DELTA PETROLEUM CORPORATION
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE FEDERAL AND STATE
SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY
OF THE SECURITIES DESCRIBED HEREIN BY OR TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH
DEGREE OF RISK. THE INVESTOR MUST RELY ON ITS OWN
ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE
ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or
"Investment Agreement") is made as of the 21st day of July, 2000,
by and between Delta Petroleum Corporation, a corporation duly
organized and existing under the laws of the State of Colorado
(the "Company"), and the undersigned Investor executing this
Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject
to the conditions contained herein, the Company shall issue to
the Investor, and the Investor shall purchase from the Company,
from time to time as provided herein, shares of the Company's
Common Stock, as part of an offering of Common Stock by the
Company to Investor, for a maximum aggregate offering amount of
Twenty Million Dollars ($20,000,000) (the "Maximum Offering
Amount"); and
WHEREAS, the solicitation of this Investment Agreement and,
if accepted by the Company, the offer and sale of the Common
Stock are being made in reliance upon the provisions of
Regulation D ("Regulation D") promulgated under the Act, Section
4(2) of the Act, and/or upon such other exemption from the
registration requirements of the Act as may be available with
respect to any or all of the purchases of Common Stock to be made
hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement
(including the recitals above), the following terms shall have
the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"20% Approval" shall have the meaning set forth in Section
5.25.
"9.9% Limitation" shall have the meaning set forth in
Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in
Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit
E.
"Advance Put Notice Confirmation" shall have the meaning set
forth in Section 2.3.1(a), the form of which is attached hereto
as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth
in Section 2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of
shares of Common Stock issued to Investor pursuant to the terms
of this Agreement or the Registration Rights Agreement as of a
given date, including Put Shares and Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set
forth in Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in
Section 2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set
forth in Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal
Market is open for trading.
"Calendar Month" shall mean the period of time beginning on
the numeric day in question in a calendar month and for Calendar
Months thereafter, beginning on the earlier of (i) the same
numeric day of the next calendar month or (ii) the last day of
the next calendar month. Each Calendar Month shall end on the
day immediately preceding the beginning of the next succeeding
Calendar Month.
"Cap Amount" shall have the meaning set forth in Section
2.3.10.
"Capital Raising Limitations" shall have the meaning set
forth in Section 6.5.1.
"Capitalization Schedule" shall have the meaning set forth
in Section 3.2.4, attached hereto as Exhibit K.
"Closing" shall mean one of (i) the Investment Commitment
Closing and (ii) each closing of a purchase and sale of Common
Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date,
the last closing bid price for such security during Normal
Trading on the NASDAQ Small Cap Market, or, if the NASDAQ Small
Cap Market is not the principal securities exchange or trading
market for such security, the last closing bid price during
Normal Trading of such security on the principal securities
exchange or trading market where such security is listed or
traded as reported by such principal securities exchange or
trading market, or if the foregoing do not apply, the last
closing bid price during Normal Trading of such security in the
over-the-counter market on the electronic bulletin board for such
security, or, if no closing bid price is reported for such
security, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price of such security on such date shall
be the fair market value as mutually determined by the Company
and the Investor in this Offering. If the Company and the
Investor in this Offering are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be
resolved by an investment banking firm mutually acceptable to the
Company and the Investor in this offering and any fees and costs
associated therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set
forth in Section 2.6.
"Commitment Warrants" shall have the meaning set forth in
Section 2.4.1, the form of which is attached hereto as Exhibit U.
"Commitment Warrant Exercise Price" shall have the meaning
set forth in Section 2.4.1.
"Common Shares" shall mean the shares of Common Stock of the
Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean Delta Petroleum Corporation, a
corporation duly organized and existing under the laws of the
State of Colorado.
"Company Designated Maximum Put Dollar Amount" shall have
the meaning set forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the
meaning set forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in
Section 2.3.12.
"Conditions to Investor's Obligations" shall have the
meaning as set forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of
this Investment Agreement, that the Company's Common Stock is not
listed for and actively trading on the Nasdaq Small Cap Market,
the Nasdaq National Market, the American Stock Exchange, the
O.T.C. Bulletin Board, or the New York Stock Exchange or is
suspended or delisted with respect to the trading of the shares
of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth
in Section 3.2.4.
"Due Diligence Review" shall have the meaning as set forth
in Section 2.5.
"Effective Date" shall have the meaning set forth in Section
2.3.1.
"Escrow Agent" shall mean First Union National Bank of
Georgia.
"Escrow Agreement" shall mean that certain Escrow Agreement
and Instructions by and among the Company, the Escrow Agent and
the Investor of date even herewith.
"Evaluation Day" shall have the meaning set forth in Section
2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Excluded Day" shall have the meaning set forth in Section
2.3.1(b).
"Extended Put Period" shall mean the period of time between
the Advance Put Notice Date until the Pricing Period End Date.
"Factual Representation of Counsel" shall have the meaning
set forth in Section 2.3.6(a), the form of which is attached
hereto as Exhibit R.
"Factual Representation of Counsel Deadline" shall have the
meaning set forth in Section 2.3.6(a).
"Impermissible Put Cancellation" shall have the meaning set
forth in Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth
in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in
Section 2.3.1 (b).
"Ineffective Period" shall mean any period of time that the
Registration Statement or any Supplemental Registration Statement
(each as defined in the Registration Rights Agreement) becomes
ineffective or unavailable for use for the sale or resale, as
applicable, of any or all of the Registrable Securities (as
defined in the Registration Rights Agreement) for any reason (or
in the event the prospectus under either of the above is not
current and deliverable) during any time period required under
the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth
in Section 2.3.1(a).
"Investment Commitment Closing" shall have the meaning set
forth in Section 2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an
opinion from Company's independent counsel, substantially in the
form attached as Exhibit B, or such other form as agreed upon by
the parties, as to the Investment Commitment Closing.
"Investment Date" shall mean the date of the Investment
Commitment Closing.
"Investor" shall have the meaning set forth in the preamble
hereto.
"Key Employee" shall have the meaning set forth in Section
5.17, as set forth in Exhibit N.
"Late Payment Amount" shall have the meaning set forth in
Section 2.3.8.
"Legend" shall have the meaning set forth in Section 4.7.
"Limitation Period" shall have the meaning set forth in
Section 6.5.1.
"Major Transaction" shall mean and shall be deemed to have
occurred at such time upon any of the following events:
(i) a consolidation, merger or other business
combination or event or transaction following which the holders
of Common Stock of the Company immediately preceding such
consolidation, merger, combination or event either (i) no longer
hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors
of the Company (a "Change of Control"); provided, however, that
if the other entity involved in such consolidation, merger,
combination or event is a publicly traded company with
"Substantially Similar Trading Characteristics" (as defined
below) as the Company and the holders of Common Stock are to
receive solely Common Stock or no consideration (if the Company
is the surviving entity) or solely common stock of such other
entity (if such other entity is the surviving entity), such
transaction shall not be deemed to be a Major Transaction
(provided the surviving entity, if other than the Company, shall
have agreed to assume all obligations of the Company under this
Agreement and the Registration Rights Agreement). For purposes
hereof, an entity shall have Substantially Similar Trading
Characteristics as the Company if the average daily dollar
Trading Volume of the common stock of such entity is equal to or
in excess of $500,000 for the 90th through the 31st day prior to
the public announcement of such transaction;
(ii) the sale or transfer of all or substantially all
of the Company's assets; or
(iii) a purchase, tender or exchange offer made to the
holders of outstanding shares of Common Stock, such that
following such purchase, tender or exchange offer a Change of
Control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price for
the Common Stock on the Principal Market during the Pricing
Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section
2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the
Company Designated Maximum Put Dollar Amount, if any, specified
by the Company in a Put Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean have the meaning set
forth in the recitals hereto.
"NASD" shall have the meaning set forth in Section 6.9.
"Nasdaq 20% Rule" shall have the meaning set forth in
Section 2.3.10.
"Normal Trading" shall mean trading that occurs between 9:30
AM and 4:00 PM, New York City Time, on any Business Day, and
shall expressly exclude "after hours" trading.
"Numeric Day" shall mean the numerical day of the month of
the Investment Date or the last day of the calendar month in
question, whichever is less.
"NYSE" shall have the meaning set forth in Section 6.9.
"Offering" shall mean the Company's offering of Common Stock
and Warrants issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by
an officer of the Company, to the effect that the representations
and warranties of the Company in this Agreement required to be
true for the applicable Closing are true and correct in all
material respects and all of the conditions and limitations set
forth in this Agreement for the applicable Closing are satisfied.
"Opinion of Counsel" shall mean, as applicable, the
Investment Commitment Opinion of Counsel, the Put Opinion of
Counsel, and the Factual Representation of Counsel.
"Payment Due Date" shall have the meaning set forth in
Section 2.3.8.
"Pricing Period" shall mean, unless otherwise shortened
under the terms of this Agreement, the period beginning on the
Business Day immediately following the Put Date and ending on and
including the date which is 20 Business Days after such Put Date.
"Pricing Period End Date" shall mean the last Business Day
of any Pricing Period.
"Principal Market" shall mean the Nasdaq Small Cap Market,
the Nasdaq National Market, the American Stock Exchange, the
O.T.C. Bulletin Board, or the New York Stock Exchange, whichever
is at the time the principal trading exchange or market for the
Common Stock.
"Proceeding" shall have the meaning as set forth Section
5.1.
"Purchase" shall have the meaning set forth in Section
2.3.7.
"Purchase Warrant Exercise Price" shall have the meaning set
forth in Section 2.4.2.
"Purchase Warrants" shall have the meaning set forth in
Section 2.4.2, the form of which is attached hereto as Exhibit D.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in
Section 2.3.11(a).
"Put Cancellation Date" shall have the meaning set forth in
Section 2.3.11(a).
"Put Cancellation Notice" shall have the meaning set forth
in Section 2.3.11(a), the form of which is attached hereto as
Exhibit Q.
"Put Cancellation Notice Confirmation" shall have the
meaning set forth in Section 2.3.11(c), the form of which is
attached hereto as Exhibit S.
"Put Closing" shall have the meaning set forth in Section
2.3.8.
"Put Closing Date" shall have the meaning set forth in
Section 2.3.8.
"Put Date" shall mean the date that is specified by the
Company in any Put Notice for which the Company intends to
exercise a Put under Section 2.3.1, unless the Put Date is
postponed pursuant to the terms hereof, in which case the "Put
Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the
Put Share Amount by the respective Put Share Prices with respect
to such Put Shares, subject to the limitations herein.
"Put Notice" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth
in Section 2.3.1(d), the form of which is attached hereto as
Exhibit H.
"Put Opinion of Counsel" shall mean an opinion from
Company's independent counsel, in the form attached as Exhibit I,
or such other form as agreed upon by the parties, as to any Put
Closing.
"Put Share Amount" shall have the meaning as set forth
Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in
Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are
purchased by the Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth
in the Registration Rights Agreement.
"Registration Rights Agreement" shall mean that certain
registration rights agreement entered into by the Company and
Investor on even date herewith, in the form attached hereto as
Exhibit A, or such other form as agreed upon by the parties.
"Registration Statement" shall have the meaning as set forth
in the Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the
recitals hereto.
"Reporting Issuer" shall have the meaning set forth in
Section 6.2.
"Restrictive Legend" shall have the meaning set forth in
Section 4.7.
"Required Put Documents" shall have the meaning set forth in
Section 2.3.5.
"Right of First Offer" shall have the meaning set forth in
Section 6.5.2.
"Risk Factors" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit J.
"Schedule of Exceptions" shall have the meaning set forth in
Section 5, and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together
with the Common Stock of the Company, the Warrants and the
Warrant Shares issuable pursuant to this Investment Agreement.
"Semi-Annual Non-Usage Fee" shall have the meaning set forth
in Section 2.6.
"Share Authorization Increase Approval" shall have the
meaning set forth in Section 5.25.
"Stockholder 20% Approval" shall have the meaning set forth
in Section 6.11.
"Supplemental Registration Statement" shall have the meaning
set forth in the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be
a period of time beginning on the date of this Agreement and
ending on the Termination Date.
"Termination Date" shall mean the earlier of (i) the date
that is three (3) years after the Effective Date, or (ii) the
date that is thirty (30) Business Days after the later of (a) the
Put Closing Date on which the sum of the aggregate Put Share
Price for all Put Shares equal the Maximum Offering Amount, (b)
the date that the Company has delivered a Termination Notice to
the Investor, (c) the date of an Automatic Termination, and (d)
the date that all of the Warrants have been exercised.
"Termination Fee" shall have the meaning as set forth in
Section 2.6.
"Termination Notice" shall have the meaning as set forth in
Section 2.3.12.
"Third Party Report" shall have the meaning set forth in
Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the
Company's Common Stock that trade between 9:30 AM and 4:00 PM,
New York City Time, on any Business Day, and shall expressly
exclude any shares trading during "after hours" trading.
"Transaction Documents" shall have the meaning set forth in
Section 9.
"Transfer Agent" shall have the meaning set forth in Section
6.10.
"Transfer Agent Instructions" shall mean the Company's
instructions to its transfer agent, substantially in the form
attached as Exhibit T, or such other form as agreed upon by the
parties.
"Trigger Price" shall have the meaning set forth in Section
2.3.1(b).
"Truncated Pricing Period" shall have the meaning set forth
in Section 2.3.11(d).
"Truncated Put Share Amount" shall have the meaning set
forth in Section 2.3.11(b).
"Unlegended Share Certificates" shall mean a certificate or
certificates (or electronically delivered shares, as appropriate)
(in denominations as instructed by Investor) representing the
shares of Common Stock to which the Investor is then entitled to
receive, registered in the name of Investor or its nominee (as
instructed by Investor) and not containing a restrictive legend
or stop transfer order, including but not limited to the Put
Shares for the applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set
forth in Section 3.2.4, attached hereto as Exhibit L.
"Variable Equity Securities" shall have the meaning set
forth in Section 6.5.1.
"Volume Limitations" shall have the meaning set forth in
Section 2.3.1(b).
"Warrant Shares" shall mean the Common Stock issued or
issuable upon exercise of the Warrants.
"Warrants" shall mean Purchase Warrants and Commitment
Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
Subject to the terms and conditions herein and the
satisfaction of the conditions to closing set forth in Sections
2.2 and 2.3 below, Investor hereby agrees to purchase such
amounts of Common Stock and accompanying Warrants as the Company
may, in its sole and absolute discretion, from time to time elect
to issue and sell to Investor according to one or more Puts
pursuant to Section 2.3 below.
2.2 Investment Commitment.
2.2.1 Investment Commitment Closing. The
closing of this Agreement (the "Investment Commitment Closing")
shall be deemed to occur when this Agreement and the Registration
Rights Agreement have been executed by both Investor and the
Company, the Transfer Agent Instructions have been executed by
both the Company and the Investor, and the other Conditions to
Investor's Obligations set forth in Section 2.2.2 below have been
met.
2.2.2 Conditions to Investor's Obligations. As a
prerequisite to the Investment Commitment Closing and the
Investor's obligations hereunder, all of the following (the
"Conditions to Investor's Obligations") shall have been satisfied
prior to or concurrently with the Company's execution and
delivery of this Agreement:
(a) the following documents shall have been
delivered to the Investor: (i) the Registration
Rights Agreement (executed by the Company and
Investor), (ii) the Investment Commitment Opinion
of Counsel (signed by the Company's counsel),
(iii) the Transfer Agent Instructions (executed by
the Company and the Investor), and (iv) a
Secretary's Certificate as to (A) the resolutions
of the Company's board of directors authorizing
this transaction, (B) the Company's Certificate of
Incorporation, and (C) the Company's Bylaws;
(b) this Investment Agreement, accepted by
the Company, shall have been received by the
Investor;
(c) the Company's Common Stock shall be
listed for trading and actually trading on the
Nasdaq Small Cap Market, the Nasdaq National
Market, the American Stock Exchange, the O.T.C.
Bulletin Board, or the New York Stock Exchange;
(d) other than continuing losses described
in the Risk Factors set forth in the Disclosure
Documents (provided for in Section 3.2.4), as of
the Closing there have been no material adverse
changes in the Company's business prospects or
financial condition since the date of the last
balance sheet included in the Disclosure
Documents, including but not limited to incurring
material liabilities; and
(e) the representations and warranties of
the Company in this Agreement shall be true and
correct in all material respects and the
conditions to Investor's obligations set forth in
this Section 2.2.2 shall have been satisfied as of
such Closing; and the Company shall deliver an
Officer's Certificate, signed by an officer of the
Company, to such effect to the Investor.
2.3 Puts of Common Shares to the Investor.
2.3.1 Procedure to Exercise a Put. Subject to
the Individual Put Limit, the Maximum Offering Amount and the Cap
Amount (if applicable), and the other conditions and limitations
set forth in this Agreement, at any time beginning on the date on
which the Registration Statement is declared effective by the SEC
(the "Effective Date"), the Company may, in its sole and absolute
discretion, elect to exercise one or more Puts according to the
following procedure, provided that each subsequent Put Date after
the first Put Date shall be no sooner than five (5) Business Days
following the preceding Pricing Period End Date:
(a) Delivery of Advance Put Notice. At
least ten (10) Business Days but not more than twenty (20)
Business Days prior to any intended Put Date (unless otherwise
agreed in writing by the Investor), the Company shall deliver
advance written notice (the "Advance Put Notice," the form of
which is attached hereto as Exhibit E, the date of such Advance
Put Notice being the "Advance Put Notice Date") to Investor
stating the Put Date for which the Company shall, subject to the
limitations and restrictions contained herein, exercise a Put and
stating the number of shares of Common Stock (subject to the
Individual Put Limit and the Maximum Put Dollar Amount) which the
Company intends to sell to the Investor for the Put (the
"Intended Put Share Amount").
The Company may, at its option, also designate in any
Advance Put Notice (i) a maximum dollar amount of Common Stock,
not to exceed $2,000,000, which it shall sell to Investor during
the Put (the "Company Designated Maximum Put Dollar Amount")
and/or (ii) a minimum purchase price per Put Share at which the
Investor may purchase shares of Common Stock pursuant to such Put
Notice (a "Company Designated Minimum Put Share Price"). The
Company Designated Minimum Put Share Price, if applicable, shall
be no greater than 80% of the Closing Bid Price of the Company's
common stock on the Advance Put Notice Date. The Company may
decrease (but not increase) the Company Designated Minimum Put
Share Price for a Put at any time by giving the Investor written
notice of such decrease not later than 12:00 Noon, New York City
time, on the Business Day immediately preceding the Business Day
that such decrease is to take effect. A decrease in the Company
Designated Minimum Put Share Price shall have no retroactive
effect on the determination of Trigger Prices and Excluded Days
for days preceding the Business Day that such decrease takes
effect.
Notwithstanding the above, if, at the time of delivery of an
Advance Put Notice, more than two (2) Calendar Months have passed
since the date of the previous Put Closing and the number of
shares specified in the Advance Put Notice multiplied by the
Closing Bid Price of the Company's Common Stock for the Business
Day immediately preceding the date of such Advance Put Notice is
greater than $150,000, then such Advance Put Notice shall provide
at least twenty (20) Business Days notice of the intended Put
Date, unless waived in writing by the Investor. In order to
effect delivery of the Advance Put Notice, the Company shall (i)
send the Advance Put Notice by facsimile on such date so that
such notice is received by the Investor by 6:00 p.m., New York,
NY time, and (ii) surrender such notice on such date to a courier
for overnight delivery to the Investor (or two (2) day delivery
in the case of an Investor residing outside of the U.S.). Upon
receipt by the Investor of a facsimile copy of the Advance Put
Notice, the Investor shall, within two (2) Business Days, send,
via facsimile, a confirmation of receipt (the "Advance Put Notice
Confirmation," the form of which is attached hereto as Exhibit F)
of the Advance Put Notice to the Company specifying that the
Advance Put Notice has been received and affirming the intended
Put Date and the Intended Put Share Amount.
