SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported):
October 20, 2010
COMSTOCK
MINING INC.
(Exact
Name of Registrant as Specified in its Charter)
Nevada
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000-32429
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65-0955118
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(State
or Other
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(Commission
File Number)
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(I.R.S.
Employer
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Jurisdiction
of Incorporation)
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Identification
Number)
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1200
American Flat Road, Virginia City, Nevada 89440
(Address
of Principal Executive Offices, including Zip Code)
Registrant’s
Telephone Number, including Area Code:
775-847-5272
Not
Applicable
(Former
Name or Former Address, if Changed Since Last Report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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¨
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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¨
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01 Entry into a Material Definitive Agreement.
On
October 21, 2010, Comstock Mining Inc. (the “Company”) announced the successful
completion of three principal features of its previously announced restructuring
and recapitalization plan. The completed features of the plan include (i)
raising $35.75 million of new equity, (ii) exchanging all of the Company’s
previously defaulted senior secured debt and related obligations for new equity
and (iii) securing integral land mineral rights. The Board approved the
strategic plan in April 2010 designed to restructure and recapitalize the
Company, accelerate mine development and production and continue
exploration. The principal features of the plan encompassed a
recapitalization and balance sheet restructuring (which included a reverse stock
split, a debt-for-equity exchange, a land-for-debt exchange and a new capital
raise to fund gold mine operations, exploration and development) and an
operational and management restructuring. The goal of the plan is to
deliver stockholder value by commencing commercial mining and processing
operations by 2011, respectively, with annual production rates of 20,000 gold
equivalent ounces and by validating qualified resources (at least measured and
indicated) and reserves (probable and proven) of 3,250,000 gold equivalent
ounces by 2013.
Debt
for Equity Exchange and New Equity Raise of $35.75 million
The
Company exchanged substantially all of its senior secured convertible and senior
indebtedness for shares of its newly created Series A-1 Preferred Convertible
Stock (“Series A-1”) and Series A-2 Preferred Convertible Stock (“Series A-2,”
and together with Series A-1, the “Series A”) pursuant to a Securities Purchase
Agreement dated as of August 31, 2010 (the “Series A Purchase Agreement”). Each
share of the Series A is convertible at the holder’s election into 1,536 shares
of common stock, therefore converting into common stock at a conversion price
per share of $0.6510. The common stock underlying the Series A is issuable at a
fixed conversion rate (subject to anti-dilution adjustments) currently equal to
45.1 million shares of common stock. The Company has approximately
20.5 million shares of common stock outstanding.
The notes
and related interest exchanged for equity are as follows:
Debt Exchanged for Series A Preferred Convertible Stock
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At August 31, 2010
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Note Descriptions
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Principal
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Unpaid
Interest
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Total
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15%
Convertible Notes Payable - Investors
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$
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1,078,157
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$
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264,131
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$
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1,342,288
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18%
Convertible Debentures Payable - Mandatory Redemption
Payment
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4,412,058
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1,505,343
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5,917,401
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18%
Convertible Notes Payable - 2006 – 2007
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2,170,000
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1,498,063
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3.668,063
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11%
Convertible Notes Payable - June - November 2008
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2,500,000
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643,457
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3,143,457
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11%
Convertible Note Payable - July 2008 Amended and Restated
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2,782,563
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204,776
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2,987,339
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11%
Convertible Notes Payable - December 2008
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500,000
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108,803
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608,803
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9%
Convertible Notes Payable - May - August 2009
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1,000,000
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112,300
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1,112,300
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8%
Convertible Notes Payable - December 2009
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4,500,000
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165,135
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4,665,135
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8%
Convertible Notes Payable - June 2010
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1,100,000
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16,558
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1,116,558
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17%
Promissory Notes Payable - July 2005
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1,200,000
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1,631,552
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2,831,552
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18%
Promissory Notes Payable - December 2007 Financing
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600,000
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251,154
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851,154
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18%
Promissory Notes Payable - January 2008 Financing
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600,000
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236,071
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836,071
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5%
Debt Seller Note (Plum Mine)
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250,000
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64,584
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314,584
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Total
at August 31, 2010
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$
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22,692,778
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$
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6,701927
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$
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29,394,705
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The
Company also raised $35.75 million in gross proceeds ($32 million, net of
commissions and transaction related expenses) by issuing newly created Series B
Preferred Convertible Stock (“Series B,” and together with the Series A, the
“Preferred”) pursuant to a Securities Purchase Agreement dated as of October 20,
2010 (the “Series B Purchase Agreement”). Each share of the Series B is
convertible at the holder’s election into 606.0606 shares of common stock,
therefore converting into common stock at a conversion price per share of
$1.6500. The common stock underlying the Series B is issuable at a fixed
conversion rate (subject to anti-dilution adjustments) currently equal to 21.7
million shares of common stock.
The net
proceeds the Company received from the sale of the Series B Preferred Stock was
approximately $32.75 million after deducting commissions and the estimated
expenses of the offering payable by the Company. The Company intends
to use the net proceeds to meet its initial capital and operating needs for the
first three years of its strategic plan to accelerate mine development and
production and continue exploration. This includes approximately $8
million of capital expenditures associated with its leach pad expansion, new
crushing unit and lab refurbishment and rolling stock, approximately $19 million
for mine development, exploration and production start up costs and
approximately $4 million for land acquisitions. The remaining $1.75
million is reserved for general corporate purposes, including remaining
feasibility studies.
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US$
(in millions)
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Capital
Required for Production:
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Mobile
Mine Equipment
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$
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2.50
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Leach
Pad Expansion
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2.50
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Crushing
Plant & Lab Refurbishment
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3.00
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Exploration
and Start Up:
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Exploration
& Mine Development
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15.00
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Production
Start up
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4.00
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General
Corporate Purposes/Feasibility
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1.75
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Land
Acquisition
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4.00
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Transaction
Fees and Related Expenses
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3.00
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Total:
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$
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35.75
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Pending
the use of the proceeds described above, the Company may invest all or a portion
of the proceeds of the offering in short-term deposits, including banker
acceptances and short- term, high quality, interest bearing corporate,
government-issued or government-guaranteed securities.
Each
share of the Preferred has a stated value of $1,000 per share (the “Stated
Value”) and a liquidation and change of control preference equal to the Stated
Value plus accrued and unpaid dividends. Each share of Series A-2 and
Series B will automatically convert into shares of common stock at the
conversion rates and prices then in effect any time after which the common stock
is listed on an exchange and the volume weighted average price for each of any
20 trading days during any 30 consecutive trading day period exceeds $4.50 per
share (as adjusted for stock splits and similar transactions). In the event that
the Series A-2 and Series B is automatically converted, the holders of the
Preferred will be entitled to a payment equal to the then net present value of
future dividend payments such holders would have received up until the third
anniversary of the issuance of such securities.
The
Preferred is senior to all other classes of equity of the Company in the event
of the liquidation or change of control of the Company and, commencing January
1, 2011, is entitled to semi-annual dividends at a rate of 7.5% per annum,
payable in cash, common stock, preferred stock or any combination of the
foregoing. The Preferred also contain provisions providing weighted average
anti-dilution protection.
Each
share of Preferred will entitle the holder to vote with the holders of common
stock as a single class on all matters submitted to the vote of the common stock
(on an as-converted basis); provided, that, for purposes of voting only, each
share of Series A-1 held by Mr. John V. Winfield or his affiliates (the
“Winfield Group”) shall be entitled to 5 times the number of votes per share of
common stock to which it would otherwise be entitled. As long as 25% or more of
the Preferred issued on or prior to October 20, 2010 is outstanding, the Company
will not be permitted (subject to limited exceptions) without the consent of the
Preferred, to incur indebtedness, grant liens, repurchase more than 5% of the
common stock outstanding, enter into any transaction with an affiliate of the
Company which is not on an arm’s length basis,
enter into transactions with affiliates of officers or
directors that provide for the payment of services in securities of the
Company,
amend its certificate of incorporation, by-laws, or a
certificate of designations of the Preferred in a manner that adversely affects
the interests of the Preferred, issue new series of preferred stock, pay
dividends on equity junior to the Preferred, adopt an executive equity incentive
plan which provides for the issuance of not greater than 6.0% of the fully
diluted equity of the Company, enter into any transaction for the sale or pledge
of a material asset of the Company, approve or consent to the initiation of a
bankruptcy proceeding or issue any securities of the Company in exchange for
services to a consultant. A majority of the Preferred is generally
required to provide consent; provided, that the Winfield Group must be part of
that majority so long as the Winfield Group holds 25% or more of the
Preferred.
In
addition, as long as at least 25% of the Preferred issued on or prior to October
20, 2010, is still outstanding, and as long as the Winfield Group still holds at
least 25% of the Preferred, the Company shall not, without the affirmative vote
of the Winfield Group, enter into any transaction for the acquisition of any
business, property or asset pursuant to which the Company will incur
indebtedness to finance such acquisition in principal amount in excess of
$500,000, pay any dividends to holders of Preferred in cash in an amount to
exceed $500,000, engage in a private placement or public offering of any common
stock or common stock equivalents of the Company, enter into a Change of Control
Transaction (as defined in each certificate of designation) or enter into any
transaction that would constitute a Fundamental Transaction (as defined in each
certificate of designation).
In
addition, as long as the Winfield Group holds 25% or more of the Preferred, (i)
Mr. Winfield will be a member of the Company’s board of directors and (ii) the
Winfield Group shall have the right, upon written request to the Company, to
nominate a member of the Company’s board of directors (“Board Nominee”) and the
Company shall take or cause to be taken all actions so that Mr. Winfield and the
Board Nominee are each nominated and recommended for re-election to the board.
The Board Nominee shall meet the requirements for an “independent director”
under the listing rules of the principal exchange or market on which the common
stock of the Company is then listed, satisfy the requirements set forth in the
Company’s Corporate Governance Guidelines and Nominating and Governance
Committee Charter as reasonably determined by the Nominating and Governance
Committee of the board, and not be prohibited from serving as a director of the
Company under Section 8 of the Clayton Antitrust Act or any other applicable
law. Alternatively, the Winfield Group can designate as the Board
Nominee a member of the board of directors existing on the date
hereof.
Holders
of the Preferred will have registration rights with respect to the shares of
common stock underlying the Preferred and also preemptive rights. The
Company will be obligated to file a registration statement or registration
statements with respect to common stock underlying the Preferred within 45 days
of filing its annual report on Form 10-K for the year ended December 31, 2010,
and cause such registration statement(s) to be declared effective within one
year from the date of issuance of the Preferred. The foregoing description of
the Preferred and the specific terms of the Preferred, the Series A Purchase
Agreement, the Series B Purchase Agreement and the registration rights is
qualified in its entirety by reference to the provisions of the Series A
Purchase Agreement, the Series B Purchase Agreement, the Series A-1 Certificate
of Designations, the Series A-2 Certificate of Designations, the Series B
Certificate of Designations, the Registration Rights Agreement pertaining to the
Series A and the Registration Rights Agreement pertaining to the Series B
attached to this report as Exhibits 10.1, 10.2, 4.1, 4.2, 4.3, 10.3 and 10.4,
respectively.
Joint
Operating Venture for Production and Exploration Rights of Integral Comstock
Properties
On
October 20, 2010, the Company also announced its entry into an operating
agreement to form an operating joint venture. Consistent with the
Company’s strategic plan, the Company will obtain the exclusive rights of
production and exploration over certain property owned by DWC Resources, Inc. in
Storey County, Nevada (the “DWC Property”) and two parcels leased by Mr.
Winfield from the Sutro Tunnel Company in Storey County, Nevada (the “Sutro
Property”) and Virginia City Ventures, Inc. (the “VCV
Property”). Pursuant to the terms of the Limited Liability Company
Operating Agreement (“Operating Agreement”) for Northern Comstock LLC (“Northern
Comstock”), a newly formed Nevada limited liability company, DWC Resources, Inc.
will contribute the DWC Property to Northern Comstock, Mr. Winfield will
contribute his rights to the Sutro Property and the VCV Property to Northern
Comstock and the Company will contribute 862.5 shares of Series A-1 and its
services in the area of mine exploration, development and production to Northern
Comstock. The terms of the Operating Agreement will provide that on each
anniversary of the Operating Agreement, up to and including the thirty-ninth
(39th) anniversary, the Company will make additional capital contributions in
the amount of $862,500.00, in the form of shares of Series A-1 or cash upon
request of Northern Comstock (which request can be denied by the Company in
certain circumstances). Under certain circumstances, the additional capital
contributions can be accelerated. The Company had previously entered
into letters of intent with respect to the DWC Property and Sutro Property on
August 13, 2008, the terms of which are expressly superseded by the Operating
Agreement. The Operating Agreement further provides the Company with the
exclusive rights of development, production, mining and exploration on the
respective properties and requires the Company to make certain capital
expenditures toward that end. Under the terms of the Operating Agreement (i) all
cash flows from the bullion or other minerals recovered from the ore mined out
of the ground but untreated and minerals produced from the milling or reduction
of ore to a higher grade produced from the DWC Property, Sutro Property or VCV
Property, as applicable, or finished products produced from any such property,
will be distributed to the Company after certain distributions to the other
members of Northern Comstock; (ii) an annual distribution of 500 and 362.5
shares of Series A-1 will be set aside for distribution to DWC Resources, Inc.
and Mr. Winfield, respectively, but such distribution will be retained by
Northern Comstock unless DWC Resources, Inc. and Mr. Winfield otherwise instruct
the Company to distribute the shares to them; and (iii) all other distributions
of cash or other property of Northern Comstock shall be permitted only with the
prior written consent of all members. The foregoing description of the Operating
Agreement, and the specific terms of the Operating Agreement, is qualified in
its entirety by reference to the provisions of Operating Agreement attached to
this report as Exhibit 10.5.
The
following table sets forth outstanding common shares of the Company as at
October 20, 2010, (i) on an actual basis, and (ii) on an as adjusted
basis giving effect to the issuance of the Series A Preferred and the Series B
Preferred:
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As of October 20, 2010
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Actual
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As Adjusted
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Common and Preferred Stock
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Common
Stock Outstanding on October 20, 2010
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20,484,456
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20,484,456
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(1)
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Series
A-1 Preferred Stock (on an as converted basis)
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32,122,883
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(2)
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Series
A-2 Preferred Stock (on an as converted basis)
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13,030,274
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Series
B Preferred Stock (on an as converted basis)
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21,666,666
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Total Shares
Outstanding (on an as converted basis)
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20,484,456
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87,304,279
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(1) Does
not include performance based management incentive program designed not to
exceed 6% of the fully diluted equity of the Corporation after taking into
account the recapitalization and balance sheet
restructuring. Includes 1,078,074 shares of common stock issued in
October upon the cashless exercise of warrants issued in 2006 and 2007 to
certain debt holders, 804,829 of which were issued to the Winfield
Group.
(2) Does
not include the issuance of shares of Series A-1 Preferred Stock potentially
issuable as capital contributions to Northern Comstock LLC in the amount of
862.5 shares of Series A-1 Preferred Stock (convertible into approximately 1.3
million shares of Common Stock) on an annual basis. Under the terms of the
Operating Agreement, if all required capital contributions were made in the form
of Series A-1 Preferred Stock, up to 34,500 shares of Series A-1 Preferred Stock
in the aggregate could be issued over the potential 40-year term of the
Operating Agreement. However, under the terms of the Operating
Agreement, such capital contributions could also take the form of cash on an
annual basis in the amount of $862,500.
A copy of
a press release announcing the debt-for-equity exchange, capital raise and land
acquisition is attached as Exhibit 99.1 to this Form 8-K.
Item
1.02 Termination of a Material Definitive Agreement.
The
information disclosed in Item 1.01 of this Form 8-K relating to the former
senior secured debt obligations of the Company is incorporated into this Item
1.02.
Item
2.01 Completion of Acquisition or Disposition of Assets.
The
information disclosed in Item 1.01 of this Form 8-K relating to the joint
operating venture is incorporated into this Item 2.01.
Item
2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The
information disclosed in Item 1.01 of this Form 8-K relating to the joint
operating venture is incorporated into this Item 2.03.
Item
3.02 Unregistered Sales of Equity Securities.
The
information disclosed in Item 1.01 of this Form 8-K relating to the Preferred is
incorporated into this Item 3.02. The issuances were made in a
private placement in reliance upon exemptions from registration pursuant to
Sections 3(a)(9) and 4(2) of the Securities Act of 1933, as amended, and Rule
506 of Regulation D promulgated thereunder. Each recipient of the
Preferred is an accredited investor as defined in Rule 501 of Regulation
D.
Item 3.03 Material Modification to
Rights of Security Holders
.
The
information disclosed in Item 1.01 of this Form 8-K relating to the Preferred is
incorporated into this Item 3.03.
Item
5.01 Changes in Control of Registrant.
The
information disclosed in Item 1.01 of this Form 8-K relating to the Series A-1
is incorporated into this Item 5.01. The total amount of consideration exchanged
by the Winfield Group for the Series A-1 was the approximately $20.9 million of
outstanding convertible indebtedness and the obligations related thereto,
previously held by the Winfield Group.
After
giving effect to the transactions described, Mr. Winfield and/or members of the
Winfield Group beneficially own approximately 75% of the voting securities of
the Company, directly or indirectly. Prior to the transactions
described above there was no controlling shareholder or group of the
Company.
Item
5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
The
information disclosed in Item 1.01 of this Form 8-K relating to the Preferred is
incorporated into this Item 5.03.
Item
7.01 Regulation FD Disclosure.
The
information disclosed in Item 1.01 of this Form 8-K is incorporated into this
Item 7.01.
Item
9.01. Financial Statements and
Exhibits.
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4.1
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Series
A-1 Certificate of Designations
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4.2
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Series
A-2 Certificate of Designations
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4.3
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Series
B Certificate of Designations
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10.1
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Securities
Purchase Agreement dated as of August 31, 2010 (Series
A)
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10.2
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Securities
Purchase Agreement dated as of October 20, 2010 (Series
B)
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10.3
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Registration
Rights Agreement dated as of August 31, 2010 (Series
A)
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10.4
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Registration
Rights Agreement dated as of October 20, 2010 (Series
B)
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10.5
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Operating
Agreement dated as of October 20,
2010
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99.1
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Press
release dated October 21, 2010
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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COMSTOCK
MINING INC.
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Date: October
20, 2010
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By:
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/s/ Corrado De Gasperis
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Corrado
De Gasperis
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EXHIBIT
INDEX
Exhibit
Number
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Description
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4.1
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Series
A-1 Certificate of Designations
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4.2
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Series
A-2 Certificate of Designations
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|
|
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4.3
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Series
B Certificate of Designations
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|
|
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10.1
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Securities
Purchase Agreement dated as of August 31, 2010 (Series
A)
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|
|
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10.2
|
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Securities
Purchase Agreement dated as of October 20, 2010 (Series
B)
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|
|
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10.3
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|
Registration
Rights Agreement dated as of August 31, 2010 (Series A)
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|
|
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10.4
|
|
Registration
Rights Agreement dated as of October 20, 2010 (Series
B)
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|
|
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10.5
|
|
Operating
Agreement dated as of October 20, 2010
|
|
|
|
99.1
|
|
Press
release dated October 21,
2010
|
EXHIBIT
4.1
COMSTOCK
MINING INC.
CERTIFICATE
OF DESIGNATION OF PREFERENCES,
RIGHTS
AND LIMITATIONS
OF
7
½% SERIES A-1 CONVERTIBLE PREFERRED STOCK
PURSUANT
TO SECTION 78.1955 OF THE
NEVADA
REVISED STATUTES
The
undersigned, Corrado De Gasperis, does hereby certify that:
1. He
is the President and Chief Executive Officer of Comstock Mining Inc., a Nevada
corporation (the “
Corporation
”).
2. The
Corporation is authorized to issue up to 50,000,000 shares of its preferred
stock, none of which have been issued.
3. The
following resolutions were duly adopted by the board of directors of the
Corporation (the “
Board of
Directors
”):
WHEREAS,
the certificate of incorporation of the Corporation provides for a class of its
authorized stock known as the “
Preferred Stock
,”
consisting of up to 50,000,000 shares, $0.000666 par value per share, issuable
from time to time in one or more series;
WHEREAS,
the Board of Directors is authorized to fix the dividend rights, dividend rate,
voting rights, conversion rights, rights and terms of redemption and liquidation
preferences of any wholly unissued series of the Preferred Stock and the number
of shares constituting any series and the designation thereof, of any of them;
and
WHEREAS,
it is the desire of the Board of Directors, pursuant to its authority as
aforesaid, to fix the rights, preferences, restrictions and other matters
relating to a series of the Preferred Stock, which shall consist of up to
1,500,000 shares of the Preferred Stock which the Corporation has the authority
to issue, to be designated as “7 ½% Series A-1 Convertible Preferred Stock,” as
follows:
NOW,
THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for
the issuance of a series of Preferred Stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights,
preferences, restrictions and other matters relating to such series of Preferred
Stock as follows:
TERMS
OF 7 ½% SERIES A-1 CONVERTIBLE PREFERRED STOCK
Section
1
.
Definitions
. For the
purposes hereof, the following terms shall have the following
meanings:
“
Additional Dividend
”
shall have the meaning set forth in
Section
3(b).
“
Additional Shares of Common
Stock
” shall have the meaning set forth in
Section
7(b)
.
