SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 31, 1997
PEASE OIL AND GAS COMPANY
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(Exact name of registrant as specified in its charter)
Nevada 0-6580 84-0285520
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(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
751 Horizon Court, Suite 203, Grand Junction, Colorado 81506-8718
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(Address of principal executive offices) (Zip Code)
Registrant telephone number including area code: (970) 245-5917
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Item 5. OTHER EVENTS.
The Registrant announced that on December 31, 1997, that it completed the
sale of $5,666,650 of its newly created Series B 5% PIK Cumulative Convertible
Preferred Stock ("Series B Preferred") to 10 private investors. The Series B
Preferred is convertible into common stock at a conversion price equal to the
lowest reported sales price for Registrant's common stock during the five
trading days before conversion, reduced by a discount factor, which is initially
12% and increases to 25% after one year from date of issuance. Cash proceeds to
the Registrant will be used to continue the Registrant's oil and natural gas
exploration, drilling and development program in the Gulf Coast region of
Alabama, Louisiana, Texas and the Gulf of Mexico.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following exhibits are filed as a part of this report.
(a) Exhibits.
Exhibit 3.2 Amendment to Certificate of Designation of Series B
5% Cumulative Convertible Preferred Stock.
Exhibit 10.1 Preferred Stock Investment Agreement.
Exhibit 99 Press Release dated January 7, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 12, 1998
PEASE OIL AND GAS COMPANY
By /s/ Willard H. Pease, Jr.
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Willard H. Pease, Jr., President
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EXHIBIT INDEX
Exhibit Description Page No.
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3.2 Amendment to Certificate of Designation of Series B
5% Cumulative Convertible Preferred Stock.
10.1 Preferred Stock Investment Agreement.
99 Press Release dated January 7, 1997.
4
CERTIFICATE OF AMENDMENT
to the
CERTIFICATE OF DESIGNATION
of the
SERIES B 5% PIK CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
PEASE OIL AND GAS COMPANY
Pursuant to Section 78.1955 of the General Corporation Law
of the State of Nevada
Pease Oil and Gas Company, a Nevada corporation (the "Corporation"),
certifies that pursuant to the authority contained in its Articles of
Incorporation, as amended, and in accordance with the provisions of Section
78.1955 of the General Corporation Law of the State of Nevada, its Board of
Directors (the "Board of Directors") adopted a resolution creating a series of
Preferred Stock, par value $0.01 per share, designated as Series B 5% PIK
Cumulative Convertible Preferred Stock, and that a Certificate of Designation
was filed December 29, 1997. No shares of Series B 5% PIK Cumulative Convertible
Preferred Stock have been issued. The Corporation hereby amends and restates its
Certification of Designation and certifies that the following resolution has
been duly adopted, creating and amending a series of preferred stock, par value
$0.01 per share, designated as Series B 5% PIK Cumulative Convertible Preferred
Stock:
RESOLVED, that a series of the class of authorized Preferred Stock, par
value $0.01 per share, of the Corporation be hereby created, and that the
designation and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:
1. Designation and Amounts. The shares of such series shall be designated
as the "Series B 5% PIK Cumulative Convertible Preferred Stock" (the "5%
Preferred Stock") and the number of share initially constituting such series
shall be 145,300, which number may be decreased (but not increased) by the Board
of Directors without a vote of the stockholders; provided, however, that such
number may not be decreased below the number of then currently outstanding
shares of 5% Preferred Stock. The 5% Preferred Stock shall rank senior to the
common stock, $0.10 par value (the "Common Stock"), of the Corporation with
respect to both the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up.
2. Dividends.
(a) The holders of the 5% Preferred Stock shall be entitled to receive
out of any assets legally available therefor cumulative dividends at the rate of
$2.50 per share per annum, payable quarterly on March 31, June 30, September 30
and December 31 of each year, when and as declared by the Board of Directors, in
preference and priority to any payment of any dividend on the Common Stock or
any other class or series of stock of the Corporation. Such dividends shall
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accrue on any given share from the day of original issuance of such share and
shall accrue from day to day whether or not earned or declared. If at any time
dividends on the outstanding 5% Preferred Stock at the rate set forth above
shall not have been paid or declared and set apart for payment with respect to
all preceding periods, the amount of the deficiency shall be fully paid or
declared and set apart for payment, but without interest, before any
distribution, whether by way of dividend or otherwise, shall be declared or paid
upon or set apart for the shares of any other class or series of stock of the
Corporation. Neither conversion (whether voluntary or forced) nor redemption of
the 5% Preferred Stock shall effect any holder's right to receive any accrued
but unpaid dividends on such 5% Preferred Stock.
(b) Any dividend payable on a dividend payment date more than 90 days
after the date of issuance may be paid, at the option of the Corporation, either
(i) in cash or (ii) in additional shares of 5% Preferred Stock, provided that
the Corporation shall have given written notice of its intention to pay such
dividend in kind to all holders of the 5% Preferred Stock at least 10 days
before the record date for such dividend. If a dividend is paid in kind, the
shares to be issued as a dividend shall be valued at the rate of one (1) share
of 5% Preferred Stock for each $50.00 of such dividend payment.
3. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the 5% Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any assets of the Corporation to the holders of any other class or series of
shares, the amount of $50 per share plus any accrued but unpaid dividends (such
sum being referred to herein as the "Liquidation Preference").
(b) A consolidation or merger of the Corporation with or into any
other corporation or corporations, or a sale of all or substantially all of the
assets of the Corporation, shall, at the option of the holders of the 5%
Preferred Stock, be deemed a liquidation, dissolution or winding up within the
meaning of this Section 3 if the shares of stock of the Corporation (along with
all derivative securities) outstanding immediately prior to such transaction
represent immediately after such transaction less than a majority of the voting
power of the surviving corporation (or of the acquiror of the Corporation's
assets in the case of a sale of assets). Such option may be exercised by the
vote or written consent of holders of a majority of the 5% Preferred Stock
outstanding at any time within 30 calendar days after written notice of the
essential terms of such transaction shall have been given to the holders of the
5% Preferred Stock in the manner provided by law for the giving of notice of
meetings of stockholders.
4. Repurchase Rights. Upon any decision by a holder of the 5% Preferred
Stock to convert such holder's 5% Preferred Stock into Common Stock when the
average closing price of the Common Stock as reported in the Wall Street Journal
for the 20 consecutive trading days prior to such conversion is less than the
market price of the Common Stock on the original date of issuance of such 5%
Preferred Stock, the Corporation shall have the right after timely giving the
Repurchase Notice (as defined below) to repurchase from such holder all of such
5% Preferred Stock shares tendered for conversion in lieu of such a conversion.
The Corporation shall pay any such holder a repurchase price per share equaling
the sum of the following: (i) the product of (A) $50 per share multiplied by (B)
the highest trading price for the five trading days prior to the receipt of the
applicable Conversion Notice (as defined in Section 5(b) below) divided by the
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lowest trading price for the five trading days prior to such receipt, (ii) any
accumulated and unpaid dividends through the date of such receipt, and (iii) a
premium equal to product of (A) $50 per share multiplied by (B) the Applicable
Discount set forth in Section 5(c)(ii) below. The term "Repurchase Notice" shall
mean at least five business day prior written notice from the Corporation to the
holders of the Corporation's intent to exercise the repurchase rights set forth
in this Section 4. Upon giving the holders the Repurchase Notice, the
Corporation shall have the obligation to repurchase from any holder converting
its 5% Preferred Stock into Common Stock all of such 5% Preferred Stock shares
tendered for conversion. The Corporation may cancel the Repurchase Notice by
giving the holders written notice at least five business days prior such
cancellation. In the event of repurchase from a holder by the Corporation of any
shares of the 5% Preferred Stock pursuant to this Section 4, the Corporation
shall within 48 hours of the receipt of the applicable Conversion Notice deliver
to such holder by wire transfer or cashier's check the amount of the repurchase
price as calculated in the second sentence of this Section 4.
5. Conversion. The holders of the 5% Preferred Stock shall have optional
conversion rights as follows:
(a) Right to Convert. Each share of 5% Preferred Stock shall be
convertible, at the option of the holder thereof, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing (i) the
Liquidation Preference of the 5% Preferred Stock determined pursuant to Section
3 hereof on the date the notice of conversion is given, by (ii) the Conversion
Price determined as hereinafter provided in effect on said date.