(b) Put Share Amount. The "Put Share Amount"
is the number of shares of Common Stock that the Investor shall
be obligated to purchase in a given Put, and shall equal the
lesser of (i) the Intended Put Share Amount, and (ii) the
Individual Put Limit. The "Individual Put Limit" shall equal the
lesser of (i) 15% of the sum of the aggregate daily reported
Trading Volumes in the outstanding Common Stock on the Company's
Principal Market, excluding any block trades of 20,000 or more
shares of Common Stock, for all Evaluation Days (as defined
below) in the Pricing Period, (ii) the number of Put Shares
which, when multiplied by their respective Put Share Prices,
equals the Maximum Put Dollar Amount, and (iii) the 9.9%
Limitation, but in no event shall the Individual Put Limit exceed
15% of the sum of the aggregate daily reported Trading Volumes in
the outstanding Common Stock on the Company's Principal Market,
excluding any block trades of 20,000 or more shares of Common
Stock, for the twenty (20) Business Days immediately preceding
the Put Date (this limitation, together with the limitation in
(i) immediately above, are collectively referred to herein as the
"Volume Limitations"). Company agrees not to trade Common Stock
or arrange for Common Stock to be traded for the purpose of
artificially increasing the Volume Limitations.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the
greater of (i) the Company Designated Minimum Put Share Price,
plus $.25, or (ii) the Company Designated Minimum Put Share Price
divided by .91.
An "Excluded Day" shall mean each Business Day during a
Pricing Period where the lowest intra-day trading price of the
Common Stock is less than the Trigger Price.
An "Evaluation Day" shall mean each Business Day during
a Pricing Period that is not an Excluded Day.
(c) Put Share Price. The purchase price for
the Put Shares (the "Put Share Price") shall equal the lesser of
(i) the Market Price for such Put, minus $.25, or (ii) 91% of the
Market Price for such Put, but shall in no event be less than the
Company Designated Minimum Put Share Price for such Put, if
applicable.
(d) Delivery of Put Notice. After delivery
of an Advance Put Notice, on the Put Date specified in the
Advance Put Notice the Company shall deliver written notice (the
"Put Notice," the form of which is attached hereto as Exhibit G)
to Investor stating (i) the Put Date, (ii) the Intended Put Share
Amount as specified in the Advance Put Notice (such exercise a
"Put"), (iii) the Company Designated Maximum Put Dollar Amount
(if applicable), and (iv) the Company Designated Minimum Put
Share Price (if applicable). In order to effect delivery of the
Put Notice, the Company shall (i) send the Put Notice by
facsimile on the Put Date so that such notice is received by the
Investor by 6:00 p.m., New York, NY time, and (ii) surrender such
notice on the Put Date to a courier for overnight delivery to the
Investor (or two (2) day delivery in the case of an Investor
residing outside of the U.S.). Upon receipt by the Investor of a
facsimile copy of the Put Notice, the Investor shall, within two
(2) Business Days, send, via facsimile, a confirmation of receipt
(the "Put Notice Confirmation," the form of which is attached
hereto as Exhibit H) of the Put Notice to Company specifying that
the Put Notice has been received and affirming the Put Date and
the Intended Put Share Amount.
(e) Delivery of Required Put Documents. On or
before the Put Date for such Put, the Company shall deliver the
Required Put Documents (as defined in Section 2.3.5 below) to the
Investor (or to an agent of Investor, if Investor so directs).
Unless otherwise specified by the Investor, the Put Shares of
Common Stock shall be transmitted electronically pursuant to such
electronic delivery system as the Investor shall request;
otherwise delivery shall be by physical certificates. If the
Company has not delivered all of the Required Put Documents to
the Investor on or before the Put Date, the Put shall be
automatically cancelled, unless the Investor agrees to delay the
Put Date by up to three (3) Business Days, in which case the
Pricing Period begins on the Business Day following such new Put
Date. If the Company has not delivered all of the Required Put
Documents to the Investor on or before the Put Date (or new Put
Date, if applicable), and the Investor has not agreed in writing
to delay the Put Date, the Put is automatically canceled (an
"Impermissible Put Cancellation") and, unless the Put was
otherwise canceled in accordance with the terms of Section
2.3.11, the Company shall pay the Investor $2,500 for its
reasonable due diligence expenses incurred in preparation for the
canceled Put and the Company may deliver an Advance Put Notice
for the subsequent Put no sooner than ten (10) Business Days
after the date that such Put was canceled, unless otherwise
agreed by the Investor.
(f) Limitation on Investor's Obligation to
Purchase Shares. Notwithstanding anything to the contrary in this
Agreement, in no event shall the Investor be required to
purchase, and an Intended Put Share Amount may not include, an
amount of Put Shares, which when added to the number of Put
Shares acquired by the Investor pursuant to this Agreement during
the 31 days preceding the Put Date with respect to which this
determination of the permitted Intended Put Share Amount is being
made, would exceed 9.99% of the number of shares of Common Stock
outstanding (on a fully diluted basis, to the extent that
inclusion of unissued shares is mandated by Section 13(d) of the
Exchange Act) on the Put Date for such Pricing Period, as
determined in accordance with Section 13(d) of the Exchange Act
(the "Section 13(d) Outstanding Share Amount"). Each Put Notice
shall include a representation of the Company as to the Section
13(d) Outstanding Share Amount on the related Put Date. In the
event that the Section 13(d) Outstanding Share Amount is
different on any date during a Pricing Period than on the Put
Date associated with such Pricing Period, then the number of
shares of Common Stock outstanding on such date during such
Pricing Period shall govern for purposes of determining whether
the Investor, when aggregating all purchases of Shares made
pursuant to this Agreement in the 31 calendar days preceding such
date, would have acquired more than 9.99% of the Section 13(d)
Outstanding Share Amount. The limitation set forth in this
Section 2.3.1(f) is referred to as the "9.9% Limitation."
2.3.2 Termination of Right to Put. The
Company's right to require the Investor to purchase any
subsequent Put Shares shall terminate permanently (each, an
"Automatic Termination") upon the occurrence of any of the
following:
(a) the Company shall not exercise a Put or
any Put thereafter if, at any time, either the Company or any
director or executive officer of the Company has engaged in a
transaction or conduct related to the Company that has resulted
in (i) a Securities and Exchange Commission enforcement action,
or (ii) a civil judgment or criminal conviction for fraud or
misrepresentation, or for any other offense that, if prosecuted
criminally, would constitute a felony under applicable law;
(b) the Company shall not exercise a Put or
any Put thereafter, on any date after a cumulative time period or
series of time periods, consisting only of Ineffective Periods
and Delisting Events, that lasts for an aggregate of four (4)
months;
(c) the Company shall not exercise a Put or
any Put thereafter if at any time the Company has filed for
and/or is subject to any bankruptcy, insolvency, reorganization
or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors
instituted by or against the Company or any subsidiary of the
Company;
(d) the Company shall not exercise a Put
after the sooner of (i) the date that is three (3) years after
the Effective Date, or (ii) the Put Closing Date on which the
aggregate of the Put Dollar Amounts for all Puts equal the
Maximum Offering Amount; and
(e) the Company shall not exercise a Put
after the Company has breached any covenant in Section 2.6,
Section 6, or Section 9 hereof.
(f) if no Registration Statement has been
declared effective by the date that is one (1) year after the
date of this Agreement, the Automatic Termination shall occur on
the date that is one (1) year after the date of this Agreement.
2.3.3 Put Limitations. The Company's right to
exercise a Put shall be limited as follows:
(a) notwithstanding the amount of any Put,
the Investor shall not be obligated to purchase any additional
Put Shares once the aggregate Put Dollar Amount paid by Investor
equals the Maximum Offering Amount;
(b) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for
which the Company has announced a subdivision or combination,
including a reverse split, of its Common Stock or has subdivided
or combined its Common Stock during the Extended Put Period;
(c) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for
which the Company has paid a dividend of its Common Stock or has
made any other distribution of its Common Stock during the
Extended Put Period;
(d) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for
which the Company has made, during the Extended Put Period, a
distribution of all or any portion of its assets or evidences of
indebtedness to the holders of its Common Stock;
(e) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for
which a Major Transaction has occurred during the Extended Put
Period.
2.3.4 Conditions Precedent to the Right of the
Company to Deliver an Advance Put Notice or a Put Notice and the
Obligation of the Investor to Purchase Put Shares. The right of
the Company to deliver an Advance Put Notice or a Put Notice and
the obligation of the Investor hereunder to acquire and pay for
the Put Shares incident to a Closing is subject to the
satisfaction, on (i) the date of delivery of such Advance Put
Notice or Put Notice and (ii) the applicable Put Closing Date, of
each of the following conditions:
(a) the Company's Common Stock shall be
listed for and actively trading on the Nasdaq
Small Cap Market, the Nasdaq National Market, the
O.T.C. Bulletin Board, or the New York Stock
Exchange and the Put Shares shall be so listed,
and to the Company's knowledge there is no notice
of any suspension or delisting with respect to the
trading of the shares of Common Stock on such
market or exchange;
(b) the Company shall have satisfied any and
all obligations pursuant to the Registration
Rights Agreement, including, but not limited to,
the filing of the Registration Statement with the
SEC with respect to the resale of all Registrable
Securities and the requirement that the
Registration Statement shall have been declared
effective by the SEC for the resale of all
Registrable Securities and the Company shall have
satisfied and shall be in compliance with any and
all obligations pursuant to this Agreement and the
Warrants;
(c) the representations and warranties of
the Company are true and correct in all material
respects as if made on such date and the
conditions to Investor's obligations set forth in
this Section 2.3.4 are satisfied as of such
Closing, and the Company shall deliver a
certificate, signed by an officer of the Company,
to such effect to the Investor;
(d) the Company shall have reserved for
issuance a sufficient number of Common Shares for
the purpose of enabling the Company to satisfy any
obligation to issue Common Shares pursuant to any
Put and to effect exercise of the Warrants;
(e) the Registration Statement is not
subject to an Ineffective Period as defined in the
Registration Rights Agreement, the prospectus
included therein is current and deliverable, and
to the Company's knowledge there is no notice of
any investigation or inquiry concerning any stop
order with respect to the Registration Statement;
and
(f) if the Aggregate Issued Shares after the
Closing of the Put would exceed the Cap Amount,
the Company shall have obtained the Stockholder
20% Approval as specified in Section 6.11, if the
Company's Common Stock is listed on the NASDAQ
Small Cap Market or the NASDAQ National Market
System (the "NMS"), and such approval is required
by the rules of the NASDAQ.
2.3.5 Documents Required to be Delivered on the
Put Date as Conditions to Closing of any Put. The Closing of any
Put and Investor's obligations hereunder shall additionally be
conditioned upon the delivery to the Investor (or in the case of
the Unlegended Share Certificates, to the Escrow Agent in
conformity with the Escrow Agreement) of each of the following
(the "Required Put Documents") on or before the applicable Put
Date:
(a) a number of Unlegended Share Certificates
(or freely tradeable electronically delivered shares, as
appropriate) equal to the Intended Put Share Amount, in
denominations of not more than 50,000 shares per certificate;
(b) the following documents: Put Opinion of
Counsel, Officer's Certificate, Put Notice, Factual
Representation of Counsel, and any report or disclosure required
under Section 2.3.6 or Section 2.5;
(c) all documents, instruments and other
writings required to be delivered on or before the Put Date
pursuant to any provision of this Agreement in order to implement
and effect the transactions contemplated herein.
2.3.6 Accountant's Letter and Factual
Representation of Counsel.
(a) The Company shall have caused to be
delivered to the Investor, (i) whenever required by Section
2.3.6(b) or by Section 2.5.3, and (ii) on the date that is three
(3) Business Days prior to each Put Date (the "Factual
Representation of Counsel Deadline"), an statement of the
Company's independent counsel, in substantially the form of
Exhibit R (the "Factual Representation of Counsel"), addressed to
the Investor stating, inter alia, that no facts ("Material
Facts") have come to such counsel's attention that have caused it
to believe that the Registration Statement is subject to an
Ineffective Period or to believe that the Registration Statement,
any Supplemental Registration Statement (as each may be amended,
if applicable), and any related prospectuses, contain an untrue
statement of material fact or omits a material fact required to
make the statements contained therein, in light of the
circumstances under which they were made, not misleading. If a
Factual Representation of Counsel cannot be delivered by the
Company's independent counsel to the Investor on the Factual
Representation of Counsel Deadline due to the existence of
Material Facts or an Ineffective Period, the Company shall
promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any Supplemental
Registration Statements, as applicable, and any related
prospectus or cause such Ineffective Period to terminate, as the
case may be, and deliver such Factual Representation of Counsel
and updated prospectus as soon as possible thereafter. If at any
time after a Put Notice shall have been delivered to Investor but
before the related Pricing Period End Date, the Company acquires
knowledge of such Material Facts or any Ineffective Period
occurs, the Company shall promptly notify the Investor and shall
deliver a Put Cancellation Notice to the Investor pursuant to
Section 2.3.11 by facsimile and overnight courier by the end of
that Business Day.
(b) (i) the Company shall engage its
independent auditors to perform the procedures in accordance with
the provisions of Statement on Auditing Standards No. 71, as
amended, as agreed to by the parties hereto, and reports thereon
(the "Bring Down Cold Comfort Letters") as shall have been
reasonably requested by the Investor with respect to certain
financial information contained in the Registration Statement and
shall have delivered to the Investor such a report addressed to
the Investor, on the date that is three (3) Business Days prior
to each Put Date.
(ii) in the event that the Investor
shall have requested delivery of an Agreed Upon Procedures Report
pursuant to Section 2.5.3, the Company shall engage its
independent auditors to perform certain agreed upon procedures
and report thereon as shall have been reasonably requested by the
Investor with respect to certain financial information of the
Company and the Company shall deliver to the Investor a copy of
such report addressed to the Investor. In the event that the
report required by this Section 2.3.6(b) cannot be delivered by
the Company's independent auditors, the Company shall, if
necessary, promptly revise the Registration Statement and the
Company shall not deliver a Put Notice until such report is
delivered.
2.3.7 Investor's Obligation and Right to Purchase
Shares. Subject to the conditions set forth in this Agreement,
following the Investor's receipt of a validly delivered Put
Notice, the Investor shall be required to purchase (each a
"Purchase") from the Company a number of Put Shares equal to the
Put Share Amount, in the manner described below.
2.3.8 Mechanics of Put Closing. Each of the
Company and the Investor shall deliver all documents, instruments
and writings required to be delivered by either of them pursuant
to this Agreement at or prior to each Closing. Subject to such
delivery and the satisfaction of the conditions set forth in
Sections 2.3.4 and 2.3.5, the closing of the purchase by the
Investor of Shares shall occur by 5:00 PM, New York City Time, on
the date which is five (5) Business Days following the applicable
Pricing Period End Date (the "Payment Due Date") at the offices
of Investor. On each or before each Payment Due Date, the
Investor shall deliver to the Company, in the manner specified in
Section 8 below, the Put Dollar Amount to be paid for such Put
Shares, determined as aforesaid. The closing (each a "Put
Closing") for each Put shall occur on the date that both (i) the
Company has delivered to the Investor all Required Put Documents,
and (ii) the Investor has delivered to the Company such Put
Dollar Amount and any Late Payment Amount, if applicable (each a
"Put Closing Date").
If the Investor does not deliver to the Company the Put
Dollar Amount for such Put Closing on or before the Payment Due
Date, then the Investor shall pay to the Company, in addition to
the Put Dollar Amount, an amount (the "Late Payment Amount") at a
rate of X% per month, accruing daily, multiplied by such Put
Dollar Amount, where "X" equals one percent (1%) for the first
month following the date in question, and increases by an
additional one percent (1%) for each month that passes after the
date in question, up to a maximum of five percent (5%) per month;
provided, however, that in no event shall the amount of interest
that shall become due and payable hereunder exceed the maximum
amount permissible under applicable law.
2.3.9 Limitation on Short Sales. The Investor
and its Affiliates shall not engage in short sales of the
Company's Common Stock; provided, however, that the Investor may
enter into any short exempt sale or any short sale or other
hedging or similar arrangement it deems appropriate with respect
to Put Shares after it receives a Put Notice with respect to such
Put Shares so long as such sales or arrangements do not involve
more than the number of such Put Shares specified in the Put
Notice.
2.3.10 Cap Amount. Unless the Company has
obtained Stockholder 20% Approval as set forth in Section 6.11 or
unless otherwise permitted by Nasdaq, in no event shall the
Aggregate Issued Shares exceed the maximum number of shares of
Common Stock (the "Cap Amount") that the Company can, without
stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any
successor rule) (the "Nasdaq 20% Rule").
2.3.11 Put Cancellation.
(a) Mechanics of Put Cancellation. If at any
time during a Pricing Period the Company discovers the existence
of Material Facts or any Ineffective Period or Delisting Event
occurs, the Company shall cancel the Put (a "Put Cancellation"),
by delivering written notice to the Investor (the "Put
Cancellation Notice"), attached as Exhibit Q, by facsimile and
overnight courier. The "Put Cancellation Date" shall be the date
that the Put Cancellation Notice is first received by the
Investor, if such notice is received by the Investor by 6:00
p.m., New York, NY time, and shall be the following date, if such
notice is received by the Investor after 6:00 p.m., New York, NY
time.
(b) Effect of Put Cancellation. Anytime a
Put Cancellation Notice is delivered to Investor after the Put
Date, the Put, shall remain effective with respect to a number of
Put Shares (the "Truncated Put Share Amount") equal to the
Individual Put Limit for the Truncated Pricing Period.
(c) Put Cancellation Notice Confirmation.
Upon receipt by the Investor of a facsimile copy of the Put
Cancellation Notice, the Investor shall promptly send, via
facsimile, a confirmation of receipt (the "Put Cancellation
Notice Confirmation," a form of which is attached as Exhibit S)
of the Put Cancellation Notice to the Company specifying that the
Put Cancellation Notice has been received and affirming the Put
Cancellation Date.
(d) Truncated Pricing Period. If a Put
Cancellation Notice has been delivered to the Investor after the
Put Date, the Pricing Period for such Put shall end at on the
close of trading on the last full trading day on the Principal
Market that ends prior to the moment of initial delivery of the
Put Cancellation Notice (a "Truncated Pricing Period") to the
Investor.
2.3.12 Investment Agreement Cancellation. The
Company may terminate (a "Company Termination") its right to
initiate future Puts by providing written notice ("Termination
Notice") to the Investor, by facsimile and overnight courier, at
any time other than during an Extended Put Period, provided that
such termination shall have no effect on the parties' other
rights and obligations under this Agreement, the Registration
Rights Agreement or the Warrants. Notwithstanding the above, any
cancellation occurring during an Extended Put Period is governed
by Section 2.3.11.
2.3.13 Return of Excess Common Shares. In the
event that the number of Shares purchased by the Investor
pursuant to its obligations hereunder is less than the Intended
Put Share Amount, the Investor shall promptly return to the
Company any shares of Common Stock in the Investor's possession
that are not being purchased by the Investor.
2.4 Warrants.
2.4.1 Commitment Warrants. In partial
consideration hereof, following the execution of the Letter of
Agreement dated on or about May 31, 2000 between the Company and
the Investor, the Company issued and delivered to Investor or its
designated assignees, warrants (the "Commitment Warrants") in the
form attached hereto as Exhibit U, or such other form as agreed
upon by the parties, to purchase 500,000 shares of Common Stock,
subject to the terms of the Commitment Warrant. Each Commitment
Warrant shall be immediately exercisable in accordance with its
terms, and shall have a term beginning on the date of issuance
and ending on date that is five (5) years thereafter. The
Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement. The Investment Commitment Opinion
of Counsel shall cover the issuance of the Commitment Warrant and
the issuance of the common stock upon exercise of the Commitment
Warrant.
Notwithstanding any Termination or Automatic Termination of
this Agreement, regardless of whether or not the Registration
Statement is or is not filed, and regardless of whether or not
the Registration Statement is or is not declared effective by the
SEC, the Investor shall retain full ownership of the Commitment
Warrant as partial consideration for its commitment hereunder.