EXHIBIT
4.1
“
Affiliate
” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person, as such terms are
used in and construed under Rule 405 of the Securities Act.
“
Aggregate
Consideration
” received by the Corporation with respect to any issuance
of Additional Shares of Common Stock shall: (a) to the extent it consists of
cash, be computed at the gross amount of cash received by the Corporation before
deduction of any underwriting or similar commissions, compensation or
concessions paid or allowed by the Corporation in connection with such issuance
and without deduction of any expenses payable by the Corporation, (b) to the
extent it consists of property other than cash, be computed at the fair value of
that property as determined in good faith by the Board of Directors, and (c)
with respect to Common Stock Equivalents, the purchase price or other
consideration received by the Corporation in connection with the issuance of
such Common Stock Equivalents, together with the amount of any exercise price or
other additional consideration payable to the Corporation in connection with the
exercise or conversion (as applicable) of such Common Stock
Equivalents.
“
Alternate
Consideration
” shall have the meaning set forth in
Section 7(
d)
.
“
Bankruptcy
Proceeding
” means (i)(a) a voluntary case, action, proceeding or petition
or (b) the consent to the institution of, or failure to contest in a timely and
appropriate manner, any involuntary case, action, proceeding or petition seeking
the liquidation, reorganization or other relief in respect of the
Corporation, or of a substantial part of its assets, under any Federal or state
bankruptcy, insolvency, receivership or similar law now or hereafter in effect
or (ii) the application or consent to the appointment of a receiver, interim
receiver, receiver manager, trustee, custodian, sequestrator, conservator or
similar official for the Corporation or for a substantial part of its assets
and, in any such case, such case, action, proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of
the foregoing shall be entered.
“
Base Conversion
Price
” shall have the meaning set forth in
Section
7(b)
.
“
Business Day
” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
“
Change of Control
Transaction
” means the occurrence after the date hereof of any of (a) an
acquisition after the date hereof by any Person or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Corporation, by
contract or otherwise) of a majority of the voting securities of the Corporation
(other than by means of conversion or exercise of Series A-1 Preferred Stock and
the Parity Securities or upon conversion of any currently outstanding
convertible securities in accordance with the terms thereof as in effect on the
date hereof), (b) the Corporation merges into or consolidates with any other
Person, or any Person merges into or consolidates with the Corporation and,
after giving effect to such transaction, the stockholders of the Corporation as
of immediately prior to such transaction do not own a majority of the aggregate
voting power of the Corporation or the successor entity of such transaction, (c)
the Corporation sells or transfers all or substantially all of its assets to
another Person and the stockholders of the Corporation as of immediately prior
to such transaction do not
own a majority of the
aggregate voting power of the acquiring entity immediately after the
transaction,
(d)
the Corporation, directly or indirectly, transfers a majority of the asset value
and/or enterprise value of the Corporation (whichever is lower) to another
Person and the stockholders of the Corporation as of immediately prior to such
transaction do not
own a majority of the
aggregate voting power of the acquiring entity immediately after the
transaction, or (e) a replacement at one time or within a one year period of
more than one-half of the members of the Board of Directors which is not
approved by the Winfield Group or a majority of those individuals who are
members of the Board of Directors on the Closing Date (or by those individuals
who are serving as members of the Board of Directors on any date whose
nomination to the Board of Directors was approved by the Winfield Group or a
majority of the members of the Board of Directors who are members on the Closing
Date), in each case that has been approved by the stockholders of the
Corporation as required under: (i) the Nevada corporate law, (ii) the
Corporation’s certificate of incorporation, (iii) this Certificate of
Designation or (iv) any other agreement to which the Corporation is a party, as
applicable. Notwithstanding the foregoing, none of the following
shall constitute a Change of Control Transaction: (a) any pledge, mortgage,
grant of security interest, sale-leaseback or similar transaction (excluding any
foreclosure sale), (b) any transaction or series of transactions principally for
bona fide equity financing purposes in which cash is received by the Corporation
or any successor to the Corporation and no acquiring Person or group acquires
20% or more of the outstanding voting securities of the Corporation in such
transaction or transactions, or (c) any transaction or series of transactions
principally for the bona fide acquisition of another Person after which no
Person or group acquires 20% or more of the outstanding voting securities of the
Corporation.
EXHIBIT
4.1
“
Closing
” means the
closing of the purchase and sale of the Securities pursuant to
Section 2.1
of the
Purchase Agreement.
“
Closing Date
” means
the date on which the Closing occurs pursuant to
Section 2.1
of
the Purchase
Agreement.
“
Common Stock
” means
the Corporation’s common stock, par value $0.000666 per share, and stock of any
other class of securities into which such common stock may hereafter be
reclassified or changed.
“
Common Stock
Equivalents
” means any securities of the Corporation or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“Confidential
Information
” means any non-public information regarding the Corporation
or the Subsidiaries (whether in oral or written form), including, but not
limited to, business plans and business prospects, financial information, sales,
sales categories, operating methods, inventory, gross margin, profit, expense or
other data, reports, surveys or similar information.
“
Conversion Date
”
means an Elective Conversion Date.
“
Conversion Price
”
shall have the meaning set forth in
Section 6(
c
)
.
“
Conversion Shares
”
means, collectively, the shares of Common Stock issuable upon conversion of the
shares of Series A-1 Preferred Stock in accordance with the terms
hereof.
“
Conversion Shares
Registration Statement
” means a registration statement that registers the
resale of all Conversion Shares, so long as such Conversion Shares are
Registrable Securities (as such term is defined in the Registration Rights
Agreement) of the Holders, who shall be named as “selling stockholders”
therein,and meets the requirements of the Registration Rights
Agreement.
“
Dilutive Issuance
”
shall have the meaning set forth in
Section
7(b)
.
“
Dilutive Issuance
Notice
” shall have the meaning set forth in
Section
7(b)
.
EXHIBIT
4.1
“
Dividend Payment
Date
” shall have the meaning set forth in
Section
3(a)
.
“
Effective Date
” has
the meaning set forth in the Purchase Agreement.
“
Elective Conversion
Date
” shall have the meaning set forth in
Section
6(a)
.
“
Equity Conditions
”
means, as of the date in question: (a) the Corporation shall have duly honored
all conversions of Series A-1 Preferred Stock occurring pursuant to one or more
Notices of Elective Conversion provided by the applicable Holder to the
Corporation, if any; (b) the Corporation shall have paid all amounts owing to
the applicable Holder under this Certificate of Designation in respect of its
Series A-1 Preferred Stock, if any; (c) the Common Stock is trading on a Trading
Market (and the Corporation believes, in good faith, that trading of the Common
Stock on a Trading Market will continue uninterrupted for the foreseeable
future); (d) there is a sufficient number of authorized, but unissued and
otherwise unreserved, shares of Common Stock for the issuance of all of the
Conversion Shares; (e) there has been no public announcement of a pending or
proposed Fundamental Transaction or Change of Control Transaction that has not
been consummated; (f) the applicable Holder is not in possession of any
information provided by the Corporation that constitutes, or may constitute,
material non-public information; and (g) a Bankruptcy Proceeding shall not
be pending against the Corporation.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
Exempt Issuance
”
shall have the meaning set forth in the Purchase Agreement.
“
Fundamental
Transaction
” shall have the meaning set forth in
Section 7(
d
)
.
“
GAAP
” means United
States generally accepted accounting principles.
“
Holder
” shall have
the meaning given such term in
Section
3(a)
.
“
Indebtedness
” means
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same are or should be reflected in
the Corporation’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, and (c) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP.
“
Junior Securities
”
means the Common Stock and all other Common Stock Equivalents of the Corporation
other than those securities that are explicitly senior or
pari passu
to the Series A-1
Preferred Stock in dividend rights or liquidation preference.
“
Liens
” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.
“
Liquidation
” shall
have the meaning set forth in
Section
5
.
“
New York Courts
”
shall have the meaning set forth in
Section
11
(d)
.
“
Notice of
COC
” shall have the
meaning set forth in
Section
5
.
EXHIBIT
4.1
“
Notice of
Elective
Conversion
” shall have the meaning set forth in
Section
6(a)
.
“
Originally Issued
”
means that number of shares of the Series A-1 Preferred Stock issued on the date
of the first issuance of such shares, regardless of the number of transfers of
any particular shares of Series A-1 Preferred Stock thereafter and regardless of
the number of certificates which may be issued to evidence such Series A-1
Preferred Stock.
“
Parity Securities
”
means the Series A-1 Preferred Stock, the Series A-2 Preferred Stock and all
other capital stock of the Corporation, whether now or hereafter authorized,
that is explicitly stated to be
pari passu
with the Series
A-1 Preferred Stock and the Series A-2 Preferred Stock in dividend rights or
liquidation preference.
“
Participation
Maximum
” shall have the meaning set forth in
Section
9(a)
.
“
Permitted
Indebtedness
” means, with respect to the Corporation, any:
(a) indebtedness and
other obligations arising in the ordinary course of operations or business such
as those in respect of business expense reimbursements, workers’ compensation
claims, bid or performance bonds, reclamation or appeal bonds, surety bonds or
letters of credit, leases or deferred purchase price of equipment, trade credit,
endorsement of checks, and completion guarantees, (b) indebtedness under a
revolving credit facility from banks or similar financial institutions in a
principal amount of up to $5,000,000, (c) indebtedness incurred to finance the
acquisition, construction or improvement of any newly acquired business,
property or asset so long as recourse with respect to such indebtedness is
limited solely to such newly acquired business, property or asset; and (d)
indebtedness existing as of immediately after the Closing that is set forth on
the Disclosure Schedule to the Purchase Agreement.
“
Permitted Lien
” means
Liens incurred in connection with Permitted Indebtedness.
“
Person
” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“
Pre-Notice
” shall
have the meaning set forth in
Section
9(b)
.
“
Pro Rata Portion
”
shall have the meaning set forth in
Section
9(e)
.
“
Purchase Agreement
”
means Securities Purchase Agreement, dated on or about the Closing Date, among
the Corporation and the original Holders, as amended, modified or supplemented
from time to time in accordance with its terms.
“
Registration Rights
Agreement
” means the Registration Rights Agreement, dated as of the date
of the Purchase Agreement, among the Corporation and the original Holders, in
the form of
Exhibit
B
attached to the Purchase Agreement, as amended, modified or
supplemented from time to time in accordance with its terms.
“
Securities
” has the
meaning set forth in the Purchase Agreement.
“
Securities Act
” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Series A-1 Preferred
Stock
” shall have the meaning set forth in
Section
2
.
EXHIBIT
4.1
“
Series A-2 Preferred
Stock
” means the Series A-2 Convertible Preferred Stock of the
Corporation, with the rights, preferences and privileges set forth in the
Certificate of Designation of Preferences, Rights and Limitations of 7 ½% Series
A-2 Convertible Preferred Stock, filed contemporaneously herewith in the Office
of the Secretary of State of the State of Nevada.
“
Stated Value
” shall
have the meaning set forth in
Section
2
.
“
Subsequent Financing
”
shall have the meaning set forth in
Section
9(a)
.
“
Subsequent Financing
Notice
” shall have the meaning set forth in
Section
9(b)
.
“
Subsidiary
” shall
have the meaning set forth in
the Purchase
Agreement.
“
Successor Entity
”
shall have the meaning set forth in
Section 7(
d
)
.
“
Trading Day
” means a
day on which the principal Trading Market is open for business.
“
Trading Market
” means
any of the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the American Stock Exchange, the
Toronto Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the
Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin
Board (or any successors to any of the foregoing).
“
Transaction
Documents
” has the meaning set forth in the Purchase
Agreement.
“
VWAP
” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin
Board is not a Trading Market, the volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the OTC Bulletin Board,
(c) if the Common Stock is not then listed or quoted for trading on the OTC
Bulletin Board and if prices for the Common Stock are then reported in the “Pink
Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported, or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holders of a majority in interest of the
Securities then outstanding and reasonably acceptable to the Corporation, the
fees and expenses of which shall be paid by the Corporation.
“
Winfield Group
” means
John V. Winfield, his heirs, personal representatives and family trusts created
and controlled by Mr. Winfield, any individual retirement accounts held by Mr.
Winfield, Santa Fe Financial Corporation, Portsmouth Square, Inc., and
InterGroup Corporation, and any Affiliates of Mr. Winfield;
provided, that
the Winfield
Group shall also include all transferees and assigns of the Winfield Group at
any time that a default has occurred under
Section 4.2
of the
Purchase Agreement and such default has not been cured pursuant to
Section 5.13(b)
of
the Purchase Agreement.
Section
2
.
Designation, Amount and Par
Value
. The series of Preferred Stock designated by this Certificate of
Designation shall be the Corporation’s 7 ½% Series A-1 Convertible Preferred
Stock (the “
Series A-1
Preferred Stock
”) and the authorized number of shares so designated shall
be up to 1,500,000. Each share of Series A-1 Preferred Stock shall have a par
value of $0.000666 per share and a stated value equal to $1,000 (the “
Stated
Value
”).
EXHIBIT
4.1
Section
3
.
Dividends
.
a)
Dividends in Cash or in
Kind
. Subject to
Section 3(f)
below,
Holders of Series A-1 Preferred Stock (each, a “
Holder
” and
collectively, the “
Holders
”) shall be
entitled to receive, and the Corporation shall pay, cumulative dividends at the
rate per share (as a percentage of the Stated Value per share) of 7 ½% per
annum, payable semiannually on January 1 and July 1, commencing on January 1,
2011 and on each Conversion Date (with respect only to Series A-1 Preferred
Stock being converted) (each such date, a “
Dividend Payment
Date
”) (if any Dividend Payment Date is not a Trading Day, the applicable
payment shall be due on the next succeeding Trading Day), as set forth
below
in this
Section
3(a)
. The form of dividend payments to each Holder shall be,
at the election of the Corporation: (i) if funds are legally available for the
payment of dividends, in cash, (ii) subject to the satisfaction of the Equity
Conditions, in shares of Common Stock, which shall be valued solely for such
purpose at the average of the VWAPs for the 5 consecutive Trading Days ending on
the Trading Day that is immediately prior to the applicable Dividend Payment
Date, (iii) subject to the satisfaction of the Equity Conditions, in additional
shares (including, without limitation, fractional shares) of Series A-1
Preferred Stock, in an amount equal to the dollar amount of such dividend
payment divided by the Stated Value per share, or (iv) subject to the
satisfaction of the Equity Conditions, in any combination of the property
described in the foregoing
clauses (i)
,
(ii)
, and
(iii)
. The
Holders shall have the same rights and remedies with respect to the delivery of
any such shares as if such shares were being issued upon conversion of Series
A-1 Preferred Stock pursuant to
Section
6
.
b)
Dividends Upon an Automatic
Conversion of Series A-2 Preferred Stock
. In the
event of the automatic conversion of Series A-2 Preferred Stock into shares of
Common Stock pursuant to Section 6(c) of the Series A-2 Certificate of
Designation (as defined in the Purchase Agreement), in each case prior to August
31, 2013, the Corporation shall also pay to the Holders of Series A-1 Preferred
Stock an additional dividend, for each share of Series A-1 Preferred Stock,
equal to: (i) the net present value as of the VWAP Automatic Conversion Date (as
defined in the Series A-2 Certificate of Designation) of such Series A-2
Preferred Stock of a payment equal to 22 ½% of the Stated Value of one (1) share
of Series A-1 Preferred Stock occurring on August 31, 2013 (calculated assuming
a discount rate of 7 ½%)
minus
(ii) the aggregate
amount of any semi-annual dividends paid on one (1) share of Series A-1
Preferred Stock before the VWAP Automatic Conversion Date (the “
Additional
Dividend
”);
provided,
however,
that in the event the Holders of Series A-1 Preferred Stock
receive an Additional Dividend payment, then dividends to be paid pursuant to
Section 3(a) hereof shall not resume to be paid until January 1
st
of
the calendar year next following the Additional Dividend payment.
c)
Corporation’s Payment of
Dividends in Cash or in Additional Shares of Stock
. The
Corporation shall promptly notify the Holders at any time the Corporation shall
become unable to legally pay semi-annual dividends in cash. The
Corporation shall provide the Holders with at least 20 Trading Days’ notice of
its election to pay a semi-annual dividend in shares of Common Stock or
additional shares of Series A-1 Preferred Stock (the Corporation may indicate,
in any such notice, that the election contained in such notice shall continue
for later periods until revised by a subsequent notice).
d)
Dividend
Calculations
. Dividends on the Series A-1 Preferred Stock
shall be calculated on the basis of a 360-day year, consisting of twelve 30
calendar day periods, and shall accrue daily commencing on the Closing Date, and
shall be deemed to accrue from such date whether or not earned or declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. Payment of dividends
in shares of Common Stock or additional shares of Series A-1 Preferred Stock (as
applicable) shall be made in a manner consistent with
Section 6(d)(i)
herein and, solely for purposes of the payment of dividends in shares, the
Dividend Payment Date shall be deemed to be the Conversion
Date. Dividends shall cease to accrue with respect to any Series A-1
Preferred Stock when converted. Except as otherwise provided herein,
if at any time the Corporation pays dividends partially in cash and partially in
shares of Common Stock and/or Series A-1 Preferred Stock, then such payment
shall be distributed ratably among the Holders based upon the number of shares
of Series A-1 Preferred Stock held by each Holder on such Dividend Payment
Date.
EXHIBIT
4.1
e)
Other Securities
. So
long as any Series A-1 Preferred Stock shall remain outstanding: (i) neither the
Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities; and (ii) the Corporation
and any Subsidiaries thereof shall only redeem, repurchase or otherwise acquire,
directly or indirectly, any Parity Securities ratably with the Series A-1
Preferred Stock on a
pari
passu
basis. So long as any Series A-1 Preferred Stock shall
remain outstanding: (i) neither the Corporation nor any Subsidiary thereof shall
directly or indirectly pay or declare any dividend or make any distribution upon
any Junior Securities (other than a dividend or distribution solely in
additional shares of Junior Securities), in each case as long as any dividends
due on the Series A-1 Preferred Stock remain unpaid, nor shall any monies be set
aside for or applied to the purchase or redemption (through a sinking fund or
otherwise) of any Junior Securities; and (ii) the Corporation and any
Subsidiaries thereof shall only, directly or indirectly, pay or declare any
dividend or make any distribution upon any Parity Securities, or set aside or
apply any monies for the purchase or redemption (through a sinking fund or
otherwise) of any Parity Securities, if it simultaneously, on a
pari passu
basis and ratably
among the holders of the Series A-1 Preferred Stock and the holders of all
Parity Securities, pays or declares a dividend or distribution, or sets aside or
applies monies for the purchase or redemption (through a sinking fund or
otherwise), of the Series A-1 Preferred Stock.
f)
Payment of Dividends in
Kind
. During the period commencing on the Closing Date and
ending on the eighteen (18) month anniversary of the Closing Date, in the event
on any Dividend Payment Date the Registration Statement (as defined in the
Registration Rights Agreement) has not been declared effective in accordance
with Section 2(b) of the Registration Rights Agreement, any dividend payable in
Common Stock or Series A-1 Preferred Stock shall accrue and be payable to the
Holders of the Series A-1 Preferred Stock within five (5) business days
following the date that such Registration Statement is declared
effective. In the event on any Dividend Payment Date following the
eighteen (18) month anniversary of the Closing Date, the Registration Statement
has not been declared effective or the Corporation has failed to maintain its
effectiveness during the Effectiveness Period (as defined in the Registration
Rights Agreement), all dividends payable to the Holders of the Series A-1
Preferred Stock shall be payable, if funds are legally available for payment, in
cash only. If such funds are not legally available for payment, any dividend
payable shall accrue and be immediately payable to the Holders of the Series A-1
Preferred Stock in cash, when such funds become legally available, or, at the
option of the Corporation, subject to the effectiveness on such date of the
Registration Statement, as otherwise provided for herein; provided however, that
if such funds are not legally available and the Registration Statement is not
effective, the Holders of the Series A-1 Preferred Stock can waive the
requirement that the Registration Statement be effective and elect to received
dividend payments as otherwise provided for herein.
EXHIBIT
4.1
Section
4
.
Voting
Rights
.
a) Except
as otherwise provided herein or as otherwise required by law, each Holder of
Series A-1 Preferred Stock shall: (i) be entitled to notice of any annual or
special meeting of the stockholders of the Corporation, at the same time and in
the same manner as of the holders of Common Stock in accordance with the by-laws
of the Corporation; and (ii) vote together with the Common Stock at any annual
or special meeting of the stockholders of the Corporation, or in any action by
written consent of stockholders of the Corporation in lieu of meeting, on an
as-converted to Common Stock basis, with each share of Series A-1 Preferred
Stock entitling its Holder to the number of votes equal to five (5) times the
number of shares of Common Stock into which such share of Series A-1 Preferred
Stock could be converted under this Certificate of Designation as of the close
of business on the record date fixed for such meeting or the effective date of
such written consent;
provided, however
, that any
share of Series A-1 Preferred Stock held by any Person other than a member of
the Winfield Group shall instead only entitle its holder to the number of votes
equal to the number of shares of Common Stock into which such share of Series
A-1 Preferred Stock could be converted under this Certificate of Designation as
of the close of business on the record date fixed for such meeting or the
effective date of such written consent.
b) Each
share of Series A-1 Preferred Stock shall entitle its holder to one (1) vote in
any matter submitted to vote of the holders of Preferred Stock, voting as a
separate class (as opposed to voting with the holders of Common Stock as
provided in
Section
4(a)
).
