceptance of this
Convertible Note agrees to be bound by the provisions of this
Convertible Note which are expressly binding on such Holder.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: August 24, 1999
LAKOTA TECHNOLOGIES, INC.
/s/Ken Honeyman
<PAGE>
ANNEX A
CONVERSION AND REPAYMENT LEDGER
[TABLE]
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Convertible Note)
The undersigned hereby irrevocably elects to convert $ of the above
Convertible Note into shares of Common Stock of Lakota Technologies,
Inc. ("Company") according to the conditions set forth in such Convertible
Note, as of the date written below.
If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer and other taxes
and charges payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
Tel:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR
THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT,
DATED AS OF THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM
THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT
LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS OF THE
HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT
AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF
DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING
HEREUNDER MAY BE ACCELERATED.
No. 5 $150,000.00
LAKOTA TECHNOLOGIES, INC.
8% Convertible Note due August 24, 2001
LAKOTA TECHNOLOGIES, INC., a Colorado corporation (together
with its successors, the "Company"), for value received hereby
promises to pay to Zvi Y. Zelikovitz or his registered assigns, the
principal sum of One Hundred Fifty Thousand Dollars ($150,000.00)
or, if less, the principal amount of this Note then outstanding, on
the Maturity Date to the Holder in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, and to pay
interest, monthly in arrears from September 30, 1999, on (i) the
last day of each calendar month of each year until the Maturity
Date, commencing October 31, 1999 (unless such day is not a Business
Day, in which event on the next succeeding Business Day) (each an
"Interest Payment Date"), (ii) the Maturity Date, (iii) each
Conversion Date, as hereafter defined, and (iv) the date the
principal amount of the Convertible Notes shall be declared to be or
shall automatically become due and payable, on the principal sum
hereof outstanding in like coin or currency, at the rates per annum
set forth below, from the most recent Interest Payment Date to which
interest has been paid on this Convertible Note, or if no interest
has been paid on this Convertible Note, from the date of this
Convertible Note until payment in full of the principal sum hereof
has been made.
<PAGE>
The interest rate shall be eight percent (8%) per annum (the
"Interest Rate") or, if less, the maximum rate permitted by
applicable law. Past due amounts (including interest, to the extent
permitted by law) will also accrue interest at the Interest Rate
plus 2% per annum or, if less, the maximum rate permitted by
applicable law, and will be payable on demand ("Default Interest").
Interest on this Convertible Note will be calculated on the basis of
a 360-day year of twelve 30 day months. All payments of principal
and interest hereunder shall be made for the benefit of the Holder
pursuant to the terms of the Agreement (hereafter defined). Except
as otherwise provided in this Convertible Note, the interest payable
on each Interest Payment Date shall be added to the outstanding
principal amount of this Convertible Note on such date and
thereafter be considered part of the outstanding principal amount.
The Company may elect to pay the interest payable on any Interest
Payment Date in cash, provided it gives the registered holder
written notice of such election at least five (5) Business Days
prior to the applicable Interest Payment Date and pays the same by
such date. On each Conversion Date, interest shall be paid in
shares of Common Stock on the portion of the principal balance of
the Convertible Note then being converted. The number of shares of
Common Stock issued as interest shall be determined by dividing the
dollar amount of interest due on the applicable Interest Payment
Date by the Conversion Price or Default Conversion Price then in
effect.
This Convertible Note (this "Convertible Note") is one of a
duly authorized issuance of $750,000 original aggregate principal
amount of Convertible Notes of the Company referred to in that
certain Securities Purchase Agreement dated as of the date hereof
between the Company and the Purchasers named therein (the
"Agreement"). The Agreement contains certain additional agreements
among the parties with respect to the terms of this Convertible
Note, including, without limitation, provisions which (A) limit the
conversion rights of the Holder, (B) specify voluntary and mandatory
repayment, prepayment and redemption rights and obligations and (C)
specify Events of Default following which the remaining balance due
and owing hereunder may be accelerated. All such provisions are an
integral part of this Convertible Note and are incorporated herein
by reference. This Convertible Note is transferable and assignable
to one or more Persons, in accordance with the limitations set forth
in the Agreement.
The Company shall keep a register (the "Register") in which
shall be entered the names and addresses of the registered holder of
this Convertible Note and particulars of this Convertible Note held
by such holder and of all transfers of this Convertible Note.
References to the Holder or "Holders" shall mean the Person listed
in the Register as the registered holder of such Convertible Notes.
The ownership of this Convertible Note shall be proven by the Register.
1. Certain Terms Defined. All terms defined in the
Agreement and not otherwise defined herein shall have for purposes
hereof the meanings provided for in the Agreement.
2. Covenants. Unless the Majority Holders otherwise
consent in writing, the Company covenants and agrees to observe and
perform each of its covenants, obligations and undertakings
contained in the Agreement, which obligations and undertakings are
expressly assumed herein by the Company and made for the benefit of
the holder hereof.
<PAGE>
3. Payment of Principal. The Company shall repay the
remaining unpaid balance on this Convertible Note on the Maturity
Date. The Company may, and shall be obligated to, prepay
all or a portion of this Convertible Note on the terms specified in
the Agreement.
4.1 Conversion of Convertible Note. The Holder shall
have the right, at its option, at any time from and after the
earlier to occur of (x) September 1, 1999, or (y) the date the
Registration Statement has been declared effective by the Securities
and Exchange Commission, to convert the principal amount of this
Convertible Note, or any portion of such principal amount, into that
number of fully paid and nonassessable shares of Common Stock (as
such shares shall then be constituted) determined pursuant to this
Section 4.1. The number of shares of Common Stock to be issued upon
each conversion of this Convertible Note shall be determined by
dividing the Conversion Amount (as defined below) by the Conversion
Price in effect on the date (the "Conversion Date") a Notice of
Conversion is delivered to the Company by the Holder by facsimile or
other reasonable means of communication dispatched prior to 5:00
p.m., New York Time. The term "Conversion Amount" means, with
respect to any conversion of this Convertible Note, the sum of (1)
the principal amount of this Convertible Note to be converted in
such conversion plus (2) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this
Convertible Note to the Conversion Date plus (3) Default Interest,
if any, on the interest referred to in the immediately preceding
clause (2); the term "Conversion Price" means 75% of the Market
Price; the term "Default Conversion Price" means 35% of the Market
Price; and the term "Market Price" means the closing bid price of a
share of Common Stock as reported by the National Association of
Securities Dealers Electronic Bulletin Board ("OTC Bulletin Board")
for the trading day immediately preceding the date of receipt by the
Company of Notice of Conversion. If on any Conversion Date the
Common Stock is not listed or traded on the OTC Bulletin Board, the
Market Price shall be determined by reference to the Nasdaq Stock
Market or the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, L.P., or
the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holders of a majority
in interest of Convertible Notes being converted for which the
calculation of the closing bid price is required in order to
determine the Conversion Price or Default Conversion Price of such
Convertible Notes.
4.2 Irrevocable Instructions to Transfer Agent.
Consistent with Section 7.10 of the Agreement, the Company
(i) shall promptly irrevocably instruct its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this
Convertible Note and (ii) agrees that its issuance of this
Convertible Note shall constitute full authority to its officers and
agents who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common
Stock in accordance with the terms and conditions of this
Convertible Note.
<PAGE>
4.3 Method of Conversion
(a) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Convertible Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender
this Convertible Note to the Company unless the entire unpaid
principal amount of this Convertible Note is so converted. Rather,
records showing the principal amount converted (or otherwise repaid)
and the date of such conversion or repayment shall be maintained on
a ledger substantially in the form of Annex A attached hereto (a
copy of which shall be delivered to the Company or transfer agent
with each Notice of Conversion). It is specifically contemplated
that the Company hereof shall act as the calculation agent for
conversions and repayments. In the event of any dispute or
discrepancies, such records maintained by the Company shall be
controlling and determinative in the absence of manifest error. The
Holder and any assignee, by acceptance of this Convertible Note,
acknowledge and agree that, by reason of the provisions of this
paragraph, following a conversion of a portion of this Convertible
Note, the principal amount represented by this Convertible Note will
be the amount indicated on Annex A attached hereto (which may be
less than the amount stated on the face hereof).
(b) The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock or other securities or property
on conversion of this Convertible Note in a name other than that of
the Holder (or in street name), and the Company shall not be
required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be
held for the Holder's account) requesting the issuance thereof shall
have paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that such tax has
been paid.
(c) Upon receipt by the Company of a Notice of Conversion, the
Holder shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, the outstanding principal
amount and the amount of accrued and unpaid interest on this
Convertible Note shall be reduced to reflect such conversion, and,
unless the Company defaults on its obligations under this Article 4,
all rights with respect to the portion of this Convertible Note
being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets,
as herein provided, on such conversion. If the Holder shall have
given a Notice of Conversion as provided herein, the Company's
obligation to issue and deliver the certificates for shares of
Common Stock shall be absolute and unconditional, irrespective of
the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the
recovery of any judgment against any person or any action by the
Holder to enforce the same, any failure or delay in the enforcement
of any other obligation of the Company to the Holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder of any obligation to the
Company, and
<PAGE>
irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in
connection with such conversion. The date of receipt (including
receipt via telecopy) of such Notice of Conversion shall be the
Conversion Date so long as it is received before 5:00 p.m., New York
Time, on such date.
5. Miscellaneous. This Convertible Note shall be deemed
to be a contract made under the laws of the State of New York, and
for all purposes shall be governed by and construed in accordance
with the laws of said State. The parties hereto, including all
guarantors or endorsers, hereby waive presentment, demand, notice,
protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this
Convertible Note, except as specifically provided herein, and assent
to extensions of the time of payment, or forbearance or other
indulgence without notice. The Company hereby submits to the
exclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York state court
sitting in New York City for purposes of all legal proceedings
arising out of or relating to this Convertible Note. The Company
irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim
that any such proceeding brought in such a court has been brought in
an inconvenient forum. The Company hereby irrevocably waives any and
all right to trial by jury in any legal proceeding arising out of or
relating to this Convertible Note. Notwithstanding anything to the
contrary in the foregoing, at the election of the Holder, any
dispute between the Holder and the Company may be arbitrated, rather
than litigated in the courts, before and in accordance with the
rules of the American Arbitration Association in New York City. The
Company agrees to submit to and participate in any such arbitration.
The Holder of this Convertible Note by acceptance of this
Convertible Note agrees to be bound by the provisions of this
Convertible Note which are expressly binding on such Holder.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: August 24, 1999
LAKOTA TECHNOLOGIES, INC.
/s/Ken Honeyman
<PAGE>
ANNEX A
CONVERSION AND REPAYMENT LEDGER
[TABLE]
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Convertible Note)
The undersigned hereby irrevocably elects to convert $ of the above
Convertible Note into shares of Common Stock of Lakota Technologies,
Inc. ("Company") according to the conditions set forth
in such Convertible Note, as of the date written below.
If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer and other taxes
and charges payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
Tel:
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT,
AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT,
OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE
AGREEMENT, DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT
LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER.
LAKOTA TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
No. 1 Warrant to Purchase 1,000,000 Shares
LAKOTA TECHNOLOGIES, INC., a Colorado corporation (the
"Company"), hereby certifies that, for value received, Y.L. Hirsch
or assigns, is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time during
the period commencing September 1, 1999 and ending August 31, 2001
(the "Exercise Period"), at the Purchase Price(as hereinafter
defined), one million (1,000,000) shares of the fully paid and
nonassessable shares of Common Stock of the Company. The number and
character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
This Warrant (this "Warrant"; such term to include any
warrants issued in substitution therefor) is one of a series of five
warrants issued in connection with that certain Securities Purchase
Agreement (the "Agreement") dated of even date herewith among the
initial Holder hereof, the Company and certain other parties thereto.
Capitalized terms used herein not otherwise defined shall
have the meanings ascribed thereto in the Agreement. As used herein
the following terms, unless the context otherwise requires, have the
following respective meanings:
(a) The term "Agreement" refers to that certain Securities Purchase
Agreement dated the date herewith among the initial Holder hereof,
the Company and certain other parties hereto.
<PAGE>
(b) The term "Company" shall include Lakota Technologies, Inc. and
any corporation that shall succeed or assume the obligations of such
corporation hereunder.
(c) The term "Common Stock" includes (a) the Company's common
stock, no par value per share, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on
or after such date, the Holders of which shall have the right,
without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to
preference, and the Holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a
majority of directors of the Company (even though the right so to
vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(d) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other
person (corporate or otherwise) that the Holder of this Warrant at
any time shall be entitled to receive, or shall have received, on
the exercise of this Warrant, in lieu of or in addition to Common
Stock, or that at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3 or otherwise.
(e) The term "Purchase Price" means 50% of the lower of (i) the
closing bid price of a share of Common Stock as reported by the
National Association of Securities Dealers Electronic Bulletin Board
("OTC Bulletin Board") for the trading day immediately preceding the
date of receipt by the Company of Notice of Exercise, or (ii) the
closing bid price of the Common Stock as reported by the OTC
Bulletin Board on the trading day immediately preceding the date of
the Agreement subject, in each case, to equitable adjustments for
Capital Reorganizations as provided in the Agreements. If on any
trading date relevant to the determination of the Purchase Price the
Common Stock is not listed or traded on the OTC Bulletin Board, the
Purchase Price shall be determined by reference to the Nasdaq Stock
Market or the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, L.P., or
the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holders of a majority
in interest of Warrants being exercised for which the calculation of
the closing bid price is required in order to determine the Purchase
Price of such Warrants.
(f) The term "Registration Rights Agreement" refers to that certain
Registration Rights Agreement dated the date herewith among the
initial Holder hereof, the Company and certain other parties hereto.
<PAGE>
1. Exercise of Warrant.
1.1. Method of Exercise.
(a) This Warrant may be exercised in whole or in part (but not as to
a fractional share of Common Stock), at any time and from time to
time during the Exercise Period by the Holder hereof by delivery of
a notice of exercise (a "Notice of Exercise") in the form attached
hereto as Exhibit A via facsimile to the Company. Promptly
thereafter the Holder shall surrender this Warrant to the Company at
its principal office, accompanied by payment of the Purchase Price
multiplied by the number of shares of Common Stock for which this
Warrant is being exercised (the "Exercise Price"). Payment of the
Exercise Price shall be made by wire transfer to the account of the
Company. Upon exercise, the Holder shall be entitled to receive,
one or more certificates, issued in the Holder's name or in such
name or names as the Holder may direct, subject to the limitations
on transfer contained herein, for the number of shares of Common
Stock so purchased. The shares of Common Stock so purchased shall be
deemed to be issued as of the close of business on the date on which
the Company shall have received from the Holder payment of the
Exercise Price (the "Exercise Date").
(b) Notwithstanding anything to the contrary set forth herein, upon
exercise of all or a portion of this Warrant in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Warrant to the Company. Rather, records showing the
amount so exercised and the date of exercise shall be maintained on
a ledger in the form of Annex B attached hereto (a copy of which
shall be delivered to the Company or transfer agent with each Notice
of Exercise). It is specifically contemplated that the Company
hereof shall act as the calculation agent for all exercises of this
Warrant. In the event of any dispute or discrepancies, such records
maintained by the Company shall be controlling and determinative in
the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of
the provisions of this paragraph, following an exercise of a portion
of this Warrant, the number of shares of Common Stock represented by
this Warrant will be the amount indicated on Annex B attached hereto
(which may be less than the amount stated on the face hereof).
1.2. Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and
anticipates acquiring the shares of Common Stock issuable upon
exercise of the Warrant solely for its own account for investment
purposes and not with a view to or for resale of such securities
unless such resale has been registered with the Commission or an
applicable exemption is available therefor. At the time this Warrant
is exercised, the Company may require the Holder to state in the
Notice of Exercise such representations concerning the Holder as are
necessary or appropriate to assure compliance by the Holder with the
Securities Act.
1.3. Limitation on Exercise. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described
herein, such exercise rights shall be limited, solely to the extent
set forth in the Agreement as if such provisions were specifically
set forth
<PAGE>
herein. Specifically, the rights of the Holder to
exercise all or a portion of this Warrant are subject to the
limitation on exercise provisions specified in Section 10.1 of the
Agreement.
2. Delivery of Stock Certificates on Exercise. Within 5 business
days after the exercise of this Warrant, the Company at its expense
(including the payment by it of any applicable issue, stamp or
transfer taxes) will cause to be issued in the name of and delivered
to the Holder thereof, or, to the extent permissible hereunder, to
such other person as such Holder may direct, a certificate or
certificates for the number of fully paid and nonassessable shares
of Common Stock (or Other Securities) to which such Holder shall be
entitled on such exercise, plus, in lieu of any fractional share to
which such Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then applicable Purchase Price, together
with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such
exercise pursuant to Section 1 or otherwise which certificate or
certificates shall be without restrictive legend of any nature
provided that a registration statement has been declared effective
in accordance with the Registration Rights Agreement, and if a
registration statement has not been declared effective, then in
accordance with Rule 144.
3. Adjustment of Purchase Price In Certain Events. The
Purchase Price to be paid by the Holder upon exercise of this
Warrant, and the consideration to be received upon exercise of this
Warrant, shall be adjusted in case at any time or from time to time
for Capital Reorganizations as provided in the Agreement as if such
provisions were specifically set forth herein.
4. No Impairment. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the
Holder of this Warrant against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the
par value of any shares of stock receivable on the exercise of this
Warrant above the amount payable therefor on such exercise, (b) will
take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant, and
(c) will not transfer all or substantially all of its properties and
assets to any other person (corporate or otherwise), or consolidate
with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall expressly
assume in writing and will be bound by all the terms of this Warrant.
5. Intentionally Left Blank.
6. Notices of Record Date. In the event of
(a) any taking by the Company of a record of the Holders of any
class or securities for the purpose of determining the Holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
<PAGE>
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be
mailed to the Holder of this Warrant a notice specifying (i) the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, and (ii) the date
on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place, and the time, if any, as
of which the Holders of record of Common Stock (or Other Securities)
shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified
in such notice on which any action is to be taken.
7. Reservation of Stock Issuable on Exercise of Warrant.
The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of this Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the
exercise of this Warrant.
8. Exchange of Warrant. On surrender for exchange of
this Warrant, properly endorsed and in compliance with the
restrictions on transfer set forth in the legend on the face of this
Warrant, to the Company, the Company at its expense will issue and
deliver to or on the order of the Holder thereof a new Warrant of
like tenor, in the name of such Holder or as such Holder (on payment
by such Holder of any applicable transfer taxes) may direct, calling
in the aggregate on the face or faces thereof for the number of
shares of Common Stock called for on the face of the Warrant so
surrendered.
9. Replacement of Warrant. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any
such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement or security reasonably satisfactory in form and
amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
10. Remedies. The Company stipulates that the remedies at
law of the Holder of this Warrant in the event of any default or
threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will
not be adequate, and that such terms may be specifically enforced by
a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Negotiability, etc. This Warrant is issued upon the
following terms, to all of which each Holder or owner hereof by the
taking hereof consents and agrees:
<PAGE>
(a) title to this Warrant may be transferred by endorsement and
delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery.
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each
prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide purchaser,
and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered Holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary; and
(d) notwithstanding the foregoing, this Warrant may not be sold,
transferred or assigned except pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable
exemption therefrom.
12. Registration Rights. The Company is obligated to
register the shares of Common Stock issuable upon exercise of this
Warrant in accordance with the terms of the Registration Rights
Agreement.
13. Notices. All notices and other communications from
the Company to the Holder of this Warrant shall be mailed by first
class registered or certified mail, postage prepaid, at such address
as may have been furnished to the Company in writing by such Holder
or, until any such Holder furnishes to the Company an address, then
to, and at the address of, the last Holder of this Warrant who has
so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may
be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant
shall be construed and enforced in accordance with and governed by
the internal laws of the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision.
[Signature Page Follows]
<PAGE>
DATED as of August 24, 1999.
LAKOTA TECHNOLOGIES, INC.
/s/Ken Honeyman
[Corporate Seal]
Attest:
By:/s/Howard Wilson
Secretary
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
To be executed only upon exercise
of the Warrant in whole or in part)
To: LAKOTA TECHNOLOGIES, INC.
The undersigned registered Holder of the accompanying Warrant
hereby exercises such Warrant or portion thereof for, and purchases
thereunder, 1 shares of Common Stock (as defined in
such Warrant) and herewith makes payment therefor in the amount and
manner set forth below, as of the date written below. The
undersigned requests that the certificates for such shares of Common
Stock be issued in the name of, and delivered to,
whose address is
The Exercise Price is paid by check or wire transfer to the
account of the Company in the amount of $ .
Upon exercise pursuant to this Notice of Exercise, the
Holder will be in compliance with the Limitation on Exercise (as
defined in the Securities Purchase Agreement pursuant to which this
Warrant was issued).
Dated:
(Name must conform to name of Holder as
specified on the face of the Warrant)
By:
Name:
Title:
Address of Holder:
Date of exercise:
1 Insert the number of shares of Common Stock as to which the accompanying
Warrant is being exercised. In the case of a partial exercise, a new
Warrant or Warrants will be issued and delivered, representing the
unexercised portion of the accompanying Warrant, to the holder surrendiering
the same.
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT,
AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT,
OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE
AGREEMENT, DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT
LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER.
LAKOTA TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
No. 1 Warrant to Purchase 1,000,000 Shares
LAKOTA TECHNOLOGIES, INC., a Colorado corporation (the
"Company"), hereby certifies that, for value received, Y.L. Hirsch
or assigns, is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time during
the period commencing September 1, 1999 and ending August 31, 2001
(the "Exercise Period"), at the Purchase Price(as hereinafter
defined), one million (1,000,000) shares of the fully paid and
nonassessable shares of Common Stock of the Company. The number and
character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
This Warrant (this "Warrant"; such term to include any
warrants issued in substitution therefor) is one of a series of five
warrants issued in connection with that certain Securities Purchase
Agreement (the "Agreement") dated of even date herewith among the
initial Holder hereof, the Company and certain other parties thereto.
Capitalized terms used herein not otherwise defined shall
have the meanings ascribed thereto in the Agreement. As used herein
the following terms, unless the context otherwise requires, have the
following respective meanings:
(a) The term "Agreement" refers to that certain Securities Purchase
Agreement dated the date herewith among the initial Holder hereof,
the Company and certain other parties hereto.
<PAGE>
(b) The term "Company" shall include Lakota Technologies, Inc. and
any corporation that shall succeed or assume the obligations of such
corporation hereunder.
(c) The term "Common Stock" includes (a) the Company's common
stock, no par value per share, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on
or after such date, the Holders of which shall have the right,
without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to
preference, and the Holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a
majority of directors of the Company (even though the right so to
vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(d) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other
person (corporate or otherwise) that the Holder of this Warrant at
any time shall be entitled to receive, or shall have received, on
the exercise of this Warrant, in lieu of or in addition to Common
Stock, or that at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3 or otherwise.
(e) The term "Purchase Price" means 50% of the lower of (i) the
closing bid price of a share of Common Stock as reported by the
National Association of Securities Dealers Electronic Bulletin Board
("OTC Bulletin Board") for the trading day immediately preceding the
date of receipt by the Company of Notice of Exercise, or (ii) the
closing bid price of the Common Stock as reported by the OTC
Bulletin Board on the trading day immediately preceding the date of
the Agreement subject, in each case, to equitable adjustments for
Capital Reorganizations as provided in the Agreements. If on any
trading date relevant to the determination of the Purchase Price the
Common Stock is not listed or traded on the OTC Bulletin Board, the
Purchase Price shall be determined by reference to the Nasdaq Stock
Market or the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, L.P., or
the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holders of a majority
in interest of Warrants being exercised for which the calculation of
the closing bid price is required in order to determine the Purchase
Price of such Warrants.
(f) The term "Registration Rights Agreement" refers to that certain
Registration Rights Agreement dated the date herewith among the
initial Holder hereof, the Company and certain other parties hereto.
<PAGE>
1. Exercise of Warrant.
1.1. Method of Exercise.
(a) This Warrant may be exercised in whole or in part (but not as to
a fractional share of Common Stock), at any time and from time to
time during the Exercise Period by the Holder hereof by delivery of
a notice of exercise (a "Notice of Exercise") in the form attached
hereto as Exhibit A via facsimile to the Company. Promptly
thereafter the Holder shall surrender this Warrant to the Company at
its principal office, accompanied by payment of the Purchase Price
multiplied by the number of shares of Common Stock for which this
Warrant is being exercised (the "Exercise Price"). Payment of the
Exercise Price shall be made by wire transfer to the account of the
Company. Upon exercise, the Holder shall be entitled to receive,
one or more certificates, issued in the Holder's name or in such
name or names as the Holder may direct, subject to the limitations
on transfer contained herein, for the number of shares of Common
Stock so purchased. The shares of Common Stock so purchased shall be
deemed to be issued as of the close of business on the date on which
the Company shall have received from the Holder payment of the
Exercise Price (the "Exercise Date").
(b) Notwithstanding anything to the contrary set forth herein, upon
exercise of all or a portion of this Warrant in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Warrant to the Company. Rather, records showing the
amount so exercised and the date of exercise shall be maintained on
a ledger in the form of Annex B attached hereto (a copy of which
shall be delivered to the Company or transfer agent with each Notice
of Exercise). It is specifically contemplated that the Company
hereof shall act as the calculation agent for all exercises of this
Warrant. In the event of any dispute or discrepancies, such records
maintained by the Company shall be controlling and determinative in
the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of
the provisions of this paragraph, following an exercise of a portion
of this Warrant, the number of shares of Common Stock represented by
this Warrant will be the amount indicated on Annex B attached hereto
(which may be less than the amount stated on the face hereof).
1.2. Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and
anticipates acquiring the shares of Common Stock issuable upon
exercise of the Warrant solely for its own account for investment
purposes and not with a view to or for resale of such securities
unless such resale has been registered with the Commission or an
applicable exemption is available therefor. At the time this Warrant
is exercised, the Company may require the Holder to state in the
Notice of Exercise such representations concerning the Holder as are
necessary or appropriate to assure compliance by the Holder with the
Securities Act.
1.3. Limitation on Exercise. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described
herein, such exercise rights shall be limited, solely to the extent
set forth in the Agreement as if such provisions were specifically
set forth
<PAGE>
herein. Specifically, the rights of the Holder to
exercise all or a portion of this Warrant are subject to the
limitation on exercise provisions specified in Section 10.1 of the
Agreement.
2. Delivery of Stock Certificates on Exercise. Within 5 business
days after the exercise of this Warrant, the Company at its expense
(including the payment by it of any applicable issue, stamp or
transfer taxes) will cause to be issued in the name of and delivered
to the Holder thereof, or, to the extent permissible hereunder, to
such other person as such Holder may direct, a certificate or
certificates for the number of fully paid and nonassessable shares
of Common Stock (or Other Securities) to which such Holder shall be
entitled on such exercise, plus, in lieu of any fractional share to
which such Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then applicable Purchase Price, together
with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such
exercise pursuant to Section 1 or otherwise which certificate or
certificates shall be without restrictive legend of any nature
provided that a registration statement has been declared effective
in accordance with the Registration Rights Agreement, and if a
registration statement has not been declared effective, then in
accordance with Rule 144.
3. Adjustment of Purchase Price In Certain Events. The
Purchase Price to be paid by the Holder upon exercise of this
Warrant, and the consideration to be received upon exercise of this
Warrant, shall be adjusted in case at any time or from time to time
for Capital Reorganizations as provided in the Agreement as if such
provisions were specifically set forth herein.
4. No Impairment. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the
Holder of this Warrant against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the
par value of any shares of stock receivable on the exercise of this
Warrant above the amount payable therefor on such exercise, (b) will
take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant, and
(c) will not transfer all or substantially all of its properties and
assets to any other person (corporate or otherwise), or consolidate
with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall expressly
assume in writing and will be bound by all the terms of this Warrant.
5. Intentionally Left Blank.
6. Notices of Record Date. In the event of
(a) any taking by the Company of a record of the Holders of any
class or securities for the purpose of determining the Holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
<PAGE>
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be
mailed to the Holder of this Warrant a notice specifying (i) the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, and (ii) the date
on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place, and the time, if any, as
of which the Holders of record of Common Stock (or Other Securities)
shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified
in such notice on which any action is to be taken.
7. Reservation of Stock Issuable on Exercise of Warrant.
The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of this Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the
exercise of this Warrant.
8. Exchange of Warrant. On surrender for exchange of
this Warrant, properly endorsed and in compliance with the
restrictions on transfer set forth in the legend on the face of this
Warrant, to the Company, the Company at its expense will issue and
deliver to or on the order of the Holder thereof a new Warrant of
like tenor, in the name of such Holder or as such Holder (on payment
by such Holder of any applicable transfer taxes) may direct, calling
in the aggregate on the face or faces thereof for the number of
shares of Common Stock called for on the face of the Warrant so
surrendered.
9. Replacement of Warrant. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any
such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement or security reasonably satisfactory in form and
amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
10. Remedies. The Company stipulates that the remedies at
law of the Holder of this Warrant in the event of any default or
threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will
not be adequate, and that such terms may be specifically enforced by
a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Negotiability, etc. This Warrant is issued upon the
following terms, to all of which each Holder or owner hereof by the
taking hereof consents and agrees:
<PAGE>
(a) title to this Warrant may be transferred by endorsement and
delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery.
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each
prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide purchaser,
and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered Holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary; and
(d) notwithstanding the foregoing, this Warrant may not be sold,
transferred or assigned except pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable
exemption therefrom.
12. Registration Rights. The Company is obligated to
register the shares of Common Stock issuable upon exercise of this
Warrant in accordance with the terms of the Registration Rights
Agreement.
13. Notices. All notices and other communications from
the Company to the Holder of this Warrant shall be mailed by first
class registered or certified mail, postage prepaid, at such address
as may have been furnished to the Company in writing by such Holder
or, until any such Holder furnishes to the Company an address, then
to, and at the address of, the last Holder of this Warrant who has
so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may
be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant
shall be construed and enforced in accordance with and governed by
the internal laws of the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision.