2.4.2 Purchase Warrants. Within five (5)
Business Days of the end of each Pricing Period, the Company
shall issue and deliver to the Investor a warrant ("Purchase
Warrant"), in the form attached hereto as Exhibit D, or such
other form as agreed upon by the parties, to purchase a number of
shares of Common Stock equal to 15% of the Put Share Amount for
that Put. Each Purchase Warrant shall be exerciseable at a price
(the "Purchase Warrant Exercise Price") which shall initially
equal 110% of the Market Price for the applicable Put. Each
Purchase Warrant shall be immediately exercisable at the Purchase
Warrant Exercise Price, and shall have a term beginning on the
date of issuance and ending on the date that is five (5) years
thereafter. The Warrant Shares shall be registered for resale
pursuant to the Registration Rights Agreement.
2.5 Due Diligence Review. The Company shall make
available for inspection and review by the Investor (the "Due
Diligence Review"), advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and
who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the
Investor pursuant to the Registration Statement, any Supplemental
Registration Statement, or amendments or supplements thereto or
any blue sky, NASD or other filing, all financial and other
records, all filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information
reasonably requested by the Investor or any such representative,
advisor or underwriter in connection with such Registration
Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any
of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose
of enabling the Investor and such representatives, advisors and
underwriters and their respective accountants and attorneys to
conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
2.5.1 Treatment of Nonpublic Information.
The Company shall not disclose nonpublic information to the
Investor or to its advisors or representatives unless prior to
disclosure of such information the Company identifies such
information as being nonpublic information and provides the
Investor and such advisors and representatives with the
opportunity to accept or refuse to accept such nonpublic
information for review. The Company may, as a condition to
disclosing any nonpublic information hereunder, require the
Investor and its advisors and representatives to enter into a
confidentiality agreement (including an agreement with such
advisors and representatives prohibiting them from trading in
Common Stock during such period of time as they are in possession
of nonpublic information) in form reasonably satisfactory to the
Company and the Investor.
Nothing herein shall require the Company to disclose
nonpublic information to the Investor or its advisors or
representatives, and the Company represents that it does not
disseminate nonpublic information to any investors who purchase
stock in the Company in a public offering, to money managers or
to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove
provided, immediately notify the advisors and representatives of
the Investor and, if any, underwriters, of any event or the
existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware,
constituting nonpublic information (whether or not requested of
the Company specifically or generally during the course of due
diligence by and such persons or entities), which, if not
disclosed in the Prospectus included in the Registration
Statement, would cause such Prospectus to include a material
misstatement or to omit a material fact required to be stated
therein in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. Nothing
contained in this Section 2.5 shall be construed to mean that
such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such
information) may not obtain nonpublic information in the course
of conducting due diligence in accordance with the terms of this
Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor
the nature of the specific event or circumstances constituting
any nonpublic information discovered by such advisors or
representatives in the course of their due diligence without the
written consent of the Investor prior to disclosure of such
information.
2.5.2 Disclosure of Misstatements and Omissions.
The Investor's advisors or representatives shall make complete
disclosure to the Investor's counsel of all events or
circumstances constituting nonpublic information discovered by
such advisors or representatives in the course of their due
diligence upon which such advisors or representatives form the
opinion that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to
be stated in the Registration Statement or necessary to make the
statements contained therein, in the light of the circumstances
in which they were made, not misleading. Upon receipt of such
disclosure, the Investor's counsel shall consult with the
Company's independent counsel in order to address the concern
raised as to the existence of a material misstatement or omission
and to discuss appropriate disclosure with respect thereto;
provided, however, that such consultation shall not constitute
the advice of the Company's independent counsel to the Investor
as to the accuracy of the Registration Statement and related
Prospectus.
2.5.3 Procedure if Material Facts are Reasonably
Believed to be Untrue or are Omitted. In the event after such
consultation the Investor or the Investor's counsel reasonably
believes that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to
be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in
which they were made, not misleading,
(a) the Company shall file with the SEC
an amendment to the Registration Statement responsive to such
alleged untrue statement or omission and provide the Investor, as
promptly as practicable, with copies of the Registration
Statement and related Prospectus, as so amended, or
(b) if the Company disputes the
existence of any such material misstatement or omission, (i) the
Company's independent counsel shall provide the Investor's
counsel with a Factual Representation of Counsel and (ii) in the
event the dispute relates to the adequacy of financial disclosure
and the Investor shall reasonably request, the Company's
independent auditors shall provide to the Company a letter
("Agreed Upon Procedures Report") outlining the performance of
such "agreed upon procedures" as shall be reasonably requested by
the Investor and the Company shall provide the Investor with a
copy of such letter.
2.6 Commitment Payments.
On the last Business Day of each six (6) Calendar Month
period following the Effective Date (each such period a
"Commitment Evaluation Period"), if the Company has not Put at
least $1,000,000 in aggregate Put Dollar Amount during that
Commitment Evaluation Period, the Company, in consideration of
Investor's commitment costs, including, but not limited to, due
diligence expenses, shall pay to the Investor an amount (the
"Semi-Annual Non-Usage Fee") equal to the difference of (i)
$100,000, minus (ii) 10% of the aggregate Put Dollar Amount of
the Put Shares put to Investor during that Commitment Evaluation
Period. In the event that the Company delivers a Termination
Notice to the Investor or an Automatic Termination occurs, the
Company shall pay to the Investor (the "Termination Fee") the
greater of (i) the Semi-Annual Non-Usage Fee for the applicable
Commitment Evaluation Period, or (ii) the difference of (x)
$200,000, minus (y) 10% of the aggregate Put Dollar Amount of the
Put Shares put to Investor during all Puts to date, and the
Company shall not be required to pay the Semi-Annual Non-Usage
Fee thereafter.
Each Semi Annual Non-Usage Fee or Termination Fee is
payable, in cash, within five (5) business days of the date it
accrued. The Company shall not be required to deliver any
payments to Investor under this subsection until Investor has
paid all Put Dollar Amounts that are then due.
3. Representations, Warranties and Covenants of Investor.
Investor hereby represents and warrants to and agrees with the
Company as follows:
3.1 Accredited Investor. Investor is an accredited
investor ("Accredited Investor"), as defined in Rule 501 of
Regulation D, and has checked the applicable box set forth in
Section 10 of this Agreement.
3.2 Investment Experience; Access to Information;
Independent Investigation.
3.2.1 Access to Information. Investor or
Investor's professional advisor has been granted the opportunity
to ask questions of and receive answers from representatives of
the Company, its officers, directors, employees and agents
concerning the terms and conditions of this Offering, the Company
and its business and prospects, and to obtain any additional
information which Investor or Investor's professional advisor
deems necessary to verify the accuracy and completeness of the
information received.
3.2.2 Reliance on Own Advisors. Investor has
relied completely on the advice of, or has consulted with,
Investor's own personal tax, investment, legal or other advisors
and has not relied on the Company or any of its affiliates,
officers, directors, attorneys, accountants or any affiliates of
any thereof and each other person, if any, who controls any of
the foregoing, within the meaning of Section 15 of the Act for
any tax or legal advice (other than reliance on information in
the Disclosure Documents as defined in Section 3.2.4 below and on
the Opinion of Counsel). The foregoing, however, does not limit
or modify Investor's right to rely upon covenants,
representations and warranties of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such
knowledge and experience in financial and business matters so as
to enable such Investor to utilize the information made available
to it in connection with the Offering in order to evaluate the
merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the
Disclosure Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making
Investor's investment decision to subscribe for the Investment
Agreement hereunder, represents that (a) Investor has received
and had an opportunity to review (i) the Company's Annual Report
on Form 10-KSB for the year ended June 30, 1999, (ii) the
Company's quarterly report on Form 10-QSB for the quarters ended
March 31, 2000, and December 31, 1999, (iii) the Risk Factors,
attached as Exhibit J, (the "Risk Factors") (iv) the
Capitalization Schedule, attached as Exhibit K, (the
"Capitalization Schedule") and (v) the Use of Proceeds Schedule,
attached as Exhibit L, (the "Use of Proceeds Schedule"); (b)
Investor has read, reviewed, and relied solely on the documents
described in (a) above, the Company's representations and
warranties and other information in this Agreement, including the
exhibits, documents prepared by the Company which have been
specifically provided to Investor in connection with this
Offering (the documents described in this Section 3.2.4 (a) and
(b) are collectively referred to as the "Disclosure Documents"),
and an independent investigation made by Investor and Investor's
representatives, if any; (c) Investor has, prior to the date of
this Agreement, been given an opportunity to review material
contracts and documents of the Company which have been filed as
exhibits to the Company's filings under the Act and the Exchange
Act and has had an opportunity to ask questions of and receive
answers from the Company's officers and directors; and (d) is not
relying on any oral representation of the Company or any other
person, nor any written representation or assurance from the
Company other than those contained in the Disclosure Documents or
incorporated herein or therein. The foregoing, however, does not
limit or modify Investor's right to rely upon covenants,
representations and warranties of the Company in Sections 5 and 6
of this Agreement. Investor acknowledges and agrees that the
Company has no responsibility for, does not ratify, and is under
no responsibility whatsoever to comment upon or correct any
reports, analyses or other comments made about the Company by any
third parties, including, but not limited to, analysts' research
reports or comments (collectively, "Third Party Reports"), and
Investor has not relied upon any Third Party Reports in making
the decision to invest.
3.2.5 Investment Experience; Fend for Self.
Investor has substantial experience in investing in securities
and it has made investments in securities other than those of the
Company. Investor acknowledges that Investor is able to fend for
Investor's self in the transaction contemplated by this
Agreement, that Investor has the ability to bear the economic
risk of Investor's investment pursuant to this Agreement and that
Investor is an "Accredited Investor" by virtue of the fact that
Investor meets the investor qualification standards set forth in
Section 3.1 above. Investor has not been organized for the
purpose of investing in securities of the Company, although such
investment is consistent with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
3.3.1 No General Solicitation. The Investment
Agreement was not offered to Investor through, and Investor is
not aware of, any form of general solicitation or general
advertising, including, without limitation, (i) any
advertisement, article, notice or other communication published
in any newspaper, magazine or similar media or broadcast over
television or radio, and (ii) any seminar or meeting whose
attendees have been invited by any general solicitation or
general advertising.
3.3.2 Restricted Securities. Investor
understands that the Investment Agreement is, the Common Stock
and Warrants issued at each Put Closing will be, and the Warrant
Shares will be, characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired
from the Company in a transaction exempt from the registration
requirements of the federal securities laws and that under such
laws and applicable regulations such securities may not be
transferred or resold without registration under the Act or
pursuant to an exemption therefrom. In this connection, Investor
represents that Investor is familiar with Rule 144 under the Act,
as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
3.3.3 Disposition. Without in any way limiting
the representations set forth above, Investor agrees that until
the Securities are sold pursuant to an effective Registration
Statement or an exemption from registration, they will remain in
the name of Investor and will not be transferred to or assigned
to any broker, dealer or depositary. Investor further agrees
not to sell, transfer, assign, or pledge the Securities (except
for any bona fide pledge arrangement to the extent that such
pledge does not require registration under the Act or unless an
exemption from such registration is available and provided
further that if such pledge is realized upon, any transfer to the
pledgee shall comply with the requirements set forth herein), or
to otherwise dispose of all or any portion of the Securities
unless and until:
(a) There is then in effect a registration
statement under the Act and any applicable state securities laws
covering such proposed disposition and such disposition is made
in accordance with such registration statement and in compliance
with applicable prospectus delivery requirements; or
(b) (i) Investor shall have notified the
Company of the proposed disposition and shall have furnished the
Company with a statement of the circumstances surrounding the
proposed disposition to the extent relevant for determination of
the availability of an exemption from registration, and (ii) if
reasonably requested by the Company, Investor shall have
furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not
require registration of the Securities under the Act or state
securities laws. It is agreed that the Company will not require
the Investor to provide opinions of counsel for transactions made
pursuant to Rule 144 provided that Investor and Investor's
broker, if necessary, provide the Company with the necessary
representations for counsel to the Company to issue an opinion
with respect to such transaction.
The Investor is entering into this Agreement for its
own account and the Investor has no present arrangement (whether
or not legally binding) at any time to sell the Common Stock to
or through any person or entity; provided, however, that by
making the representations herein, the Investor does not agree to
hold the Common Stock for any minimum or other specific term and
reserves the right to dispose of the Common Stock at any time in
accordance with federal and state securities laws applicable to
such disposition.
3.4 Due Authorization.
3.4.1 Authority. The person executing this
Investment Agreement, if executing this Agreement in a
representative or fiduciary capacity, has full power and
authority to execute and deliver this Agreement and each other
document included herein for which a signature is required in
such capacity and on behalf of the subscribing individual,
partnership, trust, estate, corporation or other entity for whom
or which Investor is executing this Agreement. Investor has
reached the age of majority (if an individual) according to the
laws of the state in which he or she resides.
3.4.2 Due Authorization. Investor is duly and
validly organized, validly existing and in good standing as a
limited liability company under the laws of Georgia with full
power and authority to purchase the Securities to be purchased by
Investor and to execute and deliver this Agreement.
3.4.3 Partnerships. If Investor is a
partnership, the representations, warranties, agreements and
understandings set forth above are true with respect to all
partners of Investor (and if any such partner is itself a
partnership, all persons holding an interest in such partnership,
directly or indirectly, including through one or more
partnerships), and the person executing this Agreement has made
due inquiry to determine the truthfulness of the representations
and warranties made hereby.
3.4.4 Representatives. If Investor is purchasing
in a representative or fiduciary capacity, the representations
and warranties shall be deemed to have been made on behalf of the
person or persons for whom Investor is so purchasing.
4. Acknowledgments Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an
investment in the Company involves substantial risks, including
the potential loss of Investor's entire investment herein.
Investor recognizes that the Disclosure Documents, this Agreement
and the exhibits hereto do not purport to contain all the
information, which would be contained in a registration statement
under the Act;
4.2 No Government Approval. No federal or state
agency has passed upon the Securities, recommended or endorsed
the Offering, or made any finding or determination as to the
fairness of this transaction;
4.3 No Registration, Restrictions on Transfer. As of
the date of this Agreement, the Securities and any component
thereof have not been registered under the Act or any applicable
state securities laws by reason of exemptions from the
registration requirements of the Act and such laws, and may not
be sold, pledged (except for any limited pledge in connection
with a margin account of Investor to the extent that such pledge
does not require registration under the Act or unless an
exemption from such registration is available and provided
further that if such pledge is realized upon, any transfer to the
pledgee shall comply with the requirements set forth herein),
assigned or otherwise disposed of in the absence of an effective
registration of the Securities and any component thereof under
the Act or unless an exemption from such registration is
available;
4.4 Restrictions on Transfer. Investor may not
attempt to sell, transfer, assign, pledge or otherwise dispose of
all or any portion of the Securities or any component thereof in
the absence of either an effective registration statement or an
exemption from the registration requirements of the Act and
applicable state securities laws;
4.5 No Assurances of Registration. There can be no
assurance that any registration statement will become effective
at the scheduled time, or ever, or remain effective when
required, and Investor acknowledges that it may be required to
bear the economic risk of Investor's investment for an indefinite
period of time;
4.6 Exempt Transaction. Investor understands that the
Securities are being offered and sold in reliance on specific
exemptions from the registration requirements of federal and
state law and that the representations, warranties, agreements,
acknowledgments and understandings set forth herein are being
relied upon by the Company in determining the applicability of
such exemptions and the suitability of Investor to acquire such
Securities.
4.7 Legends. The certificates representing the Put
Shares shall not bear a legend restricting the sale or transfer
thereof ("Restrictive Legend"). The certificates representing the
Warrant Shares shall not bear a Restrictive Legend unless they
are issued at a time when the Registration Statement is not
effective for resale. It is understood that the certificates
evidencing any Warrant Shares issued at a time when the
Registration Statement is not effective for resale, subject to
legend removal under the terms of Section 6.8 below, shall bear
the following legend (the "Legend"):
"The securities represented hereby have not been registered
under the Securities Act of 1933, as amended, or applicable
state securities laws, nor the securities laws of any other
jurisdiction. They may not be sold or transferred in the
absence of an effective registration statement under those
securities laws or pursuant to an exemption therefrom."
5. Representations and Warranties of the Company. The
Company hereby makes the following representations and warranties
to Investor (which shall be true at the signing of this
Agreement, and as of any such later date as contemplated
hereunder) and agrees with Investor that, except as set forth in
the "Schedule of Exceptions" attached hereto as Exhibit C:
5.1 Organization, Good Standing, and Qualification.
The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado, USA and
has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on the business or
properties of the Company and its subsidiaries taken as a whole.
The Company is not the subject of any pending, threatened or, to
its knowledge, contemplated investigation or administrative or
legal proceeding (a "Proceeding") by the Internal Revenue
Service, the taxing authorities of any state or local
jurisdiction, or the Securities and Exchange Commission, The
National Association of Securities Dealer, Inc., The Nasdaq Stock
Market, Inc. or any state securities commission, or any other
governmental entity, which have not been disclosed in the
Disclosure Documents. None of the disclosed Proceedings, if any,
will have a material adverse effect upon the Company or the
market for the Common Stock. The Company has the following
subsidiaries:
5.2 Corporate Condition. The Company's condition is,
in all material respects, as described in the Disclosure
Documents (as further set forth in any subsequently filed
Disclosure Documents, if applicable), except for changes in the
ordinary course of business and normal year-end adjustments that
are not, in the aggregate, materially adverse to the Company.
Except for continuing losses, there have been no material adverse
changes to the Company's business, financial condition, or
prospects since the dates of such Disclosure Documents. The
financial statements as contained in the 10-KSB and 10-QSB have
been prepared in accordance with generally accepted accounting
principles, consistently applied (except as otherwise permitted
by Regulation S-X of the Exchange Act), subject, in the case of
unaudited interim financial statements, to customary year end
adjustments and the absence of certain footnotes, and fairly
present the financial condition of the Company as of the dates of
the balance sheets included therein and the consolidated results
of its operations and cash flows for the periods then ended,.
Without limiting the foregoing, there are no material
liabilities, contingent or actual, that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the
Company in the ordinary course of its business, consistent with
its past practice, after the period covered by the Disclosure
Documents). The Company has paid all material taxes that are
due, except for taxes that it reasonably disputes. There is no
material claim, litigation, or administrative proceeding pending
or, to the best of the Company's knowledge, threatened against
the Company, except as disclosed in the Disclosure Documents.
This Agreement and the Disclosure Documents do not contain any
untrue statement of a material fact and do not omit to state any
material fact required to be stated therein or herein necessary
to make the statements contained therein or herein not misleading
in the light of the circumstances under which they were made. No
event or circumstance exists relating to the Company which, under
applicable law, requires public disclosure but which has not been
so publicly announced or disclosed.
5.3 Authorization. All corporate action on the part
of the Company by its officers, directors and stockholders
necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of the Company
hereunder and the authorization, issuance and delivery of the
Common Stock being sold hereunder and the issuance (and/or the
reservation for issuance) of the Warrants and the Warrant Shares
have been taken, and this Agreement and the Registration Rights
Agreement constitute valid and legally binding obligations of the
Company, enforceable in accordance with their terms, except
insofar as the enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws
affecting creditors' rights generally or by principles governing
the availability of equitable remedies. The Company has obtained
all consents and approvals required for it to execute, deliver
and perform each agreement referenced in the previous sentence.