Section
5
.
Liquidation and Change of
Control Transactions
. Upon any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary (a “
Liquidation
”) or a
Change of Control Transaction, the Holders shall be entitled to receive out of
the assets, whether capital or surplus, of the Corporation in the case of a
Liquidation, or out of the aggregate consideration received by the Corporation
and its stockholders in the case of a Change of Control
Transaction, an amount equal to (i) the Stated Value, plus any accrued and
unpaid dividends on the Series A-1 Preferred Stock, together with any other fees
then due and owing thereon under this Certificate of Designation, for each share
of Series A-1 Preferred Stock, on a
pari passu
basis with any
distribution or payment upon a Liquidation or Change of Control Transaction to
the holders of Parity Securities and before any distribution or payment shall be
made to the holders of any Junior Securities,
plus
(ii) the amount
the Holders would have been entitled to receive as holders of the number of
shares of Common Stock for which the shares of Series A-1 Preferred Stock are
convertible immediately prior to such Liquidation or Change of Control
Transaction, on a
pari
passu
basis with any distribution or payment upon a Liquidation or Change
of Control Transaction to the holders of Parity Securities and Junior Securities
combined. If the assets of the Corporation or aggregate consideration received
shall be insufficient to pay in full the respective preference amounts to the
Holders of Series A-1 Preferred Stock and the holders of any Parity Securities
described in this
Section 5
, then the
entire assets of the Corporation or aggregate consideration shall be ratably
distributed among the Holders of Series A-1 Preferred Stock and the holders of
any Parity Securities, in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in
full. The Corporation shall mail written notice of any Liquidation,
not less than 45 days prior to the payment date stated therein, to each Holder.
The Corporation shall provide each Holder with reasonable advance notice (a
“
Notice of
COC
”) of the occurrence of a Change of Control Transaction or potential
Change of Control Transaction, which shall specify, for each Holder, the number
of shares of Series A-1 Preferred Stock owned on the date of such Notice of COC,
the number of shares of Common Stock issuable upon conversion of such Series A-1
Preferred Stock and the date, if known, on which such Change of Control
Transaction is to be effected, which date may not be prior to the date the
Corporation delivers such Notice of COC to the Holders. The
calculations and entries set forth in the Notice of COC shall control in the
absence of manifest or mathematical error. Each Holder shall deliver
the certificate(s) representing the shares of Series A-1 Preferred Stock as
instructed in the Notice of COC.
EXHIBIT
4.1
Section
6
.
Conversion
.
a)
Conversions at Option of
Holder
. Each share of Series A-1 Preferred Stock shall be
convertible, at any time and from time to time from and after the Closing Date
at the option of the Holder thereof, into that number of shares of Common Stock
determined by dividing the Stated Value of such share of Series A-1 Preferred
Stock by the Conversion Price then in effect. Holders shall
effect
voluntary
conversions
pursuant to this
Section 6(a)
by
providing the Corporation with the form of conversion notice attached hereto as
Annex A
(a
“
Notice of
Elective
Conversion
”). Each
Notice of Elective Conversion shall specify the number of shares of Series A-1
Preferred Stock to be converted, the number of shares of Series A-1 Preferred
Stock owned prior to the conversion at issue, the number of shares of Series A-1
Preferred Stock owned subsequent to the conversion at issue and the date on
which such conversion is to be effected, which date may not be prior to the date
the applicable Holder delivers such Notice of Conversion to the Corporation
(such date, the “
Elective
Conversion
Date
”). If no Elective Conversion Date is specified in a
Notice of Elective
Conversion, the
Elective
Conversion
Date shall be the date that such Notice of Elective
Conversion is delivered
hereunder. The calculations and entries set forth in the Notice of
Elective
Conversion
shall control in the absence of manifest or mathematical error. To
effect elective conversions of shares of Series A-1 Preferred Stock pursuant to
this
Section
6(a)
, a Holder shall not be required to surrender the certificate(s)
representing the shares of Series A-1 Preferred Stock to the Corporation unless
all of the shares of Series A-1 Preferred Stock represented thereby are so
converted, in which case such Holder shall deliver the certificate representing
such shares of Series A-1 Preferred Stock promptly following the Elective
Conversion Date at issue. Any certificate representing shares of
Series A-1 Preferred Stock that have been converted in whole or part by such
Holder shall be void and should be destroyed upon receipt of replacement
certificate(s) from the Corporation. Shares of Series A-1 Preferred
Stock converted into Common Stock pursuant to this
Section 6(a)
shall be
canceled and shall not be reissued.
b) [RESERVED]
c)
Conversion
Price
. The conversion price for the Series A-1 Preferred Stock
shall initially equal $0.6510,
subject to adjustment
herein (the “
Conversion
Price
”).
d)
Mechanics of
Conversion
i.
Delivery of Certificate Upon
Conversion
. Not later than three (3) Trading Days after each Conversion
Date, the Corporation shall deliver, or cause to be delivered, to the converting
Holder (A) a certificate or certificates representing the Conversion Shares
which, on or after the earlier of: (1) the one (1) year anniversary of the
Closing Date; or (2) the Effective Date, shall be free of restrictive legends
and trading restrictions (other than those which may then be required by the
Purchase Agreement) representing the number of Conversion Shares being acquired
upon the conversion of the Series A-1 Preferred Stock, and/or (B) a bank check
in the amount of accrued and unpaid dividends (to the extent that the
Corporation has elected to pay accrued dividends in cash). On or
after the earlier of: (1) the one (1) year anniversary of the Closing Date or
(2) the Effective Date, the Corporation shall use commercially reasonable
efforts to deliver any certificate or certificates required to be delivered by
the Corporation under this
Section 6
electronically through the Depository Trust Company or another established
clearing corporation performing similar functions.
ii.
Obligation
Absolute
. The Corporation’s obligation to issue and deliver
the Conversion Shares upon conversion of Series A-1 Preferred Stock in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by a Holder to enforce the same, any waiver or consent
with respect to any other provision hereof, the recovery of any judgment against
any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
Holder or any other Person of any obligation to the Corporation or any violation
or alleged violation of law by such Holder or any other Person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to such Holder in connection with the issuance of such Conversion
Shares;
provided,
however
, that such delivery shall not operate as a waiver by the
Corporation of any such action that the Corporation may have against such Holder
or such other Person. In the event a Holder shall elect to convert
any or all of its Series A-1 Preferred Stock, the Corporation may not refuse
conversion based on any claim that such Holder or any one associated or
affiliated with such Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to Holder,
restraining and/or enjoining conversion of all or part of the Series A-1
Preferred Stock of such Holder shall have been sought and
obtained. In the absence of such injunction, the Corporation shall
issue Conversion Shares and, if applicable, cash, upon a properly noticed
conversion. Nothing herein shall limit a Holder’s right to pursue
actual damages or all other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit
a Holder from seeking to enforce damages pursuant to any other Section hereof or
under applicable law.
EXHIBIT
4.1
iii.
Liquidated
Damages
. If the Corporation fails to deliver to a Holder such
certificate or certificates representing Conversion Shares within five (5)
Trading Days after the Elective Conversion Date provided in a Notice of Elective
Conversion pursuant to Section 6(a), the Corporation shall pay to such Holder,
in cash, as liquidated damages and not as a penalty, for each share of Series
A-1 Preferred Stock elected to be converted, $50 per Trading Day for each
Trading Day after such fifth (5th) Trading Day after the Elective Conversion
Date until such certificates are delivered or such Holder is reimbursed in
accordance with
Section 6(d)(iv)
.
Nothing herein shall limit a Holder’s right to pursue actual damages for the
Corporation’s failure to deliver Conversion Shares and such Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit
a Holder from seeking to enforce damages pursuant to any other Section hereof or
under applicable law.
iv.
Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion
. If the
Corporation fails to deliver to a Holder the applicable certificate or
certificates within five (5) Trading Days after the Elective Conversion Date,
and if after such date such Holder is required by its brokerage firm to purchase
(in an open market transaction or otherwise), or the Holder’s brokerage firm
purchases, shares of Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which such Holder was entitled to receive upon
the conversion relating to such Notice of Elective Conversion (a “
Buy-In
”), then the
Corporation shall (A) pay in cash to such Holder (in addition to any other
remedies available to or elected by such Holder) the amount by which (x) such
Holder’s total purchase price (including any brokerage commissions) for the
shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder was entitled to receive from
the conversion at issue multiplied by (2) the actual sale price at which the
sell order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of such Holder, either reissue (if
surrendered) the shares of Series A-1 Preferred Stock equal to the number of
shares of Series A-1 Preferred Stock submitted for conversion or deliver to such
Holder the number of shares of Common Stock that would have been issued if the
Corporation had timely complied with the Notice of Elective Conversion. For
example, if a Holder purchases shares of Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted conversion of
shares of Series A-1 Preferred Stock with respect to which the actual sale price
(including any brokerage commissions) giving rise to such purchase obligation
was a total of $10,000 under clause (A) of the immediately preceding sentence,
the Corporation shall be required to pay such Holder $1,000. The Holder shall
provide the Corporation written notice indicating the amounts payable to such
Holder in respect of the Buy-In and, upon request of the Corporation, evidence
of the amount of such loss. Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Corporation’s failure to timely deliver
certificates representing shares of Common Stock upon conversion of the shares
of Series A-1 Preferred Stock as required pursuant to the terms
hereof.
EXHIBIT
4.1
v.
Reservation of Shares
Issuable Upon Conversion
. The Corporation covenants that it
will, at all times while any Series A-1 Preferred Stock: (A) remains outstanding
or (B) is reserved for issuance or otherwise issuable under any promissory note
or agreement to which the Corporation is a party, reserve and keep available out
of its authorized and unissued shares of Common Stock, for the sole purpose of
issuance upon conversion of such Series A-1 Preferred Stock, free from
preemptive rights or any other purchase rights of Persons other than the Holder
(and the other holders of the Series A-1 Preferred Stock), not less than 130% of
the aggregate number of shares of the Common Stock as shall be issuable (taking
into account the adjustments and restrictions of
Section 7
) upon: (A)
the conversion of such Series A-1 Preferred Stock; and (B) payment of dividends
on such Series A-1 Preferred Stock in shares of Common Stock
hereunder. The Corporation covenants that it will, at all times while
any Series A-1 Preferred Stock: (A) remains outstanding or (B) is reserved for
issuance or otherwise issuable under any promissory note or agreement to which
the Corporation is a party, reserve and keep available out of its authorized and
unissued shares of Preferred Stock, for the sole purpose of issuance upon
payment of dividends on such Series A-1 Preferred Stock in additional shares of
Series A-1 Preferred Stock as herein provided, free from preemptive rights or
any other purchase rights of Persons other than the Holder (and the other
holders of the Series A-1 Preferred Stock), not less than 130% of the aggregate
number of shares of the Series A-1 Preferred Stock as shall (subject to the
terms and conditions set forth in the Purchase Agreement) be issuable (taking
into account the adjustments and restrictions of
Section 7
) upon the
payment of dividends on such Series A-1 Preferred Stock in additional shares of
Series A-1 Preferred Stock hereunder. The Corporation covenants that
all shares of Common Stock and Series A-1 Preferred Stock that shall be so
issuable shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable and, if the Conversion Shares Registration Statement is then
effective under the Securities Act, shall be, with respect to such Common Stock
and the Common Stock issuable upon conversion of such Series A-1 Preferred
Stock, registered for public resale in accordance with such Conversion Shares
Registration Statement (subject to such Holder’s compliance with its obligations
under the Registration Rights Agreement).
vi.
Fractional
Shares
. No fractional shares or scrip representing fractional
shares of Common Stock shall be issued upon the conversion of the Series A-1
Preferred Stock. As to any fraction of a share of Common Stock,
which the Holder would otherwise be entitled to receive upon such conversion,
the Corporation shall at its election, either pay a cash adjustment in respect
of such final fraction in an amount equal to such fraction multiplied by the
Conversion Price or round up to the next whole share. The Corporation
may issue fractional shares of Series A-1 Preferred Stock.
vii.
Transfer
Taxes
. The issuance of certificates for shares of the Common
Stock upon conversion of the Series A-1 Preferred Stock shall be made without
charge to any Holder for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificates,
provided
that the Corporation
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holders of such shares of Series A-1
Preferred Stock and the Corporation shall not be required to issue or deliver
such certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall have
established to the satisfaction of the Corporation that such tax has been
paid.
EXHIBIT
4.1
Section
7
.
Certain
Adjustments
.
a)
Stock Dividends and Stock
Splits
. If the Corporation, at any time while any Series A-1
Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Corporation upon
conversion of, or payment of a dividend on, the Series A-1 Preferred Stock),
(ii) subdivides outstanding shares of Common Stock into a larger number of
shares, (iii) combines (including by way of a reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (iv) issues, in the
event of a reclassification of shares of the Common Stock, any shares of capital
stock of the Corporation, then the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding any treasury shares of the Corporation) outstanding immediately
before such event, and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event. Any adjustment
made pursuant to this
Section 7(a)
shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
b)
Subsequent Equity
Sales
. If, at any time while any Series A-1 Preferred Stock is
outstanding, the Corporation or any Subsidiary, as applicable, sells or grants
any option to purchase or sells or grants any right to reprice, or otherwise
disposes of or issues (or announces any sale, grant or any option to purchase or
reprice or other disposition), any Common Stock or Common Stock Equivalents
(“
Additional Shares of
Common Stock
”) at an effective price per share of Common Stock that is
lower than the lower of: (i) 93% of the average of the VWAPs for the 10
consecutive Trading Days ending on the Trading Day that is immediately prior to
the date of issuance of the Additional Shares of Common Stock; or (ii) the then
effective Conversion Price (such lower price, the “
Base Conversion
Price
” and such issuances, collectively, a “
Dilutive Issuance
”)
(if the holder of the Additional Shares of Common Stock so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due
to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock or Common Stock
Equivalents at an effective price per share that is lower than the Conversion
Price, such issuance shall be deemed to have occurred for less than the
Conversion Price on the date of the Dilutive Issuance), then the Conversion
Price shall be reduced to equal the price determined by multiplying the
Conversion Price in effect immediately prior to such issuance by a
fraction:
i. the
numerator of which shall be: (A) the number of shares
of Common Stock issuable
upon the conversion of the Series A-1 Preferred Stock immediately prior to such
Dilutive Issuance,
plus
(B) the number of shares of Common Stock or Common Stock Equivalents which the
Aggregate Consideration received or deemed to be received by the Corporation for
the total number of Additional Shares of Common Stock so issued would purchase
at such then-existing Base Conversion Price; and
ii. the
denominator of which shall be the number of shares of Common Stock issuable upon
the conversion of the Series A-1 Preferred Stock immediately prior to such
Dilutive Issuance
plus
the total number of Additional Shares of Common Stock actually so
issued.
Such
adjustment shall be made upon any issuance of Additional Shares of Common Stock;
provided, however
, that
no adjustment will be made under this
Section 7(b)
in
respect of an Exempt Issuance. The Corporation shall notify the
Holders in writing, no later than the Trading Day following the issuance of any
Additional Shares of Common Stock subject to this
Section 7(b)
,
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“
Dilutive Issuance
Notice
”). For purposes of clarification, whether or not the
Corporation provides a Dilutive Issuance Notice pursuant to this
Section 7(b)
, upon
the occurrence of any Dilutive Issuance, the Holders are entitled to receive a
number of Conversion Shares based upon the Base Conversion Price on or after the
date of such Dilutive Issuance, regardless of whether a Holder accurately refers
to the Base Conversion Price in the Notice of Conversion.
EXHIBIT
4.1
c)
Pro Rata
Distributions
. If the Corporation, at any time while any
Series A-1 Preferred Stock is outstanding, distributes to all holders of Common
Stock (and not to the Holders) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for or
purchase any security (other than the Common Stock, which shall be subject to
Section 7(b)
),
then in each such case the Conversion Price shall be adjusted by multiplying
such Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness or rights or warrants so distributed
applicable to one outstanding share of Common Stock as determined by the Board
of Directors of the Corporation in good faith. In either case the
adjustments shall be described in a statement delivered to the Holders
describing the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date mentioned
above.
d)
Fundamental
Transaction
. If, at any time while any Series A-1 Preferred
Stock is outstanding, (i) the Corporation, directly or indirectly, in one or
more related transactions effects any merger or consolidation of the Corporation
with or into another Person, (ii) the Corporation, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other
disposition of all or substantially all of its assets in one or a series of
related transactions, (iii) any, direct or indirect, purchase offer, tender
offer or exchange offer (whether by the Corporation or another Person) is
completed pursuant to which holders of Common Stock are permitted to sell,
tender or exchange their shares for other securities, cash or property and has
been accepted by the holders of 50% or more of the outstanding Common Stock,
(iv) the Corporation, directly or indirectly, in one or more related
transactions effects any reclassification, reorganization or recapitalization of
the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property, (v) the Corporation, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to,
such stock or share purchase agreement or other business combination), in each
case other than a Change of Control Transaction (each, a “
Fundamental
Transaction
”), then, upon any subsequent conversion of Series A-1
Preferred Stock, the Holder shall have the right to receive, for each Conversion
Share that would have been issuable upon such conversion immediately prior to
the occurrence of such Fundamental Transaction, the number of shares of Common
Stock of the successor or acquiring corporation or of the Corporation, if it is
the surviving corporation, and any additional consideration (the “
Alternate
Consideration
”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which Series A-1 Preferred
Stock is convertible immediately prior to such Fundamental
Transaction. For purposes of any such conversion, the determination
of the Conversion Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one share of Common Stock in such Fundamental Transaction, and the
Corporation shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of
Series A-1 Preferred Stock following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions, any successor to
the Corporation or surviving entity in such Fundamental Transaction shall file a
new Certificate of Designation with the same terms and conditions as those
hereof,
and issue
to the Holders new Series A-1 Preferred Stock consistent with the foregoing
provisions and evidencing the Holders’ right to convert such Series A-1
Preferred Stock into Alternate Consideration. The Corporation shall
cause any successor entity in a Fundamental Transaction in which the Corporation
is not the survivor (the “
Successor Entity
”) to
assume in writing all of the obligations of the Corporation under this
Certificate of Designation and the other Transaction Documents in accordance
with the provisions of this
Section 7(
d
)
, pursuant to
written agreements in form and substance reasonably satisfactory to the Holders
of a majority (with such majority to include the Winfield Group as long as the
Winfield Group continues to hold Series A-1 Preferred Stock) of the then
outstanding shares of Series A-1 Preferred Stock issued pursuant to the Purchase
Agreement and approved by such Holders
(without unreasonable
delay) prior to such Fundamental Transaction, and shall deliver to each Holder
in exchange for its Series A-1 Preferred Stock a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to the Series A-1 Preferred Stock which is convertible for a
corresponding number of shares of capital stock of such Successor Entity (or its
parent entity) equivalent to the shares of Common Stock acquirable and
receivable upon conversion of the Series A-1 Preferred Stock prior to such
Fundamental Transaction, and with a conversion price which applies the
conversion price hereunder to such shares of capital stock (but taking into
account the relative value of the shares of Common Stock pursuant to such
Fundamental Transaction and the value of such shares of capital stock, such
number of shares of capital stock and such conversion price being for the
purpose of protecting the economic value of the Series A-1 Preferred Stock
immediately prior to the consummation of such Fundamental Transaction), and
which is reasonably satisfactory in form and substance to the Holders of a
majority (with such majority to include the Winfield Group as long as the
Winfield Group continues to hold Series A-1 Preferred Stock) of the then
outstanding shares of Series A-1 Preferred Stock issued pursuant to the Purchase
Agreement. Upon the occurrence of any such Fundamental Transaction,
the Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of this
Certificate of Designation and the other Transaction Documents referring to the
“Corporation” shall refer instead to the Successor Entity), and may exercise
every right and power of the Corporation and shall assume all of the obligations
of the Corporation under this Certificate of Designation and the other
Transaction Documents with the same effect as if such Successor Entity had been
named as the Corporation herein.
EXHIBIT
4.1
e)
Calculations
. All
calculations under this
Section 7
shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may
be. For purposes of this
Section 7
, the number
of shares of Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding any treasury
shares of the Corporation) issued and outstanding.
f)
Notice to the
Holders
.
i.
Adjustment to Conversion
Price
. Whenever the Conversion Price is adjusted pursuant to
any provision of this
Section 7
, the
Corporation shall promptly deliver to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
EXHIBIT
4.1
ii.
Notice to Allow Conversion
by Holder
. If (A) the Corporation shall declare a dividend (or
any other distribution in whatever form) on the Common Stock, (B) the
Corporation shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Corporation shall authorize the granting
to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Corporation shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Corporation is a party, any sale or transfer of all or substantially
all of the assets of the Corporation, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property or (E) the
Corporation shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation, then, in each case,
the Corporation shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Series A-1 Preferred Stock, and shall cause to
be delivered to each Holder at its last address as it shall appear upon the
stock books of the Corporation, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange,
provided
that the failure to
deliver such notice or any defect therein or in the delivery thereof shall not
affect the validity of the corporate action required to be specified in such
notice. To the extent that any notice provided hereunder constitutes,
or contains, material, non-public information regarding the Corporation or any
of the Subsidiaries, the Corporation shall, as required by applicable federal
securities law, file such notice with the Commission pursuant to a Current
Report on Form 8-K. The Holder shall remain entitled to convert the
Series A-1 Preferred Stock during the 20-day period commencing on the date of
such notice through the effective date of the event triggering such notice,
except as may otherwise be expressly set forth herein.