[Signature Page Follows]
<PAGE>
DATED as of August 24, 1999.
LAKOTA TECHNOLOGIES, INC.
/s/Ken Honeyman
[Corporate Seal]
Attest:
By:/s/Howard Wilson
Secretary
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
To be executed only upon exercise
of the Warrant in whole or in part)
To: LAKOTA TECHNOLOGIES, INC.
The undersigned registered Holder of the accompanying Warrant
hereby exercises such Warrant or portion thereof for, and purchases
thereunder, 1 shares of Common Stock (as defined in
such Warrant) and herewith makes payment therefor in the amount and
manner set forth below, as of the date written below. The
undersigned requests that the certificates for such shares of Common
Stock be issued in the name of, and delivered to,
whose address is
The Exercise Price is paid by check or wire transfer to the
account of the Company in the amount of $ .
Upon exercise pursuant to this Notice of Exercise, the
Holder will be in compliance with the Limitation on Exercise (as
defined in the Securities Purchase Agreement pursuant to which this
Warrant was issued).
Dated:
(Name must conform to name of Holder as
specified on the face of the Warrant)
By:
Name:
Title:
Address of Holder:
Date of exercise:
1 Insert the number of shares of Common Stock as to which the accompanying
Warrant is being exercised. In the case of a partial exercise, a new
Warrant or Warrants will be issued and delivered, representing the
unexercised portion of the accompanying Warrant, to the holder surrendiering
the same.
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT,
AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT,
OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE
AGREEMENT, DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT
LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER.
LAKOTA TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
No. 2 Warrant to Purchase 1,000,000 Shares
LAKOTA TECHNOLOGIES, INC., a Colorado corporation (the
"Company"), hereby certifies that, for value received, Sholem
Liebenthal or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time
during the period commencing September 1, 1999 and ending August 31,
2001 (the "Exercise Period"), at the Purchase Price(as hereinafter
defined), one million (1,000,000) shares of the fully paid and
nonassessable shares of Common Stock of the Company. The number and
character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
This Warrant (this "Warrant"; such term to include any
warrants issued in substitution therefor) is one of a series of five
warrants issued in connection with that certain Securities Purchase
Agreement (the "Agreement") dated of even date herewith among the
initial Holder hereof, the Company and certain other parties thereto.
Capitalized terms used herein not otherwise defined shall
have the meanings ascribed thereto in the Agreement. As used herein
the following terms, unless the context otherwise requires, have the
following respective meanings:
(a) The term "Agreement" refers to that certain Securities Purchase
Agreement dated the date herewith among the initial Holder hereof,
the Company and certain other parties hereto.
<PAGE>
(b) The term "Company" shall include Lakota Technologies, Inc. and
any corporation that shall succeed or assume the obligations of such
corporation hereunder.
(c) The term "Common Stock" includes (a) the Company's common
stock, no par value per share, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on
or after such date, the Holders of which shall have the right,
without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to
preference, and the Holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a
majority of directors of the Company (even though the right so to
vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(d) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other
person (corporate or otherwise) that the Holder of this Warrant at
any time shall be entitled to receive, or shall have received, on
the exercise of this Warrant, in lieu of or in addition to Common
Stock, or that at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3 or otherwise.
(e) The term "Purchase Price" means 50% of the lower of (i) the
closing bid price of a share of Common Stock as reported by the
National Association of Securities Dealers Electronic Bulletin Board
("OTC Bulletin Board") for the trading day immediately preceding the
date of receipt by the Company of Notice of Exercise, or (ii) the
closing bid price of the Common Stock as reported by the OTC
Bulletin Board on the trading day immediately preceding the date of
the Agreement subject, in each case, to equitable adjustments for
Capital Reorganizations as provided in the Agreements. If on any
trading date relevant to the determination of the Purchase Price the
Common Stock is not listed or traded on the OTC Bulletin Board, the
Purchase Price shall be determined by reference to the Nasdaq Stock
Market or the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, L.P., or
the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holders of a majority
in interest of Warrants being exercised for which the calculation of
the closing bid price is required in order to determine the Purchase
Price of such Warrants.
(f) The term "Registration Rights Agreement" refers to that certain
Registration Rights Agreement dated the date herewith among the
initial Holder hereof, the Company and certain other parties hereto.
<PAGE>
1. Exercise of Warrant.
1.1. Method of Exercise.
(a) This Warrant may be exercised in whole or in part (but not as
to a fractional share of Common Stock), at any time and from time to
time during the Exercise Period by the Holder hereof by delivery of
a notice of exercise (a "Notice of Exercise") in the form attached
hereto as Exhibit A via facsimile to the Company. Promptly
thereafter the Holder shall surrender this Warrant to the Company at
its principal office, accompanied by payment of the Purchase Price
multiplied by the number of shares of Common Stock for which this
Warrant is being exercised (the "Exercise Price"). Payment of the
Exercise Price shall be made by wire transfer to the account of the
Company. Upon exercise, the Holder shall be entitled to receive,
one or more certificates, issued in the Holder's name or in such
name or names as the Holder may direct, subject to the limitations
on transfer contained herein, for the number of shares of Common
Stock so purchased. The shares of Common Stock so purchased shall be
deemed to be issued as of the close of business on the date on which
the Company shall have received from the Holder payment of the
Exercise Price (the "Exercise Date").
(b) Notwithstanding anything to the contrary set forth herein, upon
exercise of all or a portion of this Warrant in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Warrant to the Company. Rather, records showing the
amount so exercised and the date of exercise shall be maintained on
a ledger in the form of Annex B attached hereto (a copy of which
shall be delivered to the Company or transfer agent with each Notice
of Exercise). It is specifically contemplated that the Company
hereof shall act as the calculation agent for all exercises of this
Warrant. In the event of any dispute or discrepancies, such records
maintained by the Company shall be controlling and determinative in
the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of
the provisions of this paragraph, following an exercise of a portion
of this Warrant, the number of shares of Common Stock represented by
this Warrant will be the amount indicated on Annex B attached hereto
(which may be less than the amount stated on the face hereof).
1.2. Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and
anticipates acquiring the shares of Common Stock issuable upon
exercise of the Warrant solely for its own account for investment
purposes and not with a view to or for resale of such securities
unless such resale has been registered with the Commission or an
applicable exemption is available therefor. At the time this Warrant
is exercised, the Company may require the Holder to state in the
Notice of Exercise such representations concerning the Holder as are
necessary or appropriate to assure compliance by the Holder with the
Securities Act.
1.3. Limitation on Exercise. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described
herein, such exercise rights shall be limited, solely to the extent
set forth in the Agreement as if such provisions were specifically
set forth
<PAGE>
herein. Specifically, the rights of the Holder to
exercise all or a portion of this Warrant are subject to the
limitation on exercise provisions specified in Section 10.1 of the
Agreement.
2. Delivery of Stock Certificates on Exercise. Within 5
business days after the exercise of this Warrant, the Company at its
expense (including the payment by it of any applicable issue, stamp
or transfer taxes) will cause to be issued in the name of and
delivered to the Holder thereof, or, to the extent permissible
hereunder, to such other person as such Holder may direct, a
certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock (or Other Securities) to which
such Holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then applicable
Purchase Price, together with any other stock or other securities
and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise
which certificate or certificates shall be without restrictive
legend of any nature provided that a registration statement has been
declared effective in accordance with the Registration Rights
Agreement, and if a registration statement has not been declared
effective, then in accordance with Rule 144.
3. Adjustment of Purchase Price In Certain Events. The
Purchase Price to be paid by the Holder upon exercise of this
Warrant, and the consideration to be received upon exercise of this
Warrant, shall be adjusted in case at any time or from time to time
for Capital Reorganizations as provided in the Agreement as if such
provisions were specifically set forth herein.
4. No Impairment. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the
Holder of this Warrant against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the
par value of any shares of stock receivable on the exercise of this
Warrant above the amount payable therefor on such exercise, (b) will
take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant, and
(c) will not transfer all or substantially all of its properties and
assets to any other person (corporate or otherwise), or consolidate
with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall expressly
assume in writing and will be bound by all the terms of this Warrant.
5. Intentionally Left Blank.
6. Notices of Record Date. In the event of
(a) any taking by the Company of a record of the Holders of any
class or securities for the purpose of determining the Holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
<PAGE>
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be
mailed to the Holder of this Warrant a notice specifying (i) the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, and (ii) the date
on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place, and the time, if any, as
of which the Holders of record of Common Stock (or Other Securities)
shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified
in such notice on which any action is to be taken.
7. Reservation of Stock Issuable on Exercise of Warrant.
The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of this Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the
exercise of this Warrant.
8. Exchange of Warrant. On surrender for exchange of
this Warrant, properly endorsed and in compliance with the
restrictions on transfer set forth in the legend on the face of this
Warrant, to the Company, the Company at its expense will issue and
deliver to or on the order of the Holder thereof a new Warrant of
like tenor, in the name of such Holder or as such Holder (on payment
by such Holder of any applicable transfer taxes) may direct, calling
in the aggregate on the face or faces thereof for the number of
shares of Common Stock called for on the face of the Warrant so
surrendered.
9. Replacement of Warrant. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any
such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement or security reasonably satisfactory in form and
amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
10. Remedies. The Company stipulates that the remedies at
law of the Holder of this Warrant in the event of any default or
threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will
not be adequate, and that such terms may be specifically enforced by
a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Negotiability, etc. This Warrant is issued upon the
following terms, to all of which each Holder or owner hereof by the
taking hereof consents and agrees:
<PAGE>
(a) title to this Warrant may be transferred by endorsement and
delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery.
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each
prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide purchaser,
and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered Holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary; and
(d) notwithstanding the foregoing, this Warrant may not be sold,
transferred or assigned except pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable
exemption therefrom.
12. Registration Rights. The Company is obligated to
register the shares of Common Stock issuable upon exercise of this
Warrant in accordance with the terms of the Registration Rights
Agreement.
13. Notices. All notices and other communications from
the Company to the Holder of this Warrant shall be mailed by first
class registered or certified mail, postage prepaid, at such address
as may have been furnished to the Company in writing by such Holder
or, until any such Holder furnishes to the Company an address, then
to, and at the address of, the last Holder of this Warrant who has
so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may
be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant
shall be construed and enforced in accordance with and governed by
the internal laws of the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision.
[Signature Page Follows]
<PAGE>
DATED as of August 24, 1999.
LAKOTA TECHNOLOGIES, INC.
/s/Ken Honeyman
[Corporate Seal]
Attest:
By:/s/Howard Wilson
Secretary
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
(To be executed only upon exercise
of the Warrant in whole or in part)
To: LAKOTA TECHNOLOGIES, INC.
The undersigned registered Holder of the accompanying Warrant
hereby exercises such Warrant or portion thereof for, and purchases
thereunder, 1 shares of Common Stock (as defined in
such Warrant) and herewith makes payment therefor in the amount and
manner set forth below, as of the date written below. The
undersigned requests that the certificates for such shares of Common
Stock be issued in the name of, and delivered to,
whose address is .
The Exercise Price is paid by check or wire transfer to the
account of the Company in the amount of $ .
Upon exercise pursuant to this Notice of Exercise, the
Holder will be in compliance with the Limitation on Exercise (as
defined in the Securities Purchase Agreement pursuant to which this
Warrant was issued).
Dated:
(Name must conform to name of Holder as specified on
the face of the Warrant)
By:
Name:
Title:
Address of Holder:
Date of exercise:
1 Insert the number of shares of Common Stock as to which the accompanying
Warrant is Being exercised. In the case of a partial exercise, a new
Warrant or Warrants will be issued and delivered, representing the
unexercised portion of the accompanying Warrant, to the holder
surrendering the same.
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT,
AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT,
OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE
AGREEMENT, DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT
LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER.
LAKOTA TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
No. 3 Warrant to Purchase 1,000,000 Shares
LAKOTA TECHNOLOGIES, INC., a Colorado corporation (the
"Company"), hereby certifies that, for value received, Amram Rothman
or assigns, is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time during
the period commencing September 1, 1999 and ending August 31, 2001
(the "Exercise Period"), at the Purchase Price(as hereinafter
defined), one million (1,000,000) shares of the fully paid and
nonassessable shares of Common Stock of the Company. The number and
character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
This Warrant (this "Warrant"; such term to include any
warrants issued in substitution therefor) is one of a series of five
warrants issued in connection with that certain Securities Purchase
Agreement (the "Agreement") dated of even date herewith among the
initial Holder hereof, the Company and certain other parties thereto.
Capitalized terms used herein not otherwise defined shall
have the meanings ascribed thereto in the Agreement. As used herein
the following terms, unless the context otherwise requires, have the
following respective meanings:
(a) The term "Agreement" refers to that certain Securities Purchase
Agreement dated the date herewith among the initial Holder hereof,
the Company and certain other parties hereto.
<PAGE>
(b) The term "Company" shall include Lakota Technologies, Inc. and
any corporation that shall succeed or assume the obligations of such
corporation hereunder.
(c) The term "Common Stock" includes (a) the Company's common
stock, no par value per share, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on
or after such date, the Holders of which shall have the right,
without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to
preference, and the Holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a
majority of directors of the Company (even though the right so to
vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(d) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other
person (corporate or otherwise) that the Holder of this Warrant at
any time shall be entitled to receive, or shall have received, on
the exercise of this Warrant, in lieu of or in addition to Common
Stock, or that at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3 or otherwise.
(e) The term "Purchase Price" means 50% of the lower of (i) the
closing bid price of a share of Common Stock as reported by the
National Association of Securities Dealers Electronic Bulletin Board
("OTC Bulletin Board") for the trading day immediately preceding the
date of receipt by the Company of Notice of Exercise, or (ii) the
closing bid price of the Common Stock as reported by the OTC
Bulletin Board on the trading day immediately preceding the date of
the Agreement subject, in each case, to equitable adjustments for
Capital Reorganizations as provided in the Agreements. If on any
trading date relevant to the determination of the Purchase Price the
Common Stock is not listed or traded on the OTC Bulletin Board, the
Purchase Price shall be determined by reference to the Nasdaq Stock
Market or the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, L.P., or
the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holders of a majority
in interest of Warrants being exercised for which the calculation of
the closing bid price is required in order to determine the Purchase
Price of such Warrants.
(f) The term "Registration Rights Agreement" refers to that certain
Registration Rights Agreement dated the date herewith among the
initial Holder hereof, the Company and certain other parties hereto.
<PAGE>
1. Exercise of Warrant.
1.1. Method of Exercise.
(a) This Warrant may be exercised in whole or in part (but not as
to a fractional share of Common Stock), at any time and from time to
time during the Exercise Period by the Holder hereof by delivery of
a notice of exercise (a "Notice of Exercise") in the form attached
hereto as Exhibit A via facsimile to the Company. Promptly
thereafter the Holder shall surrender this Warrant to the Company at
its principal office, accompanied by payment of the Purchase Price
multiplied by the number of shares of Common Stock for which this
Warrant is being exercised (the "Exercise Price"). Payment of the
Exercise Price shall be made by wire transfer to the account of the
Company. Upon exercise, the Holder shall be entitled to receive,
one or more certificates, issued in the Holder's name or in such
name or names as the Holder may direct, subject to the limitations
on transfer contained herein, for the number of shares of Common
Stock so purchased. The shares of Common Stock so purchased shall be
deemed to be issued as of the close of business on the date on which
the Company shall have received from the Holder payment of the
Exercise Price (the "Exercise Date").
(b) Notwithstanding anything to the contrary set forth herein, upon
exercise of all or a portion of this Warrant in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Warrant to the Company. Rather, records showing the
amount so exercised and the date of exercise shall be maintained on
a ledger in the form of Annex B attached hereto (a copy of which
shall be delivered to the Company or transfer agent with each Notice
of Exercise). It is specifically contemplated that the Company
hereof shall act as the calculation agent for all exercises of this
Warrant. In the event of any dispute or discrepancies, such records
maintained by the Company shall be controlling and determinative in
the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of
the provisions of this paragraph, following an exercise of a portion
of this Warrant, the number of shares of Common Stock represented by
this Warrant will be the amount indicated on Annex B attached hereto
(which may be less than the amount stated on the face hereof).
1.2. Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and
anticipates acquiring the shares of Common Stock issuable upon
exercise of the Warrant solely for its own account for investment
purposes and not with a view to or for resale of such securities
unless such resale has been registered with the Commission or an
applicable exemption is available therefor. At the time this Warrant
is exercised, the Company may require the Holder to state in the
Notice of Exercise such representations concerning the Holder as are
necessary or appropriate to assure compliance by the Holder with the
Securities Act.
1.3. Limitation on Exercise. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described
herein, such exercise rights shall be limited, solely to the extent
set forth in the Agreement as if such provisions were specifically
set forth
<PAGE>
herein. Specifically, the rights of the Holder to
exercise all or a portion of this Warrant are subject to the
limitation on exercise provisions specified in Section 10.1 of the
Agreement.
2. Delivery of Stock Certificates on Exercise. Within 5
business days after the exercise of this Warrant, the Company at its
expense (including the payment by it of any applicable issue, stamp
or transfer taxes) will cause to be issued in the name of and
delivered to the Holder thereof, or, to the extent permissible
hereunder, to such other person as such Holder may direct, a
certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock (or Other Securities) to which
such Holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then applicable
Purchase Price, together with any other stock or other securities
and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise
which certificate or certificates shall be without restrictive
legend of any nature provided that a registration statement has been
declared effective in accordance with the Registration Rights
Agreement, and if a registration statement has not been declared
effective, then in accordance with Rule 144.
3. Adjustment of Purchase Price In Certain Events. The
Purchase Price to be paid by the Holder upon exercise of this
Warrant, and the consideration to be received upon exercise of this
Warrant, shall be adjusted in case at any time or from time to time
for Capital Reorganizations as provided in the Agreement as if such
provisions were specifically set forth herein.
4. No Impairment. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the
Holder of this Warrant against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the
par value of any shares of stock receivable on the exercise of this
Warrant above the amount payable therefor on such exercise, (b) will
take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant, and
(c) will not transfer all or substantially all of its properties and
assets to any other person (corporate or otherwise), or consolidate
with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall expressly
assume in writing and will be bound by all the terms of this Warrant.
5. Intentionally Left Blank.
6. Notices of Record Date. In the event of
(a) any taking by the Company of a record of the Holders of any
class or securities for the purpose of determining the Holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
<PAGE>
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be
mailed to the Holder of this Warrant a notice specifying (i) the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, and (ii) the date
on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place, and the time, if any, as
of which the Holders of record of Common Stock (or Other Securities)
shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified
in such notice on which any action is to be taken.
7. Reservation of Stock Issuable on Exercise of Warrant.
The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of this Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the
exercise of this Warrant.
8. Exchange of Warrant. On surrender for exchange of
this Warrant, properly endorsed and in compliance with the
restrictions on transfer set forth in the legend on the face of this
Warrant, to the Company, the Company at its expense will issue and
deliver to or on the order of the Holder thereof a new Warrant of
like tenor, in the name of such Holder or as such Holder (on payment
by such Holder of any applicable transfer taxes) may direct, calling
in the aggregate on the face or faces thereof for the number of
shares of Common Stock called for on the face of the Warrant so
surrendered.
9. Replacement of Warrant. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any
such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement or security reasonably satisfactory in form and
amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
10. Remedies. The Company stipulates that the remedies at
law of the Holder of this Warrant in the event of any default or
threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will
not be adequate, and that such terms may be specifically enforced by
a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Negotiability, etc. This Warrant is issued upon the
following terms, to all of which each Holder or owner hereof by the
taking hereof consents and agrees:
<PAGE>
(a) title to this Warrant may be transferred by endorsement and
delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery.
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each
prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide purchaser,
and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered Holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary; and
(d) notwithstanding the foregoing, this Warrant may not be sold,
transferred or assigned except pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable
exemption therefrom.
12. Registration Rights. The Company is obligated to
register the shares of Common Stock issuable upon exercise of this
Warrant in accordance with the terms of the Registration Rights
Agreement.
13. Notices. All notices and other communications from
the Company to the Holder of this Warrant shall be mailed by first
class registered or certified mail, postage prepaid, at such address
as may have been furnished to the Company in writing by such Holder
or, until any such Holder furnishes to the Company an address, then
to, and at the address of, the last Holder of this Warrant who has
so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may
be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant
shall be construed and enforced in accordance with and governed by
the internal laws of the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision.
[Signature Page Follows]
<PAGE>
DATED as of August 24, 1999.
LAKOTA TECHNOLOGIES, INC.
/s/Ken Honeyman
[Corporate Seal]
Attest:
By:/s/Howard Wilson
Secretary
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
(To be executed only upon exercise
of the Warrant in whole or in part)
To: LAKOTA TECHNOLOGIES, INC.
The undersigned registered Holder of the accompanying Warrant
hereby exercises such Warrant or portion thereof for, and purchases
thereunder, 1 shares of Common Stock (as defined in
such Warrant) and herewith makes payment therefor in the amount and
manner set forth below, as of the date written below. The
undersigned requests that the certificates for such shares of Common
Stock be issued in the name of, and delivered to,
whose address is .
The Exercise Price is paid by check or wire transfer to the
account of the Company in the amount of $ .
Upon exercise pursuant to this Notice of Exercise, the
Holder will be in compliance with the Limitation on Exercise (as
defined in the Securities Purchase Agreement pursuant to which this
Warrant was issued).
Dated:
(Name must conform to name of Holder as specified on
the face of the Warrant)
By:
Name:
Title:
Address of Holder:
Date of exercise:
1 Insert the number of shares of Common Stock as to which the accompanying
Warrant is being exercised. In the case of a partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised
portion of the accompanying Warrant, to the holder surrendering the same.
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT,
AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT,
OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE
AGREEMENT, DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT
LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER.
LAKOTA TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
No. 4 Warrant to Purchase 1,000,000 Shares
LAKOTA TECHNOLOGIES, INC., a Colorado corporation (the
"Company"), hereby certifies that, for value received, Joshua
Heimlich or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time
during the period commencing September 1, 1999 and ending August 31,
2001 (the "Exercise Period"), at the Purchase Price(as hereinafter
defined), one million (1,000,000) shares of the fully paid and
nonassessable shares of Common Stock of the Company. The number and
character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
This Warrant (this "Warrant"; such term to include any
warrants issued in substitution therefor) is one of a series of five
warrants issued in connection with that certain Securities Purchase
Agreement (the "Agreement") dated of even date herewith among the
initial Holder hereof, the Company and certain other parties thereto.
Capitalized terms used herein not otherwise defined shall
have the meanings ascribed thereto in the Agreement. As used herein
the following terms, unless the context otherwise requires, have the
following respective meanings:
(a) The term "Agreement" refers to that certain Securities Purchase
Agreement dated the date herewith among the initial Holder hereof,
the Company and certain other parties hereto.
<PAGE>
(b) The term "Company" shall include Lakota Technologies, Inc. and
any corporation that shall succeed or assume the obligations of such
corporation hereunder.
(c) The term "Common Stock" includes (a) the Company's common
stock, no par value per share, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on
or after such date, the Holders of which shall have the right,
without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to
preference, and the Holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a
majority of directors of the Company (even though the right so to
vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(d) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other
person (corporate or otherwise) that the Holder of this Warrant at
any time shall be entitled to receive, or shall have received, on
the exercise of this Warrant, in lieu of or in addition to Common
Stock, or that at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3 or otherwise.
(e) The term "Purchase Price" means 50% of the lower of (i) the
closing bid price of a share of Common Stock as reported by the
National Association of Securities Dealers Electronic Bulletin Board
("OTC Bulletin Board") for the trading day immediately preceding the
date of receipt by the Company of Notice of Exercise, or (ii) the
closing bid price of the Common Stock as reported by the OTC
Bulletin Board on the trading day immediately preceding the date of
the Agreement subject, in each case, to equitable adjustments for
Capital Reorganizations as provided in the Agreements. If on any
trading date relevant to the determination of the Purchase Price the
Common Stock is not listed or traded on the OTC Bulletin Board, the
Purchase Price shall be determined by reference to the Nasdaq Stock
Market or the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, L.P., or
the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holders of a majority
in interest of Warrants being exercised for which the calculation of
the closing bid price is required in order to determine the Purchase
Price of such Warrants.
(f) The term "Registration Rights Agreement" refers to that certain
Registration Rights Agreement dated the date herewith among the
initial Holder hereof, the Company and certain other parties hereto.
<PAGE>
1. Exercise of Warrant.
1.1. Method of Exercise.
(a) This Warrant may be exercised in whole or in part (but not as
to a fractional share of Common Stock), at any time and from time to
time during the Exercise Period by the Holder hereof by delivery of
a notice of exercise (a "Notice of Exercise") in the form attached
hereto as Exhibit A via facsimile to the Company. Promptly
thereafter the Holder shall surrender this Warrant to the Company at
its principal office, accompanied by payment of the Purchase Price
multiplied by the number of shares of Common Stock for which this
Warrant is being exercised (the "Exercise Price"). Payment of the
Exercise Price shall be made by wire transfer to the account of the
Company. Upon exercise, the Holder shall be entitled to receive,
one or more certificates, issued in the Holder's name or in such
name or names as the Holder may direct, subject to the limitations
on transfer contained herein, for the number of shares of Common
Stock so purchased. The shares of Common Stock so purchased shall be
deemed to be issued as of the close of business on the date on which
the Company shall have received from the Holder payment of the
Exercise Price (the "Exercise Date").
(b) Notwithstanding anything to the contrary set forth herein, upon
exercise of all or a portion of this Warrant in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Warrant to the Company. Rather, records showing the
amount so exercised and the date of exercise shall be maintained on
a ledger in the form of Annex B attached hereto (a copy of which
shall be delivered to the Company or transfer agent with each Notice
of Exercise). It is specifically contemplated that the Company
hereof shall act as the calculation agent for all exercises of this
Warrant. In the event of any dispute or discrepancies, such records
maintained by the Company shall be controlling and determinative in
the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of
the provisions of this paragraph, following an exercise of a portion
of this Warrant, the number of shares of Common Stock represented by
this Warrant will be the amount indicated on Annex B attached hereto
(which may be less than the amount stated on the face hereof).
1.2. Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and
anticipates acquiring the shares of Common Stock issuable upon
exercise of the Warrant solely for its own account for investment
purposes and not with a view to or for resale of such securities
unless such resale has been registered with the Commission or an
applicable exemption is available therefor. At the time this Warrant
is exercised, the Company may require the Holder to state in the
Notice of Exercise such representations concerning the Holder as are
necessary or appropriate to assure compliance by the Holder with the
Securities Act.
1.3. Limitation on Exercise. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described
herein, such exercise rights shall be limited, solely to the extent
set forth in the Agreement as if such provisions were specifically
set forth
<PAGE>
herein. Specifically, the rights of the Holder to
exercise all or a portion of this Warrant are subject to the
limitation on exercise provisions specified in Section 10.1 of the
Agreement.
2. Delivery of Stock Certificates on Exercise. Within 5 business
days after the exercise of this Warrant, the Company at its expense
(including the payment by it of any applicable issue, stamp or
transfer taxes) will cause to be issued in the name of and delivered
to the Holder thereof, or, to the extent permissible hereunder, to
such other person as such Holder may direct, a certificate or
certificates for the number of fully paid and nonassessable shares
of Common Stock (or Other Securities) to which such Holder shall be
entitled on such exercise, plus, in lieu of any fractional share to
which such Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then applicable Purchase Price, together
with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such
exercise pursuant to Section 1 or otherwise which certificate or
certificates shall be without restrictive legend of any nature
provided that a registration statement has been declared effective
in accordance with the Registration Rights Agreement, and if a
registration statement has not been declared effective, then in
accordance with Rule 144.
3. Adjustment of Purchase Price In Certain Events. The Purchase
Price to be paid by the Holder upon exercise of this Warrant, and
the consideration to be received upon exercise of this Warrant,
shall be adjusted in case at any time or from time to time for
Capital Reorganizations as provided in the Agreement as if such
provisions were specifically set forth herein.
4. No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary
or appropriate in order to protect the rights of the Holder of this
Warrant against impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any
shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will take all such
action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable shares of
stock on the exercise of this Warrant, and (c) will not transfer all
or substantially all of its properties and assets to any other
person (corporate or otherwise), or consolidate with or merge into
any other person or permit any such person to consolidate with or
merge into the Company (if the Company is not the surviving person),
unless such other person shall expressly assume in writing and will
be bound by all the terms of this Warrant.
5. Intentionally Left Blank.
6. Notices of Record Date. In the event of
(a) any taking by the Company of a record of the Holders of
any class or securities for the purpose of determining the Holders
thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to receive
any other right, or
<PAGE>
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be
mailed to the Holder of this Warrant a notice specifying (i) the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, and (ii) the date
on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place, and the time, if any, as
of which the Holders of record of Common Stock (or Other Securities)
shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified
in such notice on which any action is to be taken.
7. Reservation of Stock Issuable on Exercise of Warrant.
The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of this Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the
exercise of this Warrant.
8. Exchange of Warrant. On surrender for exchange of
this Warrant, properly endorsed and in compliance with the
restrictions on transfer set forth in the legend on the face of this
Warrant, to the Company, the Company at its expense will issue and
deliver to or on the order of the Holder thereof a new Warrant of
like tenor, in the name of such Holder or as such Holder (on payment
by such Holder of any applicable transfer taxes) may direct, calling
in the aggregate on the face or faces thereof for the number of
shares of Common Stock called for on the face of the Warrant so
surrendered.
9. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this
Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any
such mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu thereof, a new
Warrant of like tenor.
10. Remedies. The Company stipulates that the remedies at
law of the Holder of this Warrant in the event of any default or
threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will
not be adequate, and that such terms may be specifically enforced by
a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Negotiability, etc. This Warrant is issued upon the
following terms, to all of which each Holder or owner hereof by the
taking hereof consents and agrees:
<PAGE>
(a) title to this Warrant may be transferred by endorsement and
delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery.