(b) Mechanics of Conversion. To convert shares of 5% Preferred Stock
into shares of Common Stock, the holder shall give written notice (the
"Conversion Notice") to the Corporation (which notice may be given by facsimile
transmission) that such holder elects to convert the same and shall state
therein the number of shares to be converted and the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. Promptly thereafter the holder shall surrender the certificate or
certificates representing the shares to be converted, duly endorsed, at the
office of the Corporation or of any transfer agent for such shares, or at such
other place designated by the Corporation. The Corporation shall, immediately
upon receipt of such notice, issue and deliver to or upon the order of such
holder, against delivery of the certificates representing the shares which have
been converted, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled. The Corporation shall effect such
issuance within 48 hours and shall transmit the certificates by messenger or
overnight delivery service to reach the address designated by such holder within
2 business days after the receipt of such notice. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
such notice of conversion is given. The person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock at
the close of business on such date.
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(c) Determination of Conversion Price.
(i) Each conversion shall occur at a conversion price based on
the lowest trade price of the Common Stock for the five trading days prior to
receipt of notice of conversion (the "Conversion Price"), reduced by the
Applicable Discount set forth below based on the time elapsed from the earlier
of (A) the 90th day after the date of issuance of the 5% Preferred Stock or (B)
the effective date of the registration statement which the Corporation shall
file on Form S-3, or if Form S-3 is not available, another appropriate form,
covering the Common Stock issuable upon the conversion of the shares of 5%
Preferred Stock (the earlier of (A) or (B) being the "Start Date").
(ii) Prior to the Start Date, the Conversion Price shall not be
reduced. After the Start Date, the Conversion Price shall be reduced by the
Applicable Discount as follows:
Number of days after the Applicable Discount:
Start Date:
1 to 30 12%
31 to 60 14%
61 to 90 15%
91 to 120 16%
121 to 150 18%
151 to 180 20%
181 to 210 22%
210 to 360 24%
361 or more 25%
(iii) Notwithstanding the foregoing, after 180 days after the
date of issuance of the 5% Preferred Stock, the Conversion Price shall not
exceed the lesser of (A) 110% of the average closing price for the 20 trading
days preceding 180th day after the date of issuance of the 5% Preferred Stock
and (B) the discounted Conversion Price as set forth above. If, at any time when
shares of the 5% Preferred Stock are outstanding, the Corporation issues shares
of Common Stock, 5% Preferred Stock or any other stock or securities which are
convertible into either Common Stock or 5% Preferred Stock at an effective
issuance price which is lower than the then applicable Conversion Price, then
the Conversion Price shall be reduced so that upon conversion of such shares of
5% Preferred Stock the holder of such shares shall receive that number of Common
Stock necessary to reduce the holder's Conversion Price to such lower issue
price.
(iv) The "lowest trading price," the "highest trading price" and
the "closing price", respectively, of the Common Stock on any day or for any
period shall be (A) the lowest reported sale price, the highest reported trading
price and the reported closing price (last sale price) of the Common Stock on
the principal stock exchange on which the Common Stock is listed, or (B) if the
Common Stock is not listed on a stock exchange, the lowest reported sale price,
the highest reported sale price and the reported closing price of the Common
Stock on the principal automated securities price quotation system on which sale
prices of the Common Stock are reported, or (C) if the Common Stock is not
listed on a stock exchange and sale prices of the Common Stock are not reported
on an automated quotation system, the lowest bid price, the highest bid price
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and the mean of the final bid and asked prices for the Common Stock as reported
by National Quotation Bureau Incorporated if at least two securities dealers
have inserted both bid and asked quotations for the Common Stock on at least
five of the 10 preceding trading days. If none of the foregoing provisions are
applicable, the meaning of the "lowest trading price," the "highest trading
price" and the "closing price" of the Common Stock on a day or for a period will
be the fair market value of the Common Stock on that day or for that period as
determined by a member firm of the New York Stock Exchange, Inc., selected by
the Board of Directors. The term "trading day" means (X) if the Common Stock in
listed on at least one stock exchange, a day on which there is trading on the
principal stock exchange on which the Common Stock is listed, (Y) if the Common
Stock is not listed on a stock exchange but sale prices of the Common Stock are
reported on an automated quotation system, a day on which trading is reported on
the principal automated quotation system on which sales of the Common Stock are
reported, or (Z) if the foregoing provisions are inapplicable, a day on which
quotations are reported by National Quotation Bureau Incorporated.
(v) In the event the Corporation shall at any time or from time
to time make, issue, declare, pay or fix a record date for the determination of
holders of shares of Common Stock entitled to receive any dividend or other
distribution payable in Common Stock or other securities of the Corporation or
any of its subsidiaries or in rights to acquire Common Stock or other securities
of the Corporation or any of its subsidiaries, or shall effect a stock split or
reverse stock split, or a combination, consolidation or reclassification of the
Common Stock, then in each such event the Conversion Price shall be
proportionately decreased or increased, as appropriate, to give effect to such
event.
(d) Certificates as to Adjustments. Upon the occurrence of any
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause independent public
accountants selected by the Corporation to verify such computation and prepare
and furnish to each holder of 5% Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of 5% Preferred Stock, furnish or cause to be
furnished to such holder a like certificate prepared by the Corporation setting
forth (i) such adjustments and readjustments, and (ii) the number of other
securities and the amount, if any, of other property which at the time would be
received upon the conversion of 5% Preferred Stock with respect to each share of
Common Stock received upon such conversion.
(e) Notice of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive additional
shares of Common Stock, 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, the Corporation shall mail to each holder of 5%
Preferred Stock at least 10 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution, security or right and the amount and character of
such dividend, distribution, security or right.
(f) Issue Taxes. The Corporation shall pay any and all issue and other
taxes, excluding any income, franchise or similar taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
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shares of 5% Preferred Stock pursuant hereto; provided, however, that the
Corporation shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion.
(g) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the 5% Preferred Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the 5% Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the 5% Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval.
(h) Fractional Shares. No fractional shares shall be issued upon the
conversion of any share or shares of 5% Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of 5% Preferred Stock by a holder thereof shall be aggregated for purposes
of determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith by the Board of
Directors).
(i) Notices. Any notice required by the provisions of this Section 5
to be given to the holders of shares of 5% Preferred Stock shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed to each
holder of record at its address appearing on the books of the Corporation.
(j) Reorganization or Merger. In case of any reorganization or any
reclassification of the capital stock of the corporation or any consolidation or
merger of the Corporation with or into any other corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person, and the holders of 5% Preferred Stock do not elect to treat such
transaction as a liquidation, dissolution or winding up as provided in Section
3, then, as part of such reorganization, consolidation, merger or sale,
provision shall be made so that each share of 5% Preferred Stock shall
thereafter be convertible into the number of shares of stock or other securities
or property (including cash) to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of 5% Preferred Stock would have
been entitled upon the record date of (or date of, if no record date is fixed)
such event and, in any case, appropriate adjustment (as determined by the Board
of Directors) shall be made in the application of the provisions herein set
forth with respect to the rights and interests thereafter of the holders of the
5% Preferred Stock, to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as equivalent as is practicable, in relation
to any shares of stock or the securities or property (including cash) thereafter
deliverable upon the conversion of the shares of 5% Preferred Stock.
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6. Mandatory Redemption.
(a) On December 31, 2002 (the "Mandatory Redemption Date"), the
Corporation shall redeem all of the outstanding shares of the 5% Preferred Stock
at a redemption price equal to the Liquidation Preference (the "Mandatory
Redemption Price").
(b) At least 30 days prior to the Mandatory Redemption Date, written
notice (the "Mandatory Redemption Notice") shall be mailed, first class postage
prepaid, by the Corporation to each holder of record of the 5% Preferred Stock,
at the address last shown on the records of the Corporation for such holder,
notifying such holder of the redemption which is to be effected, the Mandatory
Redemption Date, the Mandatory Redemption Price, the place at which payment may
be obtained and calling upon each such holder to surrender to the Corporation,
in the manner and at the place designated, a certificate or certificates
representing the total number of shares of 5% Preferred Stock held by such
holder. On or after the Mandatory Redemption Date, each holder of 5% Preferred
Stock shall surrender to the Corporation the certificate or certificates
representing the shares of 5% Preferred Stock owned by such holder as of the
Mandatory Redemption Date, in the manner and at the place designated in the
Mandatory Redemption Notice, and thereupon the Mandatory Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled.
(c) From and after the Mandatory Redemption Date, unless there shall
have been a default in payment of the Mandatory Redemption Price, all rights of
the holders of shares which have been redeemed (except the right to receive the
Mandatory Redemption Price without interest upon surrender of the certificate or
certificates representing such shares) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
7. Forced Conversion.
(a) From and after 540 days after the date of issuance of 5% Preferred
Stock to the holders, the Corporation may force all, but not some, of the
holders to convert their 5% Preferred Stock pursuant to Section 6 above (the
"Forced Conversion"); provided, however, that the Corporation may not force such
conversion unless and until the shares Common Stock issuable upon conversion of
the 5% Preferred Stock are registered for resale by an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), or otherwise
may be sold under Rule 144(k) under the Act and the Corporation's transfer agent
has accepted an instruction from the Corporation to that effect.