Section
8.
Negative Covenants
.
a) As
long as at least 25% of the Parity Securities that were Originally Issued are
still outstanding, the Corporation shall not, and shall not permit any of the
Subsidiaries to, directly or indirectly, without the affirmative vote of the
holders of a majority of the then outstanding Parity Securities (which shall, as
long as the Winfield Group still holds at least 25% of the Parity Securities
that were Originally Issued, include the Winfield Group):
i) other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
suffer to exist any Indebtedness for borrowed money;
ii) other
than Permitted Liens, grant, assume or allow to exist any Liens of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom;
iii) repay,
repurchase or offer to repay, repurchase or otherwise acquire Common Stock
constituting more than 5% of the outstanding shares of Common Stock (measured as
of immediately after the Closing), other than as to (i) the Conversion Shares as
permitted or required under this Certificate of Designation or any other
Transaction Documents and (ii) repurchases of Common Stock or Common Stock
Equivalents of departing officers and directors of the Corporation, provided
that such repurchases shall not exceed an aggregate of $100,000 for all officers
and directors for so long as the Parity Securities are outstanding;
iv) enter
into any transaction with any Affiliate of the Corporation which would be
required to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly
approved by a majority
of the disinterested directors of the Corporation (even if less than a quorum
otherwise required for board approval);
v) enter
into any transaction with any Affiliate of an Officer or Director of the
Corporation, if such transaction provides for the payment of services in
Securities of the Corporation;
EXHIBIT
4.1
vi) amend
the Corporation’s certificate of incorporation, by-laws or the Certificate of
Designation of any of the Parity Securities in any manner that materially
adversely affects any of
the
rights,
preferences or privileges of the Holders of such Parity Securities;
vii) approve
the issuance of any Preferred Stock, other than the Series A-1 Preferred Stock
and the Series A-2 Preferred Stock issued in connection with the transactions
contemplated under the Transaction Documents;
viii) pay
any dividends or make any distributions on any Junior Securities (except in
additional shares of Junior Securities);
ix) adopt
an executive equity incentive plan which provides for the issuance of greater
than 6.0% of the fully diluted equity of the Corporation after taking into
account the transactions contemplated under the Transaction
Documents;
x) enter
into any transaction for the sale or pledge of a material asset of the
Corporation;
xi) approve
or consent to the initiation of a Bankruptcy Proceeding;
xii) issue
any securities of the Corporation in exchange for services to a consultant;
or
xiii) enter
into any agreement with respect to any of the foregoing
.
b) As long as at least 25%
of the Parity Securities that were Originally Issued are still outstanding, and
as long as the Winfield Group still holds at least 25% of the Parity Securities
that were Originally Issued, the Corporation shall not, and shall not permit any
of the Subsidiaries to, directly or indirectly, without the affirmative vote of
the Winfield Group:
i)
enter into any transaction for the acquisition of any business, property or
asset pursuant to which the Corporation will incur Indebtedness to finance such
acquisition in principal amount in excess of $500,000;
ii) pay
any dividends pursuant to Section 3(a) hereof in cash in an amount to exceed
$500,000;
iii) engage
in a private placement of any Common Stock or Common Stock Equivalents of the
Corporation;
iv) enter
into any transaction that would constitute a Change of Control
Transaction;
vii) enter
into any transaction that would constitute a Fundamental Transaction;
or
viii) engage
in a registered offering of any Common Stock or Common Stock Equivalents of the
Corporation.
c) If
the Corporation defaults in complying with the covenants set out in subsection
(a) or (b) above, the Corporation shall have thirty (30) days following notice
by the holders of the Parity Securities and/or the Winfield Group, respectively,
specifying the nature of the such default, to remedy such default by (i) taking
all necessary corporate action to void the action that is the subject of such
default; (ii) obtaining the requisite approval of the holders of the Parity
Securities and/or the Winfield Group, respectively, for such action consistent
with the provisions of this Section 8; or (iii) obtaining a waiver of such
default from the holders of the Parity Securities and/or the Winfield Group,
respectively.
EXHIBIT
4.1
Section
9
.
Preemptive
Rights
.
a) From
the date hereof until such time as all Holders no longer hold any shares
of Series A-1 Preferred Stock, upon any issuance by the Corporation
or any of its Subsidiaries of Common Stock, Common Stock Equivalents for cash
consideration, or a combination of units hereof (a “
Subsequent
Financing
”), each Holder, collectively with all holders of Parity
Securities, shall have the right to participate in up to an amount of the
Subsequent Financing equal to 100% of the Subsequent Financing (the “
Participation
Maximum
”) on the same terms, conditions and price provided for in the
Subsequent Financing.
b)
At least five (5) Trading Days prior to the closing of the Subsequent Financing,
the Corporation shall deliver to each Holder a written notice of its intention
to effect a Subsequent Financing (“
Pre-Notice
”), which
Pre-Notice shall ask such Holder if it wants to review the details of such
financing (such additional notice, a “
Subsequent Financing
Notice
”). Upon the request of a Holder, and only upon a
request by such Holder, for a Subsequent Financing Notice, the Corporation shall
promptly, but no later than one (1) Trading Day after such request, deliver a
Subsequent Financing Notice to such Holder. The Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder and the
Person or Persons through or with whom such Subsequent Financing is proposed to
be effected and shall include a term sheet or similar document relating thereto
as an attachment.
c)
Any Holder desiring to participate in such Subsequent Financing must provide
written notice to the Corporation by not later than 5:30 p.m. (New York City
time) on the fourth (4
th
)
Trading Day after all of the Holders have received the Pre-Notice that the
Holder is willing to participate in the Subsequent Financing, the amount of the
Holder’s participation, and representing and warranting that the Holder has such
funds ready, willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the Corporation receives no such
notice from a Holder as of such fourth (4
th
)
Trading Day, such Holder shall be deemed to have notified the Corporation that
it does not elect to participate.
d) If
by 5:30 p.m. (New York City time) on the fourth (4
th
)
Trading
Day after all of the Holders have received the Pre-Notice, notifications by the
Holders and holders of Parity Securities of their willingness to participate in
the Subsequent Financing (or to cause their designees to participate) is, in the
aggregate, less than the total amount of the Subsequent Financing, then the
Corporation may effect the remaining portion of such Subsequent Financing on the
terms and with the Persons set forth in the Subsequent Financing
Notice.
e) If
by 5:30 p.m. (New York City time) on the fourth (4
th
)
Trading Day after all of the Holders have received the Pre-Notice, the
Corporation receives responses to a Subsequent Financing Notice from Holders and
holders of Parity Securities seeking to purchase more than the aggregate amount
of the Participation Maximum, each such Holder shall have the right to purchase
its Pro Rata Portion (as defined below) of the Participation
Maximum. “
Pro Rata Portion
” of
a Holder means the ratio of: (x) the aggregate Stated Value of the Parity
Securities issued to such Holder on the Closing Date; and (y) the aggregate
Stated Value of the Parity Securities issued to all holders of Parity Securities
participating in such Subsequent Financing under this
Section
9
.
f) The
Corporation must provide the Holders with a second Subsequent Financing Notice,
and the Holders will again have the right of participation set forth above in
this
Section 9
,
if the Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such Subsequent
Financing Notice within thirty (30) Trading Days after the date of the initial
Subsequent Financing Notice.
EXHIBIT
4.1
g) Notwithstanding
the foregoing, this
Section 9
shall not
apply in respect of (i) an Exempt Issuance or (ii) an underwritten public
offering of Common Stock.
Section
10.
Board Nomination
Rights.
a) Promptly
after the occurrence of the Closing Date (as defined in the Purchase
Agreement):
(i) the Corporation
shall take any and all actions so that John V. Winfield is elected as a member
of the Board; and
(ii) upon written request of
the Winfield Group, the Corporation shall, if the Winfield Group holds at least
25% of the Parity Securities Originally Issued at the time of such request, take
or cause to be taken any and all actions so that the Board Nominee (as defined
below) is elected by the Board as a member of the Board. If the Board
Nominee ceases to be a member of the Board, and as long as the Winfield Group
shall have continuously held at least 25% of the Parity Securities Originally
Issued from the date of the first election of a Board Nominee through the date
of such request, the Winfield Group shall have the right, by written request of
the Winfield Group to the Corporation, to nominate another Board Nominee to
become a member of the Board.
b) “
Board Nominee
” means
a designee of the Winfield Group reasonably acceptable to the
Board.
c) If
John V. Winfield and the Board Nominee shall have been elected as a member of
the Board pursuant to Section 10(a), and as long as the Winfield Group shall
have continuously held at least 25% of the Parity Securities Originally Issued
from the date of such election through the December 31 immediately preceding
each meeting of stockholders of the Corporation at which directors are to be
re-elected, then the Corporation shall take or cause to be taken any and all
actions so that John V. Winfield and the Board Nominee are nominated and
recommended for re-election to the Board at each such meeting, in the same
manner and to the same extent that such action is taken in respect of the other
nominees of the Board. Such right shall terminate immediately at such
time as the Winfield Group ceases for any reason to hold at least 25% of the
Parity Securities Originally Issued. Upon and at any time following
termination of such right, the Corporation may in its sole discretion cease
taking any and all such actions, the Board may in its sole discretion withdraw
any nomination or recommendation for re-election previously made and John V.
Winfield and the Board Nominee may resign from the Board.
d) Actions
to be taken as described above include, as necessary, increasing the size of the
Board, nominating for election, recommending for election, and soliciting
proxies (and, if applicable written consents) for election.
EXHIBIT
4.1
e) Notwithstanding
anything contained herein to the contrary, (i) the Board Nominee shall not be
required to be elected, or nominated or recommended for re-election, to the
Board unless such Board Nominee meets the requirements for an “independent
director” under the listing rules of the principal exchange or market on which
Common Stock is then listed, satisfies the requirements set forth in the
Company’s Corporate Governance Guidelines and Nominating and Governance
Committee Charter as reasonably determined by the Nominating and Governance
Committee of the Board, is not prohibited from serving as a director of the
Corporation under Section 8 of the Clayton Antitrust Act or any other applicable
law and is not affiliated or associated with or related to (A) a material
competitor of the Corporation or (B) a customer, supplier or other supply
chain participant of the Corporation where membership of a Board Nominee on the
Board could reasonably be expected, in the reasonable judgment of the Board, to
result in a material burden or disadvantage to the Corporation, and
(ii) the Board Nominee shall resign from the Board upon request by the
Board if (A) the Board Nominee fails at any time to satisfy the criteria
set forth in the preceding sentence, (B) just cause for his removal exists or
(C) the Winfield Group ceases at any time for any reason to hold at least
25% of the Parity Securities Originally Issued. Such a request by the
Board may be made at any time after the occurrence of an event described in
clause (ii) of the preceding sentence. Nothing herein shall excuse
the Board Nominee from tendering his resignation from the Board or restrict the
Board from accepting any such resignation when and as provided in the Company’s
Corporate Governance Guidelines. Notwithstanding the criteria in
(e)(i) herein, the Winfield Group may designate as the Board Nominee a member of
the Board existing as of the Closing Date.
f) John
V. Winfield and the Board Nominee, for so long as each serves as a member of the
Board and for three (3) years thereafter, shall keep all Confidential
Information of the Corporation confidential and not disclose or use any of such
Confidential Information except in connection with performing his duties as a
member of the Board. At any time after he ceases to be a member of
the Board for any reason, upon written notice from the Corporation, John V.
Winfield and the Board Nominee shall, at his election, either (i) promptly
destroy at his expense all of such Confidential Information (in any form other
than oral) in his possession (including all copies) and confirm such destruction
to the Corporation in writing or (ii) promptly deliver to the Company at his
expense all of such Confidential Information (in any form other than oral) in
his possession (including all copies). All of such Confidential
Information in oral form will continue to be subject to this
Section
10(f).
If John V. Winfield or the Board Nominee becomes
required by law to disclose any of such Confidential Information, John V.
Winfield or the Board Nominee will, to the extent permitted by applicable law,
as promptly as possible give written notice to that effect to the
Corporation. The Corporation, in its sole discretion, shall be
entitled to seek a protective order or other appropriate remedy. If
the Corporation seeks such an order or remedy, John V. Winfield or the Board
Nominee will, upon request, use all reasonable efforts to fully cooperate with
the Corporation at its expense. Regardless of whether such protective
order or other remedy is obtained, John V. Winfield or the Board Nominee will
furnish only that portion of such Confidential Information that he is legally
required to furnish. If such a protective order or remedy is not
obtained, John V. Winfield or the Board Nominee will exercise reasonable best
efforts to obtain reliable assurance that confidential treatment will be
accorded such Confidential Information. If such a protective order or
other remedy is obtained, John V. Winfield or the Board Nominee will exercise
reasonable efforts to obtain reliable assurance that such Confidential
Information is furnished in accordance with and subject to such protective order
or remedy. To the extent that John V. Winfield or the Board Nominee
furnishes Confidential Information in accordance with this
Section 10(f)
,
such furnishing will not constitute a breach of this
Section 10(f).
g) John
V. Winfield and the Board Nominee, for so long as each serves as a member of the
Board, shall be entitled to the same rights, privileges and compensation as the
other members of the Board in their capacity as such, including with respect to
indemnification, insurance coverage and reimbursement for meeting participation
and related expenses.
EXHIBIT
4.1
h) John
V. Winfield, the Board Nominee and the Winfield Group shall provide prompt
written notice at such time as any event occurs of which they are aware that
would reasonably be expected to terminate the obligation of the Corporation to
nominate or renominate John V. Winfield or the Board Nominee (including the
Board Nominee’s failure to meet the qualifications set forth in
Section 10(e)).
i) The
obligations of the Corporation under this
Section 10
shall
terminate upon the consummation of a Change in Control Transaction.
Section
11
.
Miscellaneous
.
a)
Notices
. Any
and all notices or other communications or deliveries to be provided by the
Holders hereunder including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, or sent by a nationally recognized
overnight courier service, addressed to the Corporation, at P.O. Box 1118, 1200
American Flat Road, Virginia City, NV 89440, Attention: President, or such other
address as the Corporation may specify for such purposes by notice to the
Holders delivered in accordance with this
Section
11(a)
. Any
and all notices or other communications or deliveries to be provided by the
Corporation hereunder shall be in writing and delivered personally, or sent by a
nationally recognized overnight courier service addressed to each Holder at the
address of such Holder appearing on the books of the Corporation, or if no such
address appears on the books of the Corporation, at the principal place of
business of such Holder, as set forth in the Purchase Agreement. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the second Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or
(ii) upon actual receipt by the party to whom such notice is required to be
given.
b)
Absolute Obligation
.
Except as expressly provided herein, no provision of this Certificate of
Designation shall alter or impair the obligation of the Corporation, which is
absolute and unconditional, to pay accrued dividends on the shares of Series A-1
Preferred Stock at the time, place, and rate, and in the coin, currency or
shares (as applicable), herein prescribed.
c)
Lost or Mutilated Series A-1
Preferred Stock Certificate
. If a Holder’s Series A-1
Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the
Corporation shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated certificate, or in lieu of or in substitution for a
lost, stolen or destroyed certificate, a new certificate for the shares of
Series A-1 Preferred Stock so mutilated, lost, stolen or destroyed, but only
upon receipt of evidence of such loss, theft or destruction of such certificate,
and of the ownership hereof reasonably satisfactory to the
Corporation.
d)
Governing
Law
. All questions concerning the construction, validity,
enforcement and interpretation of this Certificate of Designation shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Nevada, without regard to the principles of conflict of laws
thereof. The Corporation and each Holder agrees that all legal
proceedings concerning the interpretation, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the “
New York
Courts
”). The Corporation and each Holder hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such New York Courts,
or such New York Courts are improper or inconvenient venue for such
proceeding. The Corporation and each Holder hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to it at the address in
effect for notices to it under this Certificate of Designation and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by applicable law. The
Corporation and each Holder hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Certificate of Designation or the
transactions contemplated hereby. If the Corporation or any Holder
shall commence an action or proceeding to enforce any provisions of this
Certificate of Designation, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.
EXHIBIT
4.1
e)
Waiver
. Any
waiver by the Corporation or a Holder of a breach of any provision of this
Certificate of Designation shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Certificate of Designation or a waiver by any other Holders. The
failure of the Corporation or a Holder to insist upon strict adherence to any
term of this Certificate of Designation on one or more occasions shall not be
considered a waiver or deprive that party (or any other Holder) of the right
thereafter to insist upon strict adherence to that term or any other term of
this Certificate of Designation on any other occasion. Any waiver by
the Corporation or a Holder must be in writing.
f)
Severability
. If
any provision of this Certificate of Designation is invalid, illegal or
unenforceable, the balance of this Certificate of Designation shall remain in
effect, and if any provision is inapplicable to any Person or circumstance, it
shall nevertheless remain applicable to all other Persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum rate of interest permitted under applicable law.
g)
Next Business
Day
. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.
h)
Headings
. The
headings contained herein are for convenience only, do not constitute a part of
this Certificate of Designation and shall not be deemed to limit or affect any
of the provisions hereof.
i)
Status of Converted or
Redeemed Series A-1 Preferred Stock
. Shares of Series A-1
Preferred Stock may only be issued pursuant to the Transaction
Documents. If any shares of Series A-1 Preferred Stock shall be
converted, redeemed or reacquired by the Corporation, such shares shall resume
the status of authorized but unissued shares of Preferred Stock and shall no
longer be designated as 7 ½% Series A-1 Convertible Preferred
Stock.
*********************
EXHIBIT
4.2
COMSTOCK
MINING INC.
CERTIFICATE
OF DESIGNATION OF PREFERENCES,
RIGHTS
AND LIMITATIONS
OF
7
½% SERIES A-2 CONVERTIBLE PREFERRED STOCK
PURSUANT
TO SECTION 78.1955 OF THE
NEVADA
REVISED STATUTES
The
undersigned,
Corrado De Gasperis
, does
hereby certify that:
1. He
is the President and
Chief Executive
Officer
of Comstock Mining Inc., a Nevada corporation (the “
Corporation
”).
2. The
Corporation is authorized to issue up to
50,000,000
shares of its preferred stock, none of
which have been issued.
3. The
following resolutions were duly adopted by the board of directors of the
Corporation (the “
Board of
Directors
”):
WHEREAS,
the certificate of incorporation of the Corporation provides for a class of its
authorized stock known as the
“
Preferred Stock
,
”
consisting of up to
50,000,000
shares,
$0.000666
par value per share, issuable from time
to time in one or more series;
WHEREAS,
the Board of Directors is authorized to fix the dividend rights, dividend rate,
voting rights, conversion rights, rights and terms of redemption and liquidation
preferences of any wholly unissued series of the Preferred Stock and the number
of shares constituting any series and the designation thereof, of any of them;
and
WHEREAS,
it is the desire of the Board of Directors, pursuant to its authority as
aforesaid, to fix the rights, preferences, restrictions and other matters
relating to a series of the Preferred Stock, which shall consist of up to
250,000 shares of the Preferred Stock which the Corporation has the authority to
issue, to be designated as “7 ½% Series A-2 Convertible Preferred Stock,” as
follows:
NOW,
THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for
the issuance of a series of Preferred Stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights,
preferences, restrictions and other matters relating to such series of Preferred
Stock as follows:
TERMS
OF 7 ½% SERIES A-2 CONVERTIBLE PREFERRED STOCK
Section 1
.
Definitions
. For the
purposes hereof, the following terms shall have the following
meanings:
“
Additional Shares of Common
Stock
” shall have the meaning set forth in
Section
7(b)
.
“
Affiliate
” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person, as such terms are
used in and construed under Rule 405 of the Securities Act.
EXHIBIT
4.2
“
Aggregate
Consideration
” received by the Corporation with respect to any issuance
of Additional Shares of Common Stock shall: (
a
) to the extent it consists of cash, be computed
at the gross amount of cash received by the Corporation before deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Corporation in connection with such issuance and without deduction of any
expenses payable by the Corporation, (
b
) to
the extent it consists of property other than cash, be computed at the fair
value of that property as determined in good faith by the Board of Directors,
and (
c
) with respect to Common Stock
Equivalents, the purchase price or other consideration received by the
Corporation in connection with the issuance of such Common Stock Equivalents,
together with the amount of any exercise price or other additional consideration
payable to the Corporation in connection with the exercise or conversion (as
applicable) of such Common Stock Equivalents.
“
Alternate
Consideration
” shall have the meaning set forth in
Section 7(
d)
.
“
Bankruptcy
Proceeding
” means (i)(a) a voluntary case, action, proceeding or petition
or (b) the consent to the institution of, or failure to contest in a timely and
appropriate manner, any involuntary case, action, proceeding or petition seeking
the liquidation, reorganization or other relief in respect of the Corporation,
or of a substantial part of its assets, under any Federal or state bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or (ii) the
application or consent to the appointment of a receiver, interim receiver,
receiver manager, trustee, custodian, sequestrator, conservator or similar
official for the Corporation or for a substantial part of its assets and, in any
such case, such case, action, proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the foregoing
shall be entered.