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each
prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide purchaser,
and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered Holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary; and
(d) notwithstanding the foregoing, this Warrant may not be sold,
transferred or assigned except pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable
exemption therefrom.
12. Registration Rights. The Company is obligated to
register the shares of Common Stock issuable upon exercise of this
Warrant in accordance with the terms of the Registration Rights
Agreement.
13. Notices. All notices and other communications from
the Company to the Holder of this Warrant shall be mailed by first
class registered or certified mail, postage prepaid, at such address
as may have been furnished to the Company in writing by such Holder
or, until any such Holder furnishes to the Company an address, then
to, and at the address of, the last Holder of this Warrant who has
so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may
be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant
shall be construed and enforced in accordance with and governed by
the internal laws of the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision.
[Signature Page Follows]
<PAGE>
DATED as of August 24, 1999.
LAKOTA TECHNOLOGIES, INC.
/s/Ken Honeyman
[Corporate Seal]
Attest:
By:/s/Howard Wilson
Secretary
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
(To be executed only upon exercise
of the Warrant in whole or in part)
To: LAKOTA TECHNOLOGIES, INC.
The undersigned registered Holder of the accompanying Warrant
hereby exercises such Warrant or portion thereof for, and purchases
thereunder, 1 shares of Common Stock (as defined in
such Warrant) and herewith makes payment therefor in the amount and
manner set forth below, as of the date written below. The
undersigned requests that the certificates for such shares of Common
Stock be issued in the name of, and delivered to,
whose address is .
The Exercise Price is paid by check or wire transfer to the
account of the Company in the amount of $ .
Upon exercise pursuant to this Notice of Exercise, the
Holder will be in compliance with the Limitation on Exercise (as
defined in the Securities Purchase Agreement pursuant to which this
Warrant was issued).
Dated:
(Name must conform to name of Holder as specified on
the face of the Warrant)
By:
Name:
Title:
Address of Holder:
Date of exercise:
1 Insert the number of shares of Common Stock as to which the
accompanying Warrant is being exercised. In the case of a partial
exercise, a new Warrant or Warrants will be issued and delivered,
representing the unexercised portion of the accompanying Warrant, to
the holder surrendering the same.
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT,
AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT,
OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE
AGREEMENT, DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN
ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT
LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER.
LAKOTA TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
No. 5 Warrant to Purchase 1,000,000 Shares
LAKOTA TECHNOLOGIES, INC., a Colorado corporation (the
"Company"), hereby certifies that, for value received, Zvi Y.
Zelikovitz or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time
during the period commencing September 1, 1999 and ending August 31,
2001 (the "Exercise Period"), at the Purchase Price(as hereinafter
defined), one million (1,000,000) shares of the fully paid and
nonassessable shares of Common Stock of the Company. The number and
character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
This Warrant (this "Warrant"; such term to include any
warrants issued in substitution therefor) is one of a series of five
warrants issued in connection with that certain Securities Purchase
Agreement (the "Agreement") dated of even date herewith among the
initial Holder hereof, the Company and certain other parties thereto.
Capitalized terms used herein not otherwise defined shall
have the meanings ascribed thereto in the Agreement. As used herein
the following terms, unless the context otherwise requires, have the
following respective meanings:
(a) The term "Agreement" refers to that certain Securities Purchase
Agreement dated the date herewith among the initial Holder hereof,
the Company and certain other parties hereto.
<PAGE>
(b) The term "Company" shall include Lakota Technologies, Inc. and
any corporation that shall succeed or assume the obligations of such
corporation hereunder.
(c) The term "Common Stock" includes (a) the Company's common
stock, no par value per share, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on
or after such date, the Holders of which shall have the right,
without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to
preference, and the Holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a
majority of directors of the Company (even though the right so to
vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(d) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other
person (corporate or otherwise) that the Holder of this Warrant at
any time shall be entitled to receive, or shall have received, on
the exercise of this Warrant, in lieu of or in addition to Common
Stock, or that at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3 or otherwise.
(e) The term "Purchase Price" means 50% of the lower of (i) the
closing bid price of a share of Common Stock as reported by the
National Association of Securities Dealers Electronic Bulletin Board
("OTC Bulletin Board") for the trading day immediately preceding the
date of receipt by the Company of Notice of Exercise, or (ii) the
closing bid price of the Common Stock as reported by the OTC
Bulletin Board on the trading day immediately preceding the date of
the Agreement subject, in each case, to equitable adjustments for
Capital Reorganizations as provided in the Agreements. If on any
trading date relevant to the determination of the Purchase Price the
Common Stock is not listed or traded on the OTC Bulletin Board, the
Purchase Price shall be determined by reference to the Nasdaq Stock
Market or the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, L.P., or
the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holders of a majority
in interest of Warrants being exercised for which the calculation of
the closing bid price is required in order to determine the Purchase
Price of such Warrants.
(f) The term "Registration Rights Agreement" refers to that certain
Registration Rights Agreement dated the date herewith among the
initial Holder hereof, the Company and certain other parties hereto.
<PAGE>
1. Exercise of Warrant.
1.1. Method of Exercise.
(a) This Warrant may be exercised in whole or in part (but not as
to a fractional share of Common Stock), at any time and from time to
time during the Exercise Period by the Holder hereof by delivery of
a notice of exercise (a "Notice of Exercise") in the form attached
hereto as Exhibit A via facsimile to the Company. Promptly
thereafter the Holder shall surrender this Warrant to the Company at
its principal office, accompanied by payment of the Purchase Price
multiplied by the number of shares of Common Stock for which this
Warrant is being exercised (the "Exercise Price"). Payment of the
Exercise Price shall be made by wire transfer to the account of the
Company. Upon exercise, the Holder shall be entitled to receive,
one or more certificates, issued in the Holder's name or in such
name or names as the Holder may direct, subject to the limitations
on transfer contained herein, for the number of shares of Common
Stock so purchased. The shares of Common Stock so purchased shall be
deemed to be issued as of the close of business on the date on which
the Company shall have received from the Holder payment of the
Exercise Price (the "Exercise Date").
(b) Notwithstanding anything to the contrary set forth herein, upon
exercise of all or a portion of this Warrant in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Warrant to the Company. Rather, records showing the
amount so exercised and the date of exercise shall be maintained on
a ledger in the form of Annex B attached hereto (a copy of which
shall be delivered to the Company or transfer agent with each Notice
of Exercise). It is specifically contemplated that the Company
hereof shall act as the calculation agent for all exercises of this
Warrant. In the event of any dispute or discrepancies, such records
maintained by the Company shall be controlling and determinative in
the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of
the provisions of this paragraph, following an exercise of a portion
of this Warrant, the number of shares of Common Stock represented by
this Warrant will be the amount indicated on Annex B attached hereto
(which may be less than the amount stated on the face hereof).
1.2. Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and
anticipates acquiring the shares of Common Stock issuable upon
exercise of the Warrant solely for its own account for investment
purposes and not with a view to or for resale of such securities
unless such resale has been registered with the Commission or an
applicable exemption is available therefor. At the time this Warrant
is exercised, the Company may require the Holder to state in the
Notice of Exercise such representations concerning the Holder as are
necessary or appropriate to assure compliance by the Holder with the
Securities Act.
1.3. Limitation on Exercise. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described
herein, such exercise rights shall be limited, solely to the extent
set forth in the Agreement as if such provisions were specifically
set forth
<PAGE>
herein. Specifically, the rights of the Holder to
exercise all or a portion of this Warrant are subject to the
limitation on exercise provisions specified in Section 10.1 of the
Agreement.
2. Delivery of Stock Certificates on Exercise. Within 5
business days after the exercise of this Warrant, the Company at its
expense (including the payment by it of any applicable issue, stamp
or transfer taxes) will cause to be issued in the name of and
delivered to the Holder thereof, or, to the extent permissible
hereunder, to such other person as such Holder may direct, a
certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock (or Other Securities) to which
such Holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then applicable
Purchase Price, together with any other stock or other securities
and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise
which certificate or certificates shall be without restrictive
legend of any nature provided that a registration statement has been
declared effective in accordance with the Registration Rights
Agreement, and if a registration statement has not been declared
effective, then in accordance with Rule 144.
3. Adjustment of Purchase Price In Certain Events. The
Purchase Price to be paid by the Holder upon exercise of this
Warrant, and the consideration to be received upon exercise of this
Warrant, shall be adjusted in case at any time or from time to time
for Capital Reorganizations as provided in the Agreement as if such
provisions were specifically set forth herein.
4. No Impairment. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the
Holder of this Warrant against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the
par value of any shares of stock receivable on the exercise of this
Warrant above the amount payable therefor on such exercise, (b) will
take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant, and
(c) will not transfer all or substantially all of its properties and
assets to any other person (corporate or otherwise), or consolidate
with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall expressly
assume in writing and will be bound by all the terms of this Warrant.
5. Intentionally Left Blank.
6. Notices of Record Date. In the event of
(a) any taking by the Company of a record of the Holders of any
class or securities for the purpose of determining the Holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
<PAGE>
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of
the Company to or consolidation or merger of the Company with or
into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be
mailed to the Holder of this Warrant a notice specifying (i) the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, and (ii) the date
on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place, and the time, if any, as
of which the Holders of record of Common Stock (or Other Securities)
shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified
in such notice on which any action is to be taken.
7. Reservation of Stock Issuable on Exercise of Warrant.
The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of this Warrant, all shares of
Common Stock (or Other Securities) from time to time issuable on the
exercise of this Warrant.
8. Exchange of Warrant. On surrender for exchange of
this Warrant, properly endorsed and in compliance with the
restrictions on transfer set forth in the legend on the face of this
Warrant, to the Company, the Company at its expense will issue and
deliver to or on the order of the Holder thereof a new Warrant of
like tenor, in the name of such Holder or as such Holder (on payment
by such Holder of any applicable transfer taxes) may direct, calling
in the aggregate on the face or faces thereof for the number of
shares of Common Stock called for on the face of the Warrant so
surrendered.
9. Replacement of Warrant. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any
such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement or security reasonably satisfactory in form and
amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
10. Remedies. The Company stipulates that the remedies at
law of the Holder of this Warrant in the event of any default or
threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will
not be adequate, and that such terms may be specifically enforced by
a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Negotiability, etc. This Warrant is issued upon the
following terms, to all of which each Holder or owner hereof by the
taking hereof consents and agrees:
<PAGE>
(a) title to this Warrant may be transferred by endorsement and
delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery.
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each
prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide purchaser,
and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered Holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice
to the contrary; and
(d) notwithstanding the foregoing, this Warrant may not be sold,
transferred or assigned except pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable
exemption therefrom.
12. Registration Rights. The Company is obligated to
register the shares of Common Stock issuable upon exercise of this
Warrant in accordance with the terms of the Registration Rights
Agreement.
13. Notices. All notices and other communications from
the Company to the Holder of this Warrant shall be mailed by first
class registered or certified mail, postage prepaid, at such address
as may have been furnished to the Company in writing by such Holder
or, until any such Holder furnishes to the Company an address, then
to, and at the address of, the last Holder of this Warrant who has
so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may
be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant
shall be construed and enforced in accordance with and governed by
the internal laws of the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision.
[Signature Page Follows]
<PAGE>
DATED as of August 24, 1999.
LAKOTA TECHNOLOGIES, INC.
/s/Ken Honeyman
[Corporate Seal]
Attest:
By:/s/Howard Wilson
Secretary
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
(To be executed only upon exercise
of the Warrant in whole or in part)
To: LAKOTA TECHNOLOGIES, INC.
The undersigned registered Holder of the accompanying Warrant
hereby exercises such Warrant or portion thereof for, and purchases
thereunder, 1 shares of Common Stock (as defined in
such Warrant) and herewith makes payment therefor in the amount and
manner set forth below, as of the date written below. The
undersigned requests that the certificates for such shares of Common
Stock be issued in the name of, and delivered to,
whose address is .
The Exercise Price is paid by check or wire transfer to the
account of the Company in the amount of $ .
Upon exercise pursuant to this Notice of Exercise, the
Holder will be in compliance with the Limitation on Exercise (as
defined in the Securities Purchase Agreement pursuant to which this
Warrant was issued).
Dated:
(Name must conform to name of Holder as specified on
the face of the Warrant)
By:
Name:
Title:
Address of Holder:
Date of exercise:
1 Insert the number of shares of Common Stock as to which the
accompanying Warrant is being exercised. In the case of a partial
exercise, a new Warrant or Warrants will be issued and delivered,
representing the unexercised portion of the accompanying Warrant, to
the holder surrendering the same.
ESCROW AGREEMENT
ESCROW AGREEMENT ("Escrow Agreement") dated as of August 24,
1999 by and among LAKOTA TECHNOLOGIES, INC., a Colorado
corporation, with a principal executive office at 2849 Paces Ferry
Road, Atlanta, Georgia 30339 ("Lakota"), and Y.L. Hirsch, Joshua
Heimlich, Sholem Liebenthal, Amram Rothman and Zvi Y. Zelikovitz
("Purchasers"), and Edward H. Burnbaum, Esq., having a principal
place of business at 300 East 42nd Street, New York, New York 10017
("Escrow Agent").
WHEREAS:
A. The Purchaser and Lakota entered into a Securities
Purchase Agreement dated as of August 24, 1999 ("Agreement"), in
which, inter alia, the Purchaser agreed to purchase Lakota's 8%
Convertible Notes Due August 24, 2001 ("Notes") and provide certain
warrants to the Purchaser ("Warrants");
B. Pursuant to the Agreement, the Notes, the Warrants
and other accompanying transaction documents and the Purchase Price
are to be delivered to the Escrow Agent to hold and administer in
accordance with the terms and conditions of this Escrow Agreement.
NOW THEREFORE, in consideration of the respective premises,
mutual covenants and agreements of the parties hereto, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Escrow Agent. Escrow Agent is hereby
appointed as escrow agent and the Escrow Agent hereby accepts such
appointment. The Escrow Agent shall act in accordance with the
instructions set forth in this Escrow Agreement and any further
instructions given to it by written instrument signed by Lakota and
Purchaser.
2. Initial Funding. On the date hereof, the Purchaser
shall deliver the Purchase Price to the Escrow Agent which in turn
shall transfer to Lakota the sum of USD$500,000 by wire transfer,
less any fees which Lakota has agreed to pay by virtue of a separate
agreement upon receipt of the fully executed Agreement, Notes,
Warrants and other accompanying transaction documents The Balance of
the Purchase Price, i.e., $250,000 less any fees agreed to by
Lakota, shall be held in escrow by the Escrow Agent ("Escrow Fund").
3. Issuance and Delivery of the Notes and
Resolution to the Escrow Agent
(a) On the date hereof, Lakota shall issue in the name of
the Purchaser and deposit with the Escrow Agent the Notes in the
face amount of $750,000 as provided in the Agreement.
(b) On the date hereof, Lakota shall deliver to the
Escrow Agent a resolution in the form annexed hereto as Exhibit A
("Resolution"), instructing Lakota's transfer agent, American Stock
Transfer, 1825 Lawrence Street, Suite 444, Denver, Colorado 80202
("Transfer Agent") to
<PAGE>
issue to Purchaser shares of Lakota's common stock registered in the name
of the Purchaser, without restrictive legend, if at the time the
Resolution is presented Lakota's registration statement has become
effective, or with restrictive legend, if the registration statement
has not been filed or has not become effective, as provided in the
Agreement, in an amount equal up to $750,000, or at some lesser amount
as the Escrow Agent, in his sole discretion may direct the Transfer
Agent, at a price per share which is in accordance with the terms and
conditions of the Notes, and providing that Lakota shall not change its
transfer agent from the Transfer Agent, without the express written
consent and directive of the Escrow Agent. The Resolution may be
delivered by the Escrow Agent to the Transfer Agent in the event that,
for any reason whatsoever, Lakota fails to honor any Notice of Conversion
as provided in the Notes and this Escrow Agreement, or Lakota commits a
material breach of the Agreement, the Notes, or this Escrow
Agreement, or in the event that Lakota changes or attempts to change
its transfer agent from the Transfer Agent without the express
written consent of the Purchaser. Upon written demand from the
Purchaser, Escrow Agent shall deliver the resolution to the Transfer
Agent as provided in this Section 3(b). Delivery of the Resolution
to the Transfer Agent and the issuance of shares by the Transfer
Agent in accordance with the Resolution shall not preclude the
Purchaser from exercising any and all other remedies available to
the Purchaser against Lakota for a breach of the Agreement, the
Notes, or this Escrow Agreement. Escrow Agent shall be entitled to
honor any such written demand from the Purchaser and shall ignore
any demand or instructions to the contrary from Lakota.
4. Custody and Disposition of the Notes. The Escrow Agent shall
hold and dispose of the Notes only in accordance with the terms of this
Escrow Agreement.
5. Release of Escrow Fund.
(a) When the Registration Statement is declared effective, as provided
in Section 10.2 of the Agreement and as mandated by the Registration
Rights Agreement between Lakota and the Purchasers executed and delivered
simultaneously with the Agreement, then Lakota shall give written notice
to the Purchasers advising of such effectiveness and shall demand, in
writing, that the Escrow Agent release the Escrow Fund to Lakota.
Provided Lakota is not otherwise in default under the Agreement, the
Notes and the other transaction documents issued, executed and delivered
in connection with the Agreement and the transactions contemplated thereunder,
the Escrow Agent shall release the Escrow Fund to Lakota into an account
or accounts designated by Lakota in writing.
(b) If Lakota fails to timely deliver conversion shares
to Purchasers, as required in the Agreement, then Lakota shall pay
Purchaser $150 per day for each day late in delivering such
conversion shares up to and including the 10th late day, and $500
per day for each day late in delivering the conversion shares after
the 10th late day which amounts shall be added to the outstanding
principal balances due under the Notes ("Liquidated Damages"). Any
Liquidated Damages incurred by Lakota shall be payable immediately
and in cash upon demand in writing by Purchasers, or its agent, to
Lakota.
(c) In the event that the Registration Statement is not declared effective
no later than January 1, 2000, and as required by the Agreement and the
Registration Rights Agreement
<PAGE>
executed in connection with the Agreement, then the Default Conversion
Price shall apply to all conversions done under the Notes pursuant to
said Section 4.1 and the Escrow Fund shall not be released to Lakota
until the registration statement has become effective. If the registration
statement has not become effective by March 1, 2000, then the Escrow
Fund shall be paid and transferred to the Purchasers at their
direction and neither the Purchasers not the Escrow Agent shall have
any further obligations under this Escrow Agreement and shall be
fully and completely released from any and all claims, demands, and
causes of action of any nature whatsoever thereafter.
6. Bankruptcy. In the event any proceeding under the
Bankruptcy Laws of the United States or any proceedings under any
state laws for the protection of debtors or creditors, are filed,
voluntarily or involuntarily, by or on behalf of Lakota, then the
Escrow Agent shall not pay the Escrow Fund to Lakota and shall
immediately pay and transfer the Escrow Fund to the Purchasers
without any further notice from the Purchasers or Lakota required.
7. Indemnification. Purchasers and Lakota agree,
jointly and severally to indemnify, defend and hold harmless the
Escrow Agent from and against any and all costs (including, without
limitation, legal fees and expenses), liabilities, claims and losses
arising out of or in connection with this Escrow Agreement or any
action or failure to act by the Escrow Agent under this Escrow
Agreement, except as provided in paragraph 8 below.
8. Concerning the Escrow Agent. To induce the Escrow
Agent to act hereunder, it is further agreed by the undersigned that:
(a) This Escrow Agreement expressly sets forth all the
duties of the Escrow Agent with respect to any and all matters
pertinent hereto. No implied duties or obligations on the part of
the Escrow Agent shall be read into this Escrow Agreement. The
Escrow Agent shall not be bound by the provisions of any agreement
among the other parties hereto except this Escrow Agreement.
(b) The Escrow Agent shall not be liable for any action
or failure to act in its capacity as Escrow Agent hereunder unless
such action or failure to act shall constitute willful misconduct on
the part of the Escrow Agent, in which case there shall be no
indemnification obligations.
(c) The Escrow Agent shall be entitled to rely upon any
order, judgment, certification, demand, notice, instrument or other
writing delivered to it hereunder without being required to
determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of the service thereof. The
Escrow Agent may act in reliance upon any instrument or signature
believed by it to be genuine and may assume, unless he has actual
knowledge to the contrary, that any person purporting to give notice
or receipt or advice or make any statement or execute any document
in connection with the provisions hereof has been duly authorized to
do so.
(d) The Escrow Agent may act pursuant to the advice of
counsel with respect to any matter relating to this Escrow Agreement
and shall not be liable for any action taken or omitted in
accordance with such advice, except as provided in paragraph 8(b)
above.
<PAGE>
(e) The Escrow Agent does not have any interest in the
Notes, Conversion Shares, or any other property deposited hereunder
but is serving as escrow holder only and having only possession
thereof, and is not charged with any duty or responsibility to
determine the validity or enforceability of any such documents.
(f) The Escrow Agent (and any successor Escrow Agent) may
at any time resign as such by delivering the Notes to any successor
Escrow Agent, jointly designated by the other parties hereto in
writing, or to any court of competent jurisdiction, whereupon the
Escrow Agent shall be discharged of and from any and all further
obligations arising in connection with this Escrow Agreement
thereafter. The resignation of the Escrow Agent will take effect on
the earlier of (a) the appointment of a successor (including a court
of competent jurisdiction) or (b) the day which is 30 days after the
date of delivery of its written notice of resignation to the other
parties hereto. If at that time the Escrow Agent has not received a
designation of a successor Escrow Agent, the Escrow Agent's sole
responsibility after that time shall be to safekeep the Notes and
not make delivery or disposition thereof until receipt of a
designation of successor Escrow Agent or a joint written disposition
instruction by the other parties hereto or a final order of a court
of competent jurisdiction.
(g) In the event of any disagreement among the parties
hereto resulting in adverse claims or demands being made in
connection with the Notes, or in the event that the Escrow Agent
otherwise determines that the Notes should be retained, then the
Escrow Agent may retain the Notes until the Escrow Agent shall have
received (i) a final nonappealable order of a court of competent
jurisdiction directing delivery of the Notes, or (ii) a written
agreement executed by the other parties hereto directing delivery of
the Notes, in which case the Escrow Agent shall promptly deliver the
Notes in accordance with such order or agreement. Any court order
referred to in (i) above shall be accompanied by a legal opinion by
counsel for the presenting party reasonably satisfactory to the
Escrow Agent to the effect that said court order is final and
nonappealable. The Escrow Agent shall act on such court order and
legal opinion without further question.
(h) This Escrow Agreement shall be binding upon and inure
solely to the benefit of the parties hereto and their respective
successors (including successors by way of merger) and assigns,
heirs, administrators and representatives and shall not be
enforceable by or inure to the benefit of any third party except as
provided in paragraph (g) with respect to a resignation by the
Escrow Agent.
(i) This Escrow Agreement may be modified by a writing
signed by all the parties hereto, and no waiver hereunder shall be
effective unless in a writing signed by the party to be charged.
(j) Lakota acknowledges and agrees that in any dispute
involving the Agreement,
Notes or this Escrow Agreement, that Escrow Agent may represent
Purchaser's interests and shall not have a conflict of interest due
to the fact that Escrow Agent is also acting as an escrow agent
pursuant to this Escrow Agreement and Lakota hereby waives any right
which it may have had to assert a conflict of interest in the
absence of this Section 8(j).
<PAGE>
9. Governing Law. This Escrow Agreement shall be
governed in all respects by the internal laws of the State of New
York. The parties agree to submit to the jurisdiction and venue of
any state or federal court in New York City having subject matter
jurisdiction over the matter. Service may be made by certified
mail, return receipt requested, to the parties at the addresses set
forth in paragraph 10 below, but the parties shall not be precluded
from making service in any other manner permitted by law.
10. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be delivered by
hand or sent by U.S. Express Mail, Fedex or some other reliable
overnight courier service for next day delivery. Each such notice
or other communication shall for all purposes of this Escrow
Agreement be treated as effective or having been given when
delivered if delivered personally, or, if sent by overnight express
mail service, 1 day after the same has been deposited with the U.S.
Postal Service, Fedex or the overnight courier. All such notices
must also be sent by facsimile on the same day to the parties as
follows:
If to Lakota :
Lakota Technologies, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, Georgia 30339
Att'n: Ken Honeyman
Fax: 770-433-9194
with a copy to:
Brian Lebrecht, Esq.
Law Offices of M. Richard Cutler, Esq.
610 Newport Center Drive
Suite 800
Newport Beach, California 92660
Fax: 949-719-1988
If to Purchasers:
c/o Sholem Liebenthal
Hachoma Hashlishit Street
E. Jerusalem, Israel
Fax No.: 011-972-2-628-3189
If to Escrow Agent:
Edward H. Burnbaum, Esq.
Lynch Rowin Novack Burnbaum & Crystal, P.C.
<PAGE>
300 East 42nd Street
New York, New York 10017
Fax: 212-986-2907
11. Counterparts. This Escrow Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the
same instrument.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Escrow Agreement to be duly executed and delivered, as of the day
and year first above written.
LAKOTA TECHNOLOGIES, INC.
By:
/s/Ken Honeyman
President
/s/Y.L. HIRSCH
/s/JOSHUA HEIMLICH
/s/SHOLEM LIEBENTHAL
/s/AMRAM ROTHMAN
/s/ZVI Y. ZELIKOVITZ
As to Escrow Only:
ESCROW AGENT:
EDWARD H. BURNBAUM, ESQ.
By:/s/Edward H. Burnbaum
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as
of August 24, 1999, among LAKOTA TECHNOLOGIES, INC., a Colorado
corporation (the "Company"), and the other undersigned parties
hereto (collectively, the "Purchasers").
1. INTRODUCTION. The Company and the Purchasers have
today executed that certain Securities Purchase Agreement (the
"Securities Purchase Agreement"), pursuant to which the Company has
agreed, among other things, to issue an aggregate of its $750,000
principal amount of 8% Convertible Notes due August 24, 2001 (the
"Notes") to the Purchasers. The Notes are convertible into an
indeterminable number of shares (the "Conversion Shares") of the
Company's common stock, no par value per share (the "Common Stock"),
pursuant to the terms of the Notes. In addition, pursuant to the
terms of the Securities Purchase Agreement and the transactions
contemplated thereby, the Company has issued to the Purchasers
Common Stock Purchase Warrants exercisable for an aggregate of
5,000,000 shares of Common Stock (the "Warrant Shares"). The number
of Conversions Shares and Warrant Shares is subject to adjustment
upon the occurrence of stock splits, recapitalizations and similar
events occurring after the date hereof. The Conversion Shares and
the Warrant Shares are collectively herein referred to as the
"Securities." Certain capitalized terms used in this Agreement are
defined in Section 3 hereof; references to sections shall be to
sections of this Agreement.
2. REGISTRATION UNDER SECURITIES ACT.
2.1 MANDATORY REGISTRATION. As soon as practicable after the date
hereof, the Company shall prepare and file a registration statement
on Form SB-2 or such other appropriate registration form of the
Commission (the "Registration Statement") to effect the registration
under the Securities Act of all, but not less than all, of the
Registrable Securities to permit the public disposition of such
Registrable Securities in accordance with the intended method or
methods of disposition specified by the Purchasers and their
permitted assigns or transferees (collectively, the "Holders"); provided,
however, such intended method of disposition shall not include an
underwritten offering of the Registrable Securities. The Company
shall use its best efforts to cause the Registration Statement to be
declared effective by the Commission. The Company will pay all
Registration Expenses in connection with the registration of the
Registrable Securities.
2.2 REGISTRATION PROCEDURES. In connection with the
registration of the Registrable Securities under the Securities Act
as provided in Section 2.1 the Company shall:
(i) prepare and file with the Commission as soon
as practicable after the date hereof the Registration Statement
(including such audited financial statements as may be required by
the Securities Act or the rules and regulations promulgated
thereunder) and thereafter use its best efforts to cause such
registration statement to be declared effective by the Commission;
(ii) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the
prospectus used in connection therewith as may be necessary to keep
the Registration Statement effective and to comply with the
provisions of the
<PAGE>
Securities Act with respect to the disposition of
all Registrable Securities covered by the Registration Statement,
until the earlier to occur of two (2) years after the date of this
Agreement (subject to the right of the Company to suspend the
effectiveness thereof for not more than 60 consecutive days or an
aggregate of 120 days in such two (2) years period) or such time as
all of the securities which are the subject of the Registration
Statement cease to be Registrable Securities (such period, in each
case, the "Registration Maintenance Period");
(iii) furnish to each seller of Registrable
Securities covered by the Registration Statement such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus contained in the
Registration Statement (including each preliminary prospectus and
any summary prospectus) and any other prospectus filed under Rule
424 under the Securities Act, in conformity with the requirements of
the Securities Act, and such other documents, as such seller may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by such seller;
(iv) use its reasonable efforts to register or
qualify all Registrable Securities and other securities covered by
the Registration Statement under such other securities laws or blue
sky laws as any seller thereof shall reasonably request, to keep
such registrations or qualifications in effect for so long as the
Registration Statement remains in effect, and take any other action
which may be reasonably necessary to enable such seller to
consummate the disposition in such jurisdictions of the securities
owned by such seller, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all Registrable
Securities covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Registrable Securities;
(vi) notify each seller of the Registrable
Securities covered by the Registration Statement promptly and
confirm such advice in writing promptly after the Company has
knowledge thereof:
(A) when the Registration Statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment to
the Registration Statement has been filed, and, with respect to the
Registration Statement or any post-effective amendment thereto, when
the same has become effective;
(B) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus or for
additional information;
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings by any Person for that purpose; and
<PAGE>
(D) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for such
purpose;
(vii) notify each seller of Registrable Securities
covered by the Registration Statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at
the request of any such seller promptly prepare and furnish to such
seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such
prospectus shall not include an 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 in the light
of the circumstances then existing;
(viii) use its best efforts to obtain the withdrawal
of any order suspending the effectiveness of the Registration
Statement at the earliest possible moment;
(ix) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least
twelve months, but not more than eighteen months, beginning with the
first full calendar month after the effective date of the
Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(x) enter into such agreements and take such other
actions as the sellers of the Registrable Securities covered by the
Registration Statement shall reasonably request in writing (at the
expense of the requesting or benefitting sellers) in order to
expedite or facilitate the disposition of such Registrable
Securities; and
(xi) use its best efforts to list all Registrable
Securities covered by the Registration Statement on any securities
exchange (if any) on which any of the Registrable Securities are
then listed.