5.4 Valid Issuance of Common Stock. The Common Stock
and the Warrants, when issued, sold and delivered in accordance
with the terms hereof, for the consideration expressed herein,
will be validly issued, fully paid and nonassessable and, based
in part upon the representations of Investor in this Agreement,
will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in
accordance with the terms of the Warrants, shall be duly and
validly issued and outstanding, fully paid and nonassessable, and
based in part on the representations and warranties of Investor,
will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the
Warrant Shares will be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is
not in violation or default of any provisions of its Certificate
of Incorporation or Bylaws, each as amended and in effect on and
as of the date of the Agreement, or of any material provision of
any material instrument or material contract to which it is a
party or by which it is bound or of any provision of any federal
or state judgment, writ, decree, order, statute, rule or
governmental regulation applicable to the Company, which would
have a material adverse effect on the Company's business or
prospects, or on the performance of its obligations under this
Agreement or the Registration Rights Agreement. The execution,
delivery and performance of this Agreement and the other
agreements entered into in conjunction with the Offering and the
consummation of the transactions contemplated hereby and thereby
will not (a) result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument or
contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company, which would
have a material adverse effect on the Company's business or
prospects, or on the performance of its obligations under this
Agreement, the Registration Rights Agreement, or (b) violate the
Company's Certificate of Incorporation or By-Laws or (c) violate
any statute, rule or governmental regulation applicable to the
Company which violation would have a material adverse effect on
the Company's business or prospects.
5.6 Reporting Company. The Company is subject to the
reporting requirements of the Exchange Act, has a class of
securities registered under Section 12 of the Exchange Act, and
has filed all reports required by the Exchange Act since the date
the Company first became subject to such reporting obligations.
The Company undertakes to furnish Investor with copies of such
reports as may be reasonably requested by Investor prior to
consummation of this Offering and thereafter, to make such
reports available, for the full term of this Agreement, including
any extensions thereof, and for as long as Investor holds the
Securities. The Common Stock is duly listed on the NASDAQ Small
Cap Market. The Company is not in violation of the listing
requirements of the NASDAQ Small Cap Market and does not
reasonably anticipate that the Common Stock will be delisted by
the NASDAQ Small Cap Market for the foreseeable future. The
Company has filed all reports required under the Exchange Act.
The Company has not furnished to the Investor any material
nonpublic information concerning the Company.
5.7 Capitalization. The capitalization of the Company
as of the date hereof is, and the capitalization as of the
Closing, subject to exercise of any outstanding warrants and/or
exercise of any outstanding stock options, after taking into
account the offering of the Securities contemplated by this
Agreement and all other share issuances occurring prior to this
Offering, will be, as set forth in the Capitalization Schedule as
set forth in Exhibit K. There are no securities or instruments
containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities. Except as disclosed
in the Capitalization Schedule, as of the date of this Agreement,
(i) there are no outstanding options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of
the Company or any of its subsidiaries, or arrangements by which
the Company or any of its subsidiaries is or may become bound to
issue additional shares of capital stock of the Company or any of
its subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries
is obligated to register the sale of any of its or their
securities under the Act (except the Registration Rights
Agreement).
5.8 Intellectual Property. The Company has valid,
unrestricted and exclusive ownership of or rights to use the
patents, trademarks, trademark registrations, trade names,
copyrights, know-how, technology and other intellectual property
necessary to the conduct of its business. Exhibit M lists all
patents, trademarks, trademark registrations, trade names and
copyrights of the Company. The Company has granted such licenses
or has assigned or otherwise transferred a portion of (or all of)
such valid, unrestricted and exclusive patents, trademarks,
trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the
conduct of its business as set forth in Exhibit M. The Company
has been granted licenses, know-how, technology and/or other
intellectual property necessary to the conduct of its business as
set forth in Exhibit M. To the best of the Company's knowledge
after due inquiry, the Company is not infringing on the
intellectual property rights of any third party, nor is any third
party infringing on the Company's intellectual property rights.
There are no restrictions in any agreements, licenses,
franchises, or other instruments that preclude the Company from
engaging in its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the
Company expects to use the proceeds from this Offering (less fees
and expenses) for the purposes and in the approximate amounts set
forth on the Use of Proceeds Schedule set forth as Exhibit L
hereto. These purposes and amounts are estimates and are subject
to change without notice to any Investor.
5.10 No Rights of Participation. No person or entity,
including, but not limited to, current or former stockholders of
the Company, underwriters, brokers, agents or other third
parties, has any right of first refusal, preemptive right, right
of participation, or any similar right to participate in the
financing contemplated by this Agreement which has not been
waived.
5.11 Company Acknowledgment. The Company hereby
acknowledges that Investor may elect to hold the Securities for
various periods of time, as permitted by the terms of this
Agreement, the Warrants, and other agreements contemplated
hereby, and the Company further acknowledges that Investor has
made no representations or warranties, either written or oral, as
to how long the Securities will be held by Investor or regarding
Investor's trading history or investment strategies.
5.12 No Advance Regulatory Approval. The Company
acknowledges that this Investment Agreement, the transaction
contemplated hereby and the Registration Statement contemplated
hereby have not been approved by the SEC, or any other regulatory
body and there is no guarantee that this Investment Agreement,
the transaction contemplated hereby and the Registration
Statement contemplated hereby will ever be approved by the SEC or
any other regulatory body. The Company is relying on its own
analysis and is not relying on any representation by Investor
that either this Investment Agreement, the transaction
contemplated hereby or the Registration Statement contemplated
hereby has been or will be approved by the SEC or other
appropriate regulatory body.
5.13 Underwriter's Fees and Rights of First Refusal.
Except as otherwise disclosed to the Investor, the Company is not
obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker,
agent or other representative other than the Investor in
connection with this Offering.
5.14 Availability of Suitable Form for Registration.
The Company is currently eligible and agrees to maintain its
eligibility to register the resale of its Common Stock on a
registration statement on a suitable form under the Act.
5.15 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 of the Company's securities or solicited any offers to buy
any security under circumstances that would prevent the parties
hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of
the Act or would require the issuance of any other securities to
be integrated with this Offering under the Rules of the SEC,
provided, however, that the Company has disclosed that it has
closed or plans to close the offerings described in the Schedule
of Exceptions. The Company has not engaged in any form of
general solicitation or advertising in connection with the
offering of the Common Stock or the Warrants.
5.16 Foreign Corrupt Practices. Neither the Company,
nor any of its subsidiaries, nor any director, officer, agent,
employee or other person acting on behalf of the Company or any
subsidiary has, in the course of its actions for, or on behalf
of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses
relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official
or employee from corporate funds; violated or is in violation of
any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic
government official or employee.
5.17 Key Employees. Each "Key Employee" (as defined
in Exhibit N) is currently serving the Company in the capacity
disclosed in Exhibit N. No Key Employee, to the best knowledge of
the Company and its subsidiaries, is, or is now expected to be,
in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or
any restrictive covenant, and the continued employment of each
Key Employee does not subject the Company or any of its
subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best knowledge of
the Company and its subsidiaries, any intention to terminate his
employment with, or services to, the Company or any of its
subsidiaries.
5.18 Representations Correct. The foregoing
representations, warranties and agreements are true, correct and
complete in all material respects, and shall survive any Put
Closing and the issuance of the shares of Common Stock thereby.
5.19 Tax Status. The Company has made or filed all
federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company has set aside on
its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount,
shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and as
set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
5.20 Transactions With Affiliates. Except as set forth
in the Disclosure Documents or the Schedule of Exceptions, as may
be updated to reflect subsequent events, none of the officers,
directors, or employees of the Company is presently a party to
any transaction with the Company (other than for services as
employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from
any officer, director or such employee or, to the knowledge of
the Company, any corporation, partnership, trust or other entity
in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or
partner.
5.21 Application of Takeover Protections. The Company
and its board of directors have taken all necessary action, if
any, in order to render inapplicable any control share
acquisition, business combination or other similar anti-takeover
provision under Colorado law which is or could become applicable
to the Investor as a result of the transactions contemplated by
this Agreement, including, without limitation, the issuance of
the Common Stock, any exercise of the Warrants and ownership of
the Common Shares and Warrant Shares. The Company has not
adopted and will not adopt any "poison pill" provision that will
be applicable to Investor as a result of transactions
contemplated by this Agreement.
5.22 Other Agreements. The Company has not, directly
or indirectly, made any agreements with the Investor under a
subscription in the form of this Agreement for the purchase of
Common Stock, relating to the terms or conditions of the
transactions contemplated hereby or thereby except as expressly
set forth herein, respectively, or in exhibits hereto or thereto.
5.23 Major Transactions. Except as disclosed in the
Schedule of Exceptions, there are no other Major Transactions
currently pending or contemplated by the Company.
5.24 Financings. Except as disclosed in the Schedule
of Exceptions, there are no other financings currently pending or
contemplated by the Company.
5.25 Shareholder Authorization. The Company shall, at
its next annual shareholder meeting following its listing on
either the Nasdaq Small Cap Market or the Nasdaq National Market,
or at a special meeting to be held as soon as practicable
thereafter, use its best efforts to obtain approval of its
shareholders to (i) authorize the issuance of the full number of
shares of Common Stock which would be issuable under this
Agreement and eliminate any prohibitions under applicable law or
the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with
jurisdiction over the Company or any of its securities with
respect to the Company's ability to issue shares of Common Stock
in excess of the Cap Amount (such approvals being the "20%
Approval") and (ii) the increase in the number of authorized
shares of Common Stock of the Company (the "Share Authorization
Increase Approval") such that at least 8,000,000 shares can be
reserved for this Offering. In connection with such shareholder
vote, the Company shall use its best efforts to cause all
officers and directors of the Company to promptly enter into
irrevocable agreements to vote all of their shares in favor of
eliminating such prohibitions. As soon as practicable after the
20% Approval and the Share Authorization Increase Approval, the
Company agrees to use its best efforts to reserve 8,000,000
shares of Common Stock for issuance under this Agreement.
5.26 Acknowledgment of Limitations on Put Amounts.
The Company understands and acknowledges that the amounts
available under this Investment Agreement are limited, among
other things, based upon the liquidity of the Company's Common
Stock traded on its Principal Market.
6. Covenants of the Company
6.1 Independent Auditors. The Company shall, until at
least the Termination Date, maintain as its independent auditors
an accounting firm authorized to practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall,
until at least the Termination Date, maintain its corporate
existence in good standing and, once it becomes a "Reporting
Issuer" (defined as a Company which files periodic reports under
the Exchange Act), remain a Reporting Issuer (provided, however,
that the foregoing covenant shall not prevent the Company from
entering into any merger or corporate reorganization as long as
the surviving entity in such transaction, if not the Company,
assumes the Company's obligations with respect to the Common
Stock and has Common Stock listed for trading on a stock exchange
or on Nasdaq and is a Reporting Issuer) and shall pay all its
taxes when due except for taxes which the Company disputes.
6.3 Registration Rights. The Company will enter into
a registration rights agreement covering the resale of the Common
Shares and the Warrant Shares substantially in the form of the
Registration Rights Agreement attached as Exhibit A.
6.4 Asset Transfers. The Company shall not (i)
transfer, sell, convey or otherwise dispose of any of its
material assets to any subsidiary except for a cash or cash
equivalent consideration and for a proper business purpose or
(ii) transfer, sell, convey or otherwise dispose of any of its
material assets to any Affiliate, as defined below, during the
Term of this Agreement. For purposes hereof, "Affiliate" shall
mean any officer of the Company, director of the Company or owner
of twenty percent (20%) or more of the Common Stock or other
securities of the Company.
6.5 Capital Raising Limitations and Rights of First
Offer.
6.5.1 Capital Raising Limitations. During the
period from the date of this Agreement until the date that is
ninety (90) days after the Termination Date (the "Limitation
Period"), the Company shall not issue or sell, or agree to issue
or sell Variable Equity Securities (as defined below), for cash
in private capital raising transactions or any securities of the
Company pursuant to an equity line structure or format similar in
nature to this Offering without obtaining the prior written
approval of the Investor of the Offering. For purposes hereof,
the following shall be collectively referred to herein as, the
"Variable Equity Securities": any debt or equity securities which
are convertible into, exercisable or exchangeable for, or carry
the right to receive additional shares of Common Stock either (i)
at any conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or
quotations for Common Stock at any time after the initial
issuance of such debt or equity security, or (ii) with a fixed
conversion, exercise or exchange price that is subject to being
reset at some future date at any time after the initial issuance
of such debt or equity security due to a change in the market
price of the Company's Common Stock since date of initial
issuance.
6.5.2 Investor's Right of First Offer. In the
event that anytime during the Limitation Period the Company
commences or plans to commence negotiations with an investor
other than the Investor regarding a private capital raising
transaction of common stock or other equity securities, or any
debt or equity securities that are convertible or exchangeable
into common stock, the Company agrees to use reasonable
commercial efforts to promptly notify the Investor of such
negotiations or planned negotiations and to negotiate in good
faith with the Investor regarding a potential private capital
raising transaction to meet the Company's capital needs. (the
"Right of First Offer"). The Investor shall not be deemed to
have a right of first refusal on future financings or other
transactions of the Company.
6.5.3 Exceptions to Capital Raising Limitations
and Rights of First Offer. Notwithstanding the above, neither
the Capital Raising Limitations nor the Rights of First Offer
shall apply to any transaction involving issuances of securities
in connection with a merger, consolidation, acquisition or sale
of assets, or in connection with any strategic partnership or
joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or
acquisition of a business, product or license by the Company or
exercise of options by employees, consultants or directors, or a
primary underwritten offering of the Company's Common Stock, or
the transactions set forth on Schedule 6.5.1. The Capital Raising
Limitations and Rights of First Offer also shall not apply to (a)
the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities
outstanding as of the date hereof, (b) the grant of additional
options or warrants, or the issuance of additional securities,
under any Company stock option or restricted stock plan for the
benefit of the Company's employees, directors or consultants, or
(c) the issuance of debt securities, with no equity feature,
incurred solely for working capital purposes. If the Investor,
at any time, is more than five (5) business days late in paying
any Put Dollar Amounts that are then due, the Investor shall not
be entitled to the benefits of Sections 6.5.1 and 6.5.2 above
until the date that the Investor has paid all Put Dollar Amounts
that are then due.
6.6 Financial 10-KSB Statements, Etc. and Current
Reports on Form 8-K. The Company shall deliver to the Investor
copies of its annual reports on Form 10-KSB, and quarterly
reports on Form 10-QSB and shall deliver to the Investor current
reports on Form 8-K within two (2) days of filing for the Term of
this Agreement.
6.7 Opinion of Counsel. Investor shall, concurrent
with the Investment Commitment Closing, receive an opinion letter
from the Company's legal counsel, in the form attached as Exhibit
B, or in such form as agreed upon by the parties, and shall,
concurrent with each Put Date, receive an opinion letter from the
Company's legal counsel, in the form attached as Exhibit I or in
such form as agreed upon by the parties.
6.8 Removal of Legend. If the certificates
representing any Securities are issued with a restrictive Legend
in accordance with the terms of this Agreement, the Legend shall
be removed and the Company shall issue a certificate without such
Legend to the holder of any Security upon which it is stamped,
and a certificate for a security shall be originally issued
without the Legend, if (a) the sale of such Security is
registered under the Act, or (b) such holder provides the Company
with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Investor), to the
effect that a public sale or transfer of such Security may be
made without registration under the Act, or (c) such holder
provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. Each Investor agrees
to sell all Securities, including those represented by a
certificate(s) from which the Legend has been removed, or which
were originally issued without the Legend, pursuant to an
effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from
the registration requirements of the Act.
6.9 Listing. Subject to the remainder of this Section
6.9, the Company shall ensure that its shares of Common Stock
(including all Warrant Shares and Put Shares) are listed and
available for trading on the NASDAQ Small Cap Market. Thereafter,
the Company shall (i) use its best efforts to continue the
listing and trading of its Common Stock on the NASDAQ Small Cap
Market or to become eligible for and listed and available for
trading on the NMS, or the New York Stock Exchange ("NYSE"); and
(ii) comply in all material respects with the Company's
reporting, filing and other obligations under the By-Laws or
rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable.
6.10 The Company's Instructions to Transfer Agent. The
Company will instruct the Transfer Agent of the Common Stock (the
"Transfer Agent"), by delivering, within ten (10) Business Days
of the date of this Agreement, instructions in the form of
Exhibit T hereto, to issue certificates, registered in the name
of each Investor or its nominee, for the Put Shares and Warrant
Shares in such amounts as specified from time to time by the
Company upon any exercise by the Company of a Put and/or exercise
of the Warrants by the holder thereof. Such certificates shall
not bear a Legend unless issuance with a Legend is permitted by
the terms of this Agreement and Legend removal is not permitted
by Section 6.8 hereof and the Company shall cause the Transfer
Agent to issue such certificates without a Legend. Nothing in
this Section shall affect in any way Investor's obligations and
agreement set forth in Sections 3.3.2 or 3.3.3 hereof to resell
the Securities pursuant to an effective registration statement
and to deliver a prospectus in connection with such sale or in
compliance with an exemption from the registration requirements
of applicable securities laws. If (a) an Investor provides the
Company with an opinion of counsel, which opinion of counsel
shall be in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that the
Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration or (b) an Investor
transfers Securities, pursuant to Rule 144, to a transferee which
is an accredited investor, the Company shall permit the transfer,
and, in the case of Put Shares and Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in
such name and in such denomination as specified by such Investor.
The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to an Investor by vitiating
the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for
a breach of its obligations under this Section 6.10 will be
inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 6.10,
that an Investor shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity
of showing economic loss and without any bond or other security
being required.
6.11 Stockholder 20% Approval. Prior to the closing
of any Put that would cause the Aggregate Issued Shares to exceed
the Cap Amount, if required by the rules of NASDAQ because the
Company's Common Stock is listed on NASDAQ, the Company shall
obtain approval of its stockholders to authorize (i) the issuance
of the full number of shares of Common Stock which would be
issuable pursuant to this Agreement but for the Cap Amount and
eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system
or other self-regulatory organization with jurisdiction over the
Company or any of its securities with respect to the Company's
ability to issue shares of Common Stock in excess of the Cap
Amount (such approvals being the "Stockholder 20% Approval").
6.12 Press Release. The Company agrees that the
Investor shall have the right to review and comment upon any
press release issued by the Company in connection with the
Offering which approval shall not be unreasonably withheld by
Investor.
6.13 Change in Law or Policy. In the event of a
change in law, or policy of the SEC, as evidenced by a No-Action
letter or other written statements of the SEC or the NASD which
causes the Investor to be unable to perform its obligations
hereunder, this Agreement shall be automatically terminated and
no Termination Fee shall be due, provided that notwithstanding
any termination under this section 6.13, the Investor shall
retain full ownership of the Commitment Warrant as partial
consideration for its commitment hereunder.
7. Investor Covenant/Miscellaneous.
7.1 Representations and Warranties Survive the
Closing; Severability. Investor's and the Company's
representations and warranties shall survive the Investment Date
and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on
behalf of the party seeking to rely thereon. In the event that
any provision of this Agreement becomes or is declared by a court
of competent jurisdiction to be illegal, unenforceable or void,
or is altered by a term required by the Securities Exchange
Commission to be included in the Registration Statement, this
Agreement shall continue in full force and effect without said
provision; provided that if the removal of such provision
materially changes the economic benefit of this Agreement to the
Investor, this Agreement shall terminate.
7.2 Successors and Assigns. This Agreement shall not
be assignable without the Company's written consent. If
assigned, the terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective successors
and assigns of the parties. Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason
of this Agreement, except as expressly provided in this
Agreement. Investor may assign Investor's rights hereunder, in
connection with any private sale of the Common Stock of such
Investor, so long as, as a condition precedent to such transfer,
the transferee executes an acknowledgment agreeing to be bound by
the applicable provisions of this Agreement in a form acceptable
to the Company and provides an original copy of such
acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This
Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing
such counterparts, and all of which together shall constitute one
(1) instrument.
7.4 Titles and Subtitles; Gender. The titles and
subtitles used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this
Agreement. The use in this Agreement of a masculine, feminine or
neither pronoun shall be deemed to include a reference to the
others.