“
Base Conversion
Price
” shall have the meaning set forth in
Section
7(b)
.
“
Business Day
” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
“
Change of Control
Transaction
” means the occurrence after the date hereof of any of (a) an
acquisition after the date hereof by any Person or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Corporation, by
contract or otherwise) of
a majority
of the
voting securities of the Corporation (other than by means of conversion or
exercise of Series A-2 Preferred Stock and the Parity Securities or upon
conversion of any currently outstanding convertible securities in accordance
with the terms thereof as in effect on the date hereof), (b) the Corporation
merges into or consolidates with any other Person, or any Person merges into or
consolidates with the Corporation and, after giving effect to such transaction,
the stockholders of the Corporation
as
of
immediately prior to such
transaction
do not
own
a majority
of the aggregate voting power of the
Corporation or the successor entity of such transaction, (c) the Corporation
sells or transfers all or substantially all of its assets to another Person and
the stockholders of the Corporation
as of
immediately prior to such transaction
do
not
own
a majority
of the aggregate voting power of
the acquiring entity immediately after the transaction,
(d) the Corporation,
directly or indirectly, transfers a majority of the asset value and/or
enterprise value of the Corporation (whichever is lower) to another Person and
the stockholders of the Corporation as of immediately prior to such transaction
do not own a majority of the aggregate voting power of the acquiring entity
immediately after the transaction, or (e) a replacement at one time or within a
one year period of more than one-half of the members of the Board of Directors
which is not approved by the Winfield Group or a majority of those individuals
who are members of the Board of Directors on the Closing Date (or by those
individuals who are serving as members of the Board of Directors on any date
whose nomination to the Board of Directors was approved by the Winfield Group or
a majority of the members of the Board of Directors who are members on the
Closing Date),
in each case that has been approved
by the stockholders of the Corporation as required under: (i) the Nevada
corporate law, (ii) the Corporation’s certificate of incorporation, (iii) this
Certificate of Designation or (iv) any other
agreement to which the
Corporation
is a party, as
applicable
. Notwithstanding the foregoing, none of the
following shall constitute a Change of Control Transaction: (a) any
pledge, mortgage, grant of security interest, sale-leaseback or similar
transaction (excluding any foreclosure sale), (b) any transaction or series of
transactions principally for bona fide equity financing purposes in which cash
is received by the Corporation or any successor to the Corporation and no
acquiring Person or group acquires 20% or more of the outstanding voting
securities of the Corporation in such transaction or transactions, or (c) any
transaction or series of transactions principally for the bona fide acquisition
of another Person after which no Person or group acquires 20% or more of the
outstanding voting securities of the Corporation.
EXHIBIT
4.2
“
Closing
” means the
closing of the purchase and sale of the Securities pursuant to
Section 2.1
of the
Purchase Agreement.
“
Closing Date
” means
the date on which the Closing occurs
pursuant to
Section
2.1
of
the Purchase
Agreement.
“
Common Stock
” means
the Corporation’s common stock, par value
$0.000666
per share, and stock of any other class
of securities into which such
common stock
may hereafter be reclassified or changed.
“
Common Stock
Equivalents
” means any securities of the Corporation or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“
Conversion Date
”
means the Elective Conversion Date or VWAP Automatic Conversion Date, as
applicable.
“
Conversion Price
”
shall have the meaning set forth in
Section
6(d)
.
“
Conversion Shares
”
means, collectively, the shares of Common Stock issuable upon conversion of the
shares of Series A-2 Preferred Stock in accordance with the terms
hereof.
“
Conversion Shares
Registration Statement
” means a registration statement that registers the
resale of all Conversion Shares, so long as such Conversion Shares are
Registrable Securities
(as such term is defined in
the Registration Rights Agreement)
of the Holders, who shall be named as
“selling stockholders” therein and meets the requirements of the Registration
Rights Agreement.
“
Dilutive Issuance
”
shall have the meaning set forth in
Section
7(b)
.
“
Dilutive Issuance
Notice
” shall have the meaning set forth in
Section
7(b)
.
“
Dividend Payment
Date
” shall have the meaning set forth in
Section
3(a)
.
“
Effective Date
” has
the meaning set forth in
the Purchase Agreement.
“
Elective Conversion
Date
” shall have the meaning set forth in
Section
6(a)
.
EXHIBIT
4.2
“
Equity Conditions
”
means, as of the date in question: (a) the Corporation shall have duly honored
all conversions of Series A-2 Preferred Stock occurring pursuant to one or more
Notices of Elective Conversion provided by the applicable Holder to the
Corporation, if any; (b) the Corporation shall have paid all amounts owing to
the applicable Holder under this Certificate of Designation in respect of its
Series A-2 Preferred Stock, if any; (c) the Common Stock is trading on a Trading
Market (and the Corporation believes, in good faith, that trading of the Common
Stock on a Trading Market will continue uninterrupted for the foreseeable
future); (d) there is a sufficient number of authorized, but unissued and
otherwise unreserved, shares of Common Stock for the issuance of all of the
Conversion Shares; (e) there has been no public announcement of a pending or
proposed Fundamental Transaction or Change of Control Transaction that has not
been consummated; (f) the applicable Holder is not in possession of any
information provided by the Corporation that constitutes, or may constitute,
material non-public information; and (g) a Bankruptcy Proceeding shall not be
pending against the Corporation.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
Exempt Issuance
” shall have the meaning set forth in the Purchase
Agreement.
“
Fundamental
Transaction
” shall have the meaning set forth in
Section 7(
d
)
.
“
GAAP
” means United
States generally accepted accounting principles.
“
Holder
” shall have
the meaning given such term in
Section
3(a)
.
“
Indebtedness
” means
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same are or should be reflected in
the Corporation’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, and (c) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP.
“
Junior Securities
”
means the Common Stock and all other Common Stock Equivalents of the Corporation
other than those securities that are explicitly senior or
pari passu
to the Series A-2
Preferred Stock in dividend rights or liquidation preference.
“
Liens
” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.
“
Liquidation
” shall
have the meaning set forth in
Section
5
.
“
Make-Whole Payment
”
shall have the meaning set forth in
Section
3(a)
.
“
New York Courts
”
shall have the meaning set forth in
Section
10
(d)
.
“
Notice of
COC
” shall have the meaning set forth in
Section
5
.
“
Notice of
Elective
Conversion
” shall have the meaning set forth in
Section
6(a)
.
“
Notice of
VWAP
Automatic
Conversion
” shall have the meaning set
forth in
Section 6(
c
)
.
EXHIBIT
4.2
“
Originally Issued
”
means that number of shares of the Series A-2 Preferred Stock issued on the date
of the first issuance of such shares, regardless of the number of transfers of
any particular shares of Series A-2 Preferred Stock thereafter and regardless of
the number of certificates which may be issued to evidence such Series A-2
Preferred Stock.
“
Parity Securities
”
means the Series A-1 Preferred Stock, the Series A-2 Preferred Stock and all
other capital stock of the Corporation, whether now or hereafter authorized,
that is explicitly stated to be
pari passu
with the Series
A-1 Preferred Stock and the Series A-2 Preferred Stock in dividend rights or
liquidation preference.
“
Participation
Maximum
” shall have the meaning set forth in
Section
9(a)
.
“
Permitted
Indebtedness
” means
, with respect to the
Corporation, any:
(a)
indebtedness and other obligations arising in the
ordinary course of operations or business such as those in respect of business
expense reimbursements, workers’ compensation claims, bid or performance bonds,
reclamation or appeal bonds, surety bonds or letters of credit, leases or
deferred purchase price of equipment, trade credit, endorsement of checks, and
completion guarantees, (b) indebtedness under a revolving credit facility from
banks or similar financial institutions in a principal amount of up to
$5,000,000, (c) indebtedness incurred to finance the acquisition, construction
or improvement of any newly acquired business, property or asset so long as
recourse with respect to such indebtedness is limited solely to such newly
acquired business, property or asset
; and
(d) indebtedness existing as of immediately after the Closing that is set forth
on the Disclosure Schedule to the Purchase Agreement
.
“
Permitted Lien
” means Liens incurred in connection with Permitted
Indebtedness.
“
Person
” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“
Pre-Notice
” shall
have the meaning set forth in
Section
9(b)
.
“Pro Rata Portion
”
shall have the meaning set forth in
Section
9(e)
.
“
Purchase Agreement
”
means Securities Purchase Agreement, dated on or about the Closing Date, among
the Corporation and the original Holders, as amended, modified or supplemented
from time to time in accordance with its terms.
“
Registration Rights
Agreement
” means the Registration Rights Agreement, dated as of the date
of the Purchase Agreement, among the Corporation and the original Holders, in
the form of
Exhibit
B
attached to the Purchase Agreement
, as
amended, modified or supplemented from time to time in accordance with its
terms
.
“
Securities
”
has the meaning
set forth in the Purchase Agreement
.
“
Securities Act
” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Series A-1 Preferred
Stock
” means the Series A-1 Convertible Preferred Stock of the
Corporation, with the rights, preferences and privileges set forth in the
Certificate of Designation of Preferences, Rights and Limitations of 7 ½% Series
A-1 Convertible Preferred Stock, filed contemporaneously herewith in the Office
of the Secretary of State of the State of Nevada.
EXHIBIT
4.2
“
Series A-2 Preferred
Stock
” shall have the meaning set forth in
Section
2
.
“
Stated Value
” shall
have the meaning set forth in
Section
2
.
“
Subsequent Financing
”
shall have the meaning set forth in
Section
9(a)
.
“
Subsequent Financing
Notice
” shall have the meaning set forth in
Section
9(b)
.
“
Subsidiary
”
shall have the meaning set forth in
the Purchase
Agreement.
“
Successor Entity
”
shall have the meaning set forth in
Section 7(
d
)
.
“
Threshold Period
”
shall have the meaning set forth in
Section
6(c)
.
“
Trading Day
” means a
day on which the principal Trading Market is open for business.
“
Trading Market
” means
any of the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the
American Stock Exchange, the Toronto Stock
Exchange
, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or
any successors to any of the foregoing).
“
Transaction
Documents
” has the meaning set forth in the Purchase
Agreement.
“
VWAP
” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time)), (b) if the
OTC Bulletin Board is not a Trading Market, the volume weighted average price of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported, or (d) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Holders of a majority in
interest of the Securities then outstanding and reasonably acceptable to the
Corporation, the fees and expenses of which shall be paid by the
Corporation.
“
VWAP
Automatic Conversion
Date
” shall have the meaning set forth in
Section
6(
c
)
.
“
Winfield Group
” means
John V. Winfield, his heirs, personal representatives and family trusts created
and controlled by Mr. Winfield, any individual retirement accounts held by Mr.
Winfield, Santa Fe Financial Corporation, Portsmouth Square, Inc. and InterGroup
Corporation, and any Affiliates of Mr. Winfield; provided, that the Winfield
Group shall also include all transferees and assigns of the Winfield Group at
any time that a default has occurred under Section 4.2 of the Purchase Agreement
and such default has not been cured pursuant to Section 5.13(b) of the Purchase
Agreement.
Section
2
.
Designation, Amount and Par
Value
. The series of Preferred Stock designated by this Certificate of
Designation shall be the Corporation’s 7 ½% Series A-2 Convertible Preferred
Stock (the “
Series A-2
Preferred Stock
”) and the authorized number of shares so designated shall
be up to 250,000. Each share of Series A-2 Preferred Stock shall have a par
value of
$0.000666
per share and a stated
value equal to $
1,000
(the “
Stated
Value
”).
EXHIBIT
4.2
Section
3
.
Dividends
.
a)
Dividends in Cash or in
Kind
. Subject to Section 3(e) below, Holders
of
Series A-2
Preferred Stock (each, a “
Holder
” and collectively, the “
Holders
”)
shall be entitled to receive, and the
Corporation shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) of 7 ½% per annum, payable
semiannually on January 1 and July 1, commencing on January 1, 2011 and on each
Conversion Date (with respect only to Series A-2 Preferred Stock being
converted) (each such date, a “
Dividend Payment
Date
”) (if any Dividend Payment Date is not a Trading Day, the applicable
payment shall be due on the next succeeding Trading Day)
,
as set forth
below
in this
Section 3(a)
;
provided, however
, that in
the event of the automatic conversion of Series A-2 Preferred Stock into shares
of Common Stock pursuant to
Section 6(c)
prior to
August 31, 2013, the Corporation shall also pay to the Holders of Series A-2
Preferred Stock so converted an additional dividend, for each share of Series
A-2 Preferred Stock, equal to: (i) the net present value, as of the Conversion
Date, of a payment equal to 22 ½% of the Stated Value of one (1) share of Series
A-2 Preferred Stock occurring on August 31, 2013 (calculated assuming a discount
rate of 7 ½%),
minus
(ii) the aggregate amount of any semi-annual dividends paid on one (1) share of
Series A-2 Preferred Stock before the Conversion Date (the “
Make-Whole
Payment
”). The form of any semi-annual dividend payments or
any Make-Whole Payment to each Holder shall be, at the election of the
Corporation: (A) if funds are legally available for the payment of dividends, in
cash, (B)
subject to
the satisfaction of the Equity Conditions, in shares of Common Stock, which
shall be valued solely for such purpose at the average of the VWAPs for the 5
consecutive Trading Days ending on the Trading Day that is immediately prior to:
(1) the applicable Dividend Payment Date; or (2) with respect to dividends paid
upon conversion of Series A-2 Preferred Stock into Common Stock, the Conversion
Date, (C)
subject to
the satisfaction of the Equity Conditions, in additional shares
(including, without limitation, fractional shares)
of Series A-2 Preferred Stock,
in an amount
equal to the dollar amount of such dividend payment
or Make-Whole Payment (as applicable)
divided by
the Stated Value per share, or
(D)
subject to the
satisfaction of the Equity Conditions, in any combination of the property
described in the foregoing
clauses (A)
,
(B)
, and
(C)
.
b)
Corporation’s Payment of
Dividends in Cash or in Additional Shares of Stock
. The
Corporation shall promptly notify the Holders at any time the Corporation shall
become unable to legally pay semi-annual dividends or Make-Whole Payments in
cash. The Corporation shall provide the Holders with at least 20
Trading Days’ notice of its election to pay a semi-annual dividend or Make-Whole
Payment in shares of Common Stock or additional shares of Series A-2 Preferred
Stock (the Corporation may indicate, in any such notice relating to semi-annual
dividends, that the election contained in such notice shall continue for later
periods until revised by a subsequent notice).
c)
Dividend
Calculations
. Dividends on the Series A-2 Preferred Stock
shall be calculated on the basis of a 360-day year, consisting of twelve 30
calendar day periods, and shall accrue daily commencing on the Closing Date, and
shall be deemed to accrue from such date whether or not earned or declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. Payment of dividends
in shares of Common Stock or additional shares of Series A-2 Preferred Stock (as
applicable) shall
be made in a manner consistent
with
Section 6(e)(i)
herein and, solely for purposes of the payment of dividends in shares, the
Dividend Payment Date shall be deemed to be the Conversion
Date. Dividends shall cease to accrue with respect to any Series A-2
Preferred Stock when converted. Except as otherwise provided herein,
if at any time the Corporation pays dividends partially in cash and partially in
shares of Common Stock and/or Series A-2 Preferred Stock, then such payment
shall be distributed ratably among the Holders based upon the number of shares
of Series A-2 Preferred Stock held by each Holder on such Dividend Payment
Date.
EXHIBIT
4.2
d)
Other Securities
. So
long as any Series A-2 Preferred Stock shall remain outstanding: (i) neither the
Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities; and (ii) the Corporation
and any Subsidiaries thereof shall only redeem, repurchase or otherwise acquire,
directly or indirectly, any Parity Securities ratably with the Series A-2
Preferred Stock on a
pari
passu
basis. So long as any Series A-2 Preferred Stock shall
remain outstanding: (i) neither the Corporation nor any Subsidiary thereof shall
directly or indirectly pay or declare any dividend or make any distribution upon
any Junior Securities (other than a dividend or distribution solely in
additional shares of Junior Securities), in each case as long as any dividends
due on the Series A-2 Preferred Stock remain unpaid, nor shall any monies be set
aside for or applied to the purchase or redemption (through a sinking fund or
otherwise) of any Junior Securities; and (ii) the Corporation and any
Subsidiaries thereof shall only, directly or indirectly, pay or declare any
dividend or make any distribution upon any Parity Securities, or set aside or
apply any monies for the purchase or redemption (through a sinking fund or
otherwise) of any Parity Securities, if it simultaneously, on a
pari passu
basis and ratably
among the holders of the Series A-2 Preferred Stock and the holders of all
Parity Securities, pays or declares a dividend or distribution, or sets aside or
applies monies for the purchase or redemption (through a sinking fund or
otherwise), of the Series A-2 Preferred Stock.
e)
Payment of Dividends in
Kind
. During the period
commencing on the Closing Date and ending on the eighteen (18) month anniversary
of the Closing Date, in the event on any Dividend Payment Date the Registration
Statement (as defined in the Registration Rights Agreement) has not been
declared effective in accordance with Section 2(b) of the Registration Rights
Agreement, any dividend payable in Common Stock or Series A-2 Preferred Stock
shall accrue and be payable to the Holders of the Series A-2 Preferred Stock
within five (5) business days following the date that such Registration
Statement is declared effective. In the event on any Dividend Payment
Date following the eighteen (18) month anniversary of the Closing Date, the
Registration Statement has not been declared effective or the Corporation has
failed to maintain its effectiveness during the Effectiveness Period (as defined
in the Registration Rights Agreement), all dividends payable to the Holders of
the Series A-2 Preferred Stock shall be payable, if funds are legally available
for payment, in cash only. If such funds are not legally available for payment,
any dividend payable shall accrue and be immediately payable to the Holders of
the Series A-2 Preferred Stock in cash, when such funds become legally
available, or, at the option of the Corporation, subject to the effectiveness on
such date of the Registration Statement, as otherwise provided for
herein
; provided however, that if such
funds are not legally available and the Registration Statement is not effective,
the Holders of the Series A-
2
Preferred Stock can waive the requirement that the
Registration Statement be effective and elect to received dividend payments as
otherwise provided for herein
.
Section
4
.
Voting
Rights
.
a) Except
as otherwise provided herein or as otherwise required by law, each Holder of
Series A-2 Preferred Stock shall: (i) be entitled to notice of any annual or
special meeting of the stockholders of the Corporation, at the same time and in
the same manner as of the holders of Common Stock in accordance with the by-laws
of the Corporation; and (ii) vote together with the Common Stock at any annual
or special meeting of the stockholders of the Corporation, or in any action by
written consent of stockholders of the Corporation in lieu of meeting, on an
as-converted to Common Stock basis, with each share of Series A-2 Preferred
Stock entitling its Holder to the number of votes equal the number of shares of
Common Stock into which such share of Series A-2 Preferred Stock could be
converted under this Certificate of Designation as of the close of business on
the record date fixed for such meeting or the effective date of such written
consent.
EXHIBIT
4.2
b)
Each share of
Series A-2
Preferred Stock shall entitle its holder to one (1) vote in any matter submitted
to vote of the holders of Preferred Stock, voting
as
a separate class (as opposed to voting with the holders
of Common Stock as provided in
Section 4(a)
).
Section
5
.
Liquidation and Change of
Control Transactions
. Upon any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary (a “
Liquidation
”) or a
Change of Control Transaction, the Holders shall be entitled to receive out of
the assets, whether capital or surplus, of the Corporation in the case of a
Liquidation, or out of the aggregate consideration received by the Corporation
and its stockholders in the case of a Change of Control
Transaction, an amount equal to (i) the Stated Value, plus any accrued and
unpaid dividends on the Series A-2 Preferred Stock, together with any other fees
then due and owing thereon under this Certificate of Designation, for each share
of Series A-2 Preferred Stock, on a
pari passu
basis with any
distribution or payment upon a Liquidation or Change of Control Transaction to
the holders of Parity Securities and before any distribution or payment shall be
made to the holders of any Junior Securities,
plus
(ii) the amount
the Holders would have been entitled to receive as holders of the number of
shares of Common Stock for which the shares of Series A-2 Preferred Stock are
convertible immediately prior to such Liquidation or Change of Control
Transaction, on a
pari
passu
basis with any distribution or payment upon a Liquidation or Change
of Control Transaction to the holders of Parity Securities and Junior Securities
combined. If the assets of the Corporation or aggregate consideration received
shall be insufficient to pay in full the respective preference amounts to the
Holders of Series A-2 Preferred Stock and the holders of any Parity Securities
described in this
Section 5
, then the
entire assets of the Corporation or aggregate consideration shall be ratably
distributed among the Holders of Series A-2 Preferred Stock and the holders of
any Parity Securities, in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in
full. The Corporation shall mail written notice of any Liquidation,
not less than 45 days prior to the payment date stated therein, to each Holder.