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish the
Company such information regarding such seller and the distribution
of such securities as the Company may from time to time reasonably
request in writing.
The Company will not file any registration statement pursuant
to Section 2.1, or amendment thereto or any prospectus or any
supplement thereto (including such documents incorporated by
reference and proposed to be filed after the initial filing of the
Registration Statement) to which a seller of Registrable Securities
shall reasonably object, provided that the Company may file such
document in a form required by law or upon the advice of its counsel.
<PAGE>
The Company represents and warrants to each holder of
Registrable Securities that it has obtained all necessary waivers,
consents and authorizations necessary to execute this Agreement and
consummate the transactions contemplated hereby other than such
waivers, consents and/or authorizations specifically contemplated by
the Securities Purchase Agreement.
Each Purchaser agrees that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in
subdivision (vii) of this Section 2.2, such Purchaser will forthwith
discontinue such Purchaser's disposition of Registrable Securities
pursuant to the Registration Statement relating to such Registrable
Securities until such Purchaser's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii)
of this Section 2.2 and, if so directed by the Company, will deliver
to the Company all copies, other than permanent file copies, then in
such Purchaser's possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice.
2.3 PREPARATION; REASONABLE INVESTIGATION. In connection
with the preparation and filing of the Registration Statement under
the Securities Act pursuant to this Agreement, the Company will give
the holders of Registrable Securities registered under the
Registration Statement, the opportunity to participate in the
preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its
books and records and such opportunities to discuss the business of
the Company with its officers and the independent public accountants
who have certified its financial statements as shall be necessary to
conduct a reasonable investigation within the meaning of the
Securities Act.
2.4 INDEMNIFICATION. (A) INDEMNIFICATION BY THE
COMPANY. The Company will, and hereby does agree to, indemnify and
hold harmless the holder of any Registrable Securities covered by
the Registration Statement, its directors and officers, and each
other Person, if any, who controls such holder within the meaning of
the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which such holder or any such
director or officer or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any preliminary
prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and the Company will reimburse such holder and each such
director, officer and controlling person for any legal or any other
expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action
or proceeding, provided that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expense arises out
of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement,
any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
holder stating that it is for use in the preparation thereof and,
provided further that the Company shall not be liable to any Person
to the extent that any such loss,
<PAGE>
claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of
such Person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, within
the time required by the Securities Act to the Person asserting the
existence of an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation
of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus or an
amendment or supplement thereto. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on
behalf of such holder or any such director, officer or controlling
person and shall survive the transfer of such securities by such
holder.
(B) INDEMNIFICATION BY THE SELLERS. Each Purchaser
agrees, and any other seller of Registrable Securities must agree,
as a condition to including any Registrable Securities in the
Registration Statement, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of
this Section 2.4) the Company, each director of the Company, each
officer of the Company and each other Person, if any, who controls
the Company within the meaning of the Securities Act, with respect
to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement
or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such Purchaser
or other seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement. This
indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such
director, officer or controlling person and shall survive the
transfer of such securities by the Purchaser or other such seller.
(C) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding
subdivisions of this Section 2.4, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such
action, provided that the failure of any indemnified party to give
notice as provided herein shall not relieve the indemnifying party
of its obligations under the preceding subdivisions of this Section
2.4, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party shall be entitled to participate in
and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party
to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement of any such action which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from
all liability, or a covenant not
<PAGE>
to sue, in respect to such claim or
litigation. No indemnified party shall consent to entry of any
judgment or enter into any settlement of any such action the defense
of which has been assumed by an indemnifying party without the
consent of such indemnifying party.
(D) OTHER INDEMNIFICATION. Indemnification similar to
that specified in the preceding subdivisions of this Section 2.4
(with appropriate modifications) shall be given by the Company and
each seller of Registrable Securities with respect to any required
registration or other qualification of securities under any Federal
or state law or regulation of any governmental authority, other than
the Securities Act.
(E) INDEMNIFICATION PAYMENTS. The indemnification
required by this Section 2.4 shall be made by periodic payments of
the amount thereof during the course of the investigation or
defense, as and when bills are received or expense, loss, damage or
liability is incurred.
(F) CONTRIBUTION. If the indemnification provided for in
the preceding subdivisions of this Section 2.4 is unavailable to an
indemnified party in respect of any expense, loss, claim, damage or
liability referred to therein, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
expense, loss, claim, damage or liability (i) in such proportion as
is appropriate to reflect the relative benefits received by the
Company on the one hand and the holder on the other from the
distribution of the Registrable Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault
of the Company on the one hand and of the holder on the other in
connection with the statements or omissions which resulted in such
expense, loss, damage or liability, as well as any other relevant
equitable considerations. The relative benefits received by the
Company on the one hand and the holder on the other in connection
with the distribution of the Registrable Securities shall be deemed
to be in the same proportion as the total net proceeds received by
the Company from the initial sale of the Registrable Securities by
the Company to the Purchasers bear to the gain, if any, realized by
all selling holders participating in such offering. The relative
fault of the Company on the one hand and of the holder, on the other
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission to
state a material fact relates to information supplied by the Company
or by the holder and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement
or omission, provided that the foregoing contribution agreement
shall not inure to the benefit of any indemnified party if
indemnification would be unavailable to such indemnified party by
reason of the provisions contained in the first sentence of
subdivision (a) of this Section 2.4, and in no event shall the
obligation of any indemnifying party to contribute under this
subdivision (f) exceed the amount that such indemnifying party would
have been obligated to pay by way of indemnification if the
indemnification provided for under subdivisions (b) of this Section
2.4 had been available under the circumstances.
The Company and the holders of Registrable Securities agree
that it would not be just and equitable if contribution pursuant to
this subdivision (f) were determined by pro rata allocation (even if
the holders were treated as one entity for such purpose) or by any
other method of allocation that
<PAGE>
does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in
the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth in the preceding sentence and
subdivision (c) of this Section 2.4, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (f), no
holder of Registrable Securities shall be required to contribute any
amount in excess of the amount by which the net proceeds received by
such holder from the sale of Registrable Securities exceeds the
amount of any damages that such holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or
omission. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
3. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
"Commission": The Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock": As defined in Section 1.
"Company": As defined in the introductory paragraph of this
Agreement.
"Conversion Shares": As defined in Section 1.
"Exchange Act": The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Notes": As defined in Section 1, such term to include any
securities issued in substitution of or in addition to such Notes.
"Person": A corporation, association, partnership,
organization, business, individual, governmental or political
subdivision thereof or a governmental agency.
"Purchasers": As defined in the introductory paragraph of
this Agreement.
"Registrable Securities": The Securities and any securities
issued or issuable with respect to such Securities by way of stock
dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other
reorganization or otherwise. Once issued such securities shall cease
to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective
under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they
shall have been distributed to the public pursuant to Rule 144 (or
any successor provision) under the Securities Act, (c) they shall
have been otherwise transferred, new certificates for them not
bearing a legend
<PAGE>
restricting further transfer shall have been
delivered by the Company and subsequent disposition of them shall
not require registration or qualification of them under the
Securities Act or any similar state law then in force, (d) they
shall have ceased to be outstanding, (e) on the expiration of the
Registration Maintenance Period or (f) any and all legends
restricting transfer thereof have been removed in accordance with
the provisions of Rule 144(k) (or any successor provision) under the
Securities Act.
"Registration Expenses": All expenses incident to the
Company's performance of or compliance with this Agreement,
including, without limitation, all registration, filing and listing
fees (if any) ,all fees and expenses of complying with securities or
blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits
required by or incident to such performance and compliance, premiums
and other costs of policies of insurance of the Company against
liabilities arising out of the public offering of the Registrable
Securities being registered, but excluding underwriting discounts
and commissions and transfer taxes, if any.
"Registration Maintenance Period": As defined in Section 2.2.
"Securities Act": The Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
"Securities Purchase Agreement": As defined in Section 1.
"Warrant Shares": As defined in Section 1.
4. RULE 144. The Company shall timely file the reports required
to be filed by it under the Securities Act and the Exchange Act
(including but not limited to the reports under Sections 13 and
15(d) of the Exchange Act referred to in subparagraph (c) of Rule
144 adopted by the Commission under the Securities Act) and the
rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, will, upon the
request of any holder of Registrable Securities, make publicly
available other information) and will take such further action as
any holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such holder to sell
Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time to
time, or (b) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written
statement as to whether it has complied with the requirements of
this Section 4.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and
the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the
Company shall have obtained the written consent to such amendment,
action or omission to act, of the holder or holders of the sum of
the 51% or more of the shares of (i) Registrable Securities issued
at such time, plus (ii) Registrable Securities issuable upon
exercise or conversion of the Securities then constituting
derivative securities (if such Securities were not fully exchanged or
<PAGE>
converted in full as of the date such consent is sought). Each
holder of any Registrable Securities at the time or thereafter
outstanding shall be bound by any consent authorized by this Section
5, whether or not such Registrable Securities shall have been marked
to indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any
Registrable Securities are held by a nominee for the beneficial
owner thereof, the beneficial owner thereof may, at its election, be
treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable
Securities pursuant to this Agreement or any determination of any
number or percentage of shares of Registrable Securities held by any
holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so
elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership of such Registrable
Securities.
7. NOTICES. Except as otherwise provided in this Agreement, all
notices, requests and other communications to any Person provided
for hereunder shall be in writing and shall be given to such Person
(a) in the case of a party hereto other than the Company, addressed
to such party in the manner set forth in the Securities Purchase
Agreement or at such other address as such party shall have
furnished to the Company in writing, or (b) in the case of any other
holder of Registrable Securities, at the address that such holder
shall have furnished to the Company in writing, or, until any such
other holder so furnishes to the Company an address, then to and at
the address of the last holder of such Registrable Securities who
has furnished an address to the Company, or (c) in the case of the
Company, at the address set forth on the signature page hereto, to
the attention of its President, or at such other address, or to the
attention of such other officer, as the Company shall have furnished
to each holder of Registrable Securities at the time outstanding.
Each such notice, request or other communication shall be effective
(i) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as
aforesaid or (ii) if given by any other means (including, without
limitation, by fax or air courier), when delivered at the address
specified above, provided that any such notice, request or
communication shall not be effective until received.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto. In
addition, and whether or not any express assignment shall have been
made, the provisions of this Agreement which are for the benefit of
the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent holder of any
Registrable Securities. Each of the Holders of the Registrable
Securities agrees, by accepting any portion of the Registrable
Securities after the date hereof, to the provisions of this
Agreement including, without limitation, appointment of the Sellers'
Representative to act on behalf of such Holder pursuant to the terms
hereof which such actions shall be made in the good faith discretion
of the Sellers' Representative and be binding on all persons for all
purposes.
<PAGE>
9. DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for
reference only and shall not limit or otherwise affect the meaning
hereof.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE
GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO
THE PRINCIPLES OF CONFLICTS OF LAWS.
11. COUNTERPARTS. This Agreement may be executed by facsimile
and may be signed simultaneously in any number of counterparts, each
of which shall be deemed an original, but all such counterparts
shall together constitute one and the same instrument.
12. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the Company and each other party
hereto relating to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter.
13. SEVERABILITY. If any provision of this Agreement, or the
application of such provisions to any Person or circumstance, shall
be held invalid, the remainder of this Agreement, or the application
of such provision to Persons or circumstances other than those to
which it is held invalid, shall not be affected thereby.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed and delivered by their respective officers thereunto
duly authorized as of the date first above written.
LAKOTA TECHNOLOGIES, INC.
By:/s/Ken Honeyman
PURCHASERS
/s/Y.L. HIRSCH
/s/SHOLEM LIEBENTHAL
/s/AMRAM ROTHMAN
/s/JOSHUA HEIMLICH
/s/ZVI Y. ZELIKOVITZ
GUARANTY
This GUARANTY is made as of the day of August, 1999 by
Robert (Ken) Honeyman ("Guarantor") to and for the benefit of Y.L.
Hirsch, Sholem Liebenthal, Amram Rothman, Joshua Heimlich, and Zvi
Y. Zelikovitz ("Holders").
WHEREAS:
A. The Holders have purchased from Lakota Technologies,
Inc. ("Company"), $750,000 aggregate principal amount of the
Company's 8% Convertible Notes due August , 2001 ("Convertible
Notes");
B. The Convertible Notes will be convertible into shares
of the Company's common stock, par value $.01 per share
("Common Stock"); and
C. In order to induce the Holders to purchase the Convertible Notes,
Guarantor has agreed to guarantee the (i) obligations of the Company
under the Convertible Notes and the related transaction documents,
including but not limited to the Securities Purchase Agreement
("Agreement"), the (ii) Company's obligations to issue to the
Holders warrants to purchase shares of Common Stock of the Company
and certain registration rights with respect to shares of Common
Stock issuable (A) as interest under, and upon conversion of, the
Convertible Notes (collectively, the "Conversion Shares"), and (B)
upon exercise of the Warrants ("Warrant Shares"), all as set forth
in the Registration Rights Agreement ("Registration Rights
Agreement") executed simultaneously with the Agreement.
NOW, THEREFORE, in consideration of the foregoing premises
and the covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor hereby agrees as follows:
1. The Guarantor hereby:
(a) Unconditionally and absolutely, irrevocably
guarantees the due and punctual payment of the principal of the
Convertible Notes, the interest thereon and any other monies due or
which may become due thereon, the performance of the Company's
obligations under the Agreement, the Registration Rights Agreement,
and the Company's obligation to issue the Warrant Shares upon
exercise by the Holders (collectively "Obligations");
(b) Waive diligence, presentment, protest, notice of
dishonor, demand for payment, extension of time of payment, notice
of acceptance of this guaranty, notice of nonpayment at maturity and
notices of every kind, and consents to any and all forbearance and
extensions of the time of payment of the Convertible Notes, it being
the intention and agreement hereof that the Guarantor shall remain
liable as principal, to and until the Obligations are fully repaid
to the Holders and the Obligations are fully performed and observed
by the Company, notwithstanding any act, omission or thing which
might otherwise operate as a legal or equitable discharge of the
Company or the Guarantor;
<PAGE>
(c) Agree that the Guarantor shall have no right of subrogation
whatsoever with respect to the Obligations;
(d) Agree that this Guaranty may be enforced by the
Holders without first resorting to or exhausting any other security
or collateral, or without first having recourse to the Convertible
Notes, or without first commencing an action against the Company and
agrees that this is a guaranty of payment, not collection; provided,
however, that nothing contained herein shall prevent the Holders
from suing on the Convertible Notes or suing the Company or
exercising his rights pursuant to a certain Stock Pledge and
Security Agreement executed and delivered simultaneously with this
Guaranty ("Stock Pledge and Security Agreement"), and if such rights
are exercised only the net proceeds therefrom, after deduction of
all charges and expenses of every kind and nature whatsoever due
thereunder, shall be applied in reduction of the amount due under
the Convertible Notes and the Holders shall not be required to
institute or prosecute proceedings to cover any deficiency as a
condition of any payment hereunder or enforcement hereof.
(e) Agree to pay the Holders' attorneys' fees and all
costs and other expenses which the Holders reasonably expend or
incur in collecting or compromising the Obligations or in enforcing
this Guaranty against the Guarantor, whether or not a lawsuit is
filed ("Enforcement Costs").
(f) Agrees that this Guaranty shall inure to the benefit
of, and be enforced by, the Holders and any subsequent holders of
the Convertible Notes and shall be binding upon and enforceable
against the Guarantor and Guarantor's legal representatives,
successors and/or assigns.
(g) Agree that this Guaranty shall not be discharged,
limited, impaired or affected by:
(i) The existence or continuance of any obligation
on the part of the Company under or with respect to the Convertible
Notes, the Agreement, the Registration Rights Agreement or the
Warrant Shares;
(ii) The power or authority of the Company to issue the Convertible
Notes or the power or authority of the Company to execute,
acknowledge or deliver the Agreement, the Registration Rights
Agreement or the Warrant Shares;
(iii) Any defenses whatsoever that the Company may
or might have to the payment of the Convertible Notes or to the
performance or observance of any of the Obligations;
(iv) The existence or non-existence of the Company as a legal entity;
(v) Any limitation or exculpation of liability of the Company that may be
expressed or implied in the Convertible Notes, the Agreement or the
Registration Rights Agreement;
(vi) The transfer or subordination of all or any part of the collateral
described in the Stock Pledge and Security Agreement;
<PAGE>
(vii) Any failure, neglect or omission on part of the Holders to
realize or protect any of the collateral or security given in the
Stock Pledge and Security Agreement, or to exercise any lien upon or
right of appropriation of monies, credits or property of the Company
toward payment of the Convertible Notes or performance of the
Obligations;
(viii) Any defense (other than the full performance of the Obligations)
that the Guarantor may or might have to the Guarantor's
undertakings, liabilities and obligations hereunder, each and every
such defense being hereby waived by the undersigned Guarantor; and
(ix) Any proceedings with respect to the voluntary or involuntary
liquidation, dissolution, receiverships, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization,
arrangement, imposition or readjusting of, or other similar
proceedings affecting the Company, it being expressly understood and
agreed that no such proceeding shall affect, modify, limit or
discharge the liability or obligation of the Guarantor in any manner
whatsoever, and that the Guarantor shall continue to remain liable
under this Guaranty to the same extent and in the same manner as if
such proceedings had not been instituted.
2. There shall be no release or discharge of the
Guarantor, unless and until the Convertible Notes and Enforcement
Costs, if any, have been fully paid or the Obligations fully
performed, as the case may be.
3. All references herein to the Company shall be deemed
to include any successor or successors, whether immediate or remote,
to such corporation or partnership.
4. Wherever possible each provision of this Guaranty
shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Guaranty shall be
prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining
provisions of this Guaranty.
5. No delay on the part of the Holders in the exercise
of any right or remedy shall operate as a waiver thereof, and no
single or partial exercise by the Holders of any right or remedy
shall preclude other or further exercise of any other right or
remedy; nor shall any modification, termination, discharge or waiver
of any of the provisions there be binding upon the Holders except as
expressly set forth in a writing duly signed and delivered on behalf
of the Holders.
6. The provisions hereof shall be binding upon the
Guarantor and upon his heirs, legal representatives, successors
and/or assigns, and shall inure to the benefit of the Receiver and
its successors and/or assigns.
IN WITNESS WHEREOF, the Guarantors have executed this instrument the
day and year first above written.
GUARANTOR:
<PAGE>
/s/Ken Honeyman
ROBERT (KEN) HONEYMAN
ACKNOWLEDGMENT
STATE OF GEORGIA )
) ss.:
COUNTY OF )
On August , 1999, before me personally appeared Robert
(Ken) Honeyman, the person described in the foregoing Guaranty,
who signed the Guaranty in my presence and acknowledged to me that
he signed the same.
/s/NOTARY PUBLIC
STOCK PLEDGE AND SECURITY AGREEMENT
Stock Pledge and Security Agreement dated as of the 24th day
of August, 1999 by ROBERT (KEN) HONEYMAN ("Pledgor") to and for the
benefit of Y.L. Hirsch, Sholem Liebenthal, Amram Rothman, Joshua
Heimlich, and Zvi Y. Zelikovitz ("Pledgees").
WHEREAS:
A. The Pledgees have purchased from Lakota Technologies, Inc.
("Company"), $750,000 aggregate principal amount of the Company's
8% Convertible Notes due August 24, 2001 ("Convertible Notes");
B. The Convertible Notes will be convertible into shares
of the Company's common stock, no par value per share ("Common Stock");
C. In order to induce the Pledgees to purchase the Convertible Notes,
Pledgor, in a Guaranty ("Guaranty") executed simultaneously with
this Stock Pledge and Security Agreement, has agreed to guarantee
the (i) obligations of the Company under the Convertible Notes and
the related transaction documents, including but not limited to the
Securities Purchase Agreement ("Agreement"), the (ii) Company's
obligations to issue to the Pledgees warrants to purchase shares of
Common Stock of the Company and certain registration rights with
respect to shares of Common Stock issuable (A) as interest under,
and upon conversion of, the Convertible Notes (collectively, the
"Conversion Shares"), and (B) upon exercise of the Warrants
("Warrant Shares"), all as set forth in the Registration Rights
Agreement ("Registration Rights Agreement") executed simultaneously
with the Agreement; and
D. Pledgor has agreed to deliver this Stock Pledge and Security Agreement as
security for the performance of the Guaranty, and 1,958,000 shares
of Common Stock owned by Pledgor in the Company, which shares are
100% owned by Pledgor ("Shares").
NOW THEREFORE, in consideration of the premises and in order
to induce the Pledgees to purchase the Convertible Notes and enter
in to the Agreement and Registration Rights Agreement , Pledgor
hereby agrees as follows:
I. Stock Pledge and Security Interest
1.1 Pledge. Pledgor hereby pledges as security for the repayment of the
Obligations, as defined below, and grants a security interest in,
all of their right, title and interest in and to the Shares.
1.2 Security for Obligations. This Stock Pledge and Security Agreement
secures the payment of all Obligations under the Convertible Notes, the
Agreement, the Registration Rights Agreement, the Warrant Shares and
this Stock Pledge and Security Agreement. Until payment,
performance and discharge in full of all Obligations, the pledge and
security interest granted under
<PAGE>
this Stock Pledge and Security Agreement in the Shares shall continue in
full force and effect. "Obligations" shall mean :
(i) the due and punctual payment of (a) the principal and interest
under the Convertible Notes when due, whether at maturity, by acceleration,
or otherwise, and/or the Company's obligation to convert the
Convertible Notes into Common Stock as set forth therein and upon
the terms and conditions set forth therein, and (ii) any and all
fees and monetary obligations of the Company under the Agreement;
(ii) payment when due of any other monetary obligations which are
due and owing under the Convertible Notes, the Agreement, the Registration
Rights Agreement or this Stock Pledge and Security Agreement;
(iii) any and all costs and expenses of the Pledgees incurred in
enforcing the Convertible Notes, the Agreement, the Registration
Rights Agreement, the Warrant Shares or this Stock Pledge and Security
Agreement with respect to any action which may be taken by the Pledgees in
enforcing payment of the Obligations or in selling or taking
possession of the Shares;
(iv) the Obligations of the Company with regard to causing a registration
statement, as provided in the Registration Rights Agreement, to be
declared effective no later than December 1, 1999; and
(v) the Obligations of the Company to issue its registered shares of Common
Stock in accordance with the terms and conditions of the Warrants
issued in connection with the Agreement and the Convertible Notes.
1.3 Pledgor Remains Liable. Anything herein to the
contrary notwithstanding, (i) Pledgor shall remain liable under the
Guaranty for the Obligations to the same extent as if this Stock
Pledge and Security Agreement had not been executed, and (ii) the
exercise by the Pledgees of any of the rights hereunder shall not
release Pledgor from any of his duties or Obligations under the
Guaranty. Except as expressly set forth herein, the Pledgees shall
have no obligation nor liability with respect to the Shares by
reason of this Stock Pledge and Security Agreement, nor shall the
Pledgees be obligated to perform any of the obligations or duties of
a shareholder, or to take any action on behalf of any of the
Company in the event any of the rights and remedies under this Stock
Pledge and Security Agreement are exercised.
1.4 Negative Covenants. Pledgor shall not, without the prior
written consent of the Pledgees sell, assign (by operation of law
or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Shares, or create or permit to exist any senior
or pari passu lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Shares, except for the
security interests contemplated in this Stock Pledge and Security
Agreement.
1.5 Delivery of Shares.
(a) Simultaneously with the execution of this Stock Pledge and Security
<PAGE>
Agreement, Pledgor shall deliver or cause the delivery of
certificates representing all of the Shares to the Pledgees or their
designative representative or representatives.
(b) Delivery of the Shares pursuant to this Section 1.5, shall be
considered for all purposes as delivery to the Pledgees, and the
Pledgees' security interest in and to such Shares shall be deemed
perfected by such delivery.
(c) Upon performance in full of the Obligations, the Pledgees shall
deliver the Shares to Pledgor in accordance with Pledgor's written
instructions.
1.6 Delivery of Financing Statement. Simultaneously with the
execution of this Stock Pledge and Security Agreement, Pledgor
shall execute and deliver to the Pledgees UCC-1 Financing Statements
covering the Shares for filing and recording in the county and
state of Pledgor's residence ("Financing Statements"), and upon
such delivery the Pledgees are authorized by Pledgor to file and
record the Financing Statements. As long as this Stock Pledge and
Security Agreement is in effect, Pledgor shall execute and deliver
to the Pledgees, as reasonably requested by the Pledgees, any and all
additional Financing Statements, continuations or extensions thereof, which
would permit the Pledgees to maintain, preserve and perfect the
security interest granted under this Stock Pledge and Security
Agreement, and in the event Pledgor fails, for any reason, to honor
such reasonable request, the Pledgees are hereby granted a power of
attorney to execute and deliver such additional Financing
Statements, continuations or extensions thereof on behalf of Pledgor.
1.7 Delivery of Stock Powers. Simultaneously with the execution of
this Stock Pledge and Security Agreement, Pledgor shall deliver to the
Pledgees, in share and certificate denominations specified by the
Pledgees, stock powers signed and executed by the Pledgor, on a form
of stock power presently used by the Company's stock transfer agent,
having medallion guarantees and with any other indicia of action
required by the transfer agent, sufficient to vest in Pledgees upon
presentation to the transfer agent, transfer and title to the Shares
without any further action required by the Pledgor.
1.8 Legal Opinion. Simultaneously with the execution of this
Stock Pledge and Security Agreement, Pledgor shall deliver to the
Pledgees, in a form acceptable to counsel for the Pledgees, the opinion
of his counsel and counsel to the Company, if different, that the Shares,
upon exercise by the Pledgees of their pledge and security interest
pursuant to this Stock Pledge and Security Agreement, will be issued
by the transfer agent without any restriction or restrictive legend
of any nature and shall be freely tradeable and saleable by the
Pledgees if they so choose at the time of issuance.
II. Representations and Warranties
2.1 Representations and Warranties. Pledgor hereby represents and
warrants to the Pledgees as follows:
<PAGE>
(a) Pledgor owns the Shares free and clear of any
and all liens and encumbrances of any nature whatsoever, and has the
right, full power and authority to execute and deliver this Stock
Pledge and Security Agreement and the Guaranty and all other
documents, agreements, certificates and instruments to be delivered
by them pursuant thereto and to perform the transactions
contemplated herein.
(b) Pledgor has never previously (i) sold, transferred, assigned, or given
options or warrants to the Shares, nor (ii) encumbered all or any
portion of the Shares except as set forth in this Stock Pledge and
Security Agreement.
(c) The execution and delivery of this Stock Pledge and Security
Agreement does not, and the consummation of the transactions
contemplated hereby, will not, conflict with, or result in any
violation or default (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or
acceleration of any obligation or to a loss of a material benefit,
under any provision of the Company's Articles of Incorporation, and
any amendments thereto, by-laws or stockholders agreement, if any,
or any material mortgage, indenture, pledge, instrument or any
agreement of any nature of the Company, or any judgment, decree,
statute, law, ordinance, rule or regulation applicable to the
Company whether by contract and agreement or by virtue of operation
of law.
(d) The execution and delivery of this Stock Pledge and
Security Agreement is a valid and binding agreement on the part of
Pledgor in accordance with its terms.
(e) No consent of any other person or entity and no authorization,
approval or action by, and no notice or filing with any governmental
authority or regulatory body is required for (i) the grant by
Pledgor of the pledge and security interest granted herein or for
the execution, performance or delivery of this Stock Pledge and
Security Agreement by Pledgor, or (ii) the perfection and
maintenance of the pledge and security interest created hereby.
(f) There are no conditions precedent to the effectiveness of this
Stock Pledge and Security Agreement that have not been satisfied or
waived.
(g) This Stock Pledge and Security Agreement creates a valid
security interest in the Shares, securing the payment and
performance of all of the Obligations.
III. Pledgees
3.1 Pledgees Appointed Attorney in Fact. Pledgor hereby irrevocably
appoints the Pledgees as his attorney in fact, with full authority in the
place and stead of Pledgor, and in his name or otherwise, from time
to time in the Pledgees' reasonable discretion to take any action
and to execute any instrument which the Pledgees may deem necessary
or advisable to accomplish the purposes of this Stock Pledge and
Security Agreement as permitted in Article IV, including, without
<PAGE>
limitation:
(a) to take any and all action permitted under Article IV of this Stock
Pledge and Security Agreement; and
(b) to exercise any and all rights of a shareholder of the Company,
and otherwise to exercise ownership interest in the Shares, with or
without stock powers.
3.2 Pledgees' Duties. The powers conferred on the Pledgees are solely to
protect the Pledgees' interest in the Shares and shall not impose
any duty upon it to exercise any such powers. Except for the safe
custody of the Shares in its possession and the accounting for
moneys actually received by it hereunder, the Pledgees shall have no
duty to act as to the Shares or as to the taking of any steps to
preserve rights against any parties or any other rights pertaining
to the Shares.
3.3 Indemnity and Expenses.
(a) Pledgor agrees to indemnify the Pledgees from and against any and
all claims, losses and liabilities (including reasonable attorneys' fees)
arising from this Stock Pledge and Security Agreement (including
without limitation enforcement of this Stock Pledge and Security
Agreement.
(b) Pledgor will upon demand pay to the Lender the amount of any and all
expenses, including the fees and expenses of its counsel and of any
experts and agents, which the Pledgees may incur in connection with
the enforcement of the Pledgees' rights under this Stock Pledge and
Security Agreement.