7.5 Written Notices, Etc. Any notice, demand or
request required or permitted to be given by the Company or
Investor pursuant to the terms of this Agreement shall be in
writing and shall be deemed given when delivered personally, or
by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or
facsimile telephone number of the parties set forth at the end of
this Agreement or such other address as a party may request by
notifying the other in writing; provided, however, that in order
for any notice to be effective as to the Investor such notice
shall be delivered and sent, as specified herein, to all the
addresses and facsimile telephone numbers of the Investor set
forth at the end of this Agreement or such other address and/or
facsimile telephone number as Investor may request in writing.
7.6 Expenses. Except as set forth in the Registration
Rights Agreement, each of the Company and Investor shall pay all
costs and expenses that it respectively incurs, with respect to
the negotiation, execution, delivery and performance of this
Agreement.
7.7 Entire Agreement; Written Amendments Required.
This Agreement, including the Exhibits attached hereto, the
Common Stock certificates, the Warrants, the Registration Rights
Agreement, and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants,
whether oral, written, or otherwise except as specifically set
forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any
such amendment, waiver, discharge or termination is sought.
7.8 Actions at Law or Equity; Jurisdiction and Venue.
The parties acknowledge that any and all actions, whether at law
or at equity, and whether or not said actions are based upon this
Agreement between the parties hereto, shall be filed in any state
or federal court sitting in Atlanta, Georgia. Georgia law shall
govern both the proceeding as well as the interpretation and
construction of the Transaction Documents and the transaction as
a whole. In any litigation between the parties hereto, the
prevailing party, as found by the court, shall be entitled to an
award of all attorney's fees and costs of court. Should the
court refuse to find a prevailing party, each party shall bear
its own legal fees and costs.
8. Subscription and Wiring Instructions; Irrevocability.
(a) Wire transfer of Subscription Funds. Investor
shall deliver Put Dollar Amounts (as payment
towards any Put Share Price) by wire transfer, to
the Company pursuant to a wire instruction letter
to be provided by the Company, and signed by the
Company.
(b) Irrevocable Subscription. Investor
hereby acknowledges and agrees, subject to the
provisions of any applicable laws providing for
the refund of subscription amounts submitted by
Investor, that this Agreement is irrevocable and
that Investor is not entitled to cancel, terminate
or revoke this Agreement or any other agreements
executed by such Investor and delivered pursuant
hereto, and that this Agreement and such other
agreements shall survive the death or disability
of such Investor and shall be binding upon and
inure to the benefit of the parties and their
heirs, executors, administrators, successors,
legal representatives and assigns. If the
Securities subscribed for are to be owned by more
than one person, the obligations of all such
owners under this Agreement shall be joint and
several, and the agreements, representations,
warranties and acknowledgments herein contained
shall be deemed to be made by and be binding upon
each such person and his heirs, executors,
administrators, successors, legal representatives
and assigns.
9. Indemnification.
In consideration of the Investor's execution and delivery of
the Investment Agreement, the Registration Rights Agreement and
the Warrants (the "Transaction Documents") and acquiring the
Securities thereunder and in addition to all of the Company's
other obligations under the Transaction Documents, the Company
shall defend, protect, indemnify and hold harmless Investor and
all of its stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person's
agents, members, partners or other representatives (including,
without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of
action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the
action for which indemnification hereunder is sought), and
including reasonable attorney's fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a
result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty
made by the Company in the Transaction Documents or any other
certificate, instrument or documents contemplated hereby or
thereby, (b) any breach of any covenant, agreement or obligation
of the Company contained in the Transaction Documents or any
other certificate, instrument or document contemplated hereby or
thereby, (c) any cause of action, suit or claim, derivative or
otherwise, by any stockholder of the Company based on a breach or
alleged breach by the Company or any of its officers or directors
of their fiduciary or other obligations to the stockholders of
the Company, or (d) claims made by third parties against any of
the Indemnitees based on a violation of Section 5 of the
Securities Act caused by the integration of the private sale of
common stock to the Investor and the public offering pursuant to
the Registration Statement.
To the extent that the foregoing undertaking by the Company
may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which it would be required to make if
such foregoing undertaking was enforceable which is permissible
under applicable law.
Promptly after receipt by an Indemnified Party of notice of
the commencement of any action pursuant to which indemnification
may be sought, such Indemnified Party will, if a claim in respect
thereof is to be made against the other party (hereinafter
"Indemnitor") under this Section 9, deliver to the Indemnitor a
written notice of the commencement thereof and the Indemnitor
shall have the right to participate in and to assume the defense
thereof with counsel reasonably selected by the Indemnitor,
provided, however, that an Indemnified Party shall have the right
to retain its own counsel, with the reasonably incurred fees and
expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained
by the Indemnitor would be inappropriate due to actual or
potential conflicts of interest between such Indemnified Party
and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any
such action, if prejudicial to the Indemnitor's ability to defend
such action, shall relieve the Indemnitor of any liability to the
Indemnified Party under this Section 9, but the omission to so
deliver written notice to the Indemnitor will not relieve it of
any liability that it may have to any Indemnified Party other
than under this Section 9 to the extent it is prejudicial.
[INTENTIONALLY LEFT BLANK]
10. Accredited Investor. Investor is an "accredited
investor" because (check all applicable boxes):
(a) [ ] it is an organization described in
Section 501(c)(3) of the Internal Revenue Code, or
a corporation, limited duration company, limited
liability company, business trust, or partnership
not formed for the specific purpose of acquiring
the securities offered, with total assets in
excess of $5,000,000.
(b) [ ] any trust, with total assets in
excess of $5,000,000, not formed for the specific
purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person who
has such knowledge and experience in financial and
business matters that he is capable of evaluating
the merits and risks of the prospective
investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or
general partner of the issuer of the securities
being offered or sold or a director, executive
officer or general partner of a general partner of
that issuer.
[ ] has an individual net worth, or joint
net worth with that person's spouse, at the time
of his purchase exceeding $1,000,000.
[ ] had an individual income in excess
of $200,000 in each of the two most recent years
or joint income with that person's spouse in
excess of $300,000 in each of those years and has
a reasonable expectation of reaching the same
income level in the current year.
(d) [X] an entity each equity owner of
which is an entity described in a - b above or is
an individual who could check one (1) of the last
three (3) boxes under subparagraph (c) above.
(e) [ ] other [specify]
__________________________________________________
The undersigned hereby subscribes the Maximum Offering
Amount and acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the
Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent
and certify under penalty of perjury that the foregoing
statements are true and correct and that Investor by the
following signature(s) executed this Agreement.
Dated this 21st day of July, 2000.
SWARTZ PRIVATE EQUITY, LLC
By: Eric S. Swartz
Eric S. Swartz, Manager
SECURITY DELIVERY INSTRUCTIONS:
Swartz Private Equity, LLC
C/o Eric S. Swartz
200 Roswell Summit, Suite 285
1080 Holcomb Bridge Road
Roswell, GA 30076
Telephone: (770) 640-8130
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE
MAXIMUM OFFERING AMOUNT ON THE 21st DAY OF JULY, 2000.
DELTA PETROLEUM CORPORATION
By: s/Aleron H. Larson, Jr.
Aleron H. Larson, Jr., CEO
Address:
Attn: Aleron H. Larson, Jr.
17th Street, Suite 3310
Denver, CO 80202
Telephone: (303) 293-9133
Facsimile: (303) 298-8251
ADVANCE PUT NOTICE
DELTA PETROLEUM CORPORATION (the "Company") hereby intends,
subject to the Individual Put Limit (as defined in the Investment
Agreement), to elect to exercise a Put to sell the number of
shares of Common Stock of the Company specified below, to
_____________________________, the Investor, as of the Intended
Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company
and Swartz Private Equity, LLC dated on or about July 21, 2000.
Date of Advance Put Notice:
___________________
Intended Put Date:___________________________
Intended Put Share Amount: __________________
Company Designation Maximum Put Dollar Amount
(Optional):
________________________________________.
Company Designation Minimum Put Share Price
(Optional):
________________________________________.
DELTA PETROLEUM CORPORATION
By:
Aleron H. Larson, Jr., CEO
Address:
Attn: Aleron H. Larson, Jr.
17th Street, Suite 3310
Denver, CO 80202
Telephone: (303) 293-9133
Facsimile: (303) 298-8251
EXHIBIT E
CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms
receipt of DELTA PETROLEUM CORPORATION's (the "Company") Advance
Put Notice on the Advance Put Date written below, and its
intention to elect to exercise a Put to sell shares of common
stock ("Intended Put Share Amount") of the Company to the
Investor, as of the intended Put Date written below, all pursuant
to that certain Investment Agreement (the "Investment Agreement")
by and between the Company and Swartz Private Equity, LLC dated
on or about July 21, 2000.
Date of Confirmation: ____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount
(Optional):
________________________________________.
Company Designation Minimum Put Share Price
(Optional):
________________________________________.
INVESTOR(S)
___________________________________
Investor's Name
By:
________________________________
(Signature)
Address:
____________________________________
____________________________________
____________________________________
Telephone No.:
___________________________________
Facsimile No.:
___________________________________
EXHIBIT F
PUT NOTICE
DELTA PETROLEUM CORPORATION (the "Company") hereby elects to
exercise a Put to sell shares of common stock ("Common Stock") of
the Company to _____________________________, the Investor, as of
the Put Date, at the Put Share Price and for the number of Put
Shares written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company
and Swartz Private Equity, LLC dated on or about July 21, 2000.
Put Date :_________________
Intended Put Share Amount (from Advance Put
Notice):_________________ Common Shares
Company Designation Maximum Put Dollar Amount
(Optional):
________________________________________.
Company Designation Minimum Put Share Price
(Optional):
________________________________________.
Note: Capitalized terms shall have the meanings ascribed to them
in this Investment Agreement.
DELTA PETROLEUM CORPORATION
By:
Aleron H. Larson, Jr., CEO
Address:
Attn: Aleron H. Larson, Jr.
17th Street, Suite 3310
Denver, CO 80202
Telephone: (303) 293-9133
Facsimile: (303) 298-8251
EXHIBIT G
CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms
receipt of Delta Petroleum Corporation (the "Company") Put Notice
and election to exercise a Put to sell
___________________________ shares of common stock ("Common
Stock") of the Company to Investor, as of the Put Date, all
pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Swartz Private Equity,
LLC dated on or about July 21, 2000.
Date of this Confirmation:
________________
Put Date :_________________
Number of Put Shares of
Common Stock to be Issued: _____________
Volume Evaluation Period:
_____ Business Days
Pricing Period: _____ Business Days
INVESTOR(S)
___________________________________
Investor's Name
By:
___________________________________
(Signature)
Address:
____________________________________
____________________________________
____________________________________
Telephone No.:
___________________________________
Facsimile No.:
____________________________________
EXHIBIT H
PUT CANCELLATION NOTICE
DELTA PETROLEUM CORPORATION (the "Company") hereby cancels the
Put specified below, pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company
and Swartz Private Equity, LLC dated on or about July 21, 2000,
as of the close of trading on the date specified below (the
"Cancellation Date," which date must be on or after the date that
this notice is delivered to the Investor), provided that such
cancellation shall not apply to the number of shares of Common
Stock equal to the Truncated Put Share Amount (as defined in the
Investment Agreement).
Cancellation Date:
_____________________
Put Date of Put Being Canceled:
_____________________
Number of Shares Put on Put Date:
_____________________
Reason for Cancellation (check one):
[ ] Material Facts,
Ineffective Registration Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give
twenty (20) Business Days advance written notice to the Investor
before effecting the next Put.
DELTA PETROLEUM CORPORATION
By:
Aleron H. Larson, Jr., CEO
Address:
Attn: Aleron H. Larson, Jr.
555 17th Street, Suite 3310
Denver, CO 80202
Telephone: (303) 293-9133
Facsimile: (303) 298-8251
EXHIBIT Q
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement
(the "Investment Agreement") by and between the Delta Petroleum
Corporation's, and Swartz Private Equity, LLC dated on or about
July 21, 2000, hereby confirms receipt of Delta Petroleum
Corporation's (the "Company") Put Cancellation Notice, and
confirms the following:
Date of this Confirmation:
___________________
Put Cancellation Date:
___________________
INVESTOR(S)
___________________________________
Investor's Name
By:
____________________________________
(Signature)
Address:
____________________________________
____________________________________
____________________________________
Telephone No.:
___________________________________
Facsimile No.:
____________________________________
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
entered into as of July 21, 2000, by and among Delta Petroleum
Corporation, a corporation duly incorporated and existing under
the laws of the State of Colorado (the "Company"), and the
subscriber as named on the signature page hereto (hereinafter
referred to as "Subscriber").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Offering") of
up to Twenty Million Dollars ($20,000,000), excluding any funds
paid upon exercise of the Warrants, of Common Stock of the
Company pursuant to that certain Investment Agreement of even
date herewith (the "Investment Agreement") between the Company
and the Subscriber, the Company has agreed to sell and the
Subscriber has agreed to purchase, from time to time as provided
in the Investment Agreement, shares of the Company's Common Stock
for a maximum aggregate offering amount of Twenty Million Dollars
($20,000,000);
WHEREAS, pursuant to the terms of the Investment Agreement,
the Company has agreed to issue to the Subscriber the Commitment
Warrants and, from time to time, the Purchase Warrants, each as
defined in the Investment Agreement, to purchase a number of
shares of Common Stock, exercisable for five (5) years from their
respective dates of issuance (collectively, the "Warrants"); and
WHEREAS, pursuant to the terms of the Investment Agreement,
the Company has agreed to provide the Subscriber with certain
registration rights with respect to the Common Stock to be issued
in the Offering and the Common Stock issuable upon exercise of
the Warrants as set forth in this Agreement.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth
in this Agreement and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement
(including the Recitals above), the following terms shall have
the following meanings (such meanings to be equally applicable to
both singular and plural forms of the terms defined):
"Additional Registration Statement" shall have the
meaning set forth in Section 3(b).
"Amended Registration Statement" shall have the meaning
set forth in Section 3(b).
"Business Day" shall have the meaning set forth in the
Investment Agreement.
"Closing Bid Price" shall have the meaning set forth in
the Investment Agreement.
"Common Stock" shall mean the common stock, par value
$0.01, of the Company.
"Due Date" shall mean the date that is one hundred
twenty (120) days after the date of this Agreement.
"Effective Date" shall have the meaning set forth in
Section 2.4.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, together with the rules and regulations
promulgated thereunder.
"Filing Deadline" shall mean September 30, 2000.
"Investment Agreement" shall have the meaning set forth
in the Recitals hereto.
"Holder" shall mean Subscriber, and any other person or
entity owning or having the right to acquire Registrable
Securities or any permitted assignee;
"Piggyback Registration" and "Piggyback Registration
Statement" shall have the meaning set forth in Section 4.
"Put" shall have the meaning as set forth in the
Investment Agreement.
"Register," "Registered," and "Registration" shall mean
and refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the
Securities Act and pursuant to Rule 415 under the Securities Act
or any successor rule, and the declaration or ordering of
effectiveness of such registration statement or document.
"Registrable Securities" shall have the meaning set
forth in Section 2.1.
"Registration Statement" shall have the meaning set
forth in Section 2.2.
"Rule 144" shall mean Rule 144, as amended, promulgated
under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933,
as amended, together with the rules and regulations promulgated
thereunder.
"Subscriber" shall have the meaning set forth in the
preamble to this Agreement.
"Supplemental Registration Statement" shall have the
meaning set forth in Section 3(b).
"Warrants" shall have the meaning set forth in the
above Recitals.
"Warrant Shares" shall mean shares of Common Stock
issuable upon exercise of any Warrant.
2. Required Registration.
2.1 Registrable Securities. "Registrable Securities"
shall mean those shares of the Common Stock of the Company
together with any capital stock issued in replacement of, in
exchange for or otherwise in respect of such Common Stock, that
are: (i) issuable or issued to the Subscriber pursuant to the
Investment Agreement, and (ii) issuable or issued upon exercise
of the Warrants; provided, however, that notwithstanding the
above, the following shall not be considered Registrable
Securities:
(a) any Common Stock which would otherwise be
deemed to be Registrable Securities, if and to the extent that
those shares of Common Stock may be resold in a public
transaction without volume limitations or other material
restrictions without registration under the Securities Act,
including without limitation, pursuant to Rule 144 under the
Securities Act; and
(b) any shares of Common Stock which have been
sold in a private transaction in which the transferor's rights
under this Agreement are not assigned.
2.2 Filing of Initial Registration Statement. The
Company shall, by the Filing Deadline, file a registration
statement ("Registration Statement") on Form S-1 (or other
suitable form, at the Company's discretion, but subject to the
reasonable approval of Subscriber), covering the resale of a
number of shares of Common Stock as Registrable Securities equal
to at least Eight Million (8,000,000) shares of Common Stock and
shall cover, to the extent allowed by applicable law, such
indeterminate number of additional shares of Common Stock that
may be issued or become issuable as Registrable Securities by the
Company pursuant to Rule 416 of the Securities Act. In the event
that the Company has not filed the Registration Statement by the
Filing Deadline, then the Company shall pay to Subscriber an
amount equal to $500, in cash, for each Business Day after the
Filing Deadline until such Registration Statement is filed,
payable within ten (10) Business Days following the end of each
calendar month in which such payments accrue.
2.3 [Intentionally Left Blank].
2.4 Registration Effective Date. The Company shall
use its commercially reasonable efforts to have the Registration
Statement declared effective by the SEC (the date of such
effectiveness is referred to herein as the "Effective Date") by
the Due Date.
2.5 [Intentionally Left Blank].
2.6 [Intentionally Left Blank].
2.7 Shelf Registration. The Registration Statement
shall be prepared as a "shelf" registration statement under Rule
415, and shall be maintained effective until all Registrable
Securities are resold pursuant to the Registration Statement.
2.8 Supplemental Registration Statement. Anytime the
Registration Statement does not cover a sufficient number of
shares of Common Stock to cover all outstanding Registrable
Securities, the Company shall promptly prepare and file with the
SEC such Supplemental Registration Statement and the prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act
with respect to the disposition of all such Registrable
Securities and shall use its commercially reasonable efforts to
cause such Supplemental Registration Statement to be declared
effective as soon as possible.
3. Obligations of the Company. Whenever required under
this Agreement to effect the registration of any Registrable
Securities, the Company shall, as expeditiously and reasonably
possible:
(a) Prepare and file with the Securities and Exchange
Commission ("SEC") a Registration Statement with respect to such
Registrable Securities and use its commercially reasonable
efforts to cause such Registration Statement to become effective
and to remain effective until all Registrable Securities are
resold pursuant to such Registration Statement, notwithstanding
any Termination or Automatic Termination (as each is defined in
the Investment Agreement) of the Investment Agreement.
(b) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus
used in connection with such Registration Statement ("Amended
Registration Statement") or prepare and file any additional
registration statement ("Additional Registration Statement,"
together with the Amended Registration Statement, "Supplemental
Registration Statements") as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition
of all securities covered by such Supplemental Registration
Statements or such prior registration statement and to cover the
resale of all Registrable Securities.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate
the disposition of Registrable Securities owned by them.
(d) Use its commercially reasonable efforts to
register and qualify the securities covered by such Registration
Statement under such other securities or Blue Sky laws of the
jurisdictions in which the Holders are located, of such other
jurisdictions as shall be reasonably requested by the Holders of
the Registrable Securities covered by such Registration Statement
and of all other jurisdictions where legally required, 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.
(e) [Intentionally Omitted].
(f) As promptly as practicable after becoming aware of
such event, notify each Holder of Registrable Securities of the
happening of any event of which the Company has knowledge, as a
result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, use its commercially reasonable efforts promptly to
prepare a supplement or amendment to the Registration Statement
to correct such untrue statement or omission, and deliver a
number of copies of such supplement or amendment to each Holder
as such Holder may reasonably request.
(g) Provide Holders with notice of the date that a
Registration Statement or any Supplemental Registration Statement
registering the resale of the Registrable Securities is declared
effective by the SEC, and the date or dates when the Registration
Statement is no longer effective.