(b) At least 30 days prior to the Forced Conversion, written notice
(the "Forced Conversion Notice") shall be mailed, first class postage prepaid,
by the Corporation to each holder of record of the 5% Preferred Stock, at the
address last shown on the records of the Corporation for such holder, notifying
such holder of the forced conversion which is to be effected. On or after the
date of the Forced Conversion, each holder of 5% Preferred Stock shall surrender
to the Corporation the certificate or certificates representing the specified
percentage of shares of 5% Preferred Stock owned by such holder as of the date
of the Forced Conversion, in the manner and at the place designated in the
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Forced Conversion Notice, and thereupon the Corporation shall issue and deliver
shares of Common Stock to the holders, in the number and manner as set forth in
Section 5 above.
8. Other Provisions. For all purposes of this Resolution, the term "date of
issuance" shall mean the day on which shares of the 5% Preferred Stock are first
issued by the Corporation, and the terms "lowest trading price," "highest
trading price," "closing price" and "trading days" shall have the meanings given
them in Section 5(c)(iv) hereof. Any provision herein which conflicts with or
violates any applicable usury law shall be seemed modified to the extent
necessary to avoid such conflict or violation.
9. Restrictions and Limitations. The Corporation shall not undertake the
following actions without the consent of the holders of a majority of the 5%
Preferred Stock outstanding: (i) modify its Certificate of Designation or Bylaws
so as to amend or change any of the rights, preferences, or privileges of the 5%
Preferred Stock, (ii) authorize or issue any other preferred equity security
senior to or on a parity with the 5% Preferred Stock, or (iii) purchase or
otherwise acquire for value any Common Stock or other equity security of the
Corporation either junior or senior to or on a parity with the 5% Preferred
Stock while there exists any arrearage in the payment of cumulative dividends
hereunder.
10. Voting Rights. Except as provided herein or as provided for by law, the
5% Preferred Stock shall have no voting rights.
11. Attorneys' Fees. Any holder of 5% Preferred Stock shall be entitled to
recover from the Corporation the reasonable attorneys' fees and expenses
incurred by such holder in connection with enforcement by such holder of any
obligation of the Corporation hereunder.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designation
of Series B 5% PIK Cumulative Convertible Preferred Stock to be duly executed by
its President and attested to by its Secretary and has caused its corporate seal
to be affixed hereto, this 30th day of December, 1997.
PEASE OIL AND GAS COMPANY
By
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Willard H. Pease, Jr., President
ATTESTED:
By
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Patrick J. Duncan, Secretary
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STATE OF COLORADO )
) ss.
COUNTY OF MESA )
Subscribed, acknowledged and sworn to before me this 30th day of December,
1997, by Willard H. Pease, Jr.
Witness my hand and official seal.
My commission expires: 11/14/98
------------------------------------
Notary Public
STATE OF COLORADO )
) ss.
COUNTY OF MESA )
Subscribed, acknowledged and sworn to before me this 30th day of December,
1997, by Patrick J. Duncan.
Witness my hand and official seal.
My commission expires: 11/14/98
------------------------------------
Notary Public
S-9
PREFERRED STOCK INVESTMENT AGREEMENT
AGREEMENT dated as of December 31, 1997 between Pease Oil and Gas Company,
(the "Company") and the several investors named in the attached Schedule 1
hereto (individually an "Investor" and collectively the "Investors").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Series B Preferred Stock
---------------------------------------------
Section 1.1 Purchase and Sale of Series B Preferred Stock. Upon the
following terms and conditions, the Company shall issue and sell to each
Investor, and each Investor shall purchase from the Company, the number of
shares set forth opposite the name of such Investor under the heading "Number of
Shares to be Purchased" on Schedule 1 of the Company's Series B 5% PIK
Cumulative Convertible Preferred Stock (collectively, the "Shares") having the
rights, designations and preferences set forth in Schedule 2 hereto.
Section 1.2 Purchase Price. The purchase price for the Shares (the
"Purchase Price") shall be $50 per share. Each Investor shall pay the Company an
aggregate purchase price as set forth opposite the name of such Investor under
the heading Purchase Price on Schedule 1.
Section 1.3 The Closing.
(a) While the parties acknowledge that they intend that the closing of
the purchase and sale of the Shares (the "Closing") shall occur on December 31,
1997, the Closing shall take place at the offices of the Company, at 10:00 a.m.,
local time on the later of the following: (i) the date on which all of the
conditions set forth in Article IV hereof and applicable to the Closing shall be
fulfilled or waived in accordance herewith, or (ii) such other time and place
and/or on such other date as the Investors and the Company may agree. The date
on which the Closing occurs is referred to herein as the "Closing Date."
(b) On the Closing Date, the Company shall deliver to each Investor
certificates representing the number of shares set forth opposite the name of
such Investor under the heading "Number of Shares to be Purchased" on Schedule 1
registered in the name of such Investor or deposit such Shares into accounts
designated by such Investor, and each Investor shall deliver to the Company the
Purchase Price set forth opposite such Investor's name on Schedule 1 by
cashier's check or wire transfer in immediately available funds to such account
as shall be designated in writing by the Company. In addition, each party shall
deliver all documents, instruments and writings required to be delivered by such
party pursuant to this Agreement at or prior to the Closing.
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Section 1.4 Covenant to Register.
(a) For purposes of this Section 1.4, the following definitions shall
apply:
(i) The terms "register," "registered," and "registration" refer
to a registration under the Securities Act of 1933, as amended (the "Act"),
effected by preparing and filing a registration statement or similar document in
compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the stock issuable
upon conversion of the Shares, or otherwise issuable pursuant to this Agreement
or the provisions of Schedule 2, and any securities of the Company or securities
of any successor corporation issued as, or issuable upon the conversion or
exercise of any warrant, right or other security that is issued as a dividend or
other distribution with respect to, or in exchange for, or in replacement of,
the Shares which (A) have not been resold pursuant to an effective registration
statement or pursuant to Rule 144 under the Act or (B) may not be resold
pursuant to Rule 144(k) under the Act. For purposes of this Agreement, Shares
will be considered ineligible for resale pursuant to Rule 144(k) under the Act
unless the Company's transfer agent has accepted an instruction from the Company
specifying that such Shares are eligible for sale pursuant to Rule 144(k).
(iii) The term "holder of Registrable Securities" means each of
the Investors and any permitted assignee of registration rights pursuant to
Section 1.4(h).
(b) (i) The Company shall, on or before January 15, 1998, file, and
shall use its best efforts to cause to become effective as soon as practicable,
a registration statement on Form S-3, or if Form S-3 is not then available,
another appropriate form, covering all the Registrable Securities (the "Initial
Registration"). In the event such registration is not so declared effective or
does not include all Registrable Securities, a holder of Registrable Securities
shall have the right to require by notice in writing that the Company register
all or any part of the Registrable Securities held by such holder (a "Demand
Registration") and the Company shall thereupon effect such registration in
accordance herewith (which may include adding such shares to an existing shelf
registration). The parties agree that if the holder of Registrable Securities
demands registration of less than all of the Registrable Securities, the
Company, at its option, may nevertheless file a registration statement covering
all of the Registrable Securities. If such registration statement is declared
effective with respect to all Registrable Securities and the Company is in
compliance with its obligations under Subsection (d)(ii) through (v) hereof the
demand registration rights granted pursuant to this Subsection (b) (i) shall
cease. If such registration statement is not declared effective with respect to
all Registrable Securities the demand registration rights described herein shall
remain in effect until all Registrable Securities have been registered under the
Act. The Company shall provide holders of Registrable Securities reasonable
opportunity to review any such registration statement or amendment or supplement
thereto prior to the filing thereof, but in no event shall such period exceed
seven (7) days. If the Registrable Securities are registered initially on a form
other than Form S-3, the Company shall register the Registrable Securities on
Form S-3 as soon as use of such form is permissible.
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(ii) The Company shall not be obligated to effect Demand
Registration under Subsection (b)(i) if all of the Registrable Securities held
by the holder of Registrable Securities which are demanded to be covered by the
Demand Registration are, at the time of such demand, included in an effective
registration statement and the Company is in compliance with its obligations
under Subsection (d) (ii) through (v) hereof.
(iii) The Company may suspend the effectiveness of any such
registration effected pursuant to this Subsection (b) in the event, and for such
period of time as, such a suspension is required by the rules and regulations of
the Securities and Exchange Commission ("SEC"). The Company will use its best
efforts to cause such suspension to terminate at the earliest possible date.