(c) The Pledgees shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereafter without being required to determine the authenticity or
the correctness of any fact stated therein or the propriety or
validity of the service thereof. The Pledgees may act in reliance
upon any instrument or signature believed by it to be genuine and
may assume, unless it has actual knowledge to the contrary, that the
person purporting to give notice of receipt or advice or make any
statement or execute any document in connection with the provisions
hereof has been duly authorized to do so.
(d) The agreements in this Article III shall survive the payment,
performance or satisfaction in full of the Obligations or the termination
of this Stock Pledge and Security Agreement.
IV. Default and Remedies
4.1 Events of Default. Any Event of Default shall mean the happening
of any of the following:
<PAGE>
(a) Any representation or warranty contained in this Stock Pledge and
Security Agreement shall be false or prove to be false or misleading in any
material respect when made or given or deemed to be made or given.
(b) Any covenant set forth in this Stock Pledge and Security Agreement
shall not be observed by Pledgor in any material respect.
(c) Any of the Obligations have not been paid when due or beyond any
applicable grace period.
(d) Any of the payments or Obligations due to be paid or performed by the
Company under the Agreement, the Convertible Notes or the Registration
Rights Agreement have not been paid or performed when due or beyond any
applicable grace period.
(e) Pledgor shall (i) voluntarily commence any proceeding or file a
petition for relief under the United States Bankruptcy Code, or any other
federal or state bankruptcy, insolvency or similar law, or under the
bankruptcy laws of any other country, (ii) consent to the
institution of, or fail to controvert in a timely and appropriate
manner, any such proceeding or the filing of any such petition,
(iii) apply for or consent to the employment of a receiver, trustee,
custodian, sequestrator or similar official for any of themselves or
for a substantial portion of their property, (iv) make a general
assignment for the benefit of creditors, or (v) become unable or
admit in writing the inability or the failure generally to pay their
debts as they become due.
(f) The Company shall sell or agree to sell substantially all of its
stock, assets or tradenames and trademarks, or shall enter into a merger
agreement with another entity or company.
4.2 Default. A Default shall exist hereunder if an Event
of Default shall have occurred under this Stock Pledge and Security
Agreement.
4.3 Remedies. If a Default exists under this Stock Pledge and Security
Agreement, the Pledgees may take any or all of the following actions
upon written notice to Pledgor:
(a) declare any or all of the Obligations due and payable, without
presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived;
(b) apply any or all proceeds of sale of the Shares to the payment of the
Obligations;
(c) exercise any and all rights afforded to the shareholders of the
Company with respect to the Shares;
(d) take possession and ownership of the Shares or any of the Shares in
the name of the Pledgees or of any other person or entity designated by
the Pledgees and in such case apply the closing bid price of the Shares
as quoted on the National Association of Securities Dealers
<PAGE>
Electronic Bulletin Board, or any other exchange on which the Shares
are then listed, less a discount of 25% at the time of actual sale
of the Shares ("Market Price"), whether or the not the Shares are
sold at one time or on more than one occasion, using the Market
Price each time the Shares are sold, to reduction of the Obligations;
(e) exercise all the rights and remedies provided for herein or otherwise
available under the laws of any jurisdiction, and all the rights and remedies
of a secured party on default under the Uniform Commercial Code in
effect in the State of New York, or any other state or jurisdiction
as applicable.
V. Miscellaneous
5.1 Further Assurances. Pledgor agrees that from time to time,
they will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary, or that the
Lender may reasonably request, in order to perfect and protect the
pledge and security interest hereunder, or to enable the Pledgees to
enforce their rights and remedies hereunder with respect to the
Shares including but not limited to executing and filing financing
or continuation statements, or amendments thereto, and such other
notices, as may be necessary in order to perfect and preserve the
pledge and security interest granted hereunder.
5.2 Security Interest Absolute. All rights of the Pledgees and the
pledge and security interest hereunder, and all obligations of Pledgor
shall be absolute and unconditional, irrespective of:
(a) any lack of validity of enforceability of the Agreement, Convertible
Notes, Registration Rights Agreement or Warrant Shares;
(b) any change in the time, manner or place of payment
of, or in any other term of, any or all of the Obligations, or any
other amendment or waiver of or any consent to any departure from
the Agreement, Convertible Notes, Registration Rights Agreement or
this Stock Pledge and Security Agreement;
(c) any taking, exchange, release or non-perfection of the Shares;
(d) any manner of application of the Shares or proceeds
thereof, to all or any of the Obligations, or any manner of sale or
other disposition of the Shares for all or any of the Obligations; or
(e) any change, restructuring or termination of the corporate structure
or existence of the Company.
5.3 Notices. All notices or other communications provided for hereunder
shall be in writing and mailed, by Fedex or express mail service with
proof of delivery, and by telefax as follows:
<PAGE>
If to Pledgor:
Mr. Robert (Ken) Honeyman
2849 Paces Ferry Road
Atlanta Georgia 30339
Fax: 770-433-9194
If to Pledgees:
c/o Portfolio investment Strategies Corp.
6 Lake Street, Suite 1800
Monroe, New York 10950
Fax: 914-774-7275
5.4 Continuing Pledge and Security Interest. This Stock Pledge and
Security Agreement shall create a continuing pledge and security
interest in the Shares and shall (i) remain in full force and effect
until the Obligations have been fully performed and paid, (ii) be
binding upon Pledgor, his successors, representatives and assigns,
and (iii) inure, together with the rights and remedies of the
Pledgees hereunder, to the benefit of the Pledgees and their
successors, transferees and assigns. Upon the payment and
performance of the Obligations, the security interest granted
hereunder shall terminate, all rights to the Shares shall revert to
Pledgor, and the Shares, or if any of the Shares have been sold
hereunder or ownership has been transferred to the Pledgees, the
remaining Shares shall be delivered to Pledgor or his designee set
forth in writing by Pledgor.
5.5 Consent to Jurisdiction. Pledgor hereby irrevocably consents
to the jurisdiction of any New York State or federal court, sitting i
n New York City, in any action or proceeding arising out of or relating to
this Stock Pledge and Security Agreement. Pledgor hereby
irrevocably waives, to the fullest extent possible the defense of an
inconvenient forum to the maintenance of such action or proceeding.
Service of process may be effectuated by certified mail, return
receipt requested, or by Fedex with evidence of delivery to the
parties at the addresses set forth above. Nothing herein shall
affect the right of the Pledgees to serve process in any other
manner permitted by law or to affect the right of the Pledgees to
bring any action or proceeding against Pledgor in any other court or
jurisdiction.
5.6 Consequential Damages. In no event (other than in respect of fraud
or wilful misconduct or gross negligence) shall the Pledgees be liable for
special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits).
5.7 Amendments. No amendment or waiver of any provision
of this Stock Pledge and Security Agreement, and no consent to
any departure by Pledgees herefrom shall in any event be effective
unless the same shall be in writing and signed by the Pledgees, and
then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
5.8 Governing Law; Terms. This Stock Pledge and Security
Agreement shall be
<PAGE>
governed by and construed in accordance with the laws of the State
of New York, without regard to any conflict of laws rule which would
result in the application of the laws of any other jurisdiction,
except to the extent that the validity or perfection of the
assignment and security interest hereunder, or remedies hereunder,
in respect of the Shares are governed by the laws of a jurisdiction
other than the State of New York.
5.9 Conflict. In the event that the provisions of this Stock Pledge
and Security Agreement conflict with the provisions of the Agreement,
then the provisions of this Stock Pledge and Security Agreement shall
govern.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed and delivered as of the date first above written.
Pledgor:
/s/ROBERT (KEN) HONEYMAN
Acknowledged and Agreed:
/s/Y.L. HIRSCH
/s/SHOLEM LIEBENTHAL
/s/AMRAM ROTHMAN
/s/JOSHUA HEIMLICH
/s/ZVI Y. ZELIKOVITZ
TUT SYSTEMS, INC.
VALUE ADDED RESELLER AGREEMENT
This Value Added Reseller Agreement is made, as of the Effective
Date set forth below, between:
(1) Tut Systems, Inc., a Delaware corporation ("Tut Systems"), with
principal offices at 2495 Estanc Way, Pleasant Hill CA 94623 and;
(2) 2-Infinity.com.Inc., a Corporation ("VAR")
VAR address:
4828 Loop Central Dr., Ste. 150
Houston, TX 77081
Attn: Majed Jalali
Telephone: (713) 592-0371
Facsimile: (713) 592-0378
Email: [email protected]
This Value Added Reseller Agreement consists of the VAR Terms and
Conditions attached hereto and the Schedules set forth below
(together this "Agreement"):
Schedule A Certification and Authorization Requirements
Schedule B POS Report Form/Forecast Form
Schedule C Pricing
By signing below, the VAR acknowledges that it has read, understands
and agrees to be bound by all terms and conditions of this Agreement
Value Added Reseller
By /s/ Majed Jalali
Majed Jalali
CEO
5-10-99
Tut Systems, Inc.
/s/A.R. Purdy
A.R. Purdy
V.P. Sales
5-20-99
<PAGE>
THIS AGREEMENT is entered into as of the Effective Date set forth on
the preceding page.
BETWEEN:
(1) TUT SYSTEMS, INC. ("Tut Systems"), a Delaware corporation; and
(2) THE VALUE ADDED RESELLER ("VAR") identified on the preceding page.
WHEREAS, VAR is value added reseller of computer products who wishes
to purchase products from Tut Systems for the purposes of resale in
association with other products or services.
THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS.
In this Agreement, including the Schedules hereto, the following
words and expressions shall have the following meanings:
"Party" shall mean Tut Systems and/or VAR.
"Price" shall mean the F.O.B., origin, price for Products as
currently set out in the Tut Systems VAR Price List, incorporated by
reference as if set forth in full herein, as made available to VAR
and revised by Tut Systems from time to time pursuant to this
Agreement.
"Products" shall mean the Tut Systems products described on the Tut
Systems North American VAR Price List, incorporated by reference as
if set forth in full herein, as made available to VAR and revised by
Tut Systems from time to time pursuant to this Agreement.
"Territory" shall mean the United States of America and its
territories and possessions.
2. VAR APPOINTMENT.
(a) Appointment. Subject to the terms and conditions set out in
this Agreement, Tut Systems hereby appoints VAR as a value added
reseller to promote, market and sell the Products in the Territory
during the Term.
(b) Sales Efforts. During the Term, VAR shall use its commercially
reasonable efforts to promote, market and sell the Products in the
Territory during the Term. Without the prior written consent of Tut
Systems, VAR shall not directly or indirectly (i) solicit sales of
the Products outside of the Territory, or (ii) sell to any person
which VAR understands or reasonably expects will resell the Products.
(c) No Limit on Price. Although Tut Systems may from time to time
publish suggested and-user list prices for the Products, VAR has the
unrestricted right to unilaterally determine the prices at which it
resells the Products which it purchases hereunder. No Tut Systems
representative has the authority to require or suggest that VAR
charge a particular resale price for the Products which it purchases
hereunder.
(d) Non-Exclusive Right. VAR's right to resell the Products shall
be non-exclusive and Tut Systems shall continue to have the right to
promote, market and sell the Products in the Territory and
elsewhere, and any other products which are similar and/or through
any agent or representative.
(e) Compliance with Authorization and Certification Requirements.
VAR's right to remain a value added reseller hereunder or to sell
various Products or Product lines shall be subject to VAR's
continuing compliance with the authorization and certification
requirements set forth in Schedule A, as amended from time to time
by Tut Systems on notice to VAR. If VAR fails to maintain
compliance with such requirements as then in effect, then Tut
Systems may terminate this Agreement in accordance with Section 8c
or terminate VAR's right to sell certain Products as appropriate.
3. TERMS OF PURCHASE OF PRODUCTS BY VAR.
<PAGE>
(a) Terms and Conditions. All purchases of Products by VAR from Tut
Systems during the term of this Agreement shall be subject to the
terms and conditions of this Agreement.
(b) Prices. All prices are F.O.B. Tut Systems plant currently
located at the address listed for Tut Systems at the beginning of
this Agreement. The purchase price to VAR for each of the Products
("Purchase Price") shall be as set forth in the VAR Price List. The
difference between VAR's Purchase Price and VAR's selling price to
its customers shall be VAR's sole remuneration for sale of the
Products. Tut Systems has the right at any time to revise the
prices in the VAR Price List with thirty (30) days advance written
notice to VAR. Such revisions shall apply to all orders received
after the effective date of revision.
(c) Price Protection
(i) In the event of a price increase, Tut Systems will honor orders
or portions hereof already accepted and acknowledged by Tut Systems
at the prices in effect previous to the effective date of the price
increase and orders scheduled by Tut Systems for delivery within
thirty (30) days after the effective date of the price increase.
Orders scheduled by Tut Systems for delivery after (30) days from
effective date of the price increase shall automatically be adjusted
by Tut Systems. After the effective date of the price increase,
orders will be accepted at the increased price.
(ii) In the event of a price reduction, unshipped orders already a
scheduled by Tut Systems for product affected by the price reduction
shall be automatically adjusted by Tut Systems to reflect the price
decrease. Tut Systems will provide VAR with written notice of any
decrease not later than fifteen (15) days after the effective date
of such decrease. Product in transit and product in VAR's inventory
purchased not more than sixty (60) days prior to the effective date
of such price decrease shall be subject to the price reduction ;
provided, however that (A) VAR applies in writing to Tut Systems for
the price reduction within sixty (60) days after the effective date
of the announced price reduction and (B) VAR forwards an inventory
report to Tut Systems that indicates model and quantity of inventory
in stock. Tut Systems reserves the right to verify the inventory
report and conduct an audit of VAR's inventory. Tut Systems shall
issue a credit for the price reduction to VAR within thirty (30)
days after receipt and verification of VAR inventory report. The
credit shall be equal to the difference between the price at the
time of the sale of the Product to VAR and the new reduced price.
(iii) Tut Systems shall have no obligations pursuant to this Section
3(c) unless VAR has timely performed all of its obligations pursuant
to Section 6(a)(i) here of during the previous six months.
(d) Taxes. VAR agrees to report and pay all taxes, customs duties
and assessments imposed on VAR or Tut Systems in connection with the
distribution and sale of Tut Systems product hereunder including any
sales, use, excise, and other taxes and duties, except for taxes
imposed on Tut Systems income. To the extent that Tut Systems is
required by statute or regulation to collect and report taxes,
duties, customs, or any other costs to various authorities (both
foreign and domestic), such taxes, duties, customs, or any other
costs will be billed directly to VAR.
(e) Order and Acceptance. All orders for Products submitted by VAR
shall be initiated by written purchase orders sent to Tut Systems
and requesting a delivery date during the term of this Agreement;
provided however, that an order may initially be placed orally if a
conformational written purchase order is received by Tut Systems
within five (5) days after said oral order. No order shall be
binding upon Tut Systems until accepted by Tut Systems in writing,
or by shipping product in accordance with the order. Tut Systems
will use reasonable efforts to notify VAR of the acceptance of an
order within five (5) business days of its receipt of an order, or
at Tut Systems sole discretion, deliver the ordered products. Tut
Systems shall use its reasonable best efforts to deliver Products at
the times specified either in its quotation or in its written
acceptance of VAR's purchase orders. However Tut Systems shall not
be liable for any damages resulting from its failure to meet such
shipment dates, even if Tut Systems has been advised of the
possibility of such damages. Partial shipments may be made upon
written approval of VAR. No partial shipment of an order shall
constitute the acceptance of the entire order, absent the written
acceptance of such order.
(f) Terms of Purchase Orders. VAR's purchase orders submitted to
Tut Systems from time to time with respect to Products to be
purchased hereunder shall be governed by the terms of this
Agreement, and nothing contained n any such purchase order shall in
any way modify such terms of purchase or add any additional terms or
conditions.
(g) Payment. Full payment of VAR's Purchase Price for the Product
(including any freight, taxes or other
<PAGE>
applicable costs initially paid by Tut Systems but to be borne by
VAR) shall be due in full, net thirty (30) days, and payment shall
be made by wire transfer, check, or other instrument approved by Tut
Systems, payable in U.S. Dollars. Any invoiced amount not paid when
due shall be subject to a service charge of one and on-half percent
(1.5%) per month and Tut Systems, at its option, may revoke any
previously granted terms of credit. Except for credits issued under
Sections 3c or 5, VAR agrees to no rights of setoff for amounts it
owes for particular Products against amounts owed to it by Tut
Systems. Tut Systems may withhold or suspend its performance under
this Agreement in the event that VAR fails to make timely payments
of outstanding invoices. VAR shall pay all of Tut Systems costs and
expenses (including reasonable attorneys' fees) to enforce and
preserve Tut Systems rights under this Subsection 3(g).
(h) Shipping. All Products delivered pursuant to the terms of this
Agreement shall be suitably packed for air freight shipment in Tut
Systems standard shipping cartons, marked for shipment at VAR's
address set forth above and delivered to VAR or its carrier agent
F.O.B. Tut Systems manufacturing plant or warehouse, at which time
title to such Products and risk or loss shall pass to VAR. Unless
otherwise instructed in writing by VAR, Tut Systems shall select the
carrier. All freight, insurance, and other shipping expenses, as
well as any special packing expense, shall be paid by VAR. VAR also
agrees that no delivery pursuant to this Agreement shall be
construed as a single lot contract under the Uniform Commercial
Code, in addition, remedies provided under a single lot contract
shall not apply to any shipment under the agreement.
(i) Product Acceptance. VAR shall be deemed to have accepted
delivery of Tut Systems Products, unless rejected upon inspection at
the time of delivery. The reason for rejection must be submitted in
writing to Tut Systems within fifteen (15) business days from the
date of delivery (Rejection Period). VAR agrees that its remedies
are limited to the remedies contained in the warranty provisions of
this Agreement under sections 4 (Warranty and Disclaimer), and 5
(Rejection and Warranty Procedures).
(j) Return of Products after Rejection Period. After the Rejection
Period, VAR may not return a Product to Tut Systems for any reason
without Tut Systems prior written consent. For any Product for
which Tut Systems gives such consent, Tut Systems may charge VAR a
restocking fee equal to twenty five percent (25%) of VAR's Purchased
Price for that Product and shall credit the balance of the Purchase
Price to VAR's account. VAR shall be responsible for all shipping
charges.
(k) Security Interest. For the purpose of securing payment of the
price of Tut Products and all other charges payable to Tut
hereunder, VAR hereby grants to Tut a security interest in each and
every Tut Product delivered to Var under this Agreement, including
without limitation any proceeds from its resale or distribution or
from insurance held by VAR covering Tut Products. VAR shall
cooperate with Tut and execute any necessary documents to perfect
Tut security interest granted herein, where required by state law.
These interests will be deemed satisfied and deemed released by
payment in full of the purchase price and all other charges payable
hereunder for each such Tut Product.
(l) Product Changes. Tut Systems shall have the right, in its
absolute discretion, without liability to VAR, to change the design
or to discontinue the manufacture or sale of any Product covered by
this Agreement. Tut Systems shall attempt to notify VAR at least
thirty (30) days prior to the delivery of any product which
incorporates a change in design that shall, in Tut System's
reasonable opinion, affect the marketability of any Product I VAR's
inventory. Tut Systems shall also endeavor to notify VAR at least
thirty (30) days prior to the discontinuance of manufacture of any
Product. Tut Systems, however, shall not incur any liability to VAR
for its failure to so notify VAR.
4. WARRANTY AND DISCLAIMER.
(a) Standard Limited Warranty. When the products purchased
hereunder are resold to the end-user (customer) pursuant to the
terms hereof in their original, unmodified, unused condition, VAR
shall pass on to its customers Tut Systems standard limited warranty
for the Products, as summarized in documentation supplied with the
Product and including provisions and limitations set forth below.
(b) Express End-User Limited Warranty.
(i) Each Tut Systems Product purchased hereunder is warranted
against defect in material and workmanship and will substantially
conform to Tut Systems Product documentation for the period set
forth in the documentation supplied with the product following
delivery to end-user ("Warranty Period"). This warranty extends
only to end user and will not extend to, nor
<PAGE>
may it be assigned to, any subsequent VAR, purchaser or user of a
Tut Systems Product, whether such Tut Systems Product is alone or
incorporated into end-user's product.
(ii) The Company's products, including separately sold software
applications, are designed to be used prior to, during, and after
the calendar year 2000 and will operate during each such time period
without error relating to date data specifically indulging any error
relating to, or product of date, date which represents or
references different centuries or more than one century.
(c) Exclusions. The express warranty set forth above is contingent
upon the proper use of a Tut Systems Product in the application for
which it was intended and will not apply to any Tut Systems Product
that has been (i) damaged during shipping, (ii) modified or
improperly maintained or repaired by a party other than Tut Systems
or its designees, or (iii) subjected to unusual physical or
electrical stress.
(d) Limitation of Remedy. In the event a Tut Systems Product fails
to perform as warranted, Tut Systems sole and exclusive liability
and end-user's only remedies for breach of this warranty shall be,
at Tut Systems option to repair, replace or credit an amount not
exceeding the VAR's purchase price of each Product found to be
defective, provided that:
(i) End-user complies with the rejection and warranty procedures
contained in Section 5 below and returns the Tut Systems Product
that the end-user considers defective for examination and testing.
(ii) Tut Systems shall not be liable under this warranty if testing
and examination by Tut Systems discloses that the Tut Systems
Product has been modified or altered in any manner after it was
shipped by Tut Systems.
(iii) Tut Systems shall not be liable under this warranty if testing
and examination by Tut Systems discloses that the alleged defect in
the Tut Systems Product does not exist or was caused by end-user or
any third person's misuse, neglect, improper installation or
testing, unauthorized attempts to repair or any other cause beyond
the range of intended user, or by accident, fire or other hazard.
(iv) Tut Systems shall not be liable under any warranty under this
Agreement with respect to any Tut Systems Product that is not
returned in its original shipping container or a functionally
equivalent container.
(v) If Tut Systems testing and examination does not disclose a
defect warranted under this Agreement:
(A) Tut Systems shall so advise VAR and dispose of such Tut Systems
Product in accordance with VAR's instructions on behalf of end-user
and at VAR's cost; and
(B) VAR shall reimburse Tut Systems for its expense in testing and
examining such Tut Systems Product calculated at Tut Systems
standard rates.
(e) No Other Warranty. EXCEPT FOR THE EXPRESS WARRANTY SET FORTH
ABOVE, TUT SYSTEMS GRANTS NO OTHER WARRANTIES, EXPRESS OR IMPLIED,
BY STATUTE OR OTHERWISE, REGARDING THE PRODUCTS, INCLUDING THEIR
FITNESS FOR ANY PURPOSE, THEIR QUALITY, THEIR MERCHANTABILITY,
NON-INFRINGEMENT OR OTHERWISE.
(f) Limitation of Liability. IN NO EVENT SHALL TUT SYSTEMS BE
LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE PRODUCTS OR SERVICES,
NOR WILL EITHER PARTY BE LIABLE FOR LOST PROFITS, OR ANY OTHER
SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES, HOWEVER
CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF OR RELATING TO
PRODUCT WARRANTY OR THIS AGREEMENT OR RESULTING FROM THE SALE OF
PRODUCTS OR SERVICES BY VAR OR RESALE OR USE BY ANY END-USER OR ANY
TRANSFEREE OF SUCH PRODUCTS OR SERVICES. ANY LIABILITY OF TUT
SYSTEMS HEREUNDER WILL BE LIMITED IN ALL CASES TO THE AMOUNT PAID BY
VAR FOR TUT SYSTEMS PRODUCTS. THIS LIMITATION SHALL APPLY EVEN IF A
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY. THE PARTIES ACKNOWLEDGE THAT THE FOREGOING IS A REASONABLE
ALLOCATION OF RISK.
<PAGE>
5. REJECTION AND WARRANTY PROCEDURES.
In the event of rejection of Tut Systems Product within the
Rejection Period or a Tut Systems Product fails to perform as
warranted within the Warranty Period, VAR or end-user, as relevant,
will give notice to Tut Systems or VAR, respectively, within the
relevant limitation period, which notice will request a Return
Material Authorization ("RMA") number. Tut Systems will provide the
RMA number to VAR within five (5) days after the giving of notice
and the request. Within thirty (30) days after its receipt of the
RMA number, VAR or end-user will return to Tut Systems or its
designee the rejected or defective Tut Systems Product, freight or
postage prepaid in its original shipping carton or a functionally
equivalent container. Tut Systems reserves the right to refuse to
accept any rejected or defective Tut Systems Product not bearing an
RMA number on the outside of the carton and/or documentation
accompanying the shipment such as packing slips. If the Tut Systems
Product is determined to be defective in accordance with Section 4
(Warranty and Disclaimer), Tut Systems will at is sole option and
expense, either repair, replace the Tut Systems Product and ship it
in accordance with VAR's instruction, to VAR or end-user, or credit
to VAR an amount not to exceed the VAR's purchase price of each good
found to be defective. Tut Systems will use all reasonable efforts
to ship the repaired or replaced Tut Systems Product within thirty
(30) days of its receipt of such Tut Systems Product.
6. VAR'S OBLIGATIONS.
(a) Obligations. VAR shall:
(i) Furnish monthly point-of-sale reports in electronic (machine
readable) format to Tut Systems upon request by Tut Systems from
time to time. The format and content of such point-of-sale reports
will be as set forth in Schedule B hereto, respectively, as such
schedules may be modified from time to time by Tut Systems. VAR
hereby agrees to provide to Tut Systems such other reports relating
to this Agreement and the Products as Tut Systems may reasonably
request from time to time.
(ii) Furnish Tut Systems, upon request by Tut Systems from time to
time, a rolling three (3) month forecast of its projected
requirements for each customer by month in electronic (machine
readable) format. The format and content of such forecast will be
as set forth in Schedule B hereto, as such schedule may be modified
from time to time by Tut Systems.
(iii) Not remove, obscure or modify an label or other indication of
copyright or other intellectual property rights on the Products.
(iv) Agree to the terms and conditions of any software license or
product warranty terms enclosed with the Products.
(v) Not sell Products other than in original, unmodified, unused
condition, except that the unmodified Products may be bundled or
packaged with other goods to comprise a system.
(b) Software. VAR acknowledges that all software Products of
Products which include software are proprietary to Tut Systems or
its licensers and are subject to copyrights and trade secrets owned
by Tut Systems or its licensers. All references in this Agreement
to "purchases," "sales," or words of similar import, of software
Products or Products which include software signify only the
acquisition of a license for VAR to transfer such software to its
end-users in accordance with the terms of this Agreement.
(c) VAR's Responsibility. VAR hereby understands that it is
responsible for determining the suitability of Products for the
purposes for which Products are purchased or sold by VAR.
(d) Limitation on VAR's Rights to the Products. VAR shall have no
access to, or rights in the source codes of any software included in
the Products. VAR shall have no right to copy, modify or
remanufacture any Product or part hereof nor reproduce any written
material supplied by Tut Systems without the explicit written
consent of Tut Systems.
7. TUT SYSTEMS OBLIGATIONS.
Tut Systems shall:
<PAGE>
(a) Provide VAR with sales support through its national and field
sales offices and affiliated companies.
(b) Allow VAR to participate in such cooperative marketing programs
and other sales incentive programs as Tut Systems may make generally
available to similarly situated resellers of Products; provided,
however, that Tut Systems reserves the right to alter or eliminate
any such cooperative marketing programs or other sales incentive
programs at any time ; and
(c) Furnish VAR with a reasonable quantity of its standard sales
promotion literature, such as brochures and specification sheets;
provided that Tut Systems reserves the right to charge VAR if it
requests large quantities of such materials.
(d) Services by Tut Systems. Additional customer service and
technical support is available by phone in the United States at
(800) 998-4888 or (510) 682-6510, or via e-mail at
[email protected]. Extended warranty, contract service, repair
and other services are available for purchase at Tut Systems
published standard rates.
8. NON-SOLICITATION
Tut Systems and VAR will, from time to time, introduce each other to
leads and customers. Both parties hereby agree that if they are
introduced to a lead or customer of the other, that they will
actively seek to sell products and services of the other and will
not introduce, sell products or services of nor attempt in any other
way to form a relationship with the lead or customer and another
competitive 3rd party. If Tut Systems or VAR decides to withdraw
from the account, written notice shall be given to the other at
which time they may introduce a 3rd party solution.
9. TERM AND TERMINATION.
(a) Term. This Agreement shall continue in force for a fixed term
of one (1) year from the date hereof unless terminated earlier under
the provisions of this Section 8. At the end of the fixed term and
the end of each subsequent one year term, this Agreement shall renew
automatically for an additional one (1) year period, unless sixty
(60) days prior to the renewal date, the Agreement is terminated by
written notice by Tut Systems.
(b) Termination for Convenience. This Agreement may be canceled by
either party for any reason or no reason, whether or not extended
beyond the first term, by giving the other party written notice
ninety (90) days in advance. If Tut Systems terminates this
Agreement under the provisions of this Subsection 8(b), then Tut
Systems shall, at VAR's option, repurchase VAR's then-current
inventory at VAR's original Purchase Price and shall bear all
shipping costs for the return to Tut Systems of that inventory.
(c) Termination for Cause. Aside from the provisions of section
3(g), if either party defaults in the performance of any provision
of this Agreement, then the non-defaulting party may give written
notice to the defaulting party that if the default is not cured
within thirty (30) days the Agreement will be terminated. If the
non-defaulting party gives such notice and the default is not cured
during the thirty-day period, then the Agreement shall automatically
terminate at the end of that period. In addition, if sales efforts
limits to the Territory as defined in 2 (b) above are violated. Tut
Systems may terminate this Agreement immediately.
(d) Termination for Insolvency. This Agreement shall terminate,
without notice, (i) upon the institution by or against VAR of
insolvency, receivership or bankruptcy proceedings or any other
proceedings for the settlement of the VAR's debts, (ii) upon VAR's
making an assignment for the benefit of creditors, or (iii) upon
VAR's dissolution or ceasing to do business.
(e) Fulfillment of Orders upon Termination. Upon termination of
this Agreement for other than VAR's breach, Tut Systems shall
continue to fulfill, subject to the terms of Section 3 above and in
particular section 3(g), all orders accepted by Tut Systems prior to
the date of termination.