(h) Provide Holders and their representatives the
opportunity and a reasonable amount of time, based upon
reasonable notice delivered by the Company, to conduct a
reasonable due diligence inquiry of Company's pertinent financial
and other records and make available its officers and directors
for questions regarding such information as it relates to
information contained in the Registration Statement.
(i) Provide Holders and their representatives the
opportunity to review the Registration Statement and all
amendments or supplements thereto prior to their filing with the
SEC by giving the Holder at least ten (10) business days advance
written notice prior to such filing.
(j) Provide each Holder with prompt notice of the
issuance by the SEC or any state securities commission or agency
of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceeding for
such purpose. The Company shall use its commercially reasonable
efforts to prevent the issuance of any stop order and, if any is
issued, to obtain the removal thereof at the earliest possible
date.
(k) Use its commercially reasonable efforts to list
the Registrable Securities covered by the Registration Statement
with all securities exchanges or markets on which the Common
Stock is then listed and prepare and file any required filing
with the NASD, American Stock Exchange, NYSE and any other
exchange or market on which the Common Stock is listed.
4. Piggyback Registration. If anytime prior to the date
that the Registration Statement is declared effective or during
any Ineffective Period (as defined in the Investment Agreement)
the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than
the Holders) any of its Common Stock under the Securities Act in
connection with the public offering of such securities solely for
cash (other than a registration relating solely for the sale of
securities to participants in a Company stock plan or a
registration on Form S-4 promulgated under the Securities Act or
any successor or similar form registering stock issuable upon a
reclassification, upon a business combination involving an
exchange of securities or upon an exchange offer for securities
of the issuer or another entity), the Company shall, at such
time, promptly give each Holder written notice of such
registration (a "Piggyback Registration Statement"). Upon the
written request of each Holder given by fax within ten (10) days
after mailing of such notice by the Company, the Company shall
cause to be included in such registration statement under the
Securities Act all of the Registrable Securities that each such
Holder has requested to be registered ("Piggyback Registration")
to the extent such inclusion does not violate the registration
rights of any other security holder of the company granted prior
to the date hereof; provided, however, that nothing herein shall
prevent the Company from withdrawing or abandoning such
registration statement prior to its effectiveness.
5. Limitation on Obligations to Register under a Piggyback
Registration. In the case of a Piggyback Registration pursuant
to an underwritten public offering by the Company, if the
managing underwriter determines and advises in writing that the
inclusion in the related Piggyback Registration Statement of all
Registrable Securities proposed to be included would interfere
with the successful marketing of the securities proposed to be
registered by the Company, then the number of such Registrable
Securities to be included in such Piggyback Registration
Statement, to the extent any such Registrable Securities may be
included in such Piggyback Registration Statement, shall be
allocated among all Holders who had requested Piggyback
Registration pursuant to the terms hereof, in the proportion that
the number of Registrable Securities which each such Holder seeks
to register bears to the total number of Registrable Securities
sought to be included by all Holders. If required by the managing
underwriter of such an underwritten public offering, the Holders
shall enter into an agreement limiting the number of Registrable
Securities to be included in such Piggyback Registration
Statement and the terms, if any, regarding the future sale of
such Registrable Securities.
6. Dispute as to Registrable Securities. In the event the
Company believes that shares sought to be registered under
Section 2 or Section 4 by Holders do not constitute "Registrable
Securities" by virtue of Section 2.1 of this Agreement, and the
status of those shares as Registrable Securities is disputed, the
Company shall provide, at its expense, an Opinion of Counsel,
reasonably acceptable to the Holders of the Securities at issue
(and satisfactory to the Company's transfer agent to permit the
sale and transfer), that those securities may be sold
immediately, without volume limitation or other material
restrictions, without registration under the Securities Act, by
virtue of Rule 144 or similar provisions.
7. Furnish Information. At the Company's request, each
Holder shall furnish to the Company such information regarding
Holder, the Registrable Securities held by it, and the intended
method of disposition of such securities to the extent required
to effect the registration of its Registrable Securities or to
determine that registration is not required pursuant to Rule 144
or other applicable provision of the Securities Act. The Company
shall include all information provided by such Holder pursuant
hereto in the Registration Statement, substantially in the form
supplied, except to the extent such information is not permitted
by law.
8. Expenses. All expenses, other than commissions and
fees and expenses of counsel to the selling Holders, incurred in
connection with registrations, filings or qualifications pursuant
hereto, including (without limitation) all registration, filing
and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, shall be borne by the
Company.
9. Indemnification. In the event any Registrable
Securities are included in a Registration Statement under this
Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers, directors,
partners, legal counsel, and accountants of each Holder, any
underwriter (as defined in the Securities Act, or as deemed by
the Securities Exchange Commission, or as indicated in a
registration statement) for such Holder and each person, if any,
who controls such Holder or underwriter within the meaning of
Section 15 of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following
statements or omissions: (i) any untrue statement or alleged
untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or
supplements thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, and the
Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this
subsection 9(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of
or is based upon a violation which occurs in reliance upon and in
conformity with written information furnished expressly for use
in connection with such registration by any such Holder, officer,
director, underwriter or controlling person; provided however,
that the above shall not relieve the Company from any other
liabilities which it might otherwise have.
(b) Each Holder of any securities included in such
registration being effected shall indemnify and hold harmless the
Company, its directors and officers, each underwriter and each
other person, if any, who controls (within the meaning of the
Securities Act) the Company or such other indemnified party,
against any liability, joint or several, to which any such
indemnified party may become subject under the Securities Act or
any other statute or at common law, insofar as such liability (or
actions in respect thereof) arises out of or is based upon
(i) any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any
registration statement under which securities were registered
under the Securities Act at the request of such Holder, any
preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or (ii) any omission or
alleged omission by such Holder to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration
statement, preliminary or final prospectus, amendment or
supplement thereto in reliance upon and in conformity with
information furnished in writing to the Company by such Holder
specifically for use therein. Such Holder shall reimburse any
indemnified party for any legal fees incurred in investigating or
defending any such liability; provided, however, that such
Holder's obligations hereunder shall be limited to an amount
equal to the proceeds to such Holder of the securities sold in
any such registration.
(c) Promptly after receipt by an indemnified party
under this Section 9 of notice of the commencement of any action
(including any governmental action), such indemnified party will,
if a claim in respect thereof is to be made against any
indemnifying party under this Section 9, deliver to the
indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume,
the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have
the right to retain its own counsel, with the reasonably incurred
fees and expenses of one such counsel to be paid by the
indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential conflicting interests
between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its
ability to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this
Section 9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this
Section 9.
(d) In the event that the indemnity provided in
paragraphs (a) and/or (b) of this Section 9 is unavailable to or
insufficient to hold harmless an indemnified party for any
reason, the Company and each Holder agree to contribute to the
aggregate claims, losses, damages and liabilities (including
legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which
the Company and one or more of the Holders may be subject in such
proportion as is appropriate to reflect the relative fault of the
Company and the Holders in connection with the statements or
omissions which resulted in such Losses. Relative fault shall be
determined by reference to whether any alleged untrue statement
or omission relates to information provided by the Company or by
the Holders. The Company and the Holders agree that it would not
be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation that does not take
account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 9,
each person who controls a Holder of Registrable Securities
within the meaning of either the Securities Act or the Exchange
Act and each director, officer, partner, employee and agent of a
Holder shall have the same rights to contribution as such holder,
and each person who controls the Company within the meaning of
either the Securities Act or the Exchange Act and each director
and officer of the Company shall have the same rights to
contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (d).
(e) The obligations of the Company and Holders under
this Section 9 shall survive the resale, if any, of the Common
Stock, the completion of any offering of Registrable Securities
in a Registration Statement under this Agreement, and otherwise.
10. Reports Under Exchange Act. With a view to making
available to the Holders the benefits of Rule 144 promulgated
under the Securities Act and any other rule or regulation of the
SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available, as
those terms are understood and defined in Rule 144; and
(b) use its commercially reasonable efforts to file
with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange
Act.
11. Amendment of Registration Rights. Any provision of
this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and the written consent of each Holder affected
thereby. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each Holder, each future
Holder, and the Company.
12. Notices. All notices required or permitted under this
Agreement shall be made in writing signed by the party making the
same, shall specify the section under this Agreement pursuant to
which it is given, and shall be addressed if to (i) the Company
at: Delta Petroleum Corporation.; Attn: Aleron H. Larson, Jr.,
CEO; 555 17th Street, Suite 3310, Denver, CO 80202; Telephone:
(303) 293-9133, Facsimile: (303) 298-8251 (or at such other
location as directed by the Company in writing) and (ii) the
Holders at their respective last address as the party as shown on
the records of the Company. Any notice, except as otherwise
provided in this Agreement, shall be made by fax and shall be
deemed given at the time of transmission of the fax.
13. Termination. This Agreement shall terminate on the
date all Registrable Securities cease to exist (as that term is
defined in Section 2.1 hereof); but without prejudice to (i) the
parties' rights and obligations arising from breaches of this
Agreement occurring prior to such termination (ii) other
indemnification obligations under this Agreement.
14. Assignment. No assignment, transfer or delegation,
whether by operation of law or otherwise, of any rights or
obligations under this Agreement by the Company or any Holder,
respectively, shall be made without the prior written consent of
the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be
transferred to a subsequent holder of the Holder's Registrable
Securities (provided such transferee shall provide to the
Company, together with or prior to such transferee's request to
have such Registrable Securities included in a Registration, a
writing executed by such transferee agreeing to be bound as a
Holder by the terms of this Agreement), and the Company hereby
agrees to file an amended registration statement including such
transferee or a selling security holder thereunder; and provided
further that the Company may transfer its rights and obligations
under this Agreement to a purchaser of all or a substantial
portion of its business if the obligations of the Company under
this Agreement are assumed in connection with such transfer,
either by merger or other operation of law (which may include
without limitation a transaction whereby the Registrable
Securities are converted into securities of the successor in
interest) or by specific assumption executed by the transferee.
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia
applicable to agreements made in and wholly to be performed in
that jurisdiction, except for matters arising under the
Securities Act or the Exchange Act, which matters shall be
construed and interpreted in accordance with such laws. Any
dispute arising out of or relating to this Agreement or the
breach, termination or validity hereof shall be finally settled
by the federal or state courts located in Fulton County, Georgia.
16. Execution in Counterparts Permitted. This Agreement
may be executed in any number of counterparts, each of which
shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one (1)
instrument.
17. Specific Performance. The Holder shall be entitled to
the remedy of specific performance in the event of the Company's
breach of this Agreement, the parties agreeing that a remedy at
law would be inadequate.
18. Indemnity. Each party shall indemnify each other party
against any and all claims, damages (including reasonable
attorney's fees), and expenses arising out of the first party's
breach of any of the terms of this Agreement.
19. Entire Agreement; Written Amendments Required. This
Agreement, including the Exhibits attached hereto, the Investment
Agreement, the Common Stock certificates, and the other documents
delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to
the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth
herein or therein. Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of this 21st day of July, 2000.
DELTA PETROLEUM CORPORATION
By: s/Aleron H. Larson, Jr.
Aleron H. Larson, Jr., CEO
Address:
555 17th Street, Suite 3310
Denver, CO 80202
Telephone: (303) 293-9133
Facsimile: (303) 298-8251
SUBSCRIBER:
SWARTZ PRIVATE EQUITY, LLC.
By:
s/Eric S. Swartz
Eric S. Swartz, Manager
Address: 1080 Holcomb Bridge Road
Bldg. 200, Suite 285
Roswell, GA 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into as of July
21, 2000, by and among DELTA PETROLEUM CORPORATION, a corporation
duly organized and existing under the laws of the State of
Colorado (the "Company") and Swartz Private Equity, LLC
(hereinafter referred to as "Swartz").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Equity Line")
of up to Twenty Million Dollars ($20,000,000), excluding any
funds paid upon exercise of the Warrants, of Common Stock of the
Company pursuant to that certain Investment Agreement (the
"Investment Agreement") between the Company and Swartz dated on
or about July 21, 2000, the Company has agreed to sell and Swartz
has agreed to purchase, from time to time as provided in the
Investment Agreement, shares of the Company's Common Stock for a
maximum aggregate offering amount of Twenty Million Dollars
($20,000,000); and
WHEREAS, pursuant to the terms of the Investment Agreement,
the Company has agreed, among other things, to issue to the
Subscriber Commitment Warrants, as defined in the Investment
Agreement, to purchase a number of shares of Common Stock,
exercisable for five (5) years from their respective dates of
issuance.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth
in Agreement and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Issuance of Commitment Warrants. As compensation for
entering into the Equity Line, Swartz received a warrant
convertible into 500,000 shares of the Company's Common Stock, in
the form attached hereto as Exhibit A (the "Commitment
Warrants").
2. Issuance of Additional Warrants. If the Company shall
at any time effect a reverse stock split (i.e. a stock split as a
result of which the shares of Common Stock shall be changed into
or become exchangeable for a smaller number of shares (a "Reverse
Stock Split")), and if and only if the Shareholders' Equity (as
defined below) on the trading day immediately preceding the date
of the Reverse Stock split is less than $1 million, then on the
date of such Reverse Stock Split, and on each one year
anniversary (each, an "Anniversary Date") of the Reverse Stock
Split thereafter throughout the term of the Commitment Warrants,
the Company shall issue to Swartz additional warrants (the
"Additional Warrants"), in the form of Exhibit A, to purchase a
number of shares of Common Stock, if necessary, such that the sum
of the number of Warrants and the number of Additional Warrants
issued to Swartz shall equal at least 6.2% of the number of fully
diluted shares of Common Stock of the Company that are
outstanding immediately following the Reverse Stock Split or
Anniversary Date, as applicable. The Additional Warrants shall
be exerciseable at the same price as the Commitment Warrants,
shall have piggyback registration rights and shall have a 5-year
term. For purposes hereof, "Stockholders' Equity" at a given time
shall have the meaning as set forth in the Company's then current
financial statements.
3. Opinion of Counsel. Concurrently with the issuance and
delivery of the Commitment Opinion (as defined in the Investment
Agreement) to the Investor, or on the date that is six (6) months
after the date of this Agreement, whichever is sooner, the
Company shall deliver to the Investor an Opinion of Counsel
(signed by the Company's independent counsel) covering the
issuance of the Commitment Warrants and the Additional Warrants,
and the issuance and resale of the Common Stock issuable upon
exercise of the Warrants and the Additional Warrants.
4. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia
applicable to agreements made in and wholly to be performed in
that jurisdiction, except for matters arising under the Act or
the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of this 21st day of July, 2000.
DELTA PETROLEUM CORPORATION SUBSCRIBER:
SWARTZ PRIVATE EQUITY, LLC.
By: s/Aleron H. Larson, Jr. By: s/Eric S. Swartz
Aleron H. Larson, Jr., CEO Eric S. Swartz, Manager
Delta Petroleum Corporation
555 17th Street, Suite 3310 1080 Holcomb Bridge Road
Denver, CO 80202 Bldg. 200, Suite 285
Telephone: (303) 293-9133 Roswell, GA 30076
Facsimile: (303) 298-8251 Telephone: (770) 640-8130
Facsimile: (770) 640-7150
DELTA PETROLEUM CORPORATION
ESCROW AGREEMENT AND INSTRUCTIONS
This Escrow Agreement (the "Agreement") dated as of July 21,
2000 is made by and among DELTA PETROLEUM CORPORATION, a Colorado
corporation ("Company"), Swartz Private Equity, LLC ("Investor")
and FIRST UNION NATIONAL BANK as escrow agent ("Escrow Agent").
RECITALS:
WHEREAS, the Company wishes, subject to certain conditions
and limitations, to sell to Investor common stock issued by
Company (the "Common Stock") at an aggregate purchase price of up
to Twenty Million Dollars ($20,000,000), excluding Warrants;
WHEREAS, as contemplated by that certain Investment
Agreement, of even date herewith, by and between the Company and
the Investor (the "Investment Agreement") the Company may sell
Common Stock to Investor upon an exercise of a Put during the
thirty six (36) months following the effective date the
("Effective Date") of the Registration Statement required under
the Investment Agreement;
WHEREAS, under the Colorado Business Corporation Act, the
Common Stock will not be deemed to be fully paid and
nonassessable until the Company receives the consideration for
which its Board of Directors has authorized the issuance of the
shares;
WHEREAS, the Company and Investor desire to establish an
escrow account (the "Escrow Account") with the Escrow Agent into
which certain monies and Common Stock will be deposited and held
in escrow in connection with a proposed offering of the Common
Stock; and
WHEREAS, the Escrow Agent has agreed to act as escrow agent
on behalf of the Company and Investor on the terms and conditions
set forth in this Agreement.
TERMS:
NOW, THEREFORE, in consideration of the premises the parties
agree as follows:
1. DEFINED TERMS. Unless otherwise indicated herein,
capitalized terms shall have the meanings ascribed to them in the
Investment Agreement.
2. INVESTMENT AGREEMENT. Pursuant to the terms of the
Investment Agreement, the Company may initiate Puts of Common
Stock to the Investor at certain times after the Effective Date.
In order to initiate a Put, the Company delivers a Put Notice to
the Investor, along with unlegended stock certificates
representing the Put Shares of Common Stock being Put to the
Investor. During the 20 Business Day Pricing Period following
each Put Notice, the maximum number of shares of Common Stock to
be purchased and the purchase price per share are determined in
accordance with the Investment Agreement.
3. APPOINTMENT OF ESCROW AGENT. The Company and Investor
each appoint the Escrow Agent to act as the escrow agent for the
sale and purchase of the Common Stock contemplated by the
Investment Agreement, on the terms and conditions of this
Agreement. Escrow Agent agrees to act as escrow agent and perform
the functions set forth in this Agreement, subject to all its
terms.
4. ESCROW AGREEMENT. The Company hereby agrees to pay the
Escrow Agent for the opening and administration of the Escrow
Account plus incidental expenses for all ordinary services
rendered hereunder (the "Escrow Fee") according to the fee
schedule attached hereto as Schedule A. The Escrow Agent shall
be entitled to withhold the Escrow Fee from any funds paid to the
Company pursuant to this Escrow Agreement, or the Escrow Agent
may demand payment of the Escrow Fee from the Company.
5. DEPOSITS.
5.1 Company Deposits. Under the terms of the Investment
Agreement, from time to time, the Company will deliver Put
Notices to the Investor to effect the sale of a number of Put
Shares. The Company shall deliver a copy of each Put Notice to
the Escrow Agent by facsimile or as soon as practicable after it
delivers such Put Notice to the Investor. For each Put, at the
times specified in the Investment Agreement, the Company shall
deposit unlegended and freely tradable shares of Common Stock, in
electronic form and in the name of the Investor (or in such
street name as the Escrow Agent directs), under the Escrow
Agent's DTC participation number, representing the number of Put
Shares specified in the Put Notice for that Put with the Escrow
Agent. The Put Shares shall be delivered to the Escrow Agent in
electronic form through the DTC system. The Company shall notify
the Escrow Agent of the number of Put Shares being delivered, by
facsimile, not later than 5:00 PM, New York City time, on the day
that such shares are delivered.
5.2 Investor Deposits. Under the terms of the Investment
Agreement, the Investor is required to deliver the Put Share
Price for a number of Put Shares equal to the Put Share Amount to
the Escrow Agent within five (5) Business Days of the end of the
applicable Pricing Period.
Anytime after the Put Date for a particular Put, the
Investor may deliver a cash payment toward the Put Dollar Amount
to the Escrow Agent by certified or bank check, or wire transfer,
for all or any portion of the Put Shares specified in the Put
Notice (each a "Cash Payment") or may cause a DVP Tender (as
defined below) for all or any portion of such Put Shares. All
funds paid to the Escrow Agent by the Investor through a Cash
Payment or a DVP Tender shall be placed in a holding account in
the Company's name (the "Company Holding Account") until such
funds are released pursuant to the terms hereof.