The Corporation shall provide each Holder with
reasonable advance notice (a “
Notice of
COC
”) of the occurrence of
a Change of Control Transaction or potential Change of
Control Transaction
, which shall specify,
for each Holder, the number of shares of Series A-
2
Preferred Stock
owned
on the date of such Notice of
COC
, the number of shares of Common Stock
issuable upon conversion of such Series A-
2
Preferred Stock
and the date
, if known,
on which such
Change of Control Transaction
is to be effected, which date may not be prior to the
date the Corporation delivers such Notice of
COC
to the
Holders. The calculations and entries set forth in the Notice of
COC
shall control in the absence of manifest or mathematical
error. Each Holder shall deliver the certificate(s) representing
the
shares of Series A-
2
Preferred Stock
as
instructed in
the
Notice of
COC
.
Section
6
.
Conversion
.
a)
Conversions at Option of
Holder
. Each share of Series A-2 Preferred Stock shall be
convertible, at any time and from time to time from and after the Closing Date
at the option of the Holder thereof, into that number of shares of Common Stock
determined by dividing the Stated Value of such share of Series A-2 Preferred
Stock by the Conversion Price
then in
effect
. Holders shall effect
voluntary
conversions
pursuant to this
Section 6(a)
by providing the Corporation with the form
of conversion notice attached hereto as
Annex A
(a “
Notice of
Elective
Conversion
”). Each
Notice of
Elective
Conversion shall specify
the number of shares of Series A-2 Preferred Stock to be converted, the number
of shares of Series A-2 Preferred Stock owned prior to the conversion at issue,
the number of shares of Series A-2 Preferred Stock owned subsequent to the
conversion at issue and the date on which such conversion is to be effected,
which date may not be prior to the date the applicable Holder delivers such
Notice of Conversion to the Corporation (such date, the “
Elective
Conversion
Date
”). If no
Elective
Conversion Date is
specified in a Notice of
Elective
Conversion, the
Elective
Conversion Date shall be
the date that such Notice of
Elective
Conversion is delivered
hereunder. The calculations and entries set forth in the Notice of
Elective
Conversion shall control
in the absence of manifest or mathematical error. To effect
elective
conversions of shares of Series A-2
Preferred Stock
pursuant to this
Section 6(a)
, a
Holder shall not be required to surrender the certificate(s) representing the
shares of Series A-2 Preferred Stock to the Corporation unless all of the shares
of Series A-2 Preferred Stock represented thereby are so converted, in which
case such Holder shall deliver the certificate representing such shares of
Series A-2 Preferred Stock promptly following the Elective Conversion Date at
issue
. Any certificate representing
shares of
Series A-2
Preferred Stock that have been converted in whole or
part by such Holder shall be void and should be destroyed upon receipt of
replacement certificate(s) from the Corporation
. Shares of
Series A-2 Preferred Stock converted into Common Stock
pursuant to this
Section 6(a)
shall be
canceled and shall not be reissued.
EXHIBIT
4.2
b)
[RESERVED
]
c)
Automatic Conversion Upon
Sufficient VWAP
. I
f: (i)
the VWAP for each of any twenty (20) Trading Days during any thirty (30)
consecutive Trading Day period starting on or after the Effective Date (“
Threshold Period
”),
exceeds $4.50 (subject to adjustment for forward and reverse stock splits,
recapitalizations, stock dividends and the like after the Closing Date); and
(ii) all of the Equity Conditions have been met on each Trading Day during the
applicable Threshold Period through and including the later of the VWAP
Automatic Conversion Date and the Trading Day after the date that the Conversion
Shares issuable pursuant to such conversion are actually delivered to the
Holders pursuant to the Notice of VWAP Automatic Conversion, then a
ll outstanding shares of Series A-2 Preferred Stock
shall automatically be converted into shares of Common Stock, based on the
then-effective Conversion Price. The Corporation shall provide each
Holder with notice (a “
Notice of VWAP Automatic
Conversion
”) of the occurrence of an
automatic conversion of the Series A-2 Preferred Stock pursuant to this
Section
6(c)
within one (1) Trading Day after the
end of any such Threshold Period, which shall specify, for each Holder, the
number of shares of Series A-2 Preferred Stock owned prior to the automatic
conversion at issue, the number of shares of Common Stock issuable upon
conversion of such Series A-2 Preferred Stock and the date on which such
automatic conversion is to be effected, which shall be the
third Trading
Day following the date the Corporation delivers such Notice of VWAP Automatic
Conversion
to the Holders
(such date, the
“
VWAP Automatic
Conversion Date
”)
. The
calculations and entries set forth in the Notice of VWAP Automatic Conversion
shall control in the absence of manifest or mathematical error. Each
Holder shall deliver the certificate(s) representing all of its shares of Series
A-2 Preferred Stock to the Corporation promptly following
the
VWAP
Automatic Conversion
Date. Shares of Series A-
2
Preferred Stock
converted into Common Stock pursuant to this
Section 6(
c
)
shall be canceled and shall not be reissued
.
d
)
Conversion
Price
. The conversion price for the Series A-2 Preferred Stock
shall initially equal
$0.6
510
,
subject to adjustment
herein (the “
Conversion
Price
”).
e
)
Mechanics of
Conversion
i.
Delivery of Certificate Upon
Conversion
. Not later than three (3) Trading Days after each Conversion
Date, the Corporation shall deliver, or cause to be delivered, to the converting
Holder (A) a certificate or certificates representing the Conversion Shares
which, on or after the earlier of: (1) the
six (6)
month
anniversary of the Closing Date; or (2) the Effective Date, shall
be free of restrictive legends and trading restrictions (other than those which
may then be required by the Purchase Agreement) representing the number of
Conversion Shares being acquired upon the conversion of the Series A-2 Preferred
Stock, and/or (B) a bank check in the amount of accrued and unpaid dividends
and, if applicable, the Make-Whole Payment (to the extent that the Corporation
has elected to pay accrued dividends or the Make-Whole Payment in
cash). On or after the earlier of: (1) the
six (6) month
anniversary of the Closing Date or
(2) the Effective Date, the Corporation shall use
commercially reasonable
efforts to deliver any
certificate or certificates required to be delivered by the Corporation under
this
Section 6
electronically through the Depository Trust Company or another established
clearing corporation performing similar functions.
EXHIBIT
4.2
ii.
Obligation
Absolute
. The Corporation’s obligation to issue and deliver
the Conversion Shares upon conversion of Series A-2 Preferred Stock in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by a Holder to enforce the same, any waiver or consent
with respect to any other provision hereof, the recovery of any judgment against
any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
Holder or any other Person of any obligation to the Corporation or any violation
or alleged violation of law by such Holder or any other Person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to such Holder in connection with the issuance of such Conversion
Shares;
provided,
however
, that such delivery shall not operate as a waiver by the
Corporation of any such action that the Corporation may have against such Holder
or such other Person. In the event a Holder shall elect to convert
any or all of its Series A-2 Preferred Stock, the Corporation may not refuse
conversion based on any claim that such Holder or any one associated or
affiliated with such Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to Holder,
restraining and/or enjoining conversion of all or part of the Series A-2
Preferred Stock of such Holder shall have been sought and
obtained. In the absence of such injunction, the Corporation shall
issue Conversion Shares and, if applicable, cash, upon a properly noticed
conversion. Nothing herein shall limit a Holder’s right to pursue
actual damages or all
other
remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief. The exercise
of any such rights shall not prohibit a Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.
iii.
Liquidated
Damages
. If the Corporation
fails to deliver to a Holder such certificate or certificates representing
Conversion Shares within five (5) Trading Days after the Elective Conversion
Date provided in a Notice of Elective Conversion pursuant to Section 6(a), the
Corporation shall pay to such Holder, in cash, as liquidated damages and not as
a penalty, for each share of Series A-
2
Preferred Stock
elected to be converted, $50 per Trading Day for each Trading Day after such
fifth (5th) Trading Day after the Elective Conversion Date until such
certificates are delivered
or such Holder
is reimbursed in accordance with Section 6(e)(iv)
. Nothing herein shall limit a Holder’s right to pursue
actual damages for the Corporation’s failure to deliver Conversion Shares and
such Holder shall have the right to pursue all remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of any
such rights shall not prohibit a Holder from seeking to enforce damages pursuant
to any other Section hereof or under applicable law.
iv.
Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion
. If the Corporation fails to deliver to a Holder the
applicable certificate or certificates within five (5) Trading Days after the
Elective Conversion Date, and if after such date such Holder is required by its
brokerage firm to purchase (in an open market transaction or otherwise), or the
Holder’s brokerage firm purchases, shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Conversion Shares which such Holder
was entitled to receive upon the conversion relating to such Notice of Elective
Conversion (a “
Buy-In
”), then the Corporation shall (A) pay in cash to such
Holder (in addition to any other remedies available to or elected by such
Holder) the amount by which (x) such Holder’s total purchase price (including
any brokerage commissions) for the shares of Common Stock so purchased exceeds
(y) the product of (1) the aggregate number of shares of Common Stock that such
Holder was entitled to receive from the conversion at issue multiplied by (2)
the actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B) at the
option of such Holder, either reissue (if surre
ndered) the shares of Series A-2
Preferred Stock equal to the number of shares of Series
A-
2
Preferred Stock submitted for conversion or deliver to such Holder the number of
shares of Common Stock that would have been issued if the Corporation had timely
complied with the Notice of Elective Conversion. For example, if a Holder
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of shares of
Series A-2
Preferred Stock with respect to which the actual sale price (including any
brokerage commissions) giving rise to such purchase obligation was a total of
$10,000 under clause (A) of the immediately preceding sentence, the Corporation
shall be required to pay such Holder $1,000. The Holder shall provide the
Corporation written notice indicating the amounts payable to such Holder in
respect of the Buy-In and, upon request of the Corporation, evidence of the
amount of such loss. Nothing herein shall limit a Holder’s right to pursue any
other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Corporation’s failure to timely deliver certificates representing
shares of Common Stock upon conver
sion of
the shares of Series A-2
Preferred Stock as
required pursuant to the terms hereof.
EXHIBIT
4.2
v
.
Reservation of Shares
Issuable Upon Conversion
. The Corporation covenants that it
will, at all times
while any Series A-2 Preferred
Stock: (A) remains outstanding
or (B) is
reserved for issuance or otherwise issuable under any promissory note or
agreement to which the Corporation is a party
,
reserve and keep available out of its
authorized and unissued shares of Common Stock, for the sole purpose of issuance
upon conversion of such Series A-2 Preferred Stock, free from preemptive rights
or any other purchase rights of Persons other than the Holder (and the other
holders of the Series A-2 Preferred Stock), not less than 130% of the aggregate
number of shares of the Common Stock as shall be issuable (taking into account
the adjustments and restrictions of
Section 7
) upon: (A)
the conversion of
such
Series A-2
Preferred Stock; and (B)
payment of dividends
on such
Series
A-2
Preferred Stock
in shares of Common Stock
hereunder. The Corporation covenants that it will
, at all times while any
Series A-2
Preferred Stock: (A) remains outstanding or (B) is reserved for issuance or
otherwise issuable under any promissory note or agreement to which the
Corporation is a party,
reserve and keep available out of its authorized
and unissued shares of Preferred Stock, for the sole purpose of issuance upon
payment of dividends on
such
Series A-2
Preferred Stock in additional shares of
Series A-2 Preferred Stock as
herein provided, free from preemptive rights or any other purchase rights of
Persons other than the Holder (and the other holders of the Series A-2 Preferred
Stock), not less than 130% of the aggregate number of shares of the Series A-2
Preferred Stock as shall (subject to the terms and conditions set forth in the
Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of
Section 7
) upon the
payment of dividends
on such
Series A-2 Preferred Stock
in additional shares of
Series A-2
Preferred Stock
hereunder. The Corporation covenants that all
shares of Common Stock and Series A-2 Preferred Stock that shall be so issuable
shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable and, if the Conversion Shares Registration Statement is then
effective under the Securities Act, shall be, with respect to such Common Stock
and the Common Stock issuable upon conversion of such Series A-2 Preferred
Stock, registered for public resale in accordance with such Conversion Shares
Registration Statement (subject to such Holder’s compliance with its obligations
under the Registration Rights Agreement).
vi
.
Fractional
Shares
. No fractional shares or scrip representing fractional
shares of Common Stock shall be issued upon the conversion of the Series A-2
Preferred Stock. As to any fraction of a share of Common Stock,
which the Holder would otherwise be entitled to receive upon such conversion,
the Corporation shall at its election, either pay a cash adjustment in respect
of such final fraction in an amount equal to such fraction multiplied by the
Conversion Price or round up to the next whole share.
The Corporation may issue fractional shares
of
Series A-2
Preferred Stock.
EXHIBIT
4.2
vii
.
Transfer
Taxes
. The issuance of certificates for shares of the Common
Stock
upon
conversion of the Series A-2
Preferred Stock shall be made without charge to any Holder for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificates,
provided
that the Corporation
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holders of such shares of Series A-2
Preferred Stock and the Corporation shall not be required to issue or deliver
such certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall have
established to the satisfaction of the Corporation that such tax has been
paid.
Section
7
.
Certain
Adjustments
.
a)
Stock Dividends and Stock
Splits
. If the Corporation, at any time while
any
Series A-2 Preferred Stock is outstanding:
(i) pays a stock dividend or otherwise makes a distribution or distributions
payable in shares of Common Stock on shares of Common Stock or any Common Stock
Equivalents (which, for avoidance of doubt, shall not include any shares of
Common Stock issued by the Corporation upon conversion of, or payment of a
dividend on,
the
Series A-2 Preferred
Stock), (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, (iii) combines (including by way of a reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues, in the event of a reclassification of shares of the Common Stock, any
shares of capital stock of the Corporation, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding any treasury shares of the Corporation) outstanding
immediately before such event, and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to this
Section 7(a)
shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
b)
Subsequent Equity
Sales
. If, at any time while
any
Series A-2 Preferred Stock is outstanding,
the Corporation or any Subsidiary, as applicable
,
sells or grants any option to purchase or sells
or grants any right to reprice, or otherwise disposes of or issues (or announces
any sale, grant or any option to purchase or reprice or other disposition), any
Common Stock or Common Stock Equivalents (“
Additional Shares of Common
Stock
”) at an effective price per share
of
Common Stock
that is lower than the lower of: (i) 93% of the average of
the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is
immediately prior to the date of issuance of the Additional Shares of Common
Stock; or (ii) the then effective Conversion Price (such lower price, the “
Base Conversion
Price
” and such issuances, collectively, a “
Dilutive Issuance
”)
(if the holder of the Additional Shares of Common Stock so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due
to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock or Common Stock
Equivalents at an effective price per share that is lower than the Conversion
Price, such issuance shall be deemed to have occurred for less than the
Conversion Price on the date of the Dilutive Issuance), then the Conversion
Price shall be reduced to equal the price determined by multiplying the
Conversion Price in effect immediately prior to such issuance by a
fraction:
i. the
numerator of which shall be: (A) the number of
shares
of Common
Stock issuable upon the conversion of the
Series A-1
Preferred
Stock immediately prior to such Dilutive Issuance,
plus
(B) the number of shares
of Common Stock or
Common Stock Equivalents
which the Aggregate Consideration received or deemed to be received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such then-existing Base Conversion Price; and
EXHIBIT
4.2
ii. the
denominator of which shall be the number of
shares
of Common
Stock issuable upon the conversion of the
Series A-1
Preferred
Stock immediately prior to such Dilutive Issuance
plus
the total number of
Additional Shares of Common Stock actually so issued.
Such
adjustment shall be made upon any issuance of Additional Shares of Common
Stock
;
provided, however
, that
no adjustment will be made under this
Section 7(b)
in
respect of an Exempt Issuance. The Corporation shall notify the
Holders in writing, no later than the Trading Day following the issuance of any
Additional Shares of Common Stock subject to this
Section 7(b)
,
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“
Dilutive Issuance
Notice
”). For purposes of clarification, whether or not the
Corporation provides a Dilutive Issuance Notice pursuant to this
Section 7(b)
, upon
the occurrence of any Dilutive Issuance, the Holders are entitled to receive a
number of Conversion Shares based upon the Base Conversion Price on or after the
date of such Dilutive Issuance, regardless of whether a Holder accurately refers
to the Base Conversion Price in the Notice of Conversion.
c)
Pro Rata
Distributions
. If the Corporation, at any time while any
Series A-2 Preferred Stock is outstanding, distributes to all holders of Common
Stock (and not to the Holders) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for or
purchase any security (other than the Common Stock, which shall be subject to
Section 7(b)
),
then in each such case the Conversion Price shall be adjusted by multiplying
such Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness or rights or warrants so distributed
applicable to one outstanding share of Common Stock as determined by the Board
of Directors of the Corporation in good faith. In either case the
adjustments shall be described in a statement delivered to the Holders
describing the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date mentioned
above.
EXHIBIT
4.2
d)
Fundamental
Transaction
. If, at any time while
any
Series A-2 Preferred Stock is outstanding,
(i) the Corporation, directly or indirectly, in one or more related transactions
effects any merger or consolidation of the Corporation with or into another
Person, (ii) the Corporation, directly or indirectly, effects any sale, lease,
license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Corporation or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
50% or more of the outstanding Common Stock, (iv) the Corporation, directly or
indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, (v) the Corporation, directly
or indirectly, in one or more related transactions consummates a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination)
,
in each case other than a Change of Control Transaction
(each
,
a “
Fundamental
Transaction
”), then, upon any subsequent conversion of Series A-2
Preferred Stock, the Holder shall have the right to receive, for each Conversion
Share that would have been issuable upon such conversion immediately prior to
the occurrence of such Fundamental Transaction, the number of shares of Common
Stock of the successor or acquiring corporation or of the Corporation, if it is
the surviving corporation, and any additional consideration (the “
Alternate
Consideration
”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which Series A-2 Preferred
Stock is convertible immediately prior to such Fundamental
Transaction. For purposes of any such conversion, the determination
of the Conversion Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one share of Common Stock in such Fundamental Transaction, and the
Corporation shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of
Series A-2 Preferred Stock following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions, any successor to
the Corporation or surviving entity in such Fundamental Transaction shall file a
new Certificate of Designation with the same terms and conditions
as those hereof,
and issue to the Holders
new Series A-2 Preferred Stock consistent with the foregoing provisions and
evidencing the Holders’ right to convert such Series A-2 Preferred Stock into
Alternate Consideration. The Corporation shall cause any successor
entity in a Fundamental Transaction in which the Corporation is not the survivor
(the “
Successor
Entity
”) to assume in writing all of the obligations of the Corporation
under this Certificate of Designation and the other Transaction Documents in
accordance with the provisions of this
Section 7(
d
)
,
pursuant to written agreements in form and
substance reasonably satisfactory to the
Holders
of a majority of the then outstanding shares of Series A-2 Preferred Stock
issued pursuant to the Purchase Agreement and approved by such
Holders
(without unreasonable
delay) prior to such Fundamental Transaction, and shall deliver to
each
Holder in exchange for its Series A-2
Preferred Stock a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to the Series A-2
Preferred Stock which is convertible for a corresponding number of shares of
capital stock of such Successor Entity (or its parent entity) equivalent to the
shares of Common Stock acquirable and receivable upon conversion of the Series
A-2 Preferred Stock prior to such Fundamental Transaction, and with a conversion
price which applies the conversion price hereunder to such shares of capital
stock (but taking into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such shares of capital
stock, such number of shares of capital stock and such conversion price being
for the purpose of protecting the economic value of the Series A-2 Preferred
Stock immediately prior to the consummation of such Fundamental Transaction),
and which is reasonably satisfactory in form and substance to the
Holders of a majority of the then outstanding shares of
Series A-2 Preferred Stock issued pursuant to the Purchase
Agreement
. Upon the occurrence of any such Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Certificate of Designation and the other Transaction Documents referring to
the “Corporation” shall refer instead to the Successor Entity), and may exercise
every right and power of the Corporation and shall assume all of the obligations
of the Corporation under this Certificate of Designation and the other
Transaction Documents with the same effect as if such Successor Entity had been
named as the Corporation herein.
e
)
Calculations
. All
calculations under this
Section 7
shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may
be. For purposes of this
Section 7
, the number
of shares of Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding any treasury
shares of the Corporation) issued and outstanding.
EXHIBIT
4.2
f
)
Notice to the
Holders
.
i.
Adjustment to Conversion
Price
. Whenever the Conversion Price is adjusted pursuant to
any provision of this
Section 7
, the
Corporation shall promptly deliver to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
ii.
Notice to Allow Conversion
by Holder
. If (A) the Corporation shall declare a dividend (or
any other distribution in whatever form) on the Common Stock, (B) the
Corporation shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Corporation shall authorize the granting
to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Corporation shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Corporation is a party, any sale or transfer of all or substantially
all of the assets of the Corporation, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property or (E) the
Corporation shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation, then, in each case,
the Corporation shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Series A-2 Preferred Stock, and shall cause to
be delivered to each Holder at its last address as it shall appear upon the
stock books of the Corporation, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange,
provided
that the failure to
deliver such notice or any defect therein or in the delivery thereof shall not
affect the validity of the corporate action required to be specified in such
notice. To the extent that any notice provided hereunder constitutes,
or contains, material, non-public information regarding the Corporation or any
of the Subsidiaries, the Corporation shall
, as
required by applicable federal securities law,
file such notice with the
Commission pursuant to a Current Report on Form 8-K. The Holder shall
remain entitled to convert the Series A-2 Preferred Stock during the 20-day
period commencing on the date of such notice through the effective date of the
event triggering such notice, except as may otherwise be expressly set forth
herein.
Section 8.