(f) Return of Materials. All trademarks, trade names, patents,
copyrights, design, drawings, formulas or other date, photographs,
samples, literature, and sales aids of every kind shall remain the
property of Tut Systems. Within thirty (30) days after the
termination of this Agreement, VAR shall prepare all such items in
its possession for shipment, as Tut Systems may direct at Tut
Systems expense. VAR shall not make, use, dispose, of or retain any
copies of any confidential items or information which may have been
entrusted to it. Effective upon the termination
<PAGE>
of this Agreement. VAR shall cease to use all trademarks, marks,
and trade names of Tut Systems.
(g) List of Customer Installed Base. To the best of its ability,
VAR shall provide to Tut Systems, up-to-date list of names,
addresses and phone/fax numbers of all customers currently using Tut
Systems Products within the Territory to allow continuance of service.
(h) Survival of Certain Terms. The provisions of Sections 3(d),
3(g), 4, 8, 9, 10, 11, and 12, shall survive the Termination of this
agreement for any reason. All other rights and obligations of the
parties shall cease upon Termination of this Agreement.
10. INTELLECTUAL PROPERTY INFRINGEMENT INDEMNIFICATION.
(a) Indemnity. Tut Systems will defend, at its own expense, any
claim, suit, or proceeding brought against VAR to the extent it is
based upon a claim that any Product under normal use sold pursuant
to this Agreement infringes upon any presently issued U.S. patent or
any copyright, or misappropriates any trade secret, of any third
party. VAR agrees that it shall promptly notify Tut Systems in
writing of any such claim or action and give Tut Systems full
information and assistance in connection therewith. Tut Systems
shall have the sole right to control the defense of any such claim
or action and the sole right to settle or compromise any such claim
or action. If VAR complies with the provisions hereof, Tut Systems
will pay all damages, costs and expenses finally awarded to third
parties against VAR in such action. If a Product is, or in Tut
Systems opinion might be, held to infringe as set forth above Tut
Systems may, at its option replace or modify such Product so as to
avoid infringement, or procure the right for VAR to continue the use
and resale of such Product. If neither os such alternatives is in
Tut Systems opinion commercially reasonable, the infringing Product
shall be returned to Tut Systems and Tut Systems sole liability, in
addition to its obligation to reimburse awarded damages, costs and
expenses as set forth above, shall be to refund the amounts paid for
such Products less depreciation measured equally over a sixty (60)
month period from the date of purchase by VAR.
(b) Limitations. Tut Systems will have no liability for any claim
of infringement arising as a result of VAR's use or sale of a
Product in combination with any items not supplied by Tut Systems,
any modification of a Product by VAR or third parties, or the
failure to use the latest version of any software provided for such
Product if infringement would have been avoided with such use.
(c) Entire Liability. THE FOREGOING STATES THE ENTIRE LIABILITY AND
OBLIGATIONS OF TUT SYSTEMS TO VAR OR ANY PURCHASER OF PRODUCTS AND
THE EXCLUSIVE REMEDY OF VAR OR ANY PURCHASER OF PRODUCTS WITH
RESPECT TO THE ALLEGED OR ACTUAL INFRINGEMENT OF INTELLECTUAL
PROPERTY RIGHTS INCLUDING, BUT NOT LIMITED TO, PATENT, COPYRIGHT AND
TRADE SECRET RIGHTS.
11. IMPORT AND EXPORT CONTROLS.
(a) Regulation. VAR understands and acknowledges that Tut Systems
is subject to regulation by agencies of the United States government
including, without limitation the U.S. Department of Commerce, which
agency prohibits export or diversion of certain products and
technology to certain countries. Any and all obligations of Tut
Systems to provide Tut Systems Products as well as any technical
assistance will be subject in all respects to such United States
laws and regulations as from time to time govern the delivery and
license of technology and products aborad by persons subject to the
jurisdiction of the United States including, without limitation ,
the Export Administration Act of 1979, as amended, any successor
legislation and the Export Administration Regulations issued by the
Department of Commerce, Bureau of Export Administration. VAR agrees
to cooperate with Tut Systems in order to obtain export licenses or
exemptions therefrom by, among other things, providing required
documentation. VAR warrants that it will comply with the Export
Administration Regulations and other United States laws and
regulations governing exports in effect from time to time.
12. TRADEMARKS.
(a) Limited Trademark License. Tut Systems grants to VAR a
non-exclusive limited license to use during
<PAGE>
the term of this Agreement. Tut Systems name, logo and other
trademarks used by Tut Systems in the Territory from time to time
with Respect to the Products (the "Trademarks") for proper purposes
in connection with the promotion and safe of the Products.
(b) VAR's Use. VAR's use of the Trademarks shall be in accordance
with applicable trademark law and Tut Systems policies regarding
advertising and trademark usage as established and amended from time
to time. VAR shall include all applicable Tut Systems Trademarks in
any literature, promotion or advertising which it produces or
distributes concerning the Products. VAR will not use any such
Trademarks other than with respect to the direct promotion of the
Products.
(c) Tut Systems Designations. VAR will not remove, deface or alter
any Tut Systems trademarks, model numbers or other designations
affixed to the Products by Tut Systems. VAR will not affix any
other trademarks, trade names, model designations or nameplates to
the Products.
(d) Ownership of Trademarks. VAR agrees that the Trademarks are and
will remain the sole property of Tut Systems and agrees not to do
anything inconsistent with that ownership or to contest ownership of
such Trademarks. VAR agrees to always identify the Trademarks as
being the property of Tut Systems. Var also agrees that all use of
the Trademarks by VAR will inure to the benefit of and be on behalf
of, Tut Systems.
(e) Trademark Quality Standards. VAR agrees that any system or
service sold by VAR which contains the Products and displays the
Trademarks must conform to Tut Systems quality standards for the use
of its Trademarks, and VAR agrees to cooperate with Tut Systems in
monitoring the nature and quality of such systems and services for
purposes of VAR's use of such Trademarks.
13. GENERAL PROVISIONS.
(a) Governing Law and Jurisdiction. This Agreement shall be
governed by and construed under the laws of the State of California,
U.S.A. The federal and state courts within the State of California,
U.S.A., shall have exclusive jurisdiction to adjudicate any dispute
arising out of this Agreement. VAR hereby expressly consents to (i)
the personal jurisdiction of the federal and state courts within
California, (ii) service of process being effected upon it by
registered mail sent to the address set forth at the beginning of
this Agreement, and (iii) the uncontested enforcement of a final
judgment from such court in any other jurisdiction wherein VAR or
any of its assets are present.
(b) Entire Agreement. This Agreement sets forth the entire
Agreement and understanding of the parties relating to the subject
matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of
any rights under this Agreement, shall be effective unless placed in
writing signed by the parties.
c) Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be sent by prepaid registered or certified
mail, return receipt requested, addressed to the other party at the
address shown at the beginning of this Agreement or at such other
address for which such party gives notice hereunder. Such notice
shall be deemed to have been given three (3) days after deposit in
the mail.
(d) Force Majeure. Nonperformance of either party shall be excused
to the extent that performance is rendered impossible by strike,
fire, flood, governmental acts or orders or restrictions, failure of
suppliers, or any other reason where failure to perform is beyond
the reasonable control of and is not caused by the negligence of the
nonperforming party.
(e) Nonassignability and Binding Effect. A mutually agreed
consideration for Tut Systems entering into this Agreement is the
reputation, business standing, and goodwill already honored and
enjoyed by VAR under its present ownership and, accordingly. VAR
agrees that its rights and obligations under this Agreement my not
be transferred or assigned directly or indirectly without the prior
written consent of Tut Systems. Subject to the foregoing sentence,
this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
(f) Foreign Corrupt Practices Act. VAR shall not act in any fashion
or take any action which would render Tut Systems liable for a
violation of the U.S. Foreign Corrupt Practices Act, which prohibits
the offering giving or promising to offer or give, directly or
indirectly, money or anything of value to any official of a
government, political
<PAGE>
party or instrumentally thereof in order to assist it or the Tut
Systems in obtaining or retaining business.
(g) Further Assurances. VAR agrees, upon request by Tut, to
promptly execute, acknowledge and deliver such further documents as
are necessary to fulfill the purposes of this Agreement, including
without limitation a UCC-1 financing statement covering Tut Products.
(h) Legal Expenses. The prevailing party in any legal action
brought by one party against the other and arising out of this
Agreement shall be entitled, in addition to any other rights and
remedies it may have to reimbursement for its expenses, including
court costs and reasonable attorneys' fees.
(i) Severability. If any provision in this Agreement is found or
held to be invalid or unenforceable in any respect, such
unenforceability will not effect any other provisions of this
agreement, provided that the expected economic benefit of this
Agreement are not denied to either party.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of
which together shall constitute one instrument.
(k) Headings Descriptive. The captions and headings of this
Agreement are for convenience of reference only and shall not affect
the interpretation of this Agreement.
(l) Singular and Plural. When required by the context hereof, the
singular includes the plural and vice versa.
<PAGE>
SCHEDULE A
VALUE ADDED RESELLER AGREEMENT
Authorization and Certification Requirements
Tut Systems requires its value added resellers, including VAR, to
sell in each calendar year at least $1,000,000 (the "Minimum Sales
Requirement") of products purchased under this Agreement. The
Minimum Sales Requirement is based on the amount paid by VAR to Tut
Systems, or Tut Systems authorized VAR of Products for the
Territory, for Products purchased under this Agreement in the
relevant year, less discounts, returns and other adjustments. If
VAR fails to maintain the Minimum Sales Requirement, VAR may be
terminated for breach of this Agreement. The Minimum Sales
Requirement shall be prorated for the first year of this Agreement
based on the number of months (or portions thereof) remaining in
such year, if the Term commences after the beginning of any calendar
year.
Tut Systems also prefers that VAR have access to e-mail at its
corporate and branch levels. However, Tut Systems will not
terminate a VAR for breach of this Agreement if it fails to have or
maintain such e-mail capabilities.
Certification
VAR must comply with Tut Systems training programs, post sales
service and support programs and procedures, including warranty
support, with respect to each Product line, as such programs and
procedures exist from time to time.
<PAGE>
SCHEDULE B
VALUE ADDED RESELLER AGREEMENT
POS Report Form
[DIAGRAM]
<PAGE>
Schedule C
Transfer Pricing to Inifinity.com, Inc.
Based on Published Prices of 5/1/2/99
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY
ACCEPTING THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF
STOCK ARE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
UNDER APPLICABLE SECURITIES LAWS AND ACTS OR AN EXEMTION THEREOF.
BY ACCEPTING THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE
SHAREHOLDER HEREOF AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED
BY LAW.
"A"
WARRANT
For the Purchase of Common Stock, Par Value $.0001 per Share, of
LAKOTA ENERGY, INC.
(Incorporated Under the Laws of the State of Colorado)
Void after 5:00 P November 30, 1999
WARRANT TO PURCHASE 1,250,000 SHARES
THIS IS TO CERTIFY that, for value received Dipak & Archana Bhatt, JTWROS,
("Underwriter), or registered assigns, is entitled, subject to the terms and
conditions hereinafter set forth, at any time before 5:00 P.M., eastern
time, on November 30, 1999 but not thereafter, to purchase the number of
shares set forth above ("Shares") of common stock, par value $ 1.00 per
share at time Warrant was granted and subsequently amended to $.0001 par
value per share ("Common Stock"), of Lakota Energy, Inc., a Colorado
corporation ("Company" or "Corporation"), from the Company upon payment to
the Company of $.10 per share ("Purchase Price") if and to the extent this
Warrant is exercised, in whole or in part, during, the Period this Warrant
remains in force and to receive a certificate or certificates represented
(the Shares so purchased, upon presentation and surrender to the Company of
this Warrant, with the form of subscription attached hereto duly executed,
an accompanied by payment of the Purchase price of each Share purchased
ARTICLE I
TERMS OF THE WARRANT
Section 1.01. Subject to the provisions of this agreement, this Warrant may
be exercised at any time after 9:00 A.M., Eastern time on November 30,
1998 ("Exercise Commencement Date"), but no later than 5:00 P.M., Eastern
time, on November 30, 2000, ("Expiration Time"). If this Warrant is not
exercised on, or before the Expiration Time, it shall become void, and all
rights hereunder shall thereupon cease.
<PAGE>
Section 1.02. (1) The holder of this Warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form
of exercise attached hereto as Exhibit "A" duly executed to the Company at
its office in Atlanta, Georgia, together with the full Purchase Price of
$.10 for each Share to be purchased in lawful money of the United States, or
by certified check, bank draft, or postal or, express money order payable in
United States dollars to the order of the Company, and upon compliance with
and subject to the conditions set forth herein.
(2) Upon receipt of this Warrant with the Exhibit "A" form of exercise duly
executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall
cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
(3) In case the Holder shall exercise this Warrant with respect to less than
all of the Shares that may be purchased under this Warrant, the Company
shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
(4) The Company, covenants and agrees that it will pay when due and payable
any and all of the Company's taxes which may be payable in respect of the
issue of this Warrant or the issue of any Shares upon the exercise of this
Warrant. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance or
delivery of this Warrant or of the Shares in a name other than that
of the Holder at the time of surrender, and until the payment of such
tax the Company shall not be required to issue such Shares.
Section 1.03. Prior to due presentment for registration of transfer of this
Warrant the Company may deem and treat the Holder as the absolute owner of
this Warrant (notwithstanding any notation of ownership or other writing
hereon) for the purpose of any exercise hereof and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
Section 1.04. Except per Article II, this Warrant may not be sold,
hypothecated, exercised, assigned oi transferred, except to individuals who
are of officers of the Company per Article II or any successor to its
business or pursuant to the laws of descent and distribution, and thereafter
and until its expiration shall be assignable and transferable in accordance
with and subject to the Securities Act of 1933 and all other Federal and
State Securities laws.
Section 1.05. Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company.
<PAGE>
Section 1.06. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such reasonable terms as to indemnity or otherwise as it
may impose (which shall, in the case of a mutilated Warrant, include the
surrender thereto, issue a new Warrant of like denomination and tenor as,
and in substitution for, this Warrant, which shall thereupon become void.
Any such new Warrant shall constitute an additional contractual obligation
of the Company.
Section 1.07, (1) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise hereof sufficient
authorized Shares to permit the exercise in full of this Warrant.
(2) Prior to the issuance of any Shares upon exercise of this Warrant, the
Company may, but not required, to secure the listing of such Shares upon any
securities exchange or automated quotation system upon which the shares of
the Company's Common Stock are listed for trading.
(3) The company covenants that all Shares when issued upon the exercise of
this Warrant will be validly issued, fully paid, and non-assessable.
ARTICLE II
COMPANY'S RIGHT TO CALL WARRANT
Section 2.01. (1) By resolution of its Board of Directors, the Corporation
may call this warrant at any time and from time to time on, or after
November 30, 1998, in whole or in part, by paying to the registered owner,
or owners hereof the sum of $.0001 per share.
(2) The Corporation shall give notice of its election to call this Warrant
by mailing a copy of such notice, postage prepaid, to the registered owner
or owners hereof, not less than 30 or more than 90 days prior to the date
designated as the date for the call, addressed to their respective addresses
appearing on the books of the Corporation. Failure to give notice, or any
defect in a notice or in the mailing thereof, will not affect the validity
of the call.
(3) If only a portion of the warrants of the same tenor as this Warrant then
outstanding is to be called at a given time, the Corporation shall select
the warrants to be called in whatever manner the Board of Directors of the
Corporation determines. Subject to the provisions and limitations contained
herein, the Board of Directors shall have full power and authority to
prescribe the manner in which the terms and conditions upon which this
Warrant shall from time to time be callable.
(4) On and after the date of call specified in the notice, the owner or
owners of this Warrant shall be entitled to receive the call price of $.0001
per share, upon presentation and surrender of this Warrant at the place
designated in the notice. If called the registered owners agree to execute
all documents required by the Corporation to transfer the warrants to the
Corporation.
<PAGE>
(5) From and after the date of call specified in the notice (unless the
Corporation defaults in providing money for the payment of the call price),
all rights of the holder or holders hereof as a warrant holder in the
Corporation shall cease, except for the right to receive the call price
hereof without interest and this Warrant shall be available for sale,
transfer and/or issuance of stock by the Company.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.0 1. This Warrant and the Shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act
of 1933, nor any other securities act. Upon exercise, in part of in whole,
of this Warrant, the Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY ACCEPTING
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF STOCK ARE
ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR
VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION UNDER APPLICABLE
SECURITIES LAWS AND ACTS OR AN EXEMPTION THEREOF, BY ACCEPTING THE
SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE SHAREHOLDER HEREOF
AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED BY LAW.
ARTICLE IV
OTHER MATTERS
Section 4.01. All the covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
Section 4.02. The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Colorado.
Section 4.03. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by
the Company, as follows:
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
<PAGE>
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
Section 4.04. Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than
the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements combined in this Warrant shall be for the sole and exclusive
benefit of the Company and its successors and of the Holder, its successors
and, if permitted, its assignees.
Section 4.05. The Article headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under
its corporate seal as of the 30 day of November, 1998.
LAKOTA ENERGY, INC.
By: /s/Howard Wilson By: /s/Ken Honeyman
Secretary President
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY
ACCEPTING THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF
STOCK ARE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
UNDER APPLICABLE SECURITIES LAWS AND ACTS OR AN EXEMTION THEREOF.
BY ACCEPTING THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE
SHAREHOLDER HEREOF AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED
BY LAW.
"B"
WARRANT
For the Purchase of Common Stock, Par Value $.0001 per Share, of
LAKOTA ENERGY, INC.
(Incorporated Under the Laws of the State of Colorado)
Void after 5:00 P.M. November 30, 2000
WARRANT TO PURCHASE 1,250,000 SHARES
THIS IS TO CERTIFY that, for value received, Dipak & Archana Bhatt, JTWROS,
("Underwriter"), or registered assigns, is entitled, subject to the terms
and conditions hereinafter set forth, at any time before 5:00 P.M., Eastern
time, on November 30, 2000, but not thereafter, to purchase the number of
shares set forth above ("Shares") of common stock, par value $ 1.00 per
share at time Warrant was granted and subsequently amended to $.0001 par
value per share ("Common Stock"), of Lakota Energy, Inc., a Colorado
corporation ("Company" or "Corporation"), from the Company upon payment to
the Company of $.15 per share ("Purchase Price") if and to the extent this
Warrant is exercised, in whole or in part, during, the Period this Warrant
remains in force and to receive a certificate or certificates represented
(the Shares so purchased, upon presentation and surrender to the Company of
this Warrant, with the form of subscription attached hereto duly executed,
and accompanied by payment of the Purchase price of each Share purchased
ARTICLE I
TERMS OF THE WARRANT
Section 1.01. Subject to the provisions of this agreement, this Warrant may
be exercised at any time after 9:00 A.M., Eastern time on November 30,
1998 ("Exercise Commencement Date"), but no later than 5:00 P.M., Eastern
time, on November 30, 2000, ("Expiration Time"). If this Warrant is not
exercised on, or before the Expiration Time, it shall become void, and all
rights hereunder shall thereupon cease.
<PAGE>
Section 1.02. (1) The holder of this warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form
of exercise attached hereto as Exhibit "A" duly executed to the Company at
its office in Atlanta, Georgia, together with the full Purchase Price of
$.10 for each Share to be purchased in lawful money of the United States, or
by certified check, bank draft, or postal or, express money order payable in
United States dollars to the order of the Company, and upon compliance with
and subject to the conditions set forth herein.
(2) Upon receipt of this Warrant with the Exhibit "A" form of exercise duly
executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall
cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
(3) In case the Holder shall exercise this Warrant with respect to less than
all of the Shares that may be purchased under this Warrant, the Company
shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
(4) The Company, covenants and agrees that it will pay when due and payable
any and all of the Company's taxes which may be payable in respect of the
issue of this Warrant or the issue of any Shares upon the exercise of this
Warrant. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance or
delivery of this Warrant or of the Shares in a name other than that
of the Holder at the time of surrender, and until the payment of such
tax the Company shall not be required to issue such Shares.
Section 1.03. Prior to due presentment for registration of transfer of this
Warrant the Company may deem and treat the Holder as the absolute owner of
this Warrant (notwithstanding any notation of ownership or other writing
hereon) for the purpose of any exercise hereof and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
Section 1.04. Except per Article II, this Warrant may not be sold,
hypothecated, exercised, assigned oi transferred, except to individuals who
are of officers of the Company per Article II or any successor to its
business or pursuant to the laws of descent and distribution, and thereafter
and until its expiration shall be assignable and transferable in accordance
with and subject to the Securities Act of 1933 and all other Federal and
State Securities laws.
Section 1.05. Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company.
<PAGE>
Section 1.06. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such reasonable terms as to indemnity or otherwise as it
may impose (which shall, in the case of a mutilated Warrant, include the
surrender thereto, issue a new Warrant of like denomination and tenor as,
and in substitution for, this Warrant, which shall thereupon become void.
Any such new Warrant shall constitute an additional contractual obligation
of the Company.
Section 1.07, (1) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise hereof sufficient
authorized Shares to permit the exercise in full of this Warrant.
(2) Prior to the issuance of any Shares upon exercise of this Warrant, the
Company may, but not required, to secure the listing of such Shares upon any
securities exchange or automated quotation system upon which the shares of
the Company's Common Stock are listed for trading.
(3) The company covenants that all Shares when issued upon the exercise of
this Warrant will be validly issued, fully paid, and non-assessable.
ARTICLE II
COMPANY'S RIGHT TO CALL WARRANT
Section 2.01. (1) By resolution of its Board of Directors, the Corporation
may call this warrant at any time and from time to time on, or after
November 30, 1998, in whole or in part, by paying to the registered owner,
or owners hereof the sum of $.0001 per share.
(2) The Corporation shall give notice of its election to call this Warrant
by mailing a copy of such notice, postage prepaid, to the registered owner
or owners hereof, not less than 30 or more than 90 days prior to the date
designated as the date for the call, addressed to their respective addresses
appearing on the books of the Corporation. Failure to give notice, or any
defect in a notice or in the mailing thereof, will not affect the validity
of the call.
(3) If only a portion of the warrants of the same tenor as this Warrant then
outstanding is to be called at a given time, the Corporation shall select
the warrants to be called in whatever manner the Board of Directors of the
Corporation determines. Subject to the provisions and limitations contained
herein, the Board of Directors shall have full power and authority to
prescribe the manner in which the terms and conditions upon which this
Warrant shall from time to time be callable.
(4) On and after the date of call specified in the notice, the owner or
owners of this Warrant shall be entitled to receive the call price of $.0001
per share, upon presentation and surrender of this Warrant at the place
designated in the notice. If called the registered owners agree to execute
all documents required by the Corporation to transfer the warrants to the
Corporation.
<PAGE>
(5) From and after the date of call specified in the notice (unless the
Corporation defaults in providing money for the payment of the call price),
all rights of the holder or holders hereof as a warrant holder in the
Corporation shall cease, except for the right to receive the call price
hereof without interest and this Warrant shall be available for sale,
transfer and/or issuance of stock by the Company.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.0 1. This Warrant and the Shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act
of 1933, nor any other securities act. Upon exercise, in part of in whole,
of this Warrant, the Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY ACCEPTING
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF STOCK ARE
ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR
VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION UNDER APPLICABLE
SECURITIES LAWS AND ACTS OR AN EXEMPTION THEREOF, BY ACCEPTING THE
SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE SHAREHOLDER HEREOF
AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED BY LAW.
ARTICLE IV
OTHER MATTERS
Section 4.01. All the covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
Section 4.02. The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Colorado.
Section 4.03. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by
the Company, as follows:
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
<PAGE>
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
Section 4.04. Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than
the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements combined in this Warrant shall be for the sole and exclusive
benefit of the Company and its successors and of the Holder, its successors
and, if permitted, its assignees.
Section 4.05. The Article headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under
its corporate seal as of the 30 day of November, 1998.
LAKOTA ENERGY, INC.
By: /s/Howard Wilson By: /s/Ken Honeyman
Secretary President
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY
ACCEPTING THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF
STOCK ARE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
UNDER APPLICABLE SECURITIES LAWS AND ACTS OR AN EXEMTION THEREOF.
BY ACCEPTING THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE
SHAREHOLDER HEREOF AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED
BY LAW.
"A"
WARRANT
For the Purchase of Common Stock, Par Value $.0001 per Share, of
LAKOTA ENERGY, INC.
(Incorporated Under the Laws of the State of Colorado)
Void after 5:00 P.M. December 22, 1999
WARRANT TO PURCHASE 750,000 SHARES
THIS IS TO CERTIFY that, for value received, Dipak & Archana Bhatt,
JTWROS, ("Underwriter"), or registered assigns, is entitled,
subject to the terms and conditions hereinafter set forth, at any
time before 5:00 P.M., eastern time, on December 22, 1999, but
not thereafter, to purchase the number of shares set forth above
("Shares") of common stock, par value $1.00 per share at time
Warrant was granted and subsequently amended to $.0001 par value
per share ("Common Stock"), of Lakota Energy, Inc., a
Colorado corporation ("Company" or "Corporation"), from the
Company upon payment to the Company of $.15 per share
("Purchase Price") if and to the extent this Warrant is exercised,
in whole or in part, during, the Period this Warrant remains in
force and to receive a certificate or certificates represented (the
Shares so purchased, upon presentation and surrender to the
Company of this Warrant, with the form of subscription attached
hereto duly executed, and accompanied by payment of the Purchase
price of each Share purchased
ARTICLE I
TERMS OF THE WARRANT
Section 1.01. Subject to the provisions of this agreement, this
Warrant maybe exercised at any time after 9:00 A.M., eastern time on
December 22, 1998 ("Exercise Commencement Date"), but no later than
5:00 P.M., eastern time, on December 22, 1999 ("Expiration Time").
If this Warrant is not exercised on, or before the Expiration Time
it shall become void, and all rights hereunder shall thereupon cease.
<PAGE>
Section 1.02. (1) The holder of this Warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form
of exercise attached hereto as Exhibit "A" duly executed to the Company at
its office in Atlanta, Georgia, together with the full Purchase Price of
$.10 for each Share to be purchased in lawful money of the United States, or
by certified check, bank draft, or postal or, express money order payable in
United States dollars to the order of the Company, and upon compliance with
and subject to the conditions set forth herein.
(2) Upon receipt of this Warrant with the Exhibit "A" form of exercise duly
executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall
cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
(3) In case the Holder shall exercise this Warrant with respect to less than
all of the Shares that may be purchased under this Warrant, the Company
shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
(4) The Company, covenants and agrees that it will pay when due and payable
any and all of the Company's taxes which may be payable in respect of the
issue of this Warrant or the issue of any Shares upon the exercise of this
Warrant. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance or
delivery of this Warrant or of the Shares in a name other than that
of the Holder at the time of surrender, and until the payment of such
tax the Company shall not be required to issue such Shares.
Section 1.03. Prior to due presentment for registration of transfer of this
Warrant the Company may deem and treat the Holder as the absolute owner of
this Warrant (notwithstanding any notation of ownership or other writing
hereon) for the purpose of any exercise hereof and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
Section 1.04. Except per Article II, this Warrant may not be sold,
hypothecated, exercised, assigned oi transferred, except to individuals who
are of officers of the Company per Article II or any successor to its
business or pursuant to the laws of descent and distribution, and thereafter
and until its expiration shall be assignable and transferable in accordance
with and subject to the Securities Act of 1933 and all other Federal and
State Securities laws.
Section 1.05. Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company.
<PAGE>
Section 1.06. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such reasonable terms as to indemnity or otherwise as it
may impose (which shall, in the case of a mutilated Warrant, include the
surrender thereto, issue a new Warrant of like denomination and tenor as,
and in substitution for, this Warrant, which shall thereupon become void.
Any such new Warrant shall constitute an additional contractual obligation
of the Company.
Section 1.07, (1) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise hereof sufficient
authorized Shares to permit the exercise in full of this Warrant.
(2) Prior to the issuance of any Shares upon exercise of this Warrant, the
Company may, but not required, to secure the listing of such Shares upon any
securities exchange or automated quotation system upon which the shares of
the Company's Common Stock are listed for trading.
(3) The company covenants that all Shares when issued upon the exercise of
this Warrant will be validly issued, fully paid, and non-assessable.
ARTICLE II
COMPANY'S RIGHT TO CALL WARRANT
Section 2.01. (1) By resolution of its Board of Directors, the Corporation
may call this warrant at any time and from time to time on, or after
December 22, 1998, in whole or in part, by paying to the registered owner,
or owners hereof the sum of $.0001 per share.
(2) The Corporation shall give notice of its election to call this Warrant
by mailing a copy of such notice, postage prepaid, to the registered owner
or owners hereof, not less than 30 or more than 90 days prior to the date
designated as the date for the call, addressed to their respective addresses
appearing on the books of the Corporation. Failure to give notice, or any
defect in a notice or in the mailing thereof, will not affect the validity
of the call.
(3) If only a portion of the warrants of the same tenor as this Warrant then
outstanding is to be called at a given time, the Corporation shall select
the warrants to be called in whatever manner the Board of Directors of the
Corporation determines. Subject to the provisions and limitations contained
herein, the Board of Directors shall have full power and authority to
prescribe the manner in which the terms and conditions upon which this
Warrant shall from time to time be callable.
(4) On and after the date of call specified in the notice, the owner or
owners of this Warrant shall be entitled to receive the call price of $.0001
per share, upon presentation and surrender of this Warrant at the place
designated in the notice. If called the registered owners agree to execute
all documents required by the Corporation to transfer the warrants to the
Corporation.
<PAGE>
(5) From and after the date of call specified in the notice (unless the
Corporation defaults in providing money for the payment of the call price),
all rights of the holder or holders hereof as a warrant holder in the
Corporation shall cease, except for the right to receive the call price
hereof without interest and this Warrant shall be available for sale,
transfer and/or issuance of stock by the Company.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.0 1. This Warrant and the Shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act
of 1933, nor any other securities act. Upon exercise, in part of in whole,
of this Warrant, the Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY ACCEPTING
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF STOCK ARE
ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR
VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION UNDER APPLICABLE
SECURITIES LAWS AND ACTS OR AN EXEMPTION THEREOF, BY ACCEPTING THE
SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE SHAREHOLDER HEREOF
AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED BY LAW.