(iv) If a registration statement covering all Registrable
Securities is not effective by the earlier of (A) thirty (30) days from the
filing with the SEC of the Company's Annual Report on Form 10-K or Form 10-KSB,
or (B) April 30, 1998, then the Company shall pay each Investor in cash an
amount equal to 3% of the Purchase Price paid by that Investor for Shares and
any Registrable Securities then held by that Investor for, and promptly after,
each thirty (30) day period thereafter until such registration statement is
effective (pro-rata as to a period of less than thirty (30) days), such payment
to be made promptly after each such 30 day (or shorter) period. An amount equal
to 3% of the Purchase Price paid by an Investor for Shares and any Registrable
Securities then held by such Investor shall also be paid to such Investor in
cash for, and promptly after, any one or more periods aggregating in excess of
30 days that the effectiveness of the Registration Statement is suspended as set
forth in Section 1.4(b)(iii). The "Purchase Price" of Registrable Securities
shall be (X) in the case of Registrable Securities derived from conversion or
substitution of Shares, the Purchase Price of such Shares, and (Y) in the case
of Registrable Securities derived from dividend payments, the original dollar
amount of such dividends. This subsection is in addition to the provisions of
Section 7.2(a) hereof.
(c) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Investors)
any of its stock or other securities under the Act in connection with a public
offering of such securities (other than a registration on Form S-4, Form S-8 or
other limited purpose form) and all Registrable Securities have not theretofore
been included in a registration statement under Subsection (b) which remains
effective, the Company shall, at such time, promptly give all holders of
Registrable Securities written notice of such registration. Upon the written
request of any holder of Registrable Securities given within twenty (20) days
after receipt of such notice by the holder of Registrable Securities, the
Company shall use its best efforts to cause to be registered under the Act all
Registrable Securities that such holder of Registrable Securities requests to be
registered. However, the Company shall have no obligation under this Subsection
(c) to the extent that, with respect to an underwritten public offering, the
managing underwriter of such public offering reasonably notifies such holder(s)
in writing of its determination that the Registrable Securities or a portion
thereof should be excluded therefrom; provided, however, that no holder's
Registrable Securities shall be excluded from an underwritten public offering
other than pro rata with or after all like securities having registration rights
in connection with such underwritten public offering are so excluded.
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(d) Whenever required under this Section to effect the registration of
any Registrable Securities, including without limitation, the Initial
Registration, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration to become effective as provided in Section 1.4(b)(i), and upon the
request of any holder of Registrable Securities keep such registration statement
effective for so long as any holder of Registrable Securities desires to dispose
of the securities covered by such registration statement, or, if earlier, until
such Registrable Securities may be sold under Rule 144(k) (provided that the
Company's transfer agent has accepted an instruction from the Company to such
effect).
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement and notify the holders of the filing and
effectiveness of such Registration Statement and any amendments or supplements.
(iii) Furnish to each holder of Registrable Securities such
numbers of copies of a current prospectus conforming with the requirements of
the Act, copies of the registration statement, any amendment or supplement
thereto and any documents incorporated by reference therein and such other
documents as such holder of Registrable Securities may reasonably require in
order to facilitate the disposition of Registrable Securities owned by such
holder of Registrable Securities.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or "Blue Sky"
laws of such jurisdictions as shall be reasonably requested by the holder of
Registrable Securities, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(v) Notify each holder of Registrable Securities immediately of
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and use its best efforts to promptly update and/or
correct such prospectus.
(vi) Furnish, at the request of any holder of Registrable
Securities, (A) an opinion of counsel of the Company, dated the effective date
of the registration statement, in form and substance reasonably satisfactory to
the holder and its counsel and covering, without limitation, such matters as the
due authorization and issuance of the securities being registered and compliance
with securities laws by the Company in connection with the authorization,
issuance and registration thereof and (B) a letter or letters of the Company's
independent public accountants in form and substance reasonably satisfactory to
the holder and its counsel.
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(vii) Use its best efforts to list the Registrable Securities
covered by such registration statement with any securities exchange or
inter-dealer quotation system on which the common stock of the Company (the
"Common Stock") is then listed;
(viii) Make available for inspection by the holder of Registrable
Securities, upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and require the Company's officers, directors and employees to
supply all information reasonably requested by any holder of Registrable
Securities in connection with such registration statement.
(e) Each holder of Registrable Securities will furnish to the Company
in connection with any registration under this Section 1.4 such information
regarding itself, the Registrable Securities and other securities of the Company
held by it, and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of the Registrable Securities
held by such holder of Registrable Securities. The Investors shall provide such
data within three (3) business days of receipt of written request therefor from
the Company. The intended method of disposition (Plan of Distribution) of such
securities as so provided by the Investors shall be included without alteration
in the Registration Statement covering the Registrable Securities and shall not
be changed without written consent of the Investors.
(f) (i) The Company shall indemnify, defend and hold harmless each
holder of Registrable Securities which are included in a registration statement
pursuant to the provisions of Subsection (b) or (c) (each, a "Selling
Shareholder") and each of its officers, directors, employees, agents, partners
or controlling persons (within the meaning of the Act) (each, an "indemnified
party") from and against, and shall reimburse such indemnified party with
respect to, any and all claims, suits, demands, causes of action, losses,
damages, liabilities, costs or expenses ("Liabilities") to which such
indemnified party may become subject under the Act or otherwise, arising from or
relating to (A) any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that the Company shall not be liable to
any such indemnified party in any such case to the extent that any such
liability arises out of or is based upon an untrue statement or omission so made
in strict conformity with information furnished by such indemnified party in
writing specifically for use in the registration statement; provided further,
that the Company shall not be liable in any such case to the extent that any
such Liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any preliminary
prospectus if (X) a Selling Shareholder under an obligation to send or deliver a
copy of the prospectus with or prior to the delivery of written confirmation of
the sale of Registrable Securities to the person asserting such Liability who
purchased such Registrable Securities which are the subject thereof from such
Selling Shareholder failed to do so and (Y) the prospectus would have completely
corrected such untrue statement or omission; and provided, further, that the
Company shall not be liable in any such case to the extent that any Liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission in the prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission is completely corrected
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in an amendment or supplement to the prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the prospectuses so
amended or supplemented and having been obligated to deliver such prospectuses,
the Selling Shareholder thereafter failed to deliver such prospectus as so
amended or supplemented, prior to or concurrently with the sale of Registrable
Securities to the person asserting such Liability who purchased such Registrable
Securities which are the subject thereof from such Selling Shareholder.
(ii) In the event of any registration under the Act of
Registrable Securities pursuant to Subsection (b) or (c), each holder of such
Registrable Securities hereby severally agrees to indemnify, defend and hold
harmless the Company, and its officers, directors, employees, agents, partners,
or controlling persons (within the meaning of the Act) (each, an "indemnified
party") from and against, and shall reimburse such indemnified party with
respect to, any and all Liabilities to which such indemnified party may become
subject under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or (B) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, that such holders will be liable in any such case to the extent, and
only to the extent, that any such liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, prospectus or amendment or supplement
thereto in reliance upon and in conformity with written information furnished in
an instrument duly executed by such holder specifically for use in the
preparation thereof.
(iii) Promptly after receipt by any indemnified party of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the Company hereunder, notify the Company
in writing thereof but the omission so to notify the Company shall not relieve
the Company from any Liability which it may have to the indemnified party other
than under this Section 1.4 and shall only relieve it from any Liability which
it may have to the indemnified party under this Section 1.4 if and to the extent
the Company is actually prejudiced by such omission. In case any such action
shall be brought against any indemnified party and such indemnified party shall
notify the Company of the commencement thereof, the Company shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and, after notice from the Company to the indemnified party of its election so
to assume and undertake the defense thereof the Company shall not be liable to
the indemnified party under this section for any legal expenses subsequently
incurred by the indemnified party in connection with the defense thereof other
than reasonable costs of investigation and of liaison with counsel so selected;
provided, however, that if the defendants in any such action include both the
Company and such indemnified party and the indemnified party shall have
reasonably concluded that there may be reasonable defenses available to it which
are different from or additional to those available to the Company or if the
interests of the indemnified party reasonably may be deemed to conflict with the
interests of the Company, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other reasonable expenses related to such participation to
be reimbursed by the Company as incurred. In clarification of the foregoing, the
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Company shall pay the reasonable expenses and fees of one separate counsel whose
selection is approved by the largest group of similarly situated indemnified
parties as measured by the aggregate par value of such Registrable Securities
owned by such group. Any indemnified party who chooses not to be represented by
the foregoing separate counsel shall be entitled, at its own expense, to be
represented by counsel of its own selection.
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to Subsection (b) or (c), all fees, costs and
expenses of and incidental to such registration, inclusion and public offering
shall be borne by the Company, provided, however, that any security holders
participating in such registration shall bear their pro-rata share of the
underwriting discounts and commissions, if any, incurred by them in connection
with such registration.