Negative
Covenants
.
a)
As long as at least 25% of the Parity Securities that
were Originally Issued are still outstanding, the Corporation shall not, and
shall not permit any of the Subsidiaries to, directly or indirectly, without the
affirmative vote of the holders of a majority of the then outstanding Parity
Securities (which shall, as long as the Winfield Group still holds at least 25%
of the Parity Securities that were Originally Issued, include the Winfield
Group):
i)
other than Permitted Indebtedness, enter into, create,
incur, assume, guarantee or suffer to exist any
Indebtedness for borrowed money
;
ii)
other than Permitted Liens,
grant
, assume or
allow
to exist any
Liens of any kind, on or with respect to any of its property or assets now owned
or hereafter acquired or any interest therein or any income or profits
therefrom;
EXHIBIT
4.2
iii)
repay, repurchase or offer to repay, repurchase or
otherwise acquire Common Stock constituting more than 5% of the
outstanding shares
of Common Stock (measured as of immediately after the Closing), other than as to
(i) the Conversion Shares as permitted or required under this Certificate of
Designation or any other Transaction Documents and (ii) repurchases of Common
Stock or Common Stock Equivalents of departing officers and directors of the
Corporation, provided that such repurchases shall not exceed an aggregate of
$100,000 for all officers and directors for so long as the Parity Securities are
outstanding;
iv)
enter into any transaction with any Affiliate of the
Corporation which would be required to be disclosed in any public filing with
the Commission, unless such transaction is made on an arm’s-length basis and
expressly
approved by a majority of the disinterested directors of
the Corporation
(even if less than a quorum
otherwise required for board approval);
v)
enter into any transaction with
any Affiliate of an Officer or Director of the Corporation, if such transaction
provides for the payment of services in Securities of the Corporation;
vi
)
amend the Corporation’s certificate of incorporation,
by-laws or the Certificate of Designation of any of the Parity Securities in any
manner that materially adversely affects any of the rights, preferences or
privileges of the Holders of such Parity Securities;
vii
)
approve the issuance of any Preferred Stock, other than
the Series A-1 Preferred Stock and the Series A-2 Preferred Stock issued in
connection with the transactions contemplated under the Transaction
Documents;
viii
)
pay any dividends or make any distributions on any
Junior Securities (except in additional shares of Junior
Securities);
i
x)
adopt an executive equity incentive plan which provides
for the issuance of greater than 6.0% of the fully diluted equity of the
Corporation after taking into account the transactions contemplated under the
Transaction Documents;
x)
enter into any transaction for the sale or pledge of a
material asset of the Corporation;
x
i
)
approve or consent to the initiation of a Bankruptcy
Proceeding;
x
ii)
issue any
s
ecurities of the
Corporation in exchange for services to a consultant; or
x
ii
i)
enter into any agreement with respect to any of the
foregoing.
b)
As long as at least 25% of the Parity Securities that
were Originally Issued are still outstanding, and as long as the Winfield Group
still holds at least 25% of the Parity Securities that were Originally Issued,
the Corporation shall not, and shall not permit any of the Subsidiaries to,
directly or indirectly, without the affirmative vote of the Winfield
Group:
i)
enter into any transaction for the acquisition of any
business, property or asset pursuant to which the Corporation will incur
Indebtedness to finance such acquisition in principal amount in excess of
$500,000;
ii)
pay any dividends pursuant to Section 3(a) hereof in
cash in an amount to exceed $500,000
;
EXHIBIT
4.2
iii)
engage in a private placement of any Common Stock or
Common Stock Equivalents of the Corporation
;
iv)
enter into any transaction that would constitute a
Change of Control Transaction;
v)
enter into any transaction that would constitute a
Fundamental Transaction; or
vi)
engage in a registered offering of any Common Stock or
Common Stock Equivalents of the Corporation.
c) If
the Corporation defaults in complying with the covenants set out in subsection
(a) or (b) above, the Corporation shall have thirty (30) days following notice
by the holders of the Parity Securities and/or the Winfield Group, respectively,
specifying the nature of the such default, to remedy such default by (i) taking
all necessary corporate action to void the action that is the subject of such
default; (ii) obtaining the requisite approval of the holders of the Parity
Securities and/or the Winfield Group, respectively, for such action consistent
with the provisions of this Section 8; or (iii) obtaining a waiver of such
default from the holders of the Parity Securities and/or the Winfield Group,
respectively.
Section
9
.
Preemptive
Rights
.
a) From
the date hereof until such time as all Holders no longer hold any shares
of Series A-2 Preferred Stock, upon any issuance by the Corporation
or any of its Subsidiaries of Common Stock, Common Stock Equivalents for cash
consideration, or a combination of units hereof (a “
Subsequent
Financing
”), each Holder, collectively with all holders of Parity
Securities, shall have the right to participate in up to an amount of the
Subsequent Financing equal to 100% of the Subsequent Financing (the “
Participation
Maximum
”) on the same terms, conditions and price provided for in the
Subsequent Financing.
b) At
least five (5) Trading Days prior to the closing of the Subsequent Financing,
the Corporation shall deliver to each Holder a written notice of its intention
to effect a Subsequent Financing (“
Pre-Notice
”), which
Pre-Notice shall ask such Holder if it wants to review the details of such
financing (such additional notice, a “
Subsequent Financing
Notice
”). Upon the request of a Holder, and only upon a
request by such Holder, for a Subsequent Financing Notice, the Corporation shall
promptly, but no later than one (1) Trading Day after such request, deliver a
Subsequent Financing Notice to such Holder. The Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder and the
Person or Persons through or with whom such Subsequent Financing is proposed to
be effected and shall include a term sheet or similar document relating thereto
as an attachment.
c) Any
Holder desiring to participate in such Subsequent Financing must provide written
notice to the Corporation by not later than 5:30 p.m. (New York City time) on
the fourth (4
th
)
Trading Day after all of the Holders have received the Pre-Notice that the
Holder is willing to participate in the Subsequent Financing, the amount of the
Holder’s participation, and representing and warranting that the Holder has such
funds ready, willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the Corporation receives no such
notice from a Holder as of such fourth (4
th
)
Trading Day, such Holder shall be deemed to have notified the Corporation that
it does not elect to participate.
d) If
by 5:30 p.m. (New York City time) on the fourth (4
th
)
Trading
Day after all of the Holders have received the Pre-Notice, notifications by the
Holders and holders of Parity Securities of their willingness to participate in
the Subsequent Financing (or to cause their designees to participate) is, in the
aggregate, less than the total amount of the Subsequent Financing, then the
Corporation may effect the remaining portion of such Subsequent Financing on the
terms and with the Persons set forth in the Subsequent Financing
Notice.
EXHIBIT
4.2
e) If
by 5:30 p.m. (New York City time) on the fourth (4
th
)
Trading Day after all of the Holders have received the Pre-Notice, the
Corporation receives responses to a Subsequent Financing Notice from Holders and
holders of Parity Securities seeking to purchase more than the aggregate amount
of the Participation Maximum, each such Holder shall have the right to purchase
its Pro Rata Portion (as defined below) of the Participation
Maximum. “
Pro Rata Portion
” of
a Holder means the ratio of: (x) the aggregate Stated Value of the Parity
Securities issued to such Holder on the Closing Date; and (y) the aggregate
Stated Value of the Parity Securities issued to all holders of Parity Securities
participating in such Subsequent Financing under this
Section
9
.
f) The
Corporation must provide the Holders with a second Subsequent Financing Notice,
and the Holders will again have the right of participation set forth above in
this
Section 9
,
if the Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such Subsequent
Financing Notice within thirty (30) Trading Days after the date of the initial
Subsequent Financing Notice.
g) Notwithstanding
the foregoing, this
Section 9
shall not
apply in respect of (i) an Exempt Issuance or (ii) an underwritten public
offering of Common Stock.
Section
10.
Miscellaneous
.
a)
Notices
. Any
and all notices or other communications or deliveries to be provided by the
Holders hereunder including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, or sent by a nationally recognized
overnight courier service, addressed to the Corporation, at P.O. Box 1118, 1200
American Flat Road, Virginia City, NV 89440
,
Attention: President
, or such other
address as the Corporation may specify for such purposes by notice to the
Holders delivered in accordance with this
Section
10(a)
.
Any and all notices or other
communications or deliveries to be provided by the Corporation hereunder shall
be in writing and delivered personally, or sent by a nationally recognized
overnight courier service addressed to each Holder at the address of such Holder
appearing on the books of the Corporation, or if no such address appears on the
books of the Corporation, at the principal place of business of such Holder, as
set forth in the Purchase Agreement. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the second Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service, or (ii) upon actual
receipt by the party to whom such notice is required to be given.
b)
Absolute Obligation
.
Except as expressly provided herein, no provision of this Certificate of
Designation shall alter or impair the obligation of the Corporation, which is
absolute and unconditional, to pay accrued dividends on the shares of Series A-2
Preferred Stock at the time, place, and rate, and in the coin, currency or
shares (as applicable), herein prescribed.
c)
Lost or Mutilated Series A-2
Preferred Stock Certificate
. If a Holder’s Series A-2
Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the
Corporation shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated certificate, or in lieu of or in substitution for a
lost, stolen or destroyed certificate, a new certificate for the shares of
Series A-2 Preferred Stock so mutilated, lost, stolen or destroyed, but only
upon receipt of evidence of such loss, theft or destruction of such certificate,
and of the ownership hereof reasonably satisfactory to the
Corporation.
EXHIBIT
4.2
d)
Governing
Law
. All questions concerning the construction, validity,
enforcement and interpretation of this Certificate of Designation shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Nevada, without regard to the principles of conflict of laws
thereof. The Corporation and each Holder agrees that all legal
proceedings concerning the interpretation, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the “
New York
Courts
”). The Corporation and each Holder hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such New York Courts,
or such New York Courts are improper or inconvenient venue for such
proceeding. The Corporation and each Holder hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to it at the address in
effect for notices to it under this Certificate of Designation and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by applicable law. The
Corporation and each Holder hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Certificate of Designation or the
transactions contemplated hereby. If the Corporation or any Holder
shall commence an action or proceeding to enforce any provisions of this
Certificate of Designation, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.
e)
Waiver
. Any
waiver by the Corporation or a Holder of a breach of any provision of this
Certificate of Designation shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Certificate of Designation or a waiver by any other Holders. The
failure of the Corporation or a Holder to insist upon strict adherence to any
term of this Certificate of Designation on one or more occasions shall not be
considered a waiver or deprive that party (or any other Holder) of the right
thereafter to insist upon strict adherence to that term or any other term of
this Certificate of Designation on any other occasion. Any waiver by
the Corporation or a Holder must be in writing.
f)
Severability
. If
any provision of this Certificate of Designation is invalid, illegal or
unenforceable, the balance of this Certificate of Designation shall remain in
effect, and if any provision is inapplicable to any Person or circumstance, it
shall nevertheless remain applicable to all other Persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum rate of interest permitted under applicable law.
g)
Next Business
Day
. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.
h)
Headings
. The
headings contained herein are for convenience only, do not constitute a part of
this Certificate of Designation and shall not be deemed to limit or affect any
of the provisions hereof.
EXHIBIT
4.2
i)
Status of Converted or
Redeemed Series A-2 Preferred Stock
. Shares of Series A-2
Preferred Stock may only be issued pursuant to the Transaction
Documents. If any shares of Series A-2 Preferred Stock shall be
converted, redeemed or reacquired by the Corporation, such shares shall resume
the status of authorized but unissued shares of Preferred Stock and shall no
longer be designated as 7 ½% Series A-2 Convertible Preferred
Stock.
*********************
EXHIBIT
4.3
COMSTOCK
MINING INC.
CERTIFICATE
OF DESIGNATION OF PREFERENCES,
RIGHTS
AND LIMITATIONS
OF
7
½% SERIES B CONVERTIBLE PREFERRED STOCK
PURSUANT
TO SECTION 78.1955 OF THE
NEVADA
REVISED STATUTES
The
undersigned, Corrado De Gasperis, does hereby certify that:
1. He
is the President and Chief Executive Officer of Comstock Mining Inc., a Nevada
corporation (the “
Corporation
”).
2. The
Corporation is authorized to issue up to 50,000,000 shares of its preferred
stock, none of which have been issued.
3. The
following resolutions were duly adopted by the board of directors of the
Corporation (the “
Board of
Directors
”):
WHEREAS,
the certificate of incorporation of the Corporation provides for a class of its
authorized stock known as the “
Preferred Stock
,”
consisting of up to 50,000,000 shares, $0.000666 par value per share, issuable
from time to time in one or more series;
WHEREAS,
the Board of Directors is authorized to fix the dividend rights, dividend rate,
voting rights, conversion rights, rights and terms of redemption and liquidation
preferences of any wholly unissued series of the Preferred Stock and the number
of shares constituting any series and the designation thereof, of any of them;
and
WHEREAS,
it is the desire of the Board of Directors, pursuant to its authority as
aforesaid, to fix the rights, preferences, restrictions and other matters
relating to a series of the Preferred Stock, which shall consist of up to
600,000 shares of the Preferred Stock which the Corporation has the authority to
issue, to be designated as “7 ½ % Series B Convertible Preferred Stock,” as
follows:
NOW,
THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for
the issuance of a series of Preferred Stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights,
preferences, restrictions and other matters relating to such series of Preferred
Stock as follows:
TERMS
OF 7 ½% SERIES B CONVERTIBLE PREFERRED STOCK
Section
1
.
Definitions
. For
the purposes hereof, the following terms shall have the following
meanings:
“
Additional Shares of Common
Stock
” shall have the meaning set forth in
Section
7(b)
.
“
Affiliate
” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person, as such terms are
used in and construed under Rule 405 of the Securities Act.
EXHIBIT
4.3
“
Aggregate
Consideration
” received by the Corporation with respect to any issuance
of Additional Shares of Common Stock shall: (a) to the extent it consists of
cash, be computed at the gross amount of cash received by the Corporation before
deduction of any underwriting or similar commissions, compensation or
concessions paid or allowed by the Corporation in connection with such issuance
and without deduction of any expenses payable by the Corporation, (b) to the
extent it consists of property other than cash, be computed at the fair value of
that property as determined in good faith by the Board of Directors, and (c)
with respect to Common Stock Equivalents, the purchase price or other
consideration received by the Corporation in connection with the issuance of
such Common Stock Equivalents, together with the amount of any exercise price or
other additional consideration payable to the Corporation in connection with the
exercise or conversion (as applicable) of such Common Stock
Equivalents.
“
Alternate
Consideration
” shall have the meaning set forth in
Section
7(d)
.
“
Bankruptcy
Proceeding
” means (i)(a) a voluntary case, action, proceeding or petition
or (b) the consent to the institution of, or failure to contest in a timely and
appropriate manner, any involuntary case, action, proceeding or petition seeking
the liquidation, reorganization or other relief in respect of the Corporation,
or of a substantial part of its assets, under any Federal or state bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or (ii) the
application or consent to the appointment of a receiver, interim receiver,
receiver manager, trustee, custodian, sequestrator, conservator or similar
official for the Corporation or for a substantial part of its assets and, in any
such case, such case, action, proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the foregoing
shall be entered.
“
Base Conversion
Price
” shall have the meaning set forth in
Section
7(b)
.
“
Business Day
” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
“
Change of Control
Transaction
” means the occurrence after the date hereof of any of (a) an
acquisition after the date hereof by any Person or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Corporation, by
contract or otherwise) of a majority of the voting securities of the Corporation
(other than by means of conversion or exercise of Series B Preferred Stock and
the Parity Securities or upon conversion of any currently outstanding
convertible securities in accordance with the terms thereof as in effect on the
date hereof), (b) the Corporation merges into or consolidates with any other
Person, or any Person merges into or consolidates with the Corporation and,
after giving effect to such transaction, the stockholders of the Corporation as
of immediately prior to such transaction do not own a majority of the aggregate
voting power of the Corporation or the successor entity of such transaction, (c)
the Corporation sells or transfers all or substantially all of its assets to
another Person and the stockholders of the Corporation as of immediately prior
to such transaction do not own a majority of the aggregate voting power of the
acquiring entity immediately after the transaction, (d) the Corporation,
directly or indirectly, transfers a majority of the asset value and/or
enterprise value of the Corporation (whichever is lower) to another Person and
the stockholders of the Corporation as of immediately prior to such transaction
do not own a majority of the aggregate voting power of the acquiring entity
immediately after the transaction, or (e) a replacement at one time or within a
one year period of more than one-half of the members of the Board of Directors
which is not approved by the Winfield Group or a majority of those individuals
who are members of the Board of Directors on the Closing Date (or by those
individuals who are serving as members of the Board of Directors on any date
whose nomination to the Board of Directors was approved by the Winfield Group or
a majority of the members of the Board of Directors who are members on the
Closing Date), in each case that has been approved by the stockholders of the
Corporation as required under: (i) the Nevada corporate law, (ii) the
Corporation’s certificate of incorporation, (iii) this Certificate of
Designation or (iv) any other agreement to which the Corporation is a party, as
applicable. Notwithstanding the foregoing, none of the following shall
constitute a Change of Control Transaction: (a) any pledge, mortgage, grant of
security interest, sale-leaseback or similar transaction (excluding any
foreclosure sale), (b) any transaction or series of transactions principally for
bona fide equity financing purposes in which cash is received by the Corporation
or any successor to the Corporation and no acquiring Person or group acquires
20% or more of the outstanding voting securities of the Corporation in such
transaction or transactions, or (c) any transaction or series of transactions
principally for the bona fide acquisition of another Person after which no
Person or group acquires 20% or more of the outstanding voting securities of the
Corporation.
EXHIBIT
4.3
“
Closing
” means the
closing of the purchase and sale of the Securities pursuant to
Section 2.1
of the
Purchase Agreement.
“
Closing Date
” means
the date on which the Closing occurs pursuant to
Section 2.1
of the
Purchase Agreement.
“
Common Stock
” means
the Corporation’s common stock, par value $0.000666 per share, and stock of any
other class of securities into which such common stock may hereafter be
reclassified or changed.
“
Common Stock
Equivalents
” means any securities of the Corporation or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“
Conversion Date
”
means the Elective Conversion Date or VWAP Automatic Conversion Date, as
applicable.
“
Conversion Price
”
shall have the meaning set forth in
Section 6(
d
)
.
“
Conversion Shares
”
means, collectively, the shares of Common Stock issuable upon conversion of the
shares of Series B Preferred Stock in accordance with the terms
hereof.
“
Conversion Shares
Registration Statement
” means a registration statement that registers the
resale of all Conversion Shares, so long as such Conversion Shares are
Registrable Securities (as such term is defined in the Registration Rights
Agreement) of the Holders, who shall be named as “selling stockholders” therein
and meets the requirements of the Registration Rights Agreement.
“
Dilutive Issuance
”
shall have the meaning set forth in
Section
7(b)
.
“
Dilutive Issuance
Notice
” shall have the meaning set forth in
Section
7(b)
.
“
Dividend Payment
Date
” shall have the meaning set forth in
Section
3(a)
.
“
Effective Date
” has
the meaning set forth in the Purchase Agreement.
“
Elective Conversion
Date
” shall have the meaning set forth in
Section
6(a)
.
EXHIBIT
4.3
“
Equity Conditions
”
means, as of the date in question: (a) the Corporation shall have duly honored
all conversions of Series B Preferred Stock occurring pursuant to one or more
Notices of Elective Conversion provided by the applicable Holder to the
Corporation, if any; (b) the Corporation shall have paid all amounts owing to
the applicable Holder under this Certificate of Designation in respect of its
Series B Preferred Stock, if any; (c) the Common Stock is trading on a Trading
Market (and the Corporation believes, in good faith, that trading of the Common
Stock on a Trading Market will continue uninterrupted for the foreseeable
future); (d) there is a sufficient number of authorized, but unissued and
otherwise unreserved, shares of Common Stock for the issuance of all of the
Conversion Shares; (e) there has been no public announcement of a pending or
proposed Fundamental Transaction or Change of Control Transaction that has not
been consummated; (f) the applicable Holder is not in possession of any
information provided by the Corporation that constitutes, or may constitute,
material non-public information; and (g) a Bankruptcy Proceeding shall not be
pending against the Corporation.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
Exempt Issuance
”
shall have the meaning set forth in the Purchase Agreement.
“
Fundamental
Transaction
” shall have the meaning set forth in
Section 7(
d
)
.
“
GAAP
” means United
States generally accepted accounting principles.
“
Holder
” shall have
the meaning given such term in
Section
3(a)
.
“
Indebtedness
” means
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same are or should be reflected in
the Corporation’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, and (c) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP.
“
Junior Securities
”
means the Common Stock and all other Common Stock Equivalents of the Corporation
other than those securities that are explicitly senior or
pari passu
to the Series B
Preferred Stock in dividend rights or liquidation preference.
“
Liens
” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.
“
Liquidation
” shall
have the meaning set forth in
Section
5
.
“
Make-Whole Payment
”
shall have the meaning set forth in
Section
3(a)
.
“
New York Courts
”
shall have the meaning set forth in
Section
10(d)
.
“
Notice of
COC
” shall have the
meaning set forth in
Section
5
.
“
Notice of
Elective
Conversion
” shall have the meaning set forth in
Section
6(a)
.
“
Notice of VWAP Automatic
Conversion
” shall have the meaning set forth in
Section
6(c)
.