ARTICLE IV
OTHER MATTERS
Section 4.01. All the covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
Section 4.02. The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Colorado.
Section 4.03. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by
the Company, as follows:
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
<PAGE>
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
Section 4.04. Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than
the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements combined in this Warrant shall be for the sole and exclusive
benefit of the Company and its successors and of the Holder, its successors
and, if permitted, its assignees.
Section 4.05. The Article headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under
its corporate seal as of the 22nd day of December, 1998.
LAKOTA ENERGY, INC.
By: /s/Howard Wilson By: /s/Ken Honeyman
Secretary President
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY
ACCEPTING THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF
STOCK ARE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
UNDER APPLICABLE SECURITIES LAWS AND ACTS OR AN EXEMTION THEREOF.
BY ACCEPTING THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE
SHAREHOLDER HEREOF AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED
BY LAW.
"B"
WARRANT
For the Purchase of Common Stock, Par Value $.0001 per Share, of
LAKOTA ENERGY, INC.
(Incorporated Under the Laws of the State of Colorado)
Void after 5:00 P.M. December 22, 2000
WARRANT TO PURCHASE 750,000 SHARES
THIS IS TO CERTIFY that. for value received, Dipak & Archana Bhatt, JTWROS,
("Underwriter"), or registered assigns, is entitled, subject to the terms and
conditions hereinafter set forth, at any time before 5:00 P.M., Eastern
time, on December 22, 2000, but not thereafter, to purchase the number of
shares set forth above ("Shares") of common stock, par value $1.00 per
share at time Warrant was granted and subsequently amended to $.0001 par
value per share ("Common Stock"), of Lakota Energy, Inc., a Colorado
corporation ("Company" or "Corporation"), from the Company upon payment to
the Company of $.20 per share ("Purchase Price") if and to the extent this
Wan-ant is exercised, in whole or in part, during, the Period this Warrant
remains in force and to receive a certificate or certificates represented
(the Shares so purchased, upon presentation and surrender to the Company of
this Warrant, with the form of subscription attached hereto duly executed,
and accompanied by payment of the Purchase price of each Share purchased
ARTICLE I
TERMS OF THE WARRANT
Section 1.01. Subject to the provisions of this agreement, this Warrant may
be exercised at any time after 9:00 A.M., Eastern time on December 22, 1998
("Exercise Commencement Date"), but no later than 5:00 P.M., Eastern time,
on December 22, 2000, ("Expiration Time"). If this Warrant is not exercised
on, or before the Expiration Time, it shall become void, and all rights
hereunder shall thereupon cease.
<PAGE>
Section 1.02. (1) The holder of this warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form
of exercise attached hereto as Exhibit "A" duly executed to the Company at
its office in Atlanta, Georgia, together with the full Purchase Price of
$.10 for each Share to be purchased in lawful money of the United States, or
by certified check, bank draft, or postal or, express money order payable in
United States dollars to the order of the Company, and upon compliance with
and subject to the conditions set forth herein.
(2) Upon receipt of this Warrant with the Exhibit "A" form of exercise duly
executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall
cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
(3) In case the Holder shall exercise this Warrant with respect to less than
all of the Shares that may be purchased under this Warrant, the Company
shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
(4) The Company, covenants and agrees that it will pay when due and payable
any and all of the Company's taxes which may be payable in respect of the
issue of this Warrant or the issue of any Shares upon the exercise of this
Warrant. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance or
delivery of this Warrant or of the Shares in a name other than that
of the Holder at the time of surrender, and until the payment of such
tax the Company shall not be required to issue such Shares.
Section 1.03. Prior to due presentment for registration of transfer of this
Warrant the Company may deem and treat the Holder as the absolute owner of
this Warrant (notwithstanding any notation of ownership or other writing
hereon) for the purpose of any exercise hereof and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
Section 1.04. Except per Article II, this Warrant may not be sold,
hypothecated, exercised, assigned oi transferred, except to individuals who
are of officers of the Company per Article II or any successor to its
business or pursuant to the laws of descent and distribution, and thereafter
and until its expiration shall be assignable and transferable in accordance
with and subject to the Securities Act of 1933 and all other Federal and
State Securities laws.
Section 1.05. Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company.
<PAGE>
Section 1.06. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such reasonable terms as to indemnity or otherwise as it
may impose (which shall, in the case of a mutilated Warrant, include the
surrender thereto, issue a new Warrant of like denomination and tenor as,
and in substitution for, this Warrant, which shall thereupon become void.
Any such new Warrant shall constitute an additional contractual obligation
of the Company.
Section 1.07, (1) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise hereof sufficient
authorized Shares to permit the exercise in full of this Warrant.
(2) Prior to the issuance of any Shares upon exercise of this Warrant, the
Company may, but not required, to secure the listing of such Shares upon any
securities exchange or automated quotation system upon which the shares of
the Company's Common Stock are listed for trading.
(3) The company covenants that all Shares when issued upon the exercise of
this Warrant will be validly issued, fully paid, and non-assessable.
ARTICLE II
COMPANY'S RIGHT TO CALL WARRANT
Section 2.01. (1) By resolution of its Board of Directors, the Corporation
may call this warrant at any time and from time to time on, or after
December 22, 1998, in whole or in part, by paying to the registered owner,
or owners hereof the sum of $.0001 per share.
(2) The Corporation shall give notice of its election to call this Warrant
by mailing a copy of such notice, postage prepaid, to the registered owner
or owners hereof, not less than 30 or more than 90 days prior to the date
designated as the date for the call, addressed to their respective addresses
appearing on the books of the Corporation. Failure to give notice, or any
defect in a notice or in the mailing thereof, will not affect the validity
of the call.
(3) If only a portion of the warrants of the same tenor as this Warrant then
outstanding is to be called at a given time, the Corporation shall select
the warrants to be called in whatever manner the Board of Directors of the
Corporation determines. Subject to the provisions and limitations contained
herein, the Board of Directors shall have full power and authority to
prescribe the manner in which the terms and conditions upon which this
Warrant shall from time to time be callable.
(4) On and after the date of call specified in the notice, the owner or
owners of this Warrant shall be entitled to receive the call price of $.0001
per share, upon presentation and surrender of this Warrant at the place
designated in the notice. If called the registered owners agree to execute
all documents required by the Corporation to transfer the warrants to the
Corporation.
<PAGE>
(5) From and after the date of call specified in the notice (unless the
Corporation defaults in providing money for the payment of the call price),
all rights of the holder or holders hereof as a warrant holder in the
Corporation shall cease, except for the right to receive the call price
hereof without interest and this Warrant shall be available for sale,
transfer and/or issuance of stock by the Company.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.0 1. This Warrant and the Shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act
of 1933, nor any other securities act. Upon exercise, in part of in whole,
of this Warrant, the Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY ACCEPTING
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF STOCK ARE
ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR
VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION UNDER APPLICABLE
SECURITIES LAWS AND ACTS OR AN EXEMPTION THEREOF, BY ACCEPTING THE
SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE SHAREHOLDER HEREOF
AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED BY LAW.
ARTICLE IV
OTHER MATTERS
Section 4.01. All the covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
Section 4.02. The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Colorado.
Section 4.03. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by
the Company, as follows:
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
<PAGE>
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
Section 4.04. Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than
the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements combined in this Warrant shall be for the sole and exclusive
benefit of the Company and its successors and of the Holder, its successors
and, if permitted, its assignees.
Section 4.05. The Article headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under
its corporate seal as of the 22nd day of December, 1998.
LAKOTA ENERGY, INC.
By: /s/Howard Wilson By: /s/Ken Honeyman
Secretary President
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY
ACCEPTING THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF
STOCK ARE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
UNDER APPLICABLE SECURITIES LAWS AND ACTS OR AN EXEMTION THEREOF.
BY ACCEPTING THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE
SHAREHOLDER HEREOF AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED
BY LAW.
"A"
WARRANT
For the Purchase of Common Stock, Par Value $.0001 per Share, of
LAKOTA ENERGY, INC.
(Incorporated Under the Laws of the State of Colorado)
Void after 5:00 P December 10, 1999
WARRANT TO PURCHASE 500,000 SHARES
THIS IS TO CERTIFY that, for value received Michael A. Hancock and Steven D.
Morrison, Joint Tenants in Common, ("Underwriter"), or registered assigns,
is entitled, subject to the terms and conditions hereinafter set forth, at
any time before 5:00 P.M., eastern time, on December 10, 1999 but not
thereafter, to purchase the number of shares set forth above ("Shares")
of common stock, par value $1.00 per share at time Warrant was granted
and subsequently amended to $.0001 par value per share ("Common
Stock"), of Lakota Energy, Inc., a Colorado corporation ("Company" or
"Corporation"), from the Company upon payment to the Company of $.10
per share ("Purchase Price") if and to the extent this Warrant is
exercised, in whole or in part, during, the Period this Warrant
remains in force and to receive a certificate or certificates represented
(the Shares so purchased, upon presentation and surrender to the Company
of this Warrant, with the form of subscription attached hereto duly
executed, and accompanied by payment of the Purchase price of each
Share purchased
ARTICLE I
TERMS OF THE WARRANT
Section 1.01. Subject to the provisions of this agreement, this Warrant may
be exercised at any time after 9:00 A.M., Eastern time on, December 10, 1998
("Exercise Commencement Date"), but no later than 5:00 P.M., eastern time,
on December 10, 1999, ("Expiration Time"). If this Warrant is not exercised
on, or before the Expiration Time, it shall become void, and all rights
hereunder shall thereupon cease.
<PAGE>
Section 1.02. (1) The holder of this Warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form
of exercise attached hereto as Exhibit "A" duly executed to the Company at
its office in Atlanta, Georgia, together with the full Purchase Price of
$.10 for each Share to be purchased in lawful money of the United States, or
by certified check, bank draft, or postal or, express money order payable in
United States dollars to the order of the Company, and upon compliance with
and subject to the conditions set forth herein.
(2) Upon receipt of this Warrant with the Exhibit "A" form of exercise duly
executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall
cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
(3) In case the Holder shall exercise this Warrant with respect to less than
all of the Shares that may be purchased under this Warrant, the Company
shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
(4) The Company, covenants and agrees that it will pay when due and payable
any and all of the Company's taxes which may be payable in respect of the
issue of this Warrant or the issue of any Shares upon the exercise of this
Warrant. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance or
delivery of this Warrant or of the Shares in a name other than that
of the Holder at the time of surrender, and until the payment of such
tax the Company shall not be required to issue such Shares.
Section 1.03. Prior to due presentment for registration of transfer of this
Warrant the Company may deem and treat the Holder as the absolute owner of
this Warrant (notwithstanding any notation of ownership or other writing
hereon) for the purpose of any exercise hereof and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
Section 1.04. Except per Article II, this Warrant may not be sold,
hypothecated, exercised, assigned oi transferred, except to individuals who
are of officers of the Company per Article II or any successor to its
business or pursuant to the laws of descent and distribution, and thereafter
and until its expiration shall be assignable and transferable in accordance
with and subject to the Securities Act of 1933 and all other Federal and
State Securities laws.
Section 1.05. Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company.
<PAGE>
Section 1.06. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such reasonable terms as to indemnity or otherwise as it
may impose (which shall, in the case of a mutilated Warrant, include the
surrender thereto, issue a new Warrant of like denomination and tenor as,
and in substitution for, this Warrant, which shall thereupon become void.
Any such new Warrant shall constitute an additional contractual obligation
of the Company.
Section 1.07, (1) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise hereof sufficient
authorized Shares to permit the exercise in full of this Warrant.
(2) Prior to the issuance of any Shares upon exercise of this Warrant, the
Company may, but not required, to secure the listing of such Shares upon any
securities exchange or automated quotation system upon which the shares of
the Company's Common Stock are listed for trading.
(3) The company covenants that all Shares when issued upon the exercise of
this Warrant will be validly issued, fully paid, and non-assessable.
ARTICLE II
COMPANY'S RIGHT TO CALL WARRANT
Section 2.01. (1) By resolution of its Board of Directors, the Corporation
may call this warrant at any time and from time to time on, or after
December 10, 1998, in whole or in part, by paying to the registered owner,
or owners hereof the sum of $.0001 per share.
(2) The Corporation shall give notice of its election to call this Warrant
by mailing a copy of such notice, postage prepaid, to the registered owner
or owners hereof, not less than 30 or more than 90 days prior to the date
designated as the date for the call, addressed to their respective addresses
appearing on the books of the Corporation. Failure to give notice, or any
defect in a notice or in the mailing thereof, will not affect the validity
of the call.
(3) If only a portion of the warrants of the same tenor as this Warrant then
outstanding is to be called at a given time, the Corporation shall select
the warrants to be called in whatever manner the Board of Directors of the
Corporation determines. Subject to the provisions and limitations contained
herein, the Board of Directors shall have full power and authority to
prescribe the manner in which the terms and conditions upon which this
Warrant shall from time to time be callable.
(4) On and after the date of call specified in the notice, the owner or
owners of this Warrant shall be entitled to receive the call price of $.0001
per share, upon presentation and surrender of this Warrant at the place
designated in the notice. If called the registered owners agree to execute
all documents required by the Corporation to transfer the warrants to the
Corporation.
<PAGE>
(5) From and after the date of call specified in the notice (unless the
Corporation defaults in providing money for the payment of the call price),
all rights of the holder or holders hereof as a warrant holder in the
Corporation shall cease, except for the right to receive the call price
hereof without interest and this Warrant shall be available for sale,
transfer and/or issuance of stock by the Company.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.0 1. This Warrant and the Shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act
of 1933, nor any other securities act. Upon exercise, in part of in whole,
of this Warrant, the Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY ACCEPTING
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF STOCK ARE
ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR
VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION UNDER APPLICABLE
SECURITIES LAWS AND ACTS OR AN EXEMPTION THEREOF, BY ACCEPTING THE
SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE SHAREHOLDER HEREOF
AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED BY LAW.
ARTICLE IV
OTHER MATTERS
Section 4.01. All the covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
Section 4.02. The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Colorado.
Section 4.03. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by
the Company, as follows:
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
<PAGE>
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
Section 4.04. Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than
the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements combined in this Warrant shall be for the sole and exclusive
benefit of the Company and its successors and of the Holder, its successors
and, if permitted, its assignees.
Section 4.05. The Article headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under
its corporate seal as of the 10 day of December, 1998.
LAKOTA ENERGY, INC.
By: /s/Howard Wilson By: /s/Ken Honeyman
Secretary President
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY
ACCEPTING THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF
STOCK ARE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
UNDER APPLICABLE SECURITIES LAWS AND ACTS OR AN EXEMTION THEREOF.
BY ACCEPTING THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE
SHAREHOLDER HEREOF AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED
BY LAW.
"B"
WARRANT
For the Purchase of Common Stock, Par Value $.0001 per Share, of
LAKOTA ENERGY, INC.
(Incorporated Under the Laws of the State of Colorado)
Void after 5:00 P.M. December 10, 2000
WARRANT TO PURCHASE 500,000 SHARES
THIS IS TO CERTIFY that, for value received, Michael A. Hancock and
Steven D. Morrison, Joint Tenants in Common, ("Underwriter"), or registered
assigns, is entitled, subject to the terms and conditions hereinafter set
forth, at any time before 5:00 P.M., Eastern time, on December 10, 2000, but
not thereafter, to purchase the number of shares set forth above ("Shares")
of common stock, par value $1.00 per share at time Warrant was granted
and subsequently amended to $.0001 par value per share ("Common Stock"),
of Lakota Energy, Inc., a Colorado corporation ("Company" or "Corporation"),
from the Company upon payment to the Company of $.15 per share ("Purchase
Price") if and to the extent this Warrant is exercised, in whole or in part,
during, the Period this Warrant remains in force and to receive a
certificate or certificates represented (the Shares so purchased, upon
presentation and surrender to the Company of this Warrant, with the
form of subscription attached hereto duly executed, and accompanied by
payment of the Purchase price of each Share purchased.
ARTICLE I
TERMS OF THE WARRANT
Section 1.01. Subject to the provisions of this agreement, this Warrant may
be exercised at any time after 9:00 A.M., Eastern time on December 10, 1998
("Exercise Commencement Date"'), but no later than 5:00 P.M., Eastern time,
on December 10, 2000, ("Expiration Time"). If this Warrant is not
exercised on, or before the Expiration Time, it shall become void,
and all rights hereunder shall thereupon cease.
<PAGE>
Section 1.02. (1) The holder of this warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form
of exercise attached hereto as Exhibit "A" duly executed to the Company at
its office in Atlanta, Georgia, together with the full Purchase Price of
$.10 for each Share to be purchased in lawful money of the United States, or
by certified check, bank draft, or postal or, express money order payable in
United States dollars to the order of the Company, and upon compliance with
and subject to the conditions set forth herein.
(2) Upon receipt of this Warrant with the Exhibit "A" form of exercise duly
executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall
cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
(3) In case the Holder shall exercise this Warrant with respect to less than
all of the Shares that may be purchased under this Warrant, the Company
shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
(4) The Company, covenants and agrees that it will pay when due and payable
any and all of the Company's taxes which may be payable in respect of the
issue of this Warrant or the issue of any Shares upon the exercise of this
Warrant. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance or
delivery of this Warrant or of the Shares in a name other than that
of the Holder at the time of surrender, and until the payment of such
tax the Company shall not be required to issue such Shares.
Section 1.03. Prior to due presentment for registration of transfer of this
Warrant the Company may deem and treat the Holder as the absolute owner of
this Warrant (notwithstanding any notation of ownership or other writing
hereon) for the purpose of any exercise hereof and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
Section 1.04. Except per Article II, this Warrant may not be sold,
hypothecated, exercised, assigned oi transferred, except to individuals who
are of officers of the Company per Article II or any successor to its
business or pursuant to the laws of descent and distribution, and thereafter
and until its expiration shall be assignable and transferable in accordance
with and subject to the Securities Act of 1933 and all other Federal and
State Securities laws.
Section 1.05. Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company.
<PAGE>
Section 1.06. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such reasonable terms as to indemnity or otherwise as it
may impose (which shall, in the case of a mutilated Warrant, include the
surrender thereto, issue a new Warrant of like denomination and tenor as,
and in substitution for, this Warrant, which shall thereupon become void.
Any such new Warrant shall constitute an additional contractual obligation
of the Company.
Section 1.07, (1) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise hereof sufficient
authorized Shares to permit the exercise in full of this Warrant.
(2) Prior to the issuance of any Shares upon exercise of this Warrant, the
Company may, but not required, to secure the listing of such Shares upon any
securities exchange or automated quotation system upon which the shares of
the Company's Common Stock are listed for trading.
(3) The company covenants that all Shares when issued upon the exercise of
this Warrant will be validly issued, fully paid, and non-assessable.
ARTICLE II
COMPANY'S RIGHT TO CALL WARRANT
Section 2.01. (1) By resolution of its Board of Directors, the Corporation
may call this warrant at any time and from time to time on, or after
December 10, 1998, in whole or in part, by paying to the registered owner,
or owners hereof the sum of $.0001 per share.
(2) The Corporation shall give notice of its election to call this Warrant
by mailing a copy of such notice, postage prepaid, to the registered owner
or owners hereof, not less than 30 or more than 90 days prior to the date
designated as the date for the call, addressed to their respective addresses
appearing on the books of the Corporation. Failure to give notice, or any
defect in a notice or in the mailing thereof, will not affect the validity
of the call.
(3) If only a portion of the warrants of the same tenor as this Warrant then
outstanding is to be called at a given time, the Corporation shall select
the warrants to be called in whatever manner the Board of Directors of the
Corporation determines. Subject to the provisions and limitations contained
herein, the Board of Directors shall have full power and authority to
prescribe the manner in which the terms and conditions upon which this
Warrant shall from time to time be callable.
(4) On and after the date of call specified in the notice, the owner or
owners of this Warrant shall be entitled to receive the call price of $.0001
per share, upon presentation and surrender of this Warrant at the place
designated in the notice. If called the registered owners agree to execute
all documents required by the Corporation to transfer the warrants to the
Corporation.
<PAGE>
(5) From and after the date of call specified in the notice (unless the
Corporation defaults in providing money for the payment of the call price),
all rights of the holder or holders hereof as a warrant holder in the
Corporation shall cease, except for the right to receive the call price
hereof without interest and this Warrant shall be available for sale,
transfer and/or issuance of stock by the Company.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.0 1. This Warrant and the Shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act
of 1933, nor any other securities act. Upon exercise, in part of in whole,
of this Warrant, the Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY ACCEPTING
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF STOCK ARE
ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR
VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION UNDER APPLICABLE
SECURITIES LAWS AND ACTS OR AN EXEMPTION THEREOF, BY ACCEPTING THE
SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE SHAREHOLDER HEREOF
AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED BY LAW.
ARTICLE IV
OTHER MATTERS
Section 4.01. All the covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
Section 4.02. The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Colorado.
Section 4.03. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by
the Company, as follows:
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
<PAGE>
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
Section 4.04. Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than
the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements combined in this Warrant shall be for the sole and exclusive
benefit of the Company and its successors and of the Holder, its successors
and, if permitted, its assignees.
Section 4.05. The Article headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under
its corporate seal as of the 10 day of December, 1998.
LAKOTA ENERGY, INC.
By: /s/Howard Wilson By: /s/Ken Honeyman
Secretary President
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY
ACCEPTING THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF
STOCK ARE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
UNDER APPLICABLE SECURITIES LAWS AND ACTS OR AN EXEMPTION THEREOF.
BY ACCEPTING THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE
SHAREHOLDER HEREOF AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED
BY LAW.
"A"
WARRANT
For the Purchase of Common Stock, Par Value $.0001 per Share, of
LAKOTA ENERGY, INC.
(Incorporated Under the Laws of the State of Colorado)
Void after 5:00 P.M. December 17,1999
Warrant to Purchase 250,000 Shares
THIS IS TO CERTIFY that, for value received, Michael A. Hancock and Steven D.
Morrison, Joint Tenants in Common, ("Underwriter), or registered assigns, is
entitled, subject to the terms and conditions hereinafter set forth, at any
time before 5:00 P.M., eastern time, on December 17, 1999, but not
thereafter, to purchase the number of shares set forth above ("Shares")
of common stock, par value $1.00 per share at time Warrant
was granted and subsequently amended to $.0001 par value per share ("Common
Stock"), of Lakota Energy, Inc., a Colorado corporation ("Company" or
"Corporation"), from the Company upon payment to the Company of $.10 per
share ("Purchase Price") if and to the extent this Warrant is exercised, in
whole or in part, during, the Period this Warrant remains in force and to
receive a certificate or certificates represented (the Shares so
purchased, upon presentation and surrender to the Company of this Warrant,
with the form of subscription attached hereto duly executed, and accompanied
by payment of the Purchase price of each Share purchased
ARTICLE I
TERMS OF THE WARRANT
Section.1.01. Subject to the provisions of this agreement, this Warrant
maybe exercised at any time after 9:00 A.M., eastern time on December 17,
1998 ("Exercise Commencement Date"), but no later than 5:00 P.M., eastern
time, on December 17, 1999 ("Expiration Time"). If this Warrant is not
exercised on, or before the Expiration Time it shall become void, and
all rights hereunder shall thereupon cease.
<PAGE>
Section 1.02. (1) The holder of this Warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form
of exercise attached hereto as Exhibit "A" duly executed to the Company at
its office in Atlanta, Georgia, together with the full Purchase Price of
$.10 for each Share to be purchased in lawful money of the United States, or
by certified check, bank draft, or postal or, express money order payable in
United States dollars to the order of the Company, and upon compliance with
and subject to the conditions set forth herein.
(2) Upon receipt of this Warrant with the Exhibit "A" form of exercise duly
executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall
cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
(3) In case the Holder shall exercise this Warrant with respect to less than
all of the Shares that may be purchased under this Warrant, the Company
shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
(4) The Company, covenants and agrees that it will pay when due and payable
any and all of the Company's taxes which may be payable in respect of the
issue of this Warrant or the issue of any Shares upon the exercise of this
Warrant. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance or
delivery of this Warrant or of the Shares in a name other than that
of the Holder at the time of surrender, and until the payment of such
tax the Company shall not be required to issue such Shares.
Section 1.03. Prior to due presentment for registration of transfer of this
Warrant the Company may deem and treat the Holder as the absolute owner of
this Warrant (notwithstanding any notation of ownership or other writing
hereon) for the purpose of any exercise hereof and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
Section 1.04. Except per Article II, this Warrant may not be sold,
hypothecated, exercised, assigned oi transferred, except to individuals who
are of officers of the Company per Article II or any successor to its
business or pursuant to the laws of descent and distribution, and thereafter
and until its expiration shall be assignable and transferable in accordance
with and subject to the Securities Act of 1933 and all other Federal and
State Securities laws.
Section 1.05. Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company.
<PAGE>
Section 1.06. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such reasonable terms as to indemnity or otherwise as it
may impose (which shall, in the case of a mutilated Warrant, include the
surrender thereto, issue a new Warrant of like denomination and tenor as,
and in substitution for, this Warrant, which shall thereupon become void.
Any such new Warrant shall constitute an additional contractual obligation
of the Company.
Section 1.07, (1) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise hereof sufficient
authorized Shares to permit the exercise in full of this Warrant.
(2) Prior to the issuance of any Shares upon exercise of this Warrant, the
Company may, but not required, to secure the listing of such Shares upon any
securities exchange or automated quotation system upon which the shares of
the Company's Common Stock are listed for trading.
(3) The company covenants that all Shares when issued upon the exercise of
this Warrant will be validly issued, fully paid, and non-assessable.
ARTICLE II
COMPANY'S RIGHT TO CALL WARRANT
Section 2.01. (1) By resolution of its Board of Directors, the Corporation
may call this warrant at any time and from time to time on, or after
December 17, 1998, in whole or in part, by paying to the registered owner
or owners hereof the sum of $.0001 per share.
(2) The Corporation shall give notice of its election to call this Warrant
by mailing a copy of such notice, postage prepaid, to the registered owner
or owners hereof, not less than 30 or more than 90 days prior to the date
designated as the date for the call, addressed to their respective addresses
appearing on the books of the Corporation. Failure to give notice, or any
defect in a notice or in the mailing thereof, will not affect the validity
of the call.
(3) If only a portion of the warrants of the same tenor as this Warrant then
outstanding is to be called at a given time, the Corporation shall select
the warrants to be called in whatever manner the Board of Directors of the
Corporation determines. Subject to the provisions and limitations contained
herein, the Board of Directors shall have full power and authority to
prescribe the manner in which the terms and conditions upon which this
Warrant shall from time to time be callable.
(4) On and after the date of call specified in the notice, the owner or
owners of this Warrant shall be entitled to receive the call price of $.0001
per share, upon presentation and surrender of this Warrant at the place
designated in the notice. If called the registered owners agree to execute
all documents required by the Corporation to transfer the warrants to the
Corporation.
<PAGE>
(5) From and after the date of call specified in the notice (unless the
Corporation defaults in providing money for the payment of the call price),
all rights of the holder or holders hereof as a warrant holder in the
Corporation shall cease, except for the right to receive the call price
hereof without interest and this Warrant shall be available for sale,
transfer and/or issuance of stock by the Company.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.0 1. This Warrant and the Shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act
of 1933, nor any other securities act. Upon exercise, in part of in whole,
of this Warrant, the Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY ACCEPTING
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF STOCK ARE
ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR
VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION UNDER APPLICABLE
SECURITIES LAWS AND ACTS OR AN EXEMPTION THEREOF, BY ACCEPTING THE
SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE SHAREHOLDER HEREOF
AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED BY LAW.
ARTICLE IV
OTHER MATTERS
Section 4.01. All the covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
Section 4.02. The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Colorado.
Section 4.03. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by
the Company, as follows:
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
<PAGE>
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
Section 4.04. Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than
the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements combined in this Warrant shall be for the sole and exclusive
benefit of the Company and its successors and of the Holder, its successors
and, if permitted, its assignees.
Section 4.05. The Article headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under
its corporate seal as of the 17th day of December, 1998.
LAKOTA ENERGY, INC.
By: /s/Howard Wilson By: /s/Ken Honeyman
Secretary President
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY
ACCEPTING THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF
STOCK ARE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
UNDER APPLICABLE SECURITIES LAWS AND ACTS OR AN EXEMTION THEREOF.
BY ACCEPTING THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE
SHAREHOLDER HEREOF AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED
BY LAW.
"B"
WARRANT
For the Purchase of Common Stock, Par Value $.0001 per Share, of
LAKOTA ENERGY, INC.
(Incorporated Under the Laws of the State of Colorado)
Void after 5:00 P.M. December 17,2000
WARRANT TO PURCHASE 250,000 SHARES
THIS IS TO CERTIFY that, for value received, Michael A. Hancock and Steven
D. Morrison, Joint Tenants in Common ("Underwriter"), or registered assigns,
is entitled, subject to the terms and conditions hereinafter set forth, at
any time before 5:00 P.M., Eastern time, on December 17, 2000, but not
thereafter, to purchase the number of shares set forth above ("Shares") of
common stock, par value $1.00 per share at time Wan-ant was granted and
subsequently amended to $.0001 par value per share ("Common Stock"), of
Lakota Energy, Inc., a Colorado corporation ("Company" or "Corporation"),
from the Company upon payment to the Company of $.15 per share ("Purchase
Price") if and to the extent this Warrant is exercised, in whole or in part,
during, the Period this Warrant remains in force and to receive a
certificate or certificates represented (the Shares so purchased, upon
presentation and surrender to the Company of this Warrant, with the form of
subscription attached hereto duly executed, and accompanied by payment of
the Purchase price of each Share purchased
ARTICLE I
TERMS OF THE WARRANT
Section 1.01. Subject to the provisions of this agreement, this Warrant
may be exercised at any time after 9:00 A.M., Eastern time on December 17,
1998 ("Exercise Commencement Date"), but no later than 5:00 P.M., Eastern
time, on December 17, 2000, ("Expiration Time"). If this Warrant is not
exercised on or before the Expiration Time, it shall become void, and
all rights hereunder shall thereupon cease.