(ii) The fees, costs and expenses of registration to be borne by
the Company as provided in this Subsection (g) shall include, without
limitation, all registration, filing and National Association of Securities
Dealers, Inc. ("NASD") fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, and all legal fees and disbursements
and other expenses of complying with state securities or Blue Sky laws of any
jurisdiction or jurisdictions in which securities to be offered are to be
registered and qualified. Subject to appropriate agreements as to
confidentiality, the Company shall make available to counsel for the holders of
Registrable Securities its documents and personnel for due diligence purposes.
Except as otherwise provided herein, fees and disbursements of counsel and
accountants for the selling security holders shall be borne by the respective
selling security holders.
(h) The rights to cause the Company to register all or any portion of
Registrable Securities pursuant to this Section 1.4 may be assigned by an
Investor to a transferee or assignee of 20% or more, in the aggregate, of the
Shares or the Registrable Securities derived from such Shares held by such
person. Within a reasonable time after such transfer the Investor shall notify
the Company of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned.
Such assignment shall be effective only if immediately following such transfer
the further deposition of such securities by the transferee or assignee is
restricted under the Act. Any transferee asserting registration rights hereunder
shall be bound by the applicable provisions of this Agreement.
(i) From and after the date of this Agreement, the Company shall not
agree to allow the holders of any securities of the Company to include any of
their securities in any registration statement filed by the Company pursuant to
Subsection (b) unless such inclusion will not reduce the amount of the
Registrable Securities included therein.
(j) If the Company elects to require conversion of the Shares in
connection with a registered public offering of Common Stock by the Company, the
shares issued upon such conversion shall be included in such public offering (if
and to the extent that the holders so elect) and such shares shall have priority
over shares offered by the Company or by any other selling shareholders in the
event that a reduction in the total number of shares so offered shall be
required.
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ARTICLE II
Representations and Warranties
------------------------------
Section 2.1 Representations and Warranties of the Company. Except as set
forth on the Disclosure Schedule attached hereto, the Company hereby makes the
following representations and warranties to the Investors:
(a) Organization and Qualification. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of Nevada
and has the requisite corporate power to own its properties and to carry on its
business as now being conducted. Except for wholly owned subsidiaries of the
Company, the identity of which has been disclosed to the Investors and are set
forth on Section 2.1(a) of the Disclosure Schedule, the Company does not (i) own
of record or beneficially, directly or indirectly, (A) any shares of capital
stock or securities convertible into capital stock of any other corporation or
(B) any participating interest in any partnership, joint venture or other
non-corporate business enterprise or (ii) control, directly or indirectly, any
other entity. The Company and each such subsidiary, if any, is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary other than those in which the failure so
to qualify would not have a Material Adverse Effect. "Material Adverse Effect"
means any adverse effect on the business, operations, properties, prospects, or
financial condition of the entity with respect to which such term is used and
which is material to such entity and other entities controlling or controlled by
such entity taken as a whole.
(b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Shares in accordance with the terms hereof, (ii) the execution and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Company or its
Board of Directors or stockholders is required except for any stockholder
approval required by the terms of the Company's listing agreement with the
Nasdaq Stock Market, (iii) this Agreement has been duly executed and delivered
by the Company and (iv) this Agreement, including the Schedules attached hereto,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of creditors' rights and remedies or by other equitable principles of general
application.
(c) Capitalization. As of December 19, 1997, the authorized capital
stock of the Company consists of 40,000,000 shares of Common Stock, $0.10 per
value, and 2,000,000 shares of preferred stock, $0.10 par value, of which
740,000 shares are undesignated and the balance have been retired; there are
15,799,955 shares of Common Stock and no shares of preferred stock issued and
outstanding; and, upon issuance of the Shares in accordance with the terms
hereof, there will be 15,799,955 shares of Common Stock and 113,333 shares of
preferred stock issued and outstanding. All of the outstanding shares of the
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Company's Common Stock have been validly issued and are validly paid and
nonassessable. Except as set forth in Section 2.1(c) of the Disclosure Schedule
and as described in the SEC Documents, no shares of capital stock are entitled
to preemptive rights or registration rights and there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any subsidiary of the Company, or
contracts, commitments, understandings or arrangements by which the Company or
any subsidiary of the Company is or may become bound to issue additional shares
of capital stock of the Company or any subsidiary of the Company or options,
warrants, scrip, convertible debt, rights to subscribe to, or commitments to
purchase or acquire, any shares, or securities or rights convertible into
shares, of capital stock of the Company or any subsidiary of the Company. The
Company has furnished or made available to the Investors true and correct copies
of the Company's Articles of Incorporation as in effect on the date hereof (the
"Charter"), and the Company's By-Laws, as in effect on the date hereof (the
"By-Laws"). Except as provided for in the Charter, or as disclosed in the
Company's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1997 (the "Third Quarter Report"), the Company has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its equity securities or
any interest therein, to make any payment in satisfaction of any appraisal
rights properly perfected, or to pay any dividend or make any other distribution
in respect thereof. To the Company's knowledge, there are no voting trusts or
agreements, stockholders agreements, pledge agreements, buy-sell agreements,
rights of first refusal or preemptive rights relating to any securities of the
Company or any of its subsidiaries (whether or not the Company or any of its
subsidiaries is a party thereto). All of the outstanding securities of the
Company were issued in compliance with all applicable federal and state
securities laws.
(d) Issuance of Shares. The issuance of the Shares has been duly
authorized and, when paid for or issued in accordance with the terms hereof, the
Shares shall be validly issued, fully paid and non-assessable and entitled to
the rights and preferences set forth in Schedule 2. The issuance, sale and
delivery of the Shares is not subject to any preemptive right of stockholders of
the Company or any right of first refusal or other right in favor of any person.
The shares of Common Stock issuable upon conversion of the Shares are duly
authorized and reserved for issuance and, upon conversion in accordance with the
Certificate of Designation to be filed by the Company to establish the rights
and preferences of the Shares, will be validly issued, fully paid and
non-assessable and the holders shall be entitled to all rights and preferences
accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not (A) result in a violation of the
Company's Charter or By-Laws or (B) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any federal,
state, local or foreign law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected (except for such
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conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
federal, state, local or foreign law, rule or regulation, no representation is
made herein with respect to any of the same applicable solely to an Investor and
not to the Company. The business of the Company is not being conducted in
violation of any law, ordinance or regulations of any governmental entity,
except for violations which either singly or in the aggregate do not and will
not have a Material Adverse Effect. The Company is not required under federal,
state or local law, rule or regulation in the United States to obtain any
consent, authorization or order of, or make any filing (other than the filing of
the Certificate of Designation with the Nevada Secretary of State) or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or issue and sell
the Shares in accordance with the terms hereof (other than any SEC, NASD or
state securities filings which may be required to be made by the Company and any
registration statement which may be filed pursuant hereto); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investors herein.
(f) SEC Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to Section 13(a) or 15(d), in addition to one or more
registration statements and amendments thereto heretofore filed by the Company
with the SEC (all of the foregoing including filings incorporated by reference
therein being referred to herein as the "SEC Documents"). The Company has
delivered or made available to the Investors true and complete copies of the
quarterly and annual (including, without limitation, proxy information and
solicitation materials) SEC Documents filed with the SEC since December 31,
1996. The Company has not provided to the Investors any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed, other than with
respect to the transactions contemplated by this Agreement except as set forth
on Section 2.1(f) of the Disclosure Schedule. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
except as set forth on Section 2.1(f) of the Disclosure Schedule and other
federal, state and local laws, rules and regulations applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
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position of the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(g) No Material Adverse Change. Since September 30, 1997, the date
through which the most recent Quarterly Report on Form 10-QSB of the Company has
been prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no Material Adverse Effect has occurred or exists with respect to the
Company or its subsidiaries, except as otherwise disclosed or reflected in other
SEC Documents prepared through or as of a date subsequent to September 30, 1997.
(h) No Undisclosed Liabilities. The Company and its subsidiaries have
no liabilities or obligations not disclosed in the SEC Documents, other than
those incurred in the ordinary course of the Company's or its subsidiaries'
respective businesses since September 30, 1997 or which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company or
its subsidiaries.