For purposes hereof, "DVP Tender" shall mean a tender by a
broker or other representative of the Investor of the Interim Put
Share Price (as defined below) for all or any portion of the Put
Shares specified in the Purchase Notice, up to the Interim Volume
Limit, in a Delivery Versus Payment (" DVP") cross-exchange
conditioned upon delivery of the Put Shares. Upon any DVP
Tender, the Escrow Agent shall promptly execute a DVP cross-
exchange and release the applicable number of Put Shares to the
Investor by placing such shares in the DVP electronic delivery
system under the Investor's name or such other street name as the
Investor so directs, in exchange for the funds representing the
Interim Put Share Price per share for such Put Shares. Payment
for Put Shares shall be deemed to have been timely made if a DVP
Tender as described above is made on or prior to the Payment Due
Date.
For purposes hereof, the "Interim Put Share Price" shall
mean the lesser of (i) the lowest Closing Bid Price of the
Company's Common Stock for the portion of the Pricing Period (as
defined in the Investment Agreement) beginning on the Put Date
and ending on the most recently ended trading day immediately
preceding the date and time in question, or (ii) the Company
Designated Minimum Put Share Price, if any, specified by the
Company in the Put Notice.
For purposes hereof, "Interim Volume Limit" shall mean
portion of the Volume Limitations for the applicable Put that
have accrued up through the most recently ended trading day
immediately preceding the date and time in question, provided
that the Interim Volume Limit shall never exceed the Individual
Put Limit.
At or prior to the close of business of each day that the
Escrow Agent receives any Cash Payment, DVP Tender or Put Shares,
the Escrow Agent shall notify the Company and the Investor of
such receipt.
6. DISBURSEMENT OF SHARES AND FUNDS.
(a) Instructions for Exchange of Money and Common
Stock. Escrow Agent shall hold each of the Put Shares deposited
by the Company against delivery of the corresponding Interim Put
Share Price by the Investor and shall hold the corresponding Put
Share Price by such Investors against delivery of the Put Shares,
all in compliance with Section 6(b) below.
(b) Conditions for Release of Money and Common Stock.
Assuming the Escrow Agent has received a Put Notice for a given
Put, then concurrently with any a Cash Payment or DVP Tender made
by the Investor, the Escrow Agent shall release a number of Put
Shares to the Investor equal to the amount of such Cash Payment
or DVP Tender, divided by the Interim Put Share Price then in
effect, but such number of Put Shares shall not exceed the
applicable Interim Volume Limit.
For purposes hereof, "Excess Amounts" shall be calculated
daily and shall mean the amount of cash placed in the Company
Account by the Investor for that Put through Cash Payments, DVP
Exchanges, or otherwise, less the product obtained when (i) the
number of Put Shares that have been delivered to the Investor
with respect to that Put is multiplied by the Interim Put Share
Price then in effect. Anytime that Excess Amounts exist, the
Investor, at its option, may direct the Escrow Agent to either
(i) apply all or any portion of such Excess Amounts as Cash
Payments for additional Put Shares, or (ii) deliver all or any
portion of such Excess Amounts to the Investor.
(c) Release of Payments to the Company. Not later than the
close of business on the fifth (5th) Business Day immediately
following the Pricing Period End Date for the applicable Put, the
Escrow Agent shall release funds from the Company Holding Account
in an amount equal to the Put Share Price for the Put multiplied
by the number of Put Shares that have been delivered to the
Investor and have not been previously paid for (the "Company's
Vested Funds"), less any Escrow Fees then due, to the Company by
wire transfer. Any Excess Amounts remaining in the Company's
Holding Account thereafter shall revert to the Investor in
accordance with subsection (d) below. No Put Shares shall be
released to the Investor until Payment or a DVP Tender is made
for such Put Shares (in an amount per share equal to the
applicable Put Share Price, or Interim Put Share Price, as
applicable). Any funds delivered to the Company by the Escrow
Agent hereunder shall be applied toward payment of the Put Dollar
Amount for the applicable Put.
At the end of each business day in which any shares or
Payment are received, Escrow Agent Shall provide to the Company
and each Investor a spreadsheet or similar schedule reflecting
the Payments, Common Stock received, and a schedule listing any
moneys wired out by Escrow Agent, if applicable. Wiring
instructions for wiring funds to the Company will be provided to
the Escrow Agent by the Company. Escrow Agent shall call Aleron
H. Larson, Jr. or other Company designee to confim receipt of
Company's wiring instructious at the telephone numbers set forth
in Section 14.3 below.
Within three (3) Business Days after the Pricing Period
End Date, the Company shall provide notice to the Escrow Agent
(the "Put Summary") setting forth the Put Share Amount, the Put
Share Price and the Put Dollar Amount, with a copy to the
Investor.
(d) Release of Funds to the Investor. The Escrow
Agent shall release any Excess Amounts received from or on
account of the Investor in a DVP cross-exchange, through a Cash
Payment, or otherwise, to the Investor by wire transfer of
immediately available funds or as otherwise directed by the
Investor as soon as possible but no later than the close of
business on the sixth (6th) business day following the Pricing
Period End Date.
The Escrow Agent shall calculate the interest accrued on the
total amount of Payments and DVP Tenders made by the Investor.
The Escrow Agent shall release the interest that has accrued on
each of the Payments to the Investor by wire transfer of
immediately available funds as provided above in the normal
course of business, but no later than six (6) business days after
the Pricing Period End Date.
(e) Return of Excess Shares Upon Closing or
Termination of Put. If the Escrow Agent has not received
Payments and DVP Tenders totaling the Put Share Price for all Put
Shares held by the Escrow Agent by the close of business on the
date that is five (5) Business Days after the applicable Payment
Due Date, then the Escrow Agent shall, upon written instructions
from the Company, return all Put Shares to the Company for which
payment has not been received by the Escrow Agent.
7. INVESTMENT OF FUNDS. All funds received before 2:00
p.m., Atlanta, Georgia time, on a given day and not disbursed on
the same day received shall be deposited by Escrow Agent into a
separate First Union National Bank Money Market account established
for the purpose of this escrow and shall upon clearance earn per diem
interest at a rate provided by the Escrow Agent for such account.
8. OFFERING DATE, ESCROW TERM AND EARLY TERMINATION DATE.
For the purpose of this Escrow Agreement, the Escrow Account's
term (the "Escrow Term") shall commence on the date hereof and
shall end on the Termination Date of the Investment Agreement, or
such earlier date that the Company and the Investor both agree,
subject to the resignation of the Escrow Agent pursuant to
Section 13 hereof.
9. LIABILITY OF ESCROW AGENT.
(a) Escrow Agent shall have no liability or obligation
with respect to the Escrow Funds except for Escrow Agent's
willful or wanton misconduct or gross negligence. Escrow Agent's
sole responsibility shall be for the safekeeping, investment, and
disbursement of the Escrow Funds in accordance with the terms of
this Escrow Agreement. Escrow Agent shall have no implied duties
or obligations and shall not be charged with knowledge or notice
of any fact or circumstance not specifically set forth herein.
Escrow Agent may rely upon any instrument, not only as to its due
execution, validity and effectiveness, but also as to the truth
and accuracy of any information contained therein, which Escrow
Agent shall in good faith believe to be genuine, to have been
signed or presented by the person or parties purporting to sign
the same and to conform to the provisions of this Escrow
Agreement. In no event shall Escrow Agent be liable for
incidental, indirect, special, consequential or punitive damages.
Escrow Agent shall not be obligated to take any legal action or
commence any proceeding in connection with the Escrow Funds, any
account in which Escrow Funds are deposited, this Escrow
Agreement or the Underlying Agreement, or to appear in, prosecute
or defend any such legal action or proceeding. Escrow Agent may
consult legal counsel selected by it in the event of any dispute
or question as to the construction of any of the provisions
hereof or of any other agreement or of its duties hereunder,' or
relating to any dispute involving any party hereto, and shall
incur no liability and shall be fully indemnified from any
liability whatsoever in acting in accordance with the opinion or
instruction of such counsel. Company and Investor, jointly and
severally, shall promptly pay, upon demand, the reasonable fees
and expenses of any such counsel.
(b) The Escrow Agent is authorized, in its sole
discretion, to comply with orders issued or process entered by
any court with respect to the Escrow Funds, without determination
by the Escrow Agent of such court's jurisdiction in the matter.
If any portion of the Escrow Funds is at any time attached,
garnished or levied upon under any court order, or in case the
payment, assignment, transfer, conveyance or delivery of any such
property shall be stayed or enjoined by any court order, or in
case any order, judgment or decree shall be made or entered by
any court affecting such property or any part thereof, then and
in any such event, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ,
judgment or decree which it is advised by legal counsel selected
by it is binding upon it without the need for appeal or other
action; and if the Escrow Agent complies with any such order,
writ, judgment or decree, it shall not be liable to any of the
parties hereto or to any other person or entity by reason of such
compliance even though such order, writ, judgment or decree may
be subsequently reversed, modified, annulled, set aside or
vacated.
10. FEES AND EXPENSES. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall
be considered compensation for ordinary services as contemplated
by this Agreement. In the event that the conditions of this
Agreement are not properly fulfilled by a party other than the
Escrow Agent, or if the Company requests a substantial
modification of its terms, or if any controversy arises, or if
the Escrow Agent is made a party to, or intervenes in, any
litigation pertaining to this Agreement or its subject matter,
the Escrow Agent shall be reasonably compensated for such
extraordinary services and reimbursed for all reasonable costs,
attorneys' fees, including allocating costs of in-house counsel,
and expenses occasioned by such default, delay, controversy or
litigation. The Company promises to pay these sums upon demand.
11. INDEMNIFICATION OF ESCROW AGENT. From and at all times
after the date of this Escrow Agreement, the Company and the
Investor, jointly and severally (the "Indemnifying Parties")
shall, to the fullest extent permitted by law and to the extent
provided herein, indemnify and hold harmless Escrow Agent and
each director, officer, employee, attorney, agent and affiliate
of Escrow Agent (collectively, the "Indemnified Parties") against
any and all actions, claims (whether or not valid), losses,
damages, liabilities, costs and expenses of any kind or nature
whatsoever (including without limitation reasonable attorneys'
fees, costs and expenses) incurred by or asserted against any of
the Indemnified Parties from and after the date hereof, whether
direct, indirect or consequential, as a result of or arising from
or in any way relating to any claim, demand, suit, action or
proceeding (including any inquiry or investigation) by any
person, including without limitation the Company or the Investor,
whether threatened or initiated, asserting a claim for any legal
or equitable remedy against any person under any statute or
regulation, including, but not limited to, any federal or state
arising from securities laws, or under any common law or
equitable cause or otherwise, or in connection with the
negotiation, preparation, execution, performance or failure of
performance of this Escrow Agreement or any transactions
contemplated herein, whether or not any such Indemnified Party is
a party to any such action, proceeding, suit or the target of any
such inquiry or investigation; provided, however, that no
Indemnified Party shall have the right to be indemnified
hereunder for any liability finally determined by a court of
competent jurisdiction, subject to no further appeal, to have
resulted solely from the gross negligence or willful misconduct
of such Indemnified Party. If any such action or claim shall be
brought or asserted against any Indemnified Party, such
Indemnified Party shall promptly notify the Indemnifying Parties,
in writing, and the Indemnifying Parties shall assume the defense
thereof, including the employment of counsel and the payment of
all expenses. Such Indemnified Party shaH, in its sole
discretion, have the right to employ separate counsel (who may be
selected by such Indemnified Party in its sole discretion) in any
such action and to participate in the defense thereof, and the
fees and expenses of such counsel shall be paid by such
Indemnified Party, except that the Indemnifying Parties shall be
required to pay such fees and expenses if (a) the Indemnifying
Parties agrees to pay such fees and expenses, or (b) the
Indemnifying Parties shall fail to assume the defense of such
action or proceeding or shall fail, in the sole discretion of
such Indemnified Party, to employ counsel satisfactory to the
Indemnified Party in any such action or proceeding, (c) the
Indemnifying Parties are the plaintiff in any such action or
proceeding or (d) the named or potential parties to any such
action or proceeding (including any potentially impleaded
parties) include both Indemnified Party and the Indemnifying
Parties, and Indemnified Party shall have been advised by counsel
that there may be one or more legal defenses available to it
which are different from or additional to those available to the
Indemnifying Parties. The Indemnifying Parties shall be liable to
pay fees and expenses of counsel pursuant to the preceding
sentence, except that ar obligation to pay under clause (a) shall
apply only to the party, so agreeing. All such fees and expenses
payable by the Indemnifying Parties pursuant to the foregoing
sentence shall be paid from time to time as incurred, both in
advance of and after the final disposition of such action or
claim. All of the foregoing losses, damages, costs and expenses
of the Indemnified Parties shall be payable by the Indemnifying
Parties, to the extent of the Escrow Funds upon demand by such
Indemnified Party. Upon exhaustion of the Escrow Funds, the
indemnification obligations of Indemnifying Parties hereunder
shall be by the Indemnifying Parties, jointly and severally. The
obligations of the Indemnifying Parties under this Section 11
shall survive any termination of this Escrow Agreement, and the
resignation or removal of Escrow Agent shall be independent of
any obligation of the Escrow Agent.
The parties agree that neither the payment by the
Indemnifying Parties of any claim by Escrow Agent for
indemnification hereunder nor the disbursement of any amounts to
Escrow Agent from the Escrow Funds in respect of a claim by
Escrow gent tor maemmncauon snail unpar, limit, modify, or
affect, as between the Company and the Investor, the respective
rights and obligations of Company, on the one hand, and the
Investor, on the other hand, under the Investment Agreement.
12. TERMINATION. This Agreement shall terminate upon the
expiration of the Escrow Term, without any notices to any person,
unless earlier terminated pursuant to terms hereof.
13. RESIGNATION OF ESCROW AGENT. The Escrow Agent may
resign at any time upon giving at least ten (10) days prior
written notice to the parties provided, however, that no such
resignation shall become effective until the appointment of a
uccessor escrow agent that agrees to the terms of this Agreement
which shall be accomplished as follows: the parties shall use
their best effort to obtain a successor escrow agent within ten
(10) days after receiving such notice. The successor escrow
wthoent shall execute and deliver an instrument accepting such
appointment and it shall without further acts, be vested with all
the estates, properties, rights, powers, and duties of the
predecessor escrow agent as if originally named as escrow agent.
The Escrow Agent shall thereupon be discharged from any further
duties and liability under this Agreement.
14. MISCELLANEOUS.
14.1 Governing Laws. This Agreement is created by and
shall be construed under the applicable laws of the State of
Georgia except for matters arising under the United States
Securities Act of 1933, as amended (the "Act"), which matters
shall be construed and interpreted in accordance with such laws.
14.2 Counterparts. This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
14.3 Notices.
As to the Company:
Attention: Aleron H. Larson, Jr., CEO
Delta Petroleum Corporation
555 17th Street, Suite 3310
Denver, Colorado 80202
Telephone: (303) 293-9133
Facsimile: (303) 298-8251
As to the Escrow Agent:
Attn: Sabrina Fuller
First Union National Bank, Corporate Trust Dept.
999 Peachtree Street N.E., Suite 1100
Atlanta, GA 30309
Telephone: (404) 827-7335
Facsimile: (404) 827-7305
Escrow Agent's Wire Instructions:
Attn: Sabrina Fuller
First Union National Bank
ABA# 0053000219
DDA# 5000000016439
Ref: 3072001504/Delta Petro 2000
Telephone: (404) 827-7335
Facsimile: (404) 827-7305
Attn: Sabrina Fuller CT-897
As to the Investor:
Attn: Eric Swartz
200 Roswell Summit, Suite 285
1080 Holcomb Bridge Road
Roswell, CiA 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
14.4 Entire Agreement. This Agreement represents the entire
agreement of the parties with respect to the Escrow Account with
Escrow Agent and Escrow Agent is not bound by any other
agreements that may exist between each Investor and the Company.
14.5 Authorization for Amendments. This Agreement shall not
be amended except pursuant to instructions in writing signed by
all parties hereto. Escrow Agent shall be authorized to act on
instructions or amendments to this Agreement that are signedby
the individual indicated below on the signature page in the case
of the Investor and Aleron H. Larson, Jr., CEO in the case of the
Company, or (b) signed by a representative of Company or Investor
who has been duly authorized and notice of such authorization has
been provided to Escrow Agent, signed by the signatories
specified in (a) above, as applicable. Such written
authorization and notice, signed by the appropriate officer,
shall constitute sufficient authorization and notice for Escrow
Agent to act upon, and Escrow Agent shall be authorized to honor
instructions or amendments signed by such authorized
representatives.
IN WITNESS WHEREOF, the undersigned have executed this
Escrow Agreement as of this 21st day of July, 2000.
COMPANY: ESCROW AGENT:
DELTA PETROLEUM CORPORATION FIRST UNION NATIONAL BANK
By:
s/Aleron H. Larson, Jr. By: s/Sabrina Fuller
Aleron H. Larson, Jr., CEO Print Name:
Sabrina Fuller
Title:
Assistant Vice President
INVESTOR:
SWARTZ PRIVATE EQUITY, LLC
By:
s/Eric S. Swartz
Eric S. Swartz, Manager
SCHEDULE A
FEES PAYABLE TO ESCROW AGENT
Acceptance Fee: $ 500.00
Annual Escrow Agent Fee: $ 2,500.00
Attorney's Escrow Fee: $ 500.00
(approximate)
Tramaction charges:
PUTS $ 100.00
Disbursement of funds $ 25.00
per outgoing wire transfer
Acceptance of the Appointment is subject to terms of the
transaction and document provisions being satisfactory to First
Union National Bank.
The Acceptance Fee is payable upon execution of the escrow
documents. The first Annual Escrow Fee is payable upon
effectiveness of a Registration Statement, as defined in the
Registration Rights Agreement. In the event the escrow is not
funded, the Acceptance Fee and all related expenses will not be
refunded. Annual fees cover a full year in advance, or any part
thereof, and thus are not pro-rated in the year of termination.
All out-of-pocket expenses, including, but not limited to,
attorney fees and expenses, accountant fees and expenses, legal
notice publication, environmental surveys, travel expenses,
postage, regrstered mail and insurance costs, courier charges,
will be billed separately.
The fees quoted in this schedule apply to services ordinarily
rendered in the administration of an Escrow Account and are
subject to reasonable adjustment based on final review of
documents, or when the Agent is called upon to undertake unusual
duties or responsibilities, or as changes in law, procedures, or
the cost of doing business demand. Services in addition to and
not contemplated in this Agreement, including, but not limited
to, document amendments and revisions, non-standard cash and/or
investment transactions, calculations, notices and reports, and
legal fees, will be billed as extraordinary expenses.
Unless otherwise indicated, the above fees provide for the
establishment of one account. Additional sub-accounts governed by
the same Escrow Agreement may incur an additional charge.
ACKNOWLEDGEMENT AND AGREEMENT
With respect to the Investment Agreement entered into as of
July 21, 2000, by and among Delta Petroleum Corporation, a
corporation duly incorporated and existing under the laws of the
State of Colorado (the "Company") and Swartz Private Equity, LLC
(hereinafter referred to as "Swartz"), the Company hereby agrees
and acknowledges the following:
The Company acknowledges that the Investor may sell the Put
Shares any time, and from time to time, after the Put Date
for such shares, and that such sales may occur during a
Pricing Period or Pricing Periods and may have the effect of
reducing the Purchase Price.
Furthermore, the Company agrees to present the proposed
final registration statement to be filed pursuant to the terms of
the Registration Rights Agreement entered into in conjunction
with the Investment Agreement to Swartz for its review at least
five (5) business days prior to the proposed filing date, and to
obtain Swartz's final comments to the registration statement
before filing it with the SEC.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of this 21st day of July, 2000.
DELTA PETROLEUM CORPORATION
By:
s/Aleron H. Larson, Jr.
Aleron H. Larson, Jr., CEO
Address: Delta Petroleum Corporation
555 17th Street, Suite 3310
Denver, CO 80202
Telephone (303) 293-9133
Facsimile (303) 298-8251
SWARTZ PRIVATE EQUITY, LLC.