<PAGE>
Section 1.02. (1) The holder of this warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form
of exercise attached hereto as Exhibit "A" duly executed to the Company at
its office in Atlanta, Georgia, together with the full Purchase Price of
$.10 for each Share to be purchased in lawful money of the United States, or
by certified check, bank draft, or postal or, express money order payable in
United States dollars to the order of the Company, and upon compliance with
and subject to the conditions set forth herein.
(2) Upon receipt of this Warrant with the Exhibit "A" form of exercise duly
executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall
cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
(3) In case the Holder shall exercise this Warrant with respect to less than
all of the Shares that may be purchased under this Warrant, the Company
shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
(4) The Company, covenants and agrees that it will pay when due and payable
any and all of the Company's taxes which may be payable in respect of the
issue of this Warrant or the issue of any Shares upon the exercise of this
Warrant. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance or
delivery of this Warrant or of the Shares in a name other than that
of the Holder at the time of surrender, and until the payment of such
tax the Company shall not be required to issue such Shares.
Section 1.03. Prior to due presentment for registration of transfer of this
Warrant the Company may deem and treat the Holder as the absolute owner of
this Warrant (notwithstanding any notation of ownership or other writing
hereon) for the purpose of any exercise hereof and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
Section 1.04. Except per Article II, this Warrant may not be sold,
hypothecated, exercised, assigned oi transferred, except to individuals who
are of officers of the Company per Article II or any successor to its
business or pursuant to the laws of descent and distribution, and thereafter
and until its expiration shall be assignable and transferable in accordance
with and subject to the Securities Act of 1933 and all other Federal and
State Securities laws.
Section 1.05. Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company.
<PAGE>
Section 1.06. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such reasonable terms as to indemnity or otherwise as it
may impose (which shall, in the case of a mutilated Warrant, include the
surrender thereto, issue a new Warrant of like denomination and tenor as,
and in substitution for, this Warrant, which shall thereupon become void.
Any such new Warrant shall constitute an additional contractual obligation
of the Company.
Section 1.07, (1) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise hereof sufficient
authorized Shares to permit the exercise in full of this Warrant.
(2) Prior to the issuance of any Shares upon exercise of this Warrant, the
Company may, but not required, to secure the listing of such Shares upon any
securities exchange or automated quotation system upon which the shares of
the Company's Common Stock are listed for trading.
(3) The company covenants that all Shares when issued upon the exercise of
this Warrant will be validly issued, fully paid, and non-assessable.
ARTICLE II
COMPANY'S RIGHT TO CALL WARRANT
Section 2.01. (1) By resolution of its Board of Directors, the Corporation
may call this warrant at any time and from time to time on, or after
December 17, 1998, in whole or in part, by paying to the registered owner,
or owners hereof the sum of $.0001 per share.
(2) The Corporation shall give notice of its election to call this Warrant
by mailing a copy of such notice, postage prepaid, to the registered owner
or owners hereof, not less than 30 or more than 90 days prior to the date
designated as the date for the call, addressed to their respective addresses
appearing on the books of the Corporation. Failure to give notice, or any
defect in a notice or in the mailing thereof, will not affect the validity
of the call.
(3) If only a portion of the warrants of the same tenor as this Warrant then
outstanding is to be called at a given time, the Corporation shall select
the warrants to be called in whatever manner the Board of Directors of the
Corporation determines. Subject to the provisions and limitations contained
herein, the Board of Directors shall have full power and authority to
prescribe the manner in which the terms and conditions upon which this
Warrant shall from time to time be callable.
(4) On and after the date of call specified in the notice, the owner or
owners of this Warrant shall be entitled to receive the call price of $.0001
per share, upon presentation and surrender of this Warrant at the place
designated in the notice. If called the registered owners agree to execute
all documents required by the Corporation to transfer the warrants to the
Corporation.
<PAGE>
(5) From and after the date of call specified in the notice (unless the
Corporation defaults in providing money for the payment of the call price),
all rights of the holder or holders hereof as a warrant holder in the
Corporation shall cease, except for the right to receive the call price
hereof without interest and this Warrant shall be available for sale,
transfer and/or issuance of stock by the Company.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.0 1. This Warrant and the Shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act
of 1933, nor any other securities act. Upon exercise, in part of in whole,
of this Warrant, the Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY ACCEPTING
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF STOCK ARE
ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR
VALUE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION UNDER APPLICABLE
SECURITIES LAWS AND ACTS OR AN EXEMPTION THEREOF, BY ACCEPTING THE
SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE THE SHAREHOLDER HEREOF
AGREES TO BE BOUND BY THE RESTRICTIONS IMPOSED BY LAW.
ARTICLE IV
OTHER MATTERS
Section 4.01. All the covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
Section 4.02. The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Colorado.
Section 4.03. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by
the Company, as follows:
Lakota Energy, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
<PAGE>
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
Section 4.04. Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than
the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements combined in this Warrant shall be for the sole and exclusive
benefit of the Company and its successors and of the Holder, its successors
and, if permitted, its assignees.
Section 4.05. The Article headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under
its corporate seal as of the 17th day of December, 1998.
LAKOTA ENERGY, INC.
By: /s/Howard Wilson By: /s/Ken Honeyman
Secretary President
STOCK AND WARRANT PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of September 28, 1999 by and
between Matt Hensley, an individual ("PURCHASER") and Lakota
Technologies, Inc., a Colorado corporation ("SELLER").
W I T N E S S E T H
WHEREAS, SELLER desires to sell 1,500,000 shares of Lakota
Technologies, Inc., a Colorado corporation (the "Company") Common
Stock (the "Shares"), and warrants to acquire an additional 500,000
shares of Company Common Stock (the "Warrants") to PURCHASER on the
terms and conditions set forth in this Stock Purchase Agreement
(hereinafter called "Agreement"); and
WHEREAS, PURCHASER desires to buy the Shares and Warrants on
the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the promises and respective
mutual agreements herein contained, it is agreed by and between the
parties hereto as follows:
ARTICLE 1
SALE AND PURCHASE OF THE SHARES AND WARRANTS
1.1 Sale of the Shares and Warrants. Upon the execution of
this Agreement as provided in Section 3.1 hereto (the "Closing"),
subject to the terms and conditions herein set forth, and on the
basis of the representations, warranties and agreements herein
contained, SELLER shall sell to PURCHASER, and PURCHASER shall
purchase from SELLER, the Shares and the Warrants.
1.2 Instruments of Conveyance and Transfer. Within four
business days of the date of execution hereof (the "Closing"),
SELLER shall deliver a certificate or certificates representing the
Shares to PURCHASER, in form and substance satisfactory to
PURCHASER, as shall be effective to vest in PURCHASER all right,
title and interest in and to all of the Shares, as set forth in
Section 3 herein. In addition, SELLER shall deliver to PURCHASER a
warrant agreement granting PURCHASER the right, exercisable for a
period of 2 years from the date thereof, to acquire 500,000 shares
of Company common stock at an exercise price of $0.28 per share.
1.3 Consideration and Payment for the Shares and Warrants. In
consideration for the Shares and Warrants PURCHASER shall pay the
purchase price equal to $0.14 per share, for the total purchase
price of $210,000.00 ("Purchase Price"). The Purchase Price shall
be forwarded to SELLER on the Closing Date.
<PAGE>
ARTICLE 2
REPRESENTATIONS AND COVENANTS OF SELLER AND PURCHASER
2.1 The SELLER hereby represents and warrants that:
(a) It shall transfer title, in and to the Shares, to the
PURCHASER free and clear of all liens, security
interests, pledges, encumbrances, charges,
restrictions, demands and claims, of any kind and
nature whatsoever, whether direct or indirect or
contingent, except as set forth in Paragraph 2.2 herein.
2.2 On the Closing Date as defined herein in Section 3.1, the
SELLER shall deliver to the PURCHASER certificates representing the
Shares subject to no liens, security interests, pledges,
encumbrances, charges, restrictions, demands or claims in any other
party whatsoever, except as set forth in the legend on the
certificate(s), which legend shall provide as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF FOR A PERIOD OF ONE
YEAR FROM THE ISSUANCE THEREOF EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE LAWS OR (ii) UPON THE EXPRESS WRITTEN
AGREEMENT OF THE COMPANY AND COMPLIANCE, TO THE EXTENT
APPLICABLE, WITH RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES.)
2.3 Registration Rights. If the Company at any time
proposes to register any of its securities under the Act, including
under an SB-2 Registration Statement or otherwise, it will each such
time give written notice to the PURCHASER of its intention so to do.
Upon the written request of PURCHASER given within 30 days after
receipt of any such notice, the Company will use its best efforts to
cause the Shares and shares underlying the exercise of the Warrants
to be registered under the Act (with the securities which the
Company at the time propose to register). All expenses incurred by
the Company in complying with this Section, including without
limitation all registration and filing fees, listing fees, printing
expenses, fees and disbursements of all independent accountants, or
counsel for the Company and the expense of any special audits
incident to or required by any such registration and the expenses of
complying with the securities or blue sky laws of any jurisdiction
shall be paid by the Company.
<PAGE>
2.4. The PURCHASER hereby represents and warrants that:
(a) PURCHASER acknowledges that the Shares and the shares
obtained upon exercise of the Warrants will be
"restricted securities" (as such term is defined in
Rule 144 promulgated under the Securities Act of
1933, as amended ("Rule 144")), that they will
include the foregoing restrictive legend, and, except
as otherwise set forth in this Agreement, that they
cannot be sold for a period of one year from the date
of issuance unless registered with the SEC and
qualified by appropriate state securities regulators,
or unless PURCHASER obtains written consent from the
SELLER and otherwise complies with an exemption from
such registration and qualification (including,
without limitation, compliance with Rule 144).
(b) The PURCHASER has the full right, power and authority
to enter into this Agreement and to carry out and
consummate the transaction contemplated herein. This
Agreement constitutes the legal, valid and binding
obligation of PURCHASER.
(c) The PURCHASER acknowledges that investment in
the Shares involves substantial risks and is
suitable only for persons of adequate
financial means who can bear the economic risk
of an investment in the Shares for an
indefinite period of time. PURCHASER further
represents that he:
(1) has adequate means of providing for
his or her current needs and
possible personal contingencies,
has no need for liquidity in his
investment in the Shares, is able
to bear the substantial economic
risks of an investment in the
Shares for an indefinite period,
and, at the present time, can
afford a complete loss of his
investment;
(2) is an "Accredited Investor" as that
term is defined in Section 501(a)
of Regulation D promulgated under
the Securities Act of 1933, as
amended (the "Act"), in that (i)
PURCHASER is a natural person whose
individual net worth, or joint net
worth with PURCHASER's spouse,
exceeds $1,000,000 and either he is
able to bear the economic risk of
investment in the proposed
investments or the proposed
investments will not exceed 10% of
his net worth or joint net worth
with PURCHASER's spouse and/or (ii)
PURCHASER is a natural person who
had individual income in excess of
$200,000 in each of the two most
recent years, or joint income with
such investor's spouse in excess of
$300,000 in each of those years and
reasonably expects to reach the
same income level in the current
year, and either PURCHASER is able
to bear the economic risk of
investment in the proposed
investments or the proposed
investments will not exceed 10% of
his or her net worth or joint net
worth with PURCHASER's spouse;
<PAGE>
(3) does not have an overall commitment
to investments which are not
readily marketable that is
disproportionate to his net worth,
and that his investment in the
Shares will not cause such overall
commitment to become excessive;
(4) is acquiring the Shares for his or
her own account, for investment
purposes only and not with a view
toward resale, assignment or
distribution thereof, and no other
person has a direct or indirect,
beneficial interest, in whole or in
part, in such Shares;
(5) has such knowledge and experience
in financial, tax and business
matters that he or she is capable
of evaluating the merits and risks
of an investment in the Shares;
(6) has been given the opportunity to
ask questions of and to receive
answers from persons acting on each
of the SELLERS' behalf concerning
the terms and conditions of this
transaction and also has been given
the opportunity to obtain any
additional information which each
of the SELLERS possess or can
acquire without unreasonable effort
or expense. As a result, PURCHASER
is cognizant of the financial
condition, capitalization, use of
proceeds from this financing and
the operations and financial
condition of the Company has
available full information
concerning their affairs and has
been able to evaluate the merits
and risks of the investment in the
Shares; and
(7) The funds provided for the PURCHASER's purchase
are either separate property, community
property over which the signatory(ies) hereto
has or have the right of control or are
otherwise funds as to which the undersigned has
the sole right of management.
ARTICLE 3
CLOSING AND DELIVERY OF DOCUMENTS
3.1 Closing. The Closing shall be deemed to have occurred
upon the date of signing of this Agreement. Subsequent to the
signing, the following shall occur as a single integrated transaction:
3.2 Delivery by SELLER.
(a) SELLER shall deliver, or cause to be delivered, to
the PURCHASER the stock certificate and warrant agreement and
any and all other instruments of conveyance and transfer
required by Section 1.2.
<PAGE>
(b) SELLER shall deliver, or cause to be delivered, to the
PURCHASER such instruments, documents and certificates as are
required to be delivered by SELLER or its representatives
pursuant to the provisions of this Agreement.
3.3 Delivery by PURCHASER.
(a) The PURCHASER shall deliver, or cause to be delivered, to
the SELLER the Purchase Price required by Section 1.3.
(b) The PURCHASER shall deliver, or cause to be delivered, to
SELLER such instruments, documents and certificates as are
required to be delivered by the PURCHASER or its
representatives pursuant to the provisions of this Agreement.
ARTICLE 4
TERMINATION, AMENDMENT AND WAIVER
4.1 Termination. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement may be terminated and
the transactions contemplated hereby may be abandoned at any time
prior to delivery of the Purchase Price solely by the mutual
consent of all of the parties.
4.2 Waiver and Amendment. Any term, provision, covenant,
representation, warranty or condition of this Agreement may be
waived, but only by a written instrument signed by the party
entitled to the benefits thereof. The failure or delay of any party
at any time or times to require performance of any provision hereof
or to exercise its rights with respect to any provision hereof shall
in no manner operate as a waiver of or affect such party's right at
a later time to enforce the same. No waiver by any party of any
condition, or of the breach of any term, provision, covenant,
representation or warranty contained in this Agreement, in any one
or more instances, shall be deemed to be or construed as a further
or continuing waiver of any such condition or breach or waiver of
any other condition or of the breach of any other term, provision,
covenant, representation or warranty. No modification or amendment
of this Agreement shall be valid and binding unless it be in writing
and signed by all parties hereto.
ARTICLE 5
MISCELLANEOUS
5.1 Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to
the transactions contemplated hereby, and supersedes all prior
agreements, arrangements and understandings related to the subject
matter hereof. No understanding, promise, inducement, statement of
intention, representation, warranty, covenant or condition, written
or oral, express or implied, whether by statute or otherwise, has
been made by any party hereto which is not embodied in this
Agreement or the written statements, certificates, or other
documents delivered pursuant hereto or in connection with the
transactions contemplated hereby, and no party hereto shall be bound
by or liable for any alleged understanding, promise, inducement,
statement, representation, warranty, covenant or condition not so
set forth.
<PAGE>
5.2 Notices. All notices provided for in this Agreement
shall be in writing signed by the party giving such notice, and
delivered personally or sent by overnight courier or messenger or
sent by registered or certified mail (air mail if overseas), return
receipt requested, or by telex, facsimile transmission, telegram or
similar means of communication. Notices shall be deemed to have
been received on the date of personal delivery, telex, facsimile
transmission, telegram or similar means of communication, or if sent
by overnight courier or messenger, shall be deemed to have been
received on the next delivery day after deposit with the courier or
messenger, or if sent by certified or registered mail, return
receipt requested, shall be deemed to have been received on the
third business day after the date of mailing. Notices shall be sent
to the addresses set forth below:
If to SELLER:
Lakota Technologies, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
Attn: Ken Honeyman, President
Facsimile (770) 433-9194
With a copy to:
Cutler Law Group
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: Brian A. Lebrecht, Esq.
Facsimile (949) 719-1988
If to Purchaser:
Matt Hensley
914 Appomattox Drive
Spring, TX 77380-2204
Facsimile (______)________________
5.3 Choice of Law and Venue. This Agreement and the
rights of the parties hereunder shall be governed by and construed
in accordance with the laws of the State of Georgia including all
matters of construction, validity, performance, and enforcement and
without giving effect to the principles of conflict of laws. Any
action brought by any party hereto shall be brought within the State
of Georgia.
5.4 Jurisdiction. The parties submit to the jurisdiction
of the Courts of the State of Georgia or a Federal Court empaneled
in the State of Georgia for the resolution of all legal disputes
arising under the terms of this Agreement, including, but not
limited to, enforcement of any arbitration award.
<PAGE>
5.5 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but
all of which shall together constitute one and the same instrument.
5.6 Attorneys' Fees. Except as otherwise provided herein,
if a dispute should arise between the parties including, but not
limited to arbitration, the prevailing party shall be reimbursed by
the nonprevailing party for all reasonable expenses incurred in
resolving such dispute, including reasonable attorneys' fees
exclusive of such amount of attorneys' fees as shall be a premium
for result or for risk of loss under a contingency fee arrangement.
5.7 Taxes. Any income taxes required to be paid in
connection with the payments due hereunder, shall be borne by the
party required to make such payment. Any withholding taxes in the
nature of a tax on income shall be deducted from payments due, and
the party required to withhold such tax shall furnish to the party
receiving such payment all documentation necessary to prove the
proper amount to withhold of such taxes and to prove payment to the
tax authority of such required withholding.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, as of the date first written hereinabove.
"PURCHASER" "SELLER"
Lakota Technologies, Inc.
/s/ Matt Hensley /s/ Ken Honeyman
_______________________ ___________________________________
Matt Hensley By: Ken Honeyman
Its: President
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER
SECURITIES ACT, BY ACCEPTING THE WARRANTS EVIDENCED BY THIS
CERTIFICATE ALL SHARES OF STOCK ARE ACQUIRED FOR INVESTMENT ONLY
AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE OF
ANY EFFECTIVE REGISTRATION UNDER APPLICABLE SECURITIES LAWS AND
ACTS OR AN EXEMPTION THEREOF. BY ACCEPTING THE SHARES OF STOCK
EVIDENCED BY THIS CERTIFICATE THE SHAREHOLDER HEREOF AGREES TO
BE BOUND BY THE RESTRICTIONS IMPOSED BY LAW.
"A"
WARRANT
For the Purchase of Common Stock, Par Value $.0001 per Share, of
LAKOTA TECHNOLOGIES, INC.
(Incorporated Under the Laws of the State of Colorado)
Void after 5:00 P.M. October 6, 2001
WARRANT TO PURCHASE 500,000 SHARES
THIS IS TO CERTIFY that, for value received, Matt Hensley,
("Underwriter"), or registered assigns, is entitled, subject to
the terms and conditions hereinafter set forth, at any time
before 5:00 P.M., eastern time, on October 6, 2001, but not
thereafter, to purchase the number of shares set forth above
("Shares") of common stock, par value $1.00 per share at time
Warrant was granted and subsequently amended to $.0001 par value
per share ("Common Stock"), of Lakota Technologies, Inc., a
Colorado corporation ("Company" or "Corporation"), from the
Company upon payment to the Company of $.28 per share ("Purchase
Price") if and to the extent this Warrant is exercised, in whole
or in part, during, the Period this Warrant remains in force and
to receive a certificate or certificates represented (the Shares
so purchased, upon presentation and surrender to the Company of
this Warrant, with the form of subscription attached hereto duly
executed, and accompanied by payment of the Purchase price of
each Share purchased
ARTICLE I
TERMS OF THE WARRANT
Section 1.01. Subject to the provisions of this agreement, this
Warrant may be exercised at any time after 9:00 A.M., eastern
time on October 6, 1999 ("Exercise Commencement Date"), but no
later than 5:00 P.M., eastern time, on October 6, 2001
("Expiration Time"). If this Warrant is not exercised on, or
before the Expiration Time it shall become void, and all rights
hereunder shall thereupon cease.
<PAGE>
Section 1.02. (1) The holder of this Warrant ("Holder") may
exercise this Warrant, in whole or in part, upon surrender of
this Warrant with the form of exercise attached hereto as
Exhibit "A" duly executed to the Company at its office in
Atlanta, Georgia, together with the full Purchase Price of $.28
for each Share to be purchased in lawful money of the United
States, or by certified check, bank draft, or postal or, express
money order payable in United States dollars to the order of the
Company, and upon compliance with and subject to the conditions
set forth herein.
(2) Upon receipt of this Warrant with the Exhibit "A" form of
exercise duly executed and accompanied by payment of the
aggregate Purchase Price for the Shares for which this Warrant
is then being exercised, the Company shall cause to be issued
certificates for the total number of whole Shares for which this
Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Company shall thereupon
deliver such certificates to the Holder or its nominee.
(3) In case the Holder shall exercise this Warrant with respect
to less than all of the Shares that may be purchased under this
Warrant, the Company shall execute a new Warrant for the balance
of the Shares that may be purchased upon exercise of this
Warrant and deliver such new Warrant to the Holder.
(4) The Company, covenants and agrees that it will pay when due
and payable any and all of the Company's taxes which may be
payable in respect of the issue of this Warrant, or the issue of
any Shares upon the exercise of this Warrant. The Company shall
not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issuance or delivery of
this Warrant or of the Shares in a name other than that of the
Holder at the time of surrender, and until the payment of such
tax the Company shall not be required to issue such Shares.
Section 1.03. Prior to due presentment for registration of
transfer of this Warrant, the Company may deem and treat the
Holder as the absolute owner of this Warrant (notwithstanding
any notation of ownership or other writing hereon) for the
purpose of any exercise hereof and for all other purposes, and
the Company shall not be affected by any notice to the contrary.
Section 1.04. Except per Article II, this Warrant may not be
sold, hypothecated, exercised, assigned or transferred, except
to individuals who are of officers of the Company per Article II
or any successor to its business or pursuant to the laws of
descent and distribution, and thereafter and until its
expiration shall be assignable and transferable in accordance
with and subject to the Securities Act of 1933 and all other
Federal and State Securities laws.
Section 1.05. Nothing contained in this Warrant shall be
construed as conferring upon the Holder the right to vote or to
consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any
other matter, or as having any rights whatsoever as a
stockholder of the Company.
<PAGE>
Section 1.06. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such reasonable terms as to
indemnity or otherwise as it may impose (which shall, in the
case of a mutilated Warrant, include the surrender thereto,
issue a new Warrant of like denomination and tenor as, and in
substitution for, this Warrant, which shall thereupon become
void. Any such new Warrant shall constitute an additional
contractual obligation of the Company.
Section 1.07, (1) The Company covenants and agrees that at all
times it shall reserve and keep available for the exercise
hereof sufficient authorized Shares to permit the exercise in
full of this Warrant.
(2) Prior to the issuance of any Shares upon exercise of this
Warrant, the Company may, but not required, to secure the
listing of such Shares upon any securities exchange or automated
quotation system upon which the shares of the Company's Common
Stock are listed for trading.
(3) The company covenants that all Shares when issued upon the
exercise of this Warrant will be validly issued, fully paid, and
non-assessable.
ARTICLE II
COMPANY'S RIGHT TO CALL WARRANT
Section 2.01. (1) By resolution of its Board of Directors, the
Corporation may call this warrant at any time and from time to
time on or after October 6, 1999, in whole or in part, by paying
to the registered owner or owners hereof the sum of $.0001 per
share.
(2) The Corporation shall give notice of its election to call
this Warrant by mailing a copy of such notice, postage prepaid,
to the registered owner or owners hereof, not less than 30 or
more than 90 days prior to the date designated as the date for
the call, addressed to their respective addresses appearing on
the books of the Corporation. Failure to give notice, or any
defect in a notice or in the mailing thereof, will not affect
the validity of the call.
(3) If only a portion of the warrants of the same tenor as this
Warrant then outstanding is to be called at a given time, the
Corporation shall select the warrants to be called in whatever
manner the Board of Directors of the Corporation determines.
Subject to the provisions and limitations contained herein, the
Board of Directors shall have full power and authority to
prescribe the manner in which the terms and conditions upon
which this Warrant shall from time to time be callable.
(4) On and after the date of call specified in the notice, the
owner or owners of this Warrant shall be entitled to receive the
call price of $.0001 per share, upon presentation and surrender
of this Warrant at the place designated in the notice. If
called the registered owners agree to execute all documents
required by the Corporation to transfer the warrants to the
Corporation.
<PAGE>
(5) From and after the date of call specified in the notice
(unless the Corporation defaults in providing money for the
payment of the call price), all rights of the holder or holders
hereof as a warrant holder in the Corporation shall cease,
except for the right to receive the call price hereof without
interest and this Warrant shall be available for sale, transfer
and/or issuance of stock by the Company.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.01. This Warrant and the Shares of Common Stock
issuable upon exercise of this Warrant have not been registered
under the Securities Act of 1933, nor any other securities act.
Upon exercise, in part of in whole, of this Warrant, the Shares
shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER
SECURITIES ACT, BY ACCEPTING THE WARRANTS EVIDENCED BY THIS
CERTIFICATE ALL SHARES OF STOCK ARE ACQUIRED FOR INVESTMENT ONLY
AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE OF
ANY EFFECTIVE REGISTRATION UNDER APPLICABLE SECURITIES LAWS AND
ACTS OR AN EXEMPTION THEREOF, BY ACCEPTING THE SHARES OF STOCK
EVIDENCED BY THIS CERTIFICATE THE SHAREHOLDER HEREOF AGREES TO
BE BOUND BY THE RESTRICTIONS IMPOSED BY LAW.
ARTICLE IV
OTHER MATTERS
Section 4.01. All the covenants and provisions of this Warrant
by or for the benefit of the Company shall bind and inure to the
benefit of its successors and assigns hereunder.
Section 4.02. The validity, interpretation and performance of
this Warrant shall be governed by the laws of the State of
Colorado.
Section 4.03. Notices or demands pursuant to this Warrant to be
given or made by the Holder to or on the Company shall be
sufficiently given or made if sent by certified or registered
mail, return receipt requested, postage prepaid, and addressed,
until another address is designated in writing by the Company,
as follows:
Lakota Technologies, Inc.
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
<PAGE>
Notices to the Holder provided for in this Warrant shall be
deemed given or made by the Company if sent by certified or
registered mail, return receipt requested, postage prepaid, and
addressed to the Holder at his last known address as it shall
appear on the books of the Company.
Section 4.04. Nothing in this Warrant expressed and nothing
that may be implied from any of the provisions hereof is
intended, or shall be construed, to confer upon, or give to, any
person or corporation other than the Company and the Holder any
right, remedy or claim under promise or agreement hereof, and
all covenants, conditions, stipulations, promises and agreements
combined in this Warrant shall be for the sole and exclusive
benefit of the Company and its successors and of the Holder, its
successors and, if permitted, its assignees.
Section 4.05. The Article headings herein are for convenience
only and are not part of this Warrant and shall not affect the
interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the
Company under its corporate seal as of the 28th day of
September, 1999.
LAKOTA TECHNOLOGIES, INC.
By: /s/ Howard Wilson By: /s/ Ken Honeyman
Secretary President
<PAGE>
EXHIBIT "A"
The undersigned hereby: (1) irrevocably subscribes for and
offers to purchase ________ shares of Common Stock of Lakota
Technologies, Inc., pursuant to the "A" warrant to which this
Exhibit is attached, (2) encloses payment of __________ for
these shares at a price of $.28 per share; and (3) requests that
a certificate for the shares be issued in the name of the
undersigned and delivered to the undersigned at the address
specified below.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER
SECURITIES ACT, BY ACCEPTING THE WARRANTS EVIDENCED BY THIS
CERTIFICATE ALL SHARES OF STOCK ARE ACQUIRED FOR INVESTMENT ONLY
AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE OF
ANY EFFECTIVE REGISTRATION UNDER APPLICABLE SECURITIES LAWS AND
ACTS OR AN EXEMPTION THEREOF, BY ACCEPTING THE SHARES OF STOCK
EVIDENCED BY THIS CERTIFICATE THE SHAREHOLDER HEREOF AGREES TO
BE BOUND BY THE RESTRICTIONS IMPOSED BY LAW.
Dated this _____ day of __________________, ________.
___________________________
Signature
___________________________
Print Name
ADDRESS:
___________________________
___________________________
Signature Guaranteed by:
___________________________
<PAGE>
LAKOTA TECHNOLOGIES, INC.
ASSIGNMENT
(To be executed by the registered holder to effect a transfer of
the Foregoing Warrant to the Company)
FOR VALUE RECEIVED,
Matt Hensley
hereby sells, assigns and transfers unto the within Warrant and
all of the rights represented thereby, and does hereby
irrevocably constitute and appoint _______________________
Attorney, to transfer said Warrant on the books of the Company,
with full power of substitution.
Dated: ______________
______________________________
Signature of Holder
Signature guaranteed:
______________________________
Jones Jensen & Company, LLC Letterhead
We hereby consent to the use of our audit report dated September 15,
1999 in this Form SB-2 of Lakota Technologies, Inc. for the six months
ended June 30, 1999 and for the year ended December 31, 1998, which is
part of this Form SB-2 and all references to our firm included in this
Form SB-2.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
October 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements of Lakota Technologies, Inc.
and is qualified in its entirety by
reference to such financial statments.
</LEGEND>
<CIK> 0001095756
<NAME> LAKOTA TECHNOLOGIES, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 152,037
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 156,283
<PP&E> 15,982
<DEPRECIATION> (3,257)
<TOTAL-ASSETS> 204,329
<CURRENT-LIABILITIES> 194,425
<BONDS> 0
0
0
<COMMON> 9,904
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 204,329
<SALES> 13,276
<TOTAL-REVENUES> 13,276
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,235,546
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,219,063)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,219,063)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,219,063)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