(i) No Undisclosed Events or Circumstances. Since September 30, 1997,
the Company has not (i) issued any stock, bond or other corporate security
except upon conversion or exercise of options, warrants or convertible
debentures which were outstanding on September 30, 1997, (ii) borrowed any
amount or incurred or become subject to any liability (absolute, accrued or
contingent), except current liabilities incurred and liabilities under contracts
entered into in the ordinary course of business, (iii) discharged or satisfied
any lien or encumbrance or incurred or paid any obligation or liability
(absolute, accrued or contingent) other than current liabilities shown since
September 30, 1997 and current liabilities incurred since September 30, 1997, in
the ordinary course of business, (iv) declared or made any payment or
distribution to stockholders or purchased or redeemed any share of its capital
stock or other security, (v) mortgaged, pledged or subjected to lien any of its
assets, tangible or intangible, other than liens for current real property taxes
not yet due and payable, (vi) sold, assigned or transferred any of its tangible
assets except in the ordinary course of business, or canceled any debt or claim,
(vii) suffered any loss of property or waived any right of substantial value
whether or not in the ordinary course of business, (viii) made any change in
officer compensation except in the ordinary course of business and consistent
with past practice, (ix) made any material change in the manner of business or
operations of the Company, (x) entered into any transaction except in the
ordinary course of business or as otherwise contemplated hereby, or (xi) entered
into any commitment (contingent or otherwise) to do any of the foregoing. No
other event or circumstance has occurred or exists with respect to the Company
or its subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.
(j) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Act) in connection with the offer or sale of
the Shares.
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(k) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Shares under the Act.
(l) Standoff Commitments. The Company has received binding assurances
from each of its executive officers and directors which owns at least 5% of the
issued and outstanding Common Stock that none of them will sell any shares of
Common Stock during the thirteen (13) months following the Closing Date, except
that with the approval of the Chairman of the Board of the Company, each of them
may sell up to ten percent (10%) of his or her present holdings of Common Stock,
and may sell amounts in excess of 10% with the approval of all of the Investors.
(m) Litigation; Compliance With Law. There is no material (i) action,
suit, claim, proceeding or investigation pending or, to the Company's knowledge,
threatened against or affecting the Company, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Company pending or (iii) governmental inquiry pending
or, to the Company's knowledge, threatened against or affecting the Company
(including without limitation any inquiry as to the qualification of the Company
to hold or receive any license or permit). The Company is not in default with
respect to any order, writ, injunction or decree known to or served upon the
Company of any court or of any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. The Company has complied with all laws, rules, regulations and orders
applicable to its business, operations, properties, assets, products and
services, and the Company has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted except where the failure to comply or to have a license, permit or
other authorization would not have, a Material Adverse Effect on the Company and
its subsidiaries taken as a whole.
(n) Oil and Gas Properties. Each of the Company and its subsidiaries
has good and defensible title to all of its respective interests in oil and gas
leases, free and clear of any encumbrances, subject only to liens for taxes or
charges of mechanics or materialmen not yet due and to encumbrances under gas
sales contracts, operating agreements, unitization and pooling agreements and
other similar agreements as are customarily found in connection with comparable
exploration, drilling and producing operations and to title defects and other
encumbrances that are, singularly and in the aggregate, not material in amount
and do not interfere with its use or enjoyment of its oil and gas properties.
Each of the Company and its subsidiaries has complied in all material respects
with its obligations under the terms of the oil and gas leases in which it
purports to own an interest, and all of such leases are in full force and effect
(except where the failure so to comply or to be in full force and effect will
not have a Material Adverse Effect) upon the Company and its subsidiaries taken
as a whole.
(o) Taxes. The Company has filed all tax returns, federal, state,
county and local, required to be filed by it, and the Company has paid all taxes
shown to be due by such returns as well as all other taxes, assessments and
governmental charges which have become due or payable including, without
limitation, all taxes which the Company is obligated to withhold from amounts
owing to employees, creditors and third parties. All such taxes with respect to
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which the Company has become obligated pursuant to elections made by the Company
in accordance with generally accepted practice have been paid and adequate
reserves have been established for all taxes accrued but not yet payable. The
federal income tax returns of the Company have never been audited by the
Internal Revenue Service. No deficiency assessment with respect to or proposed
adjustment of the Company's federal, state, county or local taxes is pending or,
to the Company's knowledge, threatened. There is no tax lien, whether imposed by
any federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company.
(p) Other Agreements. The Company is not a party to or otherwise bound
by any written or oral contract or instrument or other restriction which
individually or in the aggregate could have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole. Except as set forth in the
Disclosure Schedules, neither the Company nor any subsidiary is a party to or
otherwise bound by any written or oral:
(i) contract with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of its
employees);
(ii) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(iii) contract for the employment of any officer, employee or
other person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable on
notice without cost or other liability to the Company or any subsidiary, except
as set forth in the SEC Documents and except for normal severance arrangements
and accrued vacation pay;
(iv) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, contract or understanding
pursuant to which benefits are provided to any employee of the Company or any
subsidiary (other than group insurance plans applicable to employees generally);
(v) any agreement or indenture relating to the borrowing of money
or to the mortgaging or pledging of, or otherwise placing a lien or security
interest on, any asset of the Company or any subsidiary, except as set forth in
the SEC Documents;
(vi) guaranty of any obligation for borrowed money or otherwise;
(vii) voting trust or agreement, stockholders agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights agreement
relating to any securities of the Company or any subsidiary;
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(viii) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company or any
subsidiary has advanced or agreed to advance money or has agreed to lease any
property as lessee or lessor;
(ix) except for this Agreement, any agreement or obligation
(contingent or otherwise) to issue, sell or otherwise distribute or to
repurchase or otherwise acquire or retire any share of its capital stork or any
of its other equity securities; or
(x) except for this Agreement, any agreement or obligation under
which it has granted any person any registration rights, other than the
Registration Agreement and securities being issued to San Jacinto Securities,
Inc. in connection with this transaction.
The Company and, to the Company's knowledge, each other party thereto have in
all material respects performed all the obligations required to be performed by
them to date, have received no notice of default and are not in default (with
due notice or lapse of time or both) under any lease, agreement or contract now
in affect to which the Company or any subsidiary is a party or by which it or
its property may be bound which such default would have a Material Adverse
Effect on the Company.
(q) Loans and Advances. Neither the Company nor any subsidiary has any
outstanding loans or advances to any person and is not obligated to make any
such loans or advances, except, in each case, for advances to employees of the
Company in respect of reimbursable business expenses anticipated to be incurred
by them in connection with their performance of services for the Company and its
subsidiaries taken as a whole.
(r) Assumptions, Guaranties, etc. of Indebtedness of Other Persons.
Neither the Company nor any subsidiary has assumed, guaranteed, endorsed or
otherwise become directly or contingently liable on any indebtedness of any
other person (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in the debtor, or otherwise to assure the creditor
against loss), except for obligations to share expenses or obligations with
respect to oil and gas operations on properties in which the Company has an
interest and guaranties by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business.
(s) Significant Customers and Suppliers. No customer or supplier which
was significant to the Company or any subsidiary during the period covered by
the Third Quarter Report or which has been significant to the Company or any
subsidiary thereafter, has terminated, materially reduced or, to the Company's
knowledge, threatened to terminate or materially reduce its purchases from or
provision of products or services to the Company or any subsidiary, as the case
may be.
(t) Government Approvals. Subject to the accuracy of the
representations and warranties of the Investors set forth in Section 2.2, no
registration or filing with, or consent or approval of or other action by, any
federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the issuance, sale and delivery of the Shares other than (i)
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filings pursuant to state securities laws (all of which filings have been made
or will be made on a timely basis by the Company) in connection with the sale of
the Shares, and (ii) the filing of a Form D with the SEC.
(u) Compliance With Environmental Laws. To the knowledge of the
Company, the business and properties of the Company and its subsidiaries have
been operated in compliance with all applicable federal, state or local laws,
rules, regulations or orders (collectively, "Environmental Laws") relating to
pollution or protection of the environment including, without limitation, any
law, rule, regulation or order relating to emissions, discharges, releases or
threatened releases ("Releases") of chemicals, pollutants, contaminants, wastes,
petroleum or petroleum products, toxic substances or hazardous substances
("Pollutants") for which noncompliance would have a Material Adverse Effect upon
the Company and its subsidiaries taken as a whole. Neither the Company nor any
subsidiary has received any written communication, whether from a governmental
authority, citizens' group, landowner, employee or otherwise, nor, to the
knowledge of the Company, has the Company or any subsidiary received any oral
communication from a governmental authority, alleging that (i) the Company or
any such subsidiary is not in compliance with any Environmental Law applicable
to it and its business and properties, or (ii) any employee or third party has
suffered bodily injury or property damage as a result of one or more Releases of
Pollutants arising out of or resulting from the operations of the Company, its
subsidiaries, or prior owners and operators of their business or property, which
allegation, if true, would have a Material Adverse Effect upon the Company and
its subsidiaries taken as a whole. Except as disclosed in the SEC Documents,
neither the Company nor any subsidiary has any material obligation to remediate,
repair or replace any property, whether real or personal, owned by the Company,
its subsidiaries or any third party, as a result of one or more Releases of
Pollutants arising out of or resulting from the operations of the Company, its
subsidiaries, or prior owners and operators of their business or properties.