By:
s/Eric S. Swartz
Eric S. Swartz, Manager
Address: 1080 Holcomb Bridge Road
Bldg. 200, Suite 285
Roswell, GA 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS
(i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE
WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR
TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF
RISK. HOLDERS MUST RELY ON THEIR OWN ANALYSIS OF THE
INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED. SEE THE
RISK FACTORS SET FORTH UNDER THAT CERTAIN INVESTMENT
AGREEMENT BY AND BETWEEN THE COMPANY AND HOLDER REFERENCED
THEREIN AS EXHIBIT J.
Warrant to Purchase "N" shares Warrant Number____
Warrant to Purchase Common Stock
of
DELTA PETROLEUM CORPORATION
THIS CERTIFIES that Swartz Private Equity, LLC or any
subsequent holder hereof ("Holder"), has the right to
purchase from Delta Petroleum Corporation, a Colorado
corporation (the "Company"), up to "N" fully paid and
nonassessable shares, wherein "N" is defined below, of the
Company's common stock, $0.01 par value per share ("Common
Stock"), subject to adjustment as provided herein, at a
price equal to the Exercise Price as defined in Section 3
below, at any time beginning on the Date of Issuance
(defined below) and ending at 5:00 p.m., New York, New York
time the date that is five (5) years after the Date of
Issuance (the "Exercise Period"); provided, that, with
respect to each "Put," as that term is defined in that
certain Investment Agreement (the "Investment Agreement") by
and between the initial Holder and Company, dated on or
about July 21, 2000, "N" shall equal Fifteen percent (15%)
of the number of shares of Common Stock purchased by the
Holder in that Put.
Holder agrees with the Company that this Warrant to
Purchase Common Stock of the Company (this "Warrant") is
issued and all rights hereunder shall be held subject to all
of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on
_____________, ______ ("Date of Issuance"). The term of
this Warrant is five (5) years from the Date of Issuance.
Notwithstanding anything to the contrary herein, the
Holder shall not exercise this warrant if and to the extent
that the number of shares of Common Stock to be issued to
Holder upon such exercise, when added to the number of
shares of Common Stock, if any, that the Holder otherwise
beneficially owns at the time of such exercise, would equal
or exceed 4.99% of the number of shares of Common Stock then
outstanding, as determined in accordance with Section 13(d)
of the Exchange Act (the "4.99% Limitation"). The 4.99%
Limitation shall be conclusively satisfied if the applicable
Exercise Notice includes a signed representation by the
Holder that the issuance of the shares in such Exercise
Notice will not violate the 4.99% Limitation, and the
Company shall not be entitled to require additional
documentation of such satisfaction.
2. Exercise.
(a) Manner of Exercise. During the Exercise Period,
this Warrant may be exercised as to all or any lesser number
of full shares of Common Stock covered hereby (the "Warrant
Shares") upon surrender of this Warrant, with the Exercise
Form attached hereto as Exhibit A (the "Exercise Form") duly
completed and executed, together with the full Exercise
Price (as defined below) for each share of Common Stock as
to which this Warrant is exercised, at the office of the
Company, Attention: Aleron H. Larson, Jr., 555 17th Street,
Suite 3310, Denver, CO 80202; Telephone:(303) 293-9133,
Facsimile:(303) 298-8251, or at such other office or agency
as the Company may designate in writing, by overnight mail,
with an advance copy of the Exercise Form sent to the
Company and its Transfer Agent by facsimile (such surrender
and payment of the Exercise Price hereinafter called the
"Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the
Warrant shall be defined as the date that the advance copy
of the completed and executed Exercise Form is sent by
facsimile to the Company, provided that the original Warrant
and Exercise Form are received by the Company as soon as
practicable thereafter. Alternatively, the Date of Exercise
shall be defined as the date the original Exercise Form is
received by the Company, if Holder has not sent advance
notice by facsimile. The Company shall not be required to
deliver the shares of Common Stock to the Holder until the
requirements of Section 2(a) above are satisfied.
(c) Delivery of Shares of Common Stock Upon Exercise.
Upon any exercise of this Warrant, the Company shall
deliver, or shall cause its transfer agent to deliver, a
stock certificate or certificates representing the number of
shares of Common Stock into which this Warrant was
exercised, within three (3) trading days of the Date of
Exercise (as defined above). Such stock certificates shall
not contain a legend restricting transfer if a registration
statement covering the resale of such shares of Common Stock
is in effect at the time of such exercise or if such shares
of Common Stock may be resold pursuant to Rule 144 under the
Securities Act of 1933. If the Company has not delivered
stock certificates representing the requisite number of
shares of Common Stock (unlegended, if so required per the
above) within three (3) trading days of the Date of
Exercise, the Company shall pay to the Holder liquidated
damages equal to $1,000 per day until such share
certificates (unlegended, if so required per the above) are
received by the Holder.
(d) Cancellation of Warrant. This Warrant shall be
canceled upon the Exercise of this Warrant, and, as soon as
practical after the Date of Exercise, Holder shall be
entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this
Warrant is not exercised in full, Holder shall be entitled
to receive a new Warrant (containing terms identical to this
Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(e) Holder of Record. Each person in whose name any
Warrant for shares of Common Stock is issued shall, for all
purposes, be deemed to be the Holder of record of such
shares on the Date of Exercise of this Warrant, irrespective
of the date of delivery of the Common Stock purchased upon
the Exercise of this Warrant. Nothing in this Warrant shall
be construed as conferring upon Holder any rights as a
stockholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price ("Exercise Price"), shall initially
equal $Y per share, where "Y" shall equal 110% of the
Market Price for the applicable Put (as both are defined in
the Investment Agreement).
Payment of the Exercise Price may be made by either of
the following, or a combination thereof, at the election of
Holder:
(i) Cash Exercise: cash, bank or cashiers check or
wire transfer; or
(ii) Cashless Exercise: subject to the last sentence
of this Section 3, surrender of this Warrant at the
principal office of the Company together with notice of
cashless election, in which event the Company shall issue
Holder a number of shares of Common
Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be
issued to Holder.
Y = the number of shares of Common Stock for which this
Warrant is being exercised.
A = the Market Price of one (1) share of Common
Stock (for purposes of this Section 3(ii), the
"Market Price" shall be defined as the average
Closing Price of the Common Stock for the five (5)
trading days prior to the Date of Exercise of this
Warrant (the "Average Closing Price"), as reported
by the O.T.C. Bulletin Board, National Association
of Securities Dealers Automated Quotation System
("Nasdaq") Small Cap Market, or if the Common
Stock is not traded on the Nasdaq Small Cap
Market, the Average Closing Price in any other
over-the-counter market; provided, however, that
if the Common Stock is listed on a stock exchange,
the Market Price shall be the Average Closing
Price on such exchange for the five (5) trading
days prior to the date of exercise of the
Warrants. If the Common Stock is/was not traded
during the five (5) trading days prior to the Date
of Exercise, then the closing price for the last
publicly traded day shall be deemed to be the
closing price for any and all (if applicable) days
during such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii)
thereof, it is intended, understood and acknowledged that
the Common Stock issuable upon exercise of this Warrant in a
cashless exercise transaction shall be deemed to have been
acquired at the time this Warrant was issued. Moreover, it
is intended, understood and acknowledged that the holding
period for the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed
to have commenced on the date this Warrant was issued.
Notwithstanding anything to the contrary contained
herein, this Warrant may not be exercised in a cashless
exercise transaction if, on the Date of Exercise, the shares
of Common Stock to be issued upon exercise of this Warrant
would upon such issuance be then registered pursuant to an
effective registration statement filed pursuant to that
certain Registration Rights Agreement dated on or about July
21, 2000 by and among the Company and certain investors, or
otherwise be registered under the Securities Act of 1933, as
amended.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of
Section 8 of this Warrant, this Warrant may be transferred
on the books of the Company, in whole or in part, in person
or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon
such surrender and, as soon as practicable thereafter, the
person to whom such transfer is made shall be entitled to
receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive
a new Warrant as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable
upon the exercise of this Warrant constitutes "Registrable
Securities" under that certain Registration Rights Agreement
dated on or about July 21, 2000 between the Company and
certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time
declare a dividend payable in shares of Common Stock, then
Holder, upon Exercise of this Warrant after the record date
for the determination of holders of Common Stock entitled to
receive such dividend, shall be entitled to receive upon
Exercise of this Warrant, in addition to the number of
shares of Common Stock as to which this Warrant is
exercised, such additional shares of Common Stock as such
Holder would have received had this Warrant been exercised
immediately prior to such record date and the Exercise Price
will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the
Company shall at any time effect a recapitalization,
reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed
into or become exchangeable for a larger or smaller number
of shares, then upon the effective date thereof, the number
of shares of Common Stock which Holder shall be entitled to
purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the
increase or decrease in the number of shares of Common Stock
by reason of such recapitalization, reclassification or
similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally
decreased and, in the case of decrease in the number of
shares, proportionally increased. The Company shall give
Holder the same notice it provides to holders of Common
Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time
distribute for no consideration to holders of Common Stock
cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or
preceding years) then, in any such case, Holder shall be
entitled to receive, upon Exercise of this Warrant, with
respect to each share of Common Stock issuable upon such
exercise, the amount of cash or evidences of indebtedness or
other securities or assets which Holder would have been
entitled to receive with respect to each such share of
Common Stock as a result of the happening of such event had
this Warrant been exercised immediately prior to the record
date or other date fixing shareholders to be affected by
such event (the "Determination Date") or, in lieu thereof,
if the Board of Directors of the Company should so determine
at the time of such distribution, a reduced Exercise Price
determined by multiplying the Exercise Price on the
Determination Date by a fraction, the numerator of which is
the result of such Exercise Price reduced by the value of
such distribution applicable to one share of Common Stock
(such value to be determined by the Board of Directors of
the Company in its discretion) and the denominator of which
is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event
of a merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as
a result of which shares of Common Stock shall be changed
into the same or a different number of shares of the same or
another class or classes of stock or securities or other
assets of the Company or another entity or there is a sale
of all or substantially all the Company's assets (a
"Corporate Change"), then this Warrant shall be exerciseable
into such class and type of securities or other assets as
Holder would have received had Holder exercised this Warrant
immediately prior to such Corporate Change; provided,
however, that Company may not affect any Corporate Change
unless it first shall have given ten (10) business days
notice to Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant,
the term "Exercise Price" shall mean the purchase price per
share specified in Section 3 of this Warrant, until the
occurrence of an event stated in subsection (a), (b), (c)
(d) of this Section 5, and thereafter shall mean said price
as adjusted from time to time in accordance with the
provisions of this Warrant. No such adjustment under this
Section 5 shall be made unless such adjustment would change
the Exercise Price at the time by $.01 or more; provided,
however, that all adjustments not so made shall be deferred
and made when the aggregate thereof would change the
Exercise Price at the time by $.01 or more. No adjustment
made pursuant to any provision of this Section 5 shall have
the net effect of increasing the Exercise Price in relation
to the split adjusted and distribution adjusted price of the
Common Stock. The number of shares of Common Stock subject
hereto shall increase proportionately with each decrease in
the Exercise Price.
(f) Adjustments: Additional Shares, Securities or
Assets. In the event that at any time, as a result of an
adjustment made pursuant to this Section 5, Holder shall,
upon Exercise of this Warrant, become entitled to receive
shares and/or other securities or assets (other than Common
Stock) then, wherever appropriate, all references herein to
shares of Common Stock shall be deemed to refer to and
include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities
or assets shall be subject to adjustment from time to time
in a manner and upon terms as nearly equivalent as
practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing
fractional shares shall be issuable upon the Exercise of
this Warrant, but on Exercise of this Warrant, Holder may
purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, Holder would be entitled to a
fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares of Common
Stock issuable upon exercise shall be the next higher number
of shares.
7. Reservation of Shares.
The Company shall at all times reserve for
issuance such number of authorized and unissued shares of
Common Stock (or other securities substituted therefor as
herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price.
The Company covenants and agrees that upon the Exercise of
this Warrant and the receipt by the Company of the
consideration therefore (whether by virtue of a cash
exercise or a cashless exercise), all shares of Common Stock
issuable upon such exercise shall be duly and validly
issued, fully paid, nonassessable and not subject to
preemptive rights, rights of first refusal or similar rights
of any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This
Warrant has been issued in a transaction exempt from the
registration requirements of the Act by virtue of Regulation
D and exempt from state registration under applicable state
laws. The Warrant and the Common Stock issuable upon the
Exercise of this Warrant may not be pledged, transferred,
sold or assigned except pursuant to an effective
registration statement or an exemption to the registration
requirements of the Act and applicable state laws.
(b) Assignment. If Holder can provide the Company
with reasonably satisfactory evidence that the conditions of
(a) above regarding registration or exemption have been
satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part.
Holder shall deliver a written notice to Company,
substantially in the form of the Assignment attached hereto
as Exhibit B, indicating the person or persons to whom the
Warrant shall be assigned and the respective number of
warrants to be assigned to each assignee. If the Company
reasonably agrees that the evidence provided by Holder is
reasonably satisfactory, the Company shall effect the
assignment within ten (10) days, and shall deliver to the
assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to
confer upon any person other than the Company and Holder any
legal or equitable right, remedy or claim under this Warrant
and this Warrant shall be for the sole and exclusive benefit
of the Company and Holder.
10. Applicable Law.
This Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the
laws of the state of Georgia, without giving effect to
conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the
loss, theft, destruction or mutilation of this Warrant, and
(in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company, and upon
surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like
tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or
made by Holder to or on the Company shall be sufficiently
given or made if sent by certified or registered mail,
return receipt requested, postage prepaid, and addressed,
until another address is designated in writing by the
Company, to the address set forth in Section 2(a) above.
Notices or demands pursuant to this Warrant to be given or
made by the Company to or on Holder shall be sufficiently
given or made if sent by certified or registered mail,
return receipt requested, postage prepaid, and addressed, to
the address of Holder set forth in the Company's records,
until another address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this
Warrant as of the ______ day of _______, 200_.
DELTA PETROLEUM CORPORATION
By: ________________________________
Aleron H. Larson, Jr., CEO
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: DELTA PETROLEUM CORPORATION
The undersigned hereby irrevocably exercises the right
to purchase ____________ of the shares of Common Stock (the
"Common Stock") of Delta Petroleum Corporation, a Colorado
corporation (the "Company"), evidenced by the attached
warrant (the "Warrant"), and herewith makes payment of the
exercise price with respect to such shares in full, all in
accordance with the conditions and provisions of said
Warrant.
1. The undersigned agrees not to offer, sell, transfer or
otherwise dispose of any of the Common Stock obtained on
exercise of the Warrant, except in accordance with the
provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for
such shares be issued free of any restrictive legend, if
appropriate, and a warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant in the
name of the undersigned and delivered to the undersigned at
the address set forth below:
Dated:
________________________________________
Signature
________________________________________
Print Name
_______________________________________
Address
_______________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond
to the name as written upon the face of the attached Warrant
in every particular, without alteration or enlargement or
any change whatsoever.
____________________________________________________________
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached
warrant (the "Warrant") hereby sells, assigns and transfers
unto the person or persons below named the right to purchase
____________________ shares of the Common Stock of DELTA
PETROLEUM CORPORATION, evidenced by the attached Warrant and
does hereby irrevocably constitute and appoint
_______________________ attorney to transfer the said
Warrant on the books of the Company, with full power of
substitution in the premises.
Dated: _________
______________________________
Signature
Fill in for new registration of Warrant:
___________________________________
Name
___________________________________
Address
___________________________________
Please print name and address of assignee
(including zip code number)
____________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to
the name as written upon the face of the attached Warrant in
every particular, without alteration or enlargement or any
change whatsoever.
____________________________________________________________
EXHBIT T
July 21, 2000
Attn: Sally Rogers/Carolyn Bell
Corporate Stock Transfer, Inc.
3200 Cherry Creek Drive, Suite 430
Denver, CO 80209
Telephone: (303) 282-4800
Facsimile: (303) 282-5800
Dear Sally Rogers/Carolyn Bell:
Reference is made to that certain Investment Agreement
(the "Investment Agreement") Registration Rights Agreement
and Escrow Agreement, each dated on or about July 21, 2000,
by and among Delta Petroleum Corporation, a Colorado
corporation (the "Company"), Swartz Private Equity, LLC (the
"Investor") and the other signatories thereto (the
"Holders") pursuant to which the Company, at times and
amounts chosen by the Company, as further described in the
Investment Agreement, may issue to the Holder up to Twenty
Million Dollars ($20,000,000) in aggregate principal amount
of Common Stock of the Company (the "Put Shares"), and
warrants (the "Warrants") to purchase Common Stock (the
"Warrant Shares") of the Company's.
A. Issuance of Put Shares. This letter shall serve as
our irrevocable authorization and direction to you (provided
that you are the transfer agent of the Company at such time)
to issue unlegended Put Shares in the name of the Holder (or
in the name of its nominee, at the Holder's request) and
deliver such shares in accordance with the Escrow Agreement,
from time to time, upon surrender to you of (i) a letter
from the Company, instructing you to issue a specified
number of Put Shares to the Holder, (ii) a properly
completed and duly executed Put Notice, in the form attached
hereto as Exhibit 1, which has been properly agreed and
acknowledged by the Company as indicated by the signature of
a duly authorized officer of the Company thereon, (iii)
Confirmation (as defined below) and (iv) an opinion of
counsel ("Put Opinion of Counsel") in substantially the form
of the Put Opinion of Counsel in Composite Exhibit 2.
B. Issuance of Warrant Shares. This letter shall serve
as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at
such time) to issue unlegended Warrant Shares in the name of
the Holder (or in the name of its nominee, at the Holder's
request) from time to time upon surrender to you of (i) a
letter from the Company, instructing you to issue a
specified number of Warrant Shares to the Holder, (ii) a
properly completed and duly executed Warrant Exercise Form,
in the form attached hereto as Exhibit 3, which has been
properly agreed and acknowledged by the Company as indicated
by the signature of a duly authorized
officer of the Company thereon, (iii) Confirmation (as
defined below) and (iv) an opinion of counsel ("Warrant
Opinion of Counsel") in substantially the form of the
Commitment Opinion of Counsel (in the case of the Commitment
Warrant) or the Put Opinion of Counsel (in the case of the
Purchase Warrant), each in Composite Exhibit 4.
C. Legend Free Certificates. So long as you have
previously received either: (A)(i) written confirmation from
counsel to the Company (which counsel may be in-house legal
counsel) that a registration statement covering resales of
the Put Shares and Warrant Shares has been declared
effective by the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and (ii) a copy of
such registration statement, or (B) written confirmation
from counsel to the Company (which counsel may be in-house
legal counsel) that a public sale or transfer of such
Security may be made without registration under the Act,
((A) or (B) above, as applicable, is referred to as a
"Confirmation"), certificates representing the Put Shares
and Warrant Shares shall not bear any legend restricting
transfer of the Put Shares or Warrant Shares and should not
be subject to any stop-transfer restriction.
If you have not previously received Confirmation, then
the Put Shares shall not be issued, and the certificates
representing the Warrant Shares shall be issued, but shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES, THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS
OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THOSE LAWS."
provided, however, that the Company may from time to time
notify you to place a stop-transfer restriction on the
certificates for outstanding Put Shares and Warrant Shares
in the event a registration statement covering resales of
the Put Shares and the Warrant Shares is subject to
amendment for events then current.
Please be advised that the Holders are relying upon this
letter as an inducement to enter into the Investment
Agreement.
Very truly yours,
DELTA PETROLEUM CORPORATION
By:s/Aleron H. Larson, Jr.
Aleron H. Larson, Jr. CEO
Agreed and Acknowledged:
INVESTOR
SWARTZ PRIVATE EQUITY, LLC
By: s/Eric S. Swartz
Eric S. Swartz, Manager
Date: July 21, 2000
Enclosures