(v) Brokers. Except for the letter agreement dated December 30, 1997,
with San Jacinto Securities, Inc. and the Consulting Agreement with Beta Capital
Group, Inc., dated February 12, 1996, both of whose fees shall be paid by the
Company, the Company has no contract, arrangement or understanding with any
broker, finder or similar agent with respect to the transactions contemplated by
this Agreement.
(w) Disclosure. Neither this Agreement, nor any Schedule or Exhibit to
this Agreement, contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
Section 2.2 Representations and Warranties of the Investors. Each Investor
severally and not jointly hereby makes the following representations and
warranties to the Company:
(a) Authorization; Enforcement. (i) Such Investor has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Shares being sold hereunder, (ii) the execution and delivery of this Agreement
by such Investor and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate or partnership
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action, and (iii) this Agreement constitutes a valid and binding obligation of
such Investor enforceable against such Investor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by such Investor of the transactions contemplated
hereby do not and will not (i) result in a violation of such Investor's charter
documents or By-Laws or (ii) conflict with any agreement, indenture or
instrument to which such Investor is a party, or (iii) result in a violation of
any law, rule or regulation, or any order, judgment or decree of any court or
governmental agency applicable to such Investor. The business of such Investor
is not being conducted in violation of any law or regulation of any governmental
entity, except for possible violations which either singly or in the aggregate
do not and will not have a Material Adverse Effect. Such Investor is not
required to obtain any consent or authorization of any governmental agency in
order for it to perform its obligations under this Agreement. The data to be
provided by such Investor in connection with registering the Registrable
Securities under the Act will be true and correct in all material respects.
(c) Investment Representation. Such Investor is purchasing the Shares
for its own account for investment and not with a view to distribution. Such
Investor has no present intention to sell the Shares and such Investor has no
present arrangement (whether or not legally binding) to sell the Shares to or
through any person or entity, provided, however, that by making the
representations herein, such Investor does not agree to hold the Shares for any
minimum or other specific term and reserves the right to dispose of the Shares
at any time in accordance with federal and state securities laws applicable to
such disposition.
(d) Accredited Investor. Such Investor is an accredited investor as
defined in Rule 501 promulgated under the Act. Such Investor has such knowledge
and experience in financial and business matters in general and investments in
particular, so that such Investor is able to evaluate the merits and risks of an
investment in the Shares and to protect its own interests in connection with
such investment. In addition (but without limiting the effect of the Company's
representations and warranties contained herein), such Investor has received
such information as it considers necessary or appropriate for deciding whether
to purchase the Shares pursuant hereto.
(e) Rule 144. Such Investor understands that there is no public
trading market for the Shares, that none is expected to develop, and that the
Shares must be held indefinitely unless such Shares or securities into which the
Shares are converted are registered under the Act or an exemption from
registration is available. Such Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
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ARTICLE III
Covenants
---------
Section 3.1 Securities Compliance.
(a) The Company shall notify the SEC and NASD, in accordance with
their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Shares and Common Stock issuable upon conversion thereof to the
Investors or subsequent holders.
(b) The Investors understand that the Shares are being offered and
sold in reliance on a transactional exemption from the registration requirements
of federal and state securities laws and that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of each Investor set forth herein in order to
determine the applicability of such exemptions and the suitability of such
Investor to acquire the Shares.
Section 3.2 Registration and Listing. Until two (2) years after all Shares
have been converted into Common Stock, the Company will cause its Common Stock
to continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
will comply in all respects with its reporting and filing obligations under said
act, will comply with all requirements related to any registration statement
filed pursuant to this Agreement and will not take any action or file any
document (whether or not permitted by the Act or the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Acts, except as permitted
herein. Until two (2) years after all Shares have been converted into Common
Stock the Company will take all action within its power to continue the listing
or trading of its Common Stock on the Nasdaq SmallCap Market and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Nasdaq Stock Market.
Section 3.3 Financial Statements, Reports, Etc.. The Company shall furnish
to each Investor promptly upon sending, making available or filing the same, all
press releases, reports and financial statements that the Company sends or makes
available to its stockholders or directors or files with the SEC.
Section 3.4 Reserve for Additional Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of issuing the additional shares pursuant to Schedule 2,
and otherwise complying with the terms of this Agreement, such number of its
duly authorized shares of Common Stock as shall be sufficient to comply with the
terms of this Agreement. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
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obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock and the additional shares pursuant to Schedule 2.
Section 3.5 Inspection, Consultation and Advice. The Company shall permit
and cause each of its subsidiaries to permit each Investor and such persons as
it may reasonably designate, at such Investor's expense, to visit and inspect
any of the properties of the Company and its subsidiaries, examine their books
and take copies and extracts therefrom, discuss the affairs, finances and
accounts of the Company and its subsidiaries with their officers, employees and
public accountants (and the Company hereby authorizes said accountants to
discuss with such Investor and such designees such affairs, finances and
accounts), and consult with and advise the management of the Company and its
subsidiaries as to their affairs, finances and accounts, all at reasonable times
and upon reasonable notice.
Section 3.6 Keeping of Records and Books of Account. The Company shall
keep, and cause each subsidiary to keep, adequate records and books of account,
in which complete entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
ARTICLE IV
Conditions
----------
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to issue and/or sell the
Shares to the Investors is subject to the satisfaction, at or before the
Closing, of each of the conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investors' Representations and Warranties. The
representations and warranties of the Investors shall be true and correct in all
material respects.
(b) Performance by the Investors. The Investors shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Investors at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Investors to
Purchase the Shares. The obligation hereunder of each of the Investors to
acquire and pay for the Shares is subject to the satisfaction, at or before the
Closing, of each of the conditions set forth below. These conditions are for
each Investor's sole benefit and may be waived by such Investor at any time in
its sole discretion.
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(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company 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 that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.
(c) Nasdaq. From the date hereof to the Closing Date, trading in the
Company's Common Stock shall not have been suspended by the SEC or the Nasdaq
SmallCap Market (except for any suspension of trading of limited duration agreed
to between the Company and the Nasdaq SmallCap Market solely to permit
dissemination of material information regarding the Company), and trading in
securities generally as reported by the Nasdaq Stock Market shall not have been
suspended or limited or minimum prices shall not have been established on
securities whose trades are reported by the Nasdaq Stock Market.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) Opinion of Counsel, Etc. At the Closing, the Investors shall have
received an opinion of counsel to the Company, satisfactory to the Investors, in
the form attached hereto and such other certificates and documents as the
Investors or their respective counsel shall reasonably require incident to the
Closing.
(f) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Investors and their respective counsel, and the
Investors and their respective counsel shall have received all such counterpart
originals or certified or other copies of such documents as they reasonably may
request.
(g) Purchase of Shares by Other Investors. Each Investor shall have
purchased and paid for the Shares being purchased by it on the Closing Date, and
the aggregate purchase price paid by all of the Investors for the Shares being
purchased by them on the Closing Date shall be at least $5,666,650.
(h) Supporting Documents. The Investors and their respective counsel
shall have received copies of the documents they shall have requested prior to
Closing, including such supporting documents and other information with respect
to the operations and affairs of the Company as the Investors or their
respective counsel reasonably may request.
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ARTICLE V
Legend on Stock
---------------
Each certificate representing the Shares and, if appropriate, securities
issued upon conversion thereof, shall be stamped or otherwise imprinted with a
legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY
MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue or, if applicable, issue certificates
representing the Shares or, if applicable, the securities issued upon conversion
thereof without the legend set forth above at such time as (i) the holder
thereof is permitted to dispose of such Shares (or securities issued upon
conversion thereof) pursuant to Rule 144(k) under the Act, (ii) the securities
are sold to a purchaser or purchasers who (in the opinion of counsel to such
purchasers, in form and substance reasonably satisfactory to the Company and its
counsel) are able to dispose of such shares publicly without registration under
the Act, or (iii) such securities are registered under the Act.
ARTICLE VI
Termination
-----------
Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual written consent of the Company
and the Investor desiring to terminate this Agreement.
Section 6.2 Other Termination. This Agreement may be terminated by action
of the Board of Directors or other governing body of such Investor desiring to
terminate this Agreement or the Company at any time if the Closing shall not
have been consummated by the fifth business day following the date of this
Agreement.
Section 6.3 Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth business day following the date of this
Agreement.
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ARTICLE VII
Miscellaneous
-------------
Section 7.1 Fees and Expenses. Except as otherwise set forth in Section 1.4
hereof, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement, provided that the Company shall pay, at the
Closing, all due diligence fees and attorneys' fees and expenses (including
those of in-house counsel) incurred by each Investor, in connection with the
preparation, negotiation, execution and delivery of this Agreement and the
transactions contemplated hereunder.
Section 7.2 Specific Enforcement Consent to Jurisdiction.
(a) The Company and each of the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) The Company and each of the Investors (i) hereby irrevocably
submits to the jurisdiction of the United States District Court and other courts
of the United States sitting in California for the purposes of any suit, action
or proceeding arising out of or relating to this Agreement and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. The Company and each of the
Investors consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other manner
permitted by law.
Section 7.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein, neither the Company nor any of the
Investors makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with collect answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
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than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
to the Company: Pease Oil and Gas Company, Inc.
751 Horizon Court, Suite 203
P.O. Box 60219
Grand Junction, Colorado 81506-8718
Attn: Willard H. Pease, Jr.
with copies to: Alan W. Peryam, Esq.
Alan W. Peryam, LLC
1120 Lincoln Street, Suite 1000
Denver, Colorado 80203
to the Investor: At the address for such Investor set forth
below the signature of such Investor on the
execution page of this Agreement
with copies to: To legal counsel of such Investor
at the address set forth below the signature
of such Investor on the execution page of
this Agreement.
Any party hereto may from time to time change its address for notices by giving
at least ten (10) days' written notice of such changed address to the other
party hereto.
Section 7.5 Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.
Section 7.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 7.7 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. The parties hereto may amend this Agreement
without notice to or the consent of any third party. Except as herein provided,
neither the Company nor any Investor shall assign this Agreement or any rights
or obligations hereunder without the prior written consent of the other (which
consent may be withheld for any reason in the sole discretion of the party from
whom consent is sought); provided, however, that the Company may assign its
rights and obligations hereunder to any acquiror of substantially all of the
assets or a controlling equity interest of the Company. The assignment by a
party to this Agreement of any rights hereunder shall not affect the obligations
of such party under this Agreement.
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Section 7.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person, except as provided in Section 1.4(f).
Section 7.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of California
without regard to such state's principles of conflict of laws.
Section 7.10 Survival. The representations and warranties of the Company
and the Investors contained in Article II and the agreements and covenants set
forth in Articles I, II and VII shall survive the Closing.
Section 7.11 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause the manually
executed signature page(s) to be physically delivered to the other party within
five (5) days of the execution hereof.
Section 7.12 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of any Investor without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
PEASE OIL AND GAS COMPANY
By:
------------------------------------
Willard H. Pease, Jr.
Chairman
THE INVESTOR
By:
------------------------------------
Name:
Title:
Name and Address of Investor:
Offense Group Associates, L.P.
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
Name and Address of Legal Counsel:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attn: Neil J Wertlieb, Esq.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
PEASE OIL AND GAS COMPANY
By:
------------------------------------
Willard H. Pease, Jr.
Chairman
THE INVESTOR
By:
------------------------------------
Name:
Title:
Name and Address of Investor:
Arbco Associates, L.P.
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
Name and Address of Legal Counsel:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attn: Neil J Wertlieb, Esq.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
PEASE OIL AND GAS COMPANY
By:
------------------------------------
Willard H. Pease, Jr.
Chairman
THE INVESTOR
By:
------------------------------------
Name:
Title:
Name and Address of Investor:
Kayne Anderson Nontraditional
Investments, L.P. ("KANTI")
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
Name and Address of Legal Counsel:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attn: Neil J Wertlieb, Esq.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
PEASE OIL AND GAS COMPANY
By:
------------------------------------
Willard H. Pease, Jr.
Chairman
THE INVESTOR
By:
------------------------------------
Name:
Title:
Name and Address of Investor:
Opportunity Associates, L.P.
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
Name and Address of Legal Counsel:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attn: Neil J Wertlieb, Esq.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
PEASE OIL AND GAS COMPANY
By:
------------------------------------
Willard H. Pease, Jr.
Chairman
THE INVESTOR
By:
------------------------------------
Name:
Title:
Name and Address of Investor:
The MADAV IX Foundation
1750 Euclid Avenue
Cleveland, Ohio 44115
Name and Address of Legal Counsel:
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
PEASE OIL AND GAS COMPANY
By:
------------------------------------
Willard H. Pease, Jr.
Chairman
THE INVESTOR
By:
------------------------------------
Name:
Title:
Name and Address of Investor:
Ramat Securities Ltd.
23811 Chagrin Boulevard, Suite 200
Beachwood, Ohio 44122
Name and Address of Legal Counsel:
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
PEASE OIL AND GAS COMPANY
By:
------------------------------------
Willard H. Pease, Jr.
Chairman
THE INVESTOR
By:
------------------------------------
Name:
Title:
Name and Address of Investor:
Everen Clearing Corp.
FBO Howard Amster IRA
111 East Kilborne Avenue
Milwaukee, Wisconsin 53202
Name and Address of Legal Counsel:
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
PEASE OIL AND GAS COMPANY
By:
------------------------------------
Willard H. Pease, Jr.
Chairman
THE INVESTOR
By:
------------------------------------
Name:
Title:
Name and Address of Investor:
Metropolitan Life Insurance
Company Separate Account EN
----------------------------------------
----------------------------------------
----------------------------------------
Name and Address of Legal Counsel:
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
PEASE OIL AND GAS COMPANY
By:
------------------------------------
Willard H. Pease, Jr.
Chairman
THE INVESTOR
By:
------------------------------------
Name:
Title:
Name and Address of Investor:
BellSouth Master Pension Trust
----------------------------------------
----------------------------------------
----------------------------------------
Name and Address of Legal Counsel:
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
PEASE OIL AND GAS COMPANY
By:
------------------------------------
Willard H. Pease, Jr.
Chairman
THE INVESTOR
By:
------------------------------------
Name:
Title:
Name and Address of Investor:
Tamar Securities Inc.
23811 Chagrin Boulevard, Suite 200
Beachwood, Ohio 44122
Name and Address of Legal Counsel:
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
Schedule of Investors
---------------------
Number of Shares
Name to be Purchased Purchase Price
- ---- ---------------- --------------
<S> <C> <C>
Offense Group Associates, L.P. 20,000 $1,000,000
Arbco Associates, L.P. 16,000 $800,000
Kayne Anderson
Non-Traditional Investments,
L.P. ("KANTI") 18,000 $900,000
Opportunity Associates, L.P. 6,000 $300,000
Metropolitan Life Insurance
Company Separate Account EN 26,000 $1,300,000
BellSouth Master Pension Trust 14,000 $700,000
The MADAV IX Foundation 2,000 $100,000
Ramat Securities Ltd. 1,333 $66,650
Everen Clearing Corp. FBO
Howard Amster IRA 5,000 $250,000
Tamar Securities Inc. 5,000 $250,000
-------- ----------
Total 113,300 $5,666,650
======= ==========
</TABLE>
PEASE OIL & GAS COMPANY
PEASE OIL & GAS COMPANY ANNOUNCES
$17 MILLION FINANCING PACKAGE
FOR IMMEDIATE RELEASE - January 7, 1998
Grand Junction, Colorado - January 7, 1998 - Pease Oil and Gas Company (NASDAQ:
WPOG) today announced a private placement consisting of the sale of $5.67
million of 5% convertible preferred non-voting stock and received a commitment
in principal to sell up to $11.33 million of 10% convertible seven-year
debentures. The financing, totaling approximately $17 million, is with a group
of institutional investors. The principal investors in the transaction are
represented by Kayne Anderson Investment Management, Inc. and State Street
Research and Management Company. The proceeds of the offering will be used to
fully fund the Company's expenses associated with 39 planned Gulf Coast 1998
exploration and development wells as well as approximately 300 square miles of
3-D seismic surveys currently underway.
The Company closed the convertible preferred on December 31, 1997, and
anticipates closing the debentures in the first quarter of 1998. The conversion
price of the preferred may be adjusted after three months following closing and
may be repurchased by the Company if the common falls below a certain stock
price. The Company also has the option to force conversion after 18 months.
Willard H. Pease, Jr., the Company President, stated that, "This capital will
allow us to continue to increase our reserve base through exploration and
development in the Gulf Coast Region. Additionally, the Company's positioning
with quality institutional investors should prove to be very beneficial to
existing shareholders."
Pease Oil and Gas Company is a 29-year old Company traded on NASDAQ with the
symbol WPOG (common). For more information please contact Patrick J. Duncan, CFO
at (970) 245-5917 or Steve Antry at (714) 752-5212.
Except for the historical information contained herein, the matters discussed in
this news release are forward-looking statements that involve certain risks and
uncertainties. These risks and uncertainties include, among other things, market
conditions, uncertainties inherent in estimating reserves and other factors
discussed in the Company's filings with the Securities and Exchange Commission.