EXHIBIT
4.3
“
Originally Issued
”
means that number of shares of the Series B Preferred Stock issued on the date
of the first issuance of such shares, regardless of the number of transfers of
any particular shares of Series B Preferred Stock thereafter and regardless of
the number of certificates which may be issued to evidence such Series B
Preferred Stock.
“
Parity Securities
”
means the Series A-1 Preferred Stock, the Series A-2 Preferred Stock and all
other capital stock of the Corporation, whether now or hereafter authorized,
that is explicitly stated to be
pari passu
with the Series B
Preferred Stock in dividend rights or liquidation preference.
“Participation
Maximum
” shall have the meaning set forth in
Section
9(a)
.
“
Permitted
Indebtedness
” means, with respect to the Corporation, any: (a)
indebtedness and other obligations arising in the ordinary course of operations
or business such as those in respect of business expense reimbursements,
workers’ compensation claims, bid or performance bonds, reclamation or appeal
bonds, surety bonds or letters of credit, leases or deferred purchase price of
equipment, trade credit, endorsement of checks, and completion guarantees, (b)
indebtedness under a revolving credit facility from banks or similar financial
institutions in a principal amount of up to $5,000,000, (c) indebtedness
incurred to finance the acquisition, construction or improvement of any newly
acquired business, property or asset so long as recourse with respect to such
indebtedness is limited solely to such newly acquired business, property or
asset; and (d) indebtedness existing as of immediately after the Closing
that is set forth on the Disclosure Schedule to the Purchase
Agreement.
“
Permitted Lien
” means
Liens incurred in connection with Permitted Indebtedness.
“
Person
” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“
Pre-Notice
” shall
have the meaning set forth in
Section
9(b)
.
“
Preferred A
” shall
have the meaning set forth in Section 7(b).
“
Pro Rata Portion
”
shall have the meaning set forth in
Section
9(e)
.
“
Purchase Agreement
”
means Securities Purchase Agreement, dated on or about the Closing Date, among
the Corporation and the original Holders, as amended, modified or supplemented
from time to time in accordance with its terms.
“
Registration Rights
Agreement
” means the Registration Rights Agreement, dated as of the date
of the Purchase Agreement, among the Corporation and the original Holders, in
the form of
Exhibit
B
attached to the Purchase Agreement, as amended, modified or
supplemented from time to time in accordance with its terms.
“
Securities
” has the
meaning set forth in the Purchase Agreement.
“
Securities Act
” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Series A-1 Preferred
Stock
” means the Series A-1 Convertible Preferred Stock of the
Corporation, with the rights, preferences and privileges set forth in the
Certificate of Designation of Preferences, Rights and Limitations of 7 ½% Series
A-1 Convertible Preferred Stock, filed contemporaneously herewith in the Office
of the Secretary of State of the State of Nevada.
EXHIBIT
4.3
“
Series A-2 Preferred
Stock
” means the Series A-2 Convertible Preferred Stock of the
Corporation, with the rights, preferences and privileges set forth in the
Certificate of Designation of Preferences, Rights and Limitations of 7 ½% Series
A-2 Convertible Preferred Stock, filed contemporaneously herewith in the Office
of the Secretary of State of the State of Nevada.
“
Series B Preferred
Stock
” shall have the meaning set forth in
Section
2
.
“
Stated Value
” shall
have the meaning set forth in
Section
2
.
“
Subsequent Financing
”
shall have the meaning set forth in
Section
9(a)
.
“
Subsequent Financing
Notice
” shall have the meaning set forth in
Section
9(b)
.
“
Subsidiary
” shall
have the meaning set forth in the Purchase Agreement.
“
Successor Entity
”
shall have the meaning set forth in
Section
7(d)
.
“
Threshold Period
”
shall have the meaning set forth in
Section
6(c)
.
“
Trading Day
” means a
day on which the principal Trading Market is open for business.
“
Trading Market
” means
any of the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the American Stock Exchange, the
Toronto Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the
Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin
Board (or any successors to any of the foregoing).
“
Transaction
Documents
” has the meaning set forth in the Purchase
Agreement.
“
VWAP
” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time)), (b) if the
OTC Bulletin Board is not a Trading Market, the volume weighted average price of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported, or (d) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Holders of a majority in
interest of the Securities then outstanding and reasonably acceptable to the
Corporation, the fees and expenses of which shall be paid by the
Corporation.
“
VWAP Automatic Conversion
Date
” shall have the meaning set forth in
Section
6(c)
.
“
Winfield Group
” means
John V. Winfield, his heirs, personal representatives and family trusts created
and controlled by Mr. Winfield, any individual retirement accounts held by Mr.
Winfield, Santa Fe Financial Corporation, Portsmouth Square, Inc. and InterGroup
Corporation, and any Affiliates of Mr. Winfield; provided, that the Winfield
Group shall also include all transferees and assigns of the Winfield Group at
any time that a default has occurred under Section 4.2 of the Purchase Agreement
and such default has not been cured pursuant to Section 5.13(b) of the Purchase
Agreement.
EXHIBIT
4.3
Section
2
.
Designation, Amount and Par
Value
. The series of Preferred Stock designated by this
Certificate of Designation shall be the Corporation’s 7 ½% Series B Convertible
Preferred Stock (the “
Series B Preferred
Stock
”) and the authorized number of shares so designated shall be up to
600,000. Each share of Series B Preferred Stock shall have a par value of
$0.000666 per share and a stated value equal to $1,000 (the “
Stated
Value
”).
Section
3
.
Dividends
.
a)
Dividends in Cash or in
Kind
. Subject to
Section 3(e)
below,
Holders of
Series
B Preferred Stock (each, a “
Holder
” and
collectively, the “
Holders
”) shall be
entitled to receive, and the Corporation shall pay, cumulative dividends at the
rate per share (as a percentage of the Stated Value per share) of 7 ½% per
annum, payable semiannually on January 1 and July 1, commencing on January 1,
2011 and on each Conversion Date (with respect only to Series B Preferred Stock
being converted) (each such date, a “
Dividend Payment
Date
”) (if any Dividend Payment Date is not a Trading Day, the applicable
payment shall be due on the next succeeding Trading Day), as set forth below in
this
Section
3(a)
;
provided,
however
, that in the event of the automatic conversion of Series B
Preferred Stock into shares of Common Stock pursuant to
Section 6(c)
prior to
October 18, 2013, the Corporation shall also pay to the Holders of Series B
Preferred Stock so converted an additional dividend, for each share of Series B
Preferred Stock, equal to: (i) the net present value, as of the Conversion Date,
of a payment equal to 22 ½% of the Stated Value of one (1) share of Series B
Preferred Stock occurring on October 18, 2013 (calculated assuming a discount
rate of 7 ½%),
minus
(ii) the aggregate amount of any semi-annual dividends paid on one (1) share of
Series B Preferred Stock before the Conversion Date (the ”
Make-Whole
Payment
”). The form of any semi-annual dividend payments or
any Make-Whole Payment to each Holder shall be, at the election of the
Corporation: (A) if funds are legally available for the payment of dividends, in
cash, (B) subject to the satisfaction of the Equity Conditions, in shares of
Common Stock, which shall be valued solely for such purpose at the average of
the VWAPs for the 5 consecutive Trading Days ending on the Trading Day that is
immediately prior to: (1) the applicable Dividend Payment Date; or (2) with
respect to dividends paid upon conversion of Series B Preferred Stock into
Common Stock, the Conversion Date, (C) subject to the satisfaction of the Equity
Conditions, in additional shares (including, without limitation, fractional
shares) of Series B Preferred Stock, in an amount equal to the dollar amount of
such dividend payment or Make-Whole Payment (as applicable) divided by the
Stated Value per share, or (D) subject to the satisfaction of the Equity
Conditions, in any combination of the property described in the foregoing
clauses (A)
,
(B)
, and
(C)
.
b)
Corporation’s Payment of
Dividends in Cash or in Additional Shares of Stock
. The
Corporation shall promptly notify the Holders at any time the Corporation shall
become unable to legally pay semi-annual dividends or Make-Whole Payments in
cash. The Corporation shall provide the Holders with at least 20
Trading Days’ notice of its election to pay a semi-annual dividend or Make-Whole
Payment in shares of Common Stock or additional shares of Series B Preferred
Stock (the Corporation may indicate, in any such notice relating to semi-annual
dividends, that the election contained in such notice shall continue for later
periods until revised by a subsequent notice).
EXHIBIT
4.3
c)
Dividend
Calculations
. Dividends on the Series B Preferred Stock shall
be calculated on the basis of a 360-day year, consisting of twelve 30 calendar
day periods, and shall accrue daily commencing on the Closing Date, and shall be
deemed to accrue from such date whether or not earned or declared and whether or
not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. Payment of dividends in
shares of Common Stock or additional shares of Series B Preferred Stock (as
applicable) shall be made in a manner consistent with
Section 6(e)(i)
herein and, solely for purposes of the payment of dividends in shares, the
Dividend Payment Date shall be deemed to be the Conversion
Date. Dividends shall cease to accrue with respect to any Series B
Preferred Stock when converted. Except as otherwise provided herein,
if at any time the Corporation pays dividends partially in cash and partially in
shares of Common Stock and/or Series B Preferred Stock, then such payment shall
be distributed ratably among the Holders based upon the number of shares of
Series B Preferred Stock held by each Holder on such Dividend Payment
Date.
d)
Other
Securities
. So long as any Series B Preferred Stock shall
remain outstanding: (i) neither the Corporation nor any Subsidiary thereof shall
redeem, purchase or otherwise acquire directly or indirectly any Junior
Securities; and (ii) the Corporation and any Subsidiaries thereof shall only
redeem, repurchase or otherwise acquire, directly or indirectly, any Parity
Securities ratably with the Series B Preferred Stock on a
pari passu
basis. So long as any Series B Preferred Stock shall remain
outstanding: (i) neither the Corporation nor any Subsidiary thereof shall
directly or indirectly pay or declare any dividend or make any distribution upon
any Junior Securities (other than a dividend or distribution solely in
additional shares of Junior Securities), in each case as long as any dividends
due on the Series B Preferred Stock remain unpaid, nor shall any monies be set
aside for or applied to the purchase or redemption (through a sinking fund or
otherwise) of any Junior Securities; and (ii) the Corporation and any
Subsidiaries thereof shall only, directly or indirectly, pay or declare any
dividend or make any distribution upon any Parity Securities, or set aside or
apply any monies for the purchase or redemption (through a sinking fund or
otherwise) of any Parity Securities, if it simultaneously, on a
pari passu
basis and ratably
among the holders of the Series A Preferred Stock and the holders of all Parity
Securities, pays or declares a dividend or distribution, or sets aside or
applies monies for the purchase or redemption (through a sinking fund or
otherwise), of the Series B Preferred Stock.
e)
Payment of Dividends in
Kind
. During the period commencing on the Closing Date and
ending on the eighteen (18) month anniversary of the Closing Date, in the event
on any Dividend Payment Date the Registration Statement (as defined in the
Registration Rights Agreement) has not been declared effective in accordance
with Section 2(b) of the Registration Rights Agreement, any dividend payable in
Common Stock or Series B Preferred Stock shall accrue and be payable to the
Holders of the Series B Preferred Stock within five (5) business days following
the date that such Registration Statement is declared effective. In
the event on any Dividend Payment Date following the eighteen (18) month
anniversary of the Closing Date, the Registration Statement has not been
declared effective or the Corporation has failed to maintain its effectiveness
during the Effectiveness Period (as defined in the Registration Rights
Agreement), all dividends payable to the Holders of the Series B Preferred Stock
shall be payable, if funds are legally available for payment, in cash only. If
such funds are not legally available for payment, any dividend payable shall
accrue and be immediately payable to the Holders of the Series B Preferred Stock
in cash, when such funds become legally available, or, at the option of the
Corporation, subject to the effectiveness on such date of the Registration
Statement, as otherwise provided for herein; provided however, that if such
funds are not legally available and the Registration Statement is not effective,
the Holders of the Series B Preferred Stock can waive the requirement that the
Registration Statement be effective and elect to received dividend payments as
otherwise provided for herein.
Section
4
.
Voting
Rights
.
a) Except
as otherwise provided herein or as otherwise required by law, each Holder of
Series B Preferred Stock shall: (i) be entitled to notice of any annual or
special meeting of the stockholders of the Corporation, at the same time and in
the same manner as of the holders of Common Stock in accordance with the by-laws
of the Corporation; and (ii) vote together with the Common Stock at any annual
or special meeting of the stockholders of the Corporation, or in any action by
written consent of stockholders of the Corporation in lieu of meeting, on an
as-converted to Common Stock basis, with each share of Series B Preferred Stock
entitling its Holder to the number of votes equal the number of shares of Common
Stock into which such share of Series B Preferred Stock could be converted under
this Certificate of Designation as of the close of business on the record date
fixed for such meeting or the effective date of such written
consent.
EXHIBIT
4.3
b) Each
share of Series B Preferred Stock shall entitle its holder to one (1) vote in
any matter submitted to vote of the holders of Preferred Stock, voting as a
separate class (as opposed to voting with the holders of Common Stock as
provided in
Section
4(a)
).
Section
5
.
Liquidation and Change of
Control Transactions
. Upon any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary (a “
Liquidation
”) or a
Change of Control Transaction, the Holders shall be entitled to receive out of
the assets, whether capital or surplus, of the Corporation in the case of a
Liquidation, or out of the aggregate consideration received by the Corporation
and its stockholders in the case of a Change of Control
Transaction, an amount equal to (i) the Stated Value, plus any accrued and
unpaid dividends on the Series B Preferred Stock, together with any other fees
then due and owing thereon under this Certificate of Designation, for each share
of Series B Preferred Stock, on a
pari passu
basis with any
distribution or payment upon a Liquidation or Change of Control Transaction to
the holders of Parity Securities and before any distribution or payment shall be
made to the holders of any Junior Securities,
plus
(ii) the amount
the Holders would have been entitled to receive as holders of the number of
shares of Common Stock for which the shares of Series B Preferred Stock are
convertible immediately prior to such Liquidation or Change of Control
Transaction, on a
pari
passu
basis with any distribution or payment upon a Liquidation or Change
of Control Transaction to the holders of Parity Securities and Junior Securities
combined. If the assets of the Corporation or aggregate consideration received
shall be insufficient to pay in full the respective preference amounts to the
Holders of Series B Preferred Stock and the holders of any Parity Securities
described in this
Section 5
, then the
entire assets of the Corporation or aggregate consideration shall be ratably
distributed among the Holders of Series B Preferred Stock and the holders of any
Parity Securities, in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in
full. The Corporation shall mail written notice of any Liquidation,
not less than 45 days prior to the payment date stated therein, to each Holder.
The Corporation shall provide each Holder with
reasonable advance notice (a “
Notice of COC
”) of the occurrence of a Change of Control Transaction
or potential Change of Control Transaction, which shall specify, for each
Holder, the number of shares of Series
B
Preferred Stock
owned on the date of such Notice of COC, the number of shares of Common Stock
issuable upon conversion of such Series
B
Preferred Stock
and the date, if known, on which such Change of Control Transaction is to be
effected, which date may not be prior to the date the Corporation delivers such
Notice of COC to the Holders. The calculations and entries set forth
in the Notice of COC shall control in the absence of manifest or mathematical
error. Each Holder shall deliver the certificate(s) representing the
shares of Series
B
Preferred Stock as instructed in the Notice of
COC.
Section
6
.
Conversion
.
a)
Conversions at Option of
Holder
. Each share of Series B Preferred Stock shall be
convertible, at any time and from time to time from and after the Closing Date
at the option of the Holder thereof, into that number of shares of Common Stock
determined by dividing the Stated Value of such share of Series B Preferred
Stock by the Conversion Price then in effect. Holders shall
effect voluntary conversions pursuant to this
Section 6(a)
by
providing the Corporation with the form of conversion notice attached hereto as
Annex A
(a
“
Notice of
Elective
Conversion
”). Each
Notice of Elective Conversion shall specify the number of shares of Series B
Preferred Stock to be converted, the number of shares of Series B Preferred
Stock owned prior to the conversion at issue, the number of shares of Series B
Preferred Stock owned subsequent to the conversion at issue and the date on
which such conversion is to be effected, which date may not be prior to the date
the applicable Holder delivers such Notice of Conversion to the Corporation
(such date, the “
Elective
Conversion
Date
”). If no Elective Conversion Date is specified in a
Notice of Elective Conversion, the Elective Conversion Date shall be the date
that such Notice of Elective Conversion is delivered hereunder. The
calculations and entries set forth in the Notice of Elective Conversion shall
control in the absence of manifest or mathematical error. To effect
elective conversions of shares of Series B Preferred Stock pursuant to this
Section 6(a)
, a
Holder shall not be required to surrender the certificate(s) representing the
shares of Series B Preferred Stock to the Corporation unless all of the shares
of Series B Preferred Stock represented thereby are so converted, in which case
such Holder shall deliver the certificate representing such shares of Series B
Preferred Stock promptly following the Elective Conversion Date at
issue. Any certificate representing shares of Series B Preferred
Stock that have been converted in whole or part by such Holder shall be void and
should be destroyed upon receipt of replacement certificate(s) from the
Corporation. Shares of Series B Preferred Stock converted into Common
Stock pursuant to this
Section 6(a)
shall be
canceled and shall not be reissued.
EXHIBIT
4.3
b) [RESERVED]
c)
Automatic Conversion Upon
Sufficient VWAP
. If: (i) the VWAP for each of any twenty (20)
Trading Days during any thirty (30) consecutive Trading Day period starting on
or after the Effective Date (“
Threshold Period
”),
exceeds $4.50 (subject to adjustment for forward and reverse stock splits,
recapitalizations, stock dividends and the like after the Closing Date); and
(ii) all of the Equity Conditions have been met on each Trading Day during the
applicable Threshold Period through and including the later of the VWAP
Automatic Conversion Date and the Trading Day after the date that the Conversion
Shares issuable pursuant to such conversion are actually delivered to the
Holders pursuant to the Notice of VWAP Automatic Conversion, then all
outstanding shares of Series B Preferred Stock shall automatically be converted
into shares of Common Stock, based on the then-effective Conversion
Price. The Corporation shall provide each Holder with notice (a
“
Notice of VWAP
Automatic Conversion
”) of the occurrence of an automatic conversion of
the Series B Preferred Stock pursuant to this
Section 6(c)
within
one (1) Trading Day after the end of any such Threshold Period, which shall
specify, for each Holder, the number of shares of Series B Preferred Stock owned
prior to the automatic conversion at issue, the number of shares of Common Stock
issuable upon conversion of such Series B Preferred Stock and the date on which
such automatic conversion is to be effected, which shall be the third Trading
Day following the date the Corporation delivers such Notice of VWAP Automatic
Conversion to the Holders (such date, the “
VWAP Automatic Conversion
Date
”). The calculations and entries set forth in the Notice
of VWAP Automatic Conversion shall control in the absence of manifest or
mathematical error. Each Holder shall deliver the certificate(s)
representing all of its shares of Series B Preferred Stock to the Corporation
promptly following the VWAP Automatic Conversion Date. Shares of
Series B Preferred Stock converted into Common Stock pursuant to this
Section 6(c)
shall be
canceled and shall not be reissued.
d)
Conversion
Price
. The conversion price for the Series B Preferred Stock
shall initially equal $1.65, subject to adjustment herein (the “
Conversion
Price
”).
e)
Mechanics of
Conversion
i.
Delivery of Certificate Upon
Conversion
. Not later than three (3) Trading Days after each
Conversion Date, the Corporation shall deliver, or cause to be delivered, to the
converting Holder (A) a certificate or certificates representing the Conversion
Shares which, on or after the earlier of: (1) the six (6) month anniversary of
the Closing Date; or (2) the Effective Date, shall be free of restrictive
legends and trading restrictions (other than those which may then be required by
the Purchase Agreement) representing the number of Conversion Shares being
acquired upon the conversion of the Series B Preferred Stock, and/or (B) a bank
check in the amount of accrued and unpaid dividends and, if applicable, the
Make-Whole Payment (to the extent that the Corporation has elected to pay
accrued dividends or the Make-Whole Payment in cash). On or after the
earlier of: (1) the six (6) month anniversary of the Closing Date or (2) the
Effective Date, the Corporation shall use commercially reasonable efforts to
deliver any certificate or certificates required to be delivered by the
Corporation under this
Section 6
electronically through the Depository Trust Company or another established
clearing corporation performing similar functions.
EXHIBIT
4.3
ii.
Obligation
Absolute
. The Corporation’s obligation to issue and deliver
the Conversion Shares upon conversion of Series B Preferred Stock in accordance
with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by a Holder to enforce the same, any waiver or consent with respect
to any other provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by such Holder or any
other Person of any obligation to the Corporation or any violation or alleged
violation of law by such Holder or any other Person, and irrespective of any
other circumstance which might otherwise limit such obligation of the
Corporation to such Holder in connection with the issuance of such Conversion
Shares;
provided,
however
, that such delivery shall not operate as a waiver by the
Corporation of any such action that the Corporation may have against such Holder
or such other Person. In the event a Holder shall elect to convert
any or all of its Series B Preferred Stock, the Corporation may not refuse
conversion based on any claim that such Holder or any one associated or
affiliated with such Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to Holder,
restraining and/or enjoining conversion of all or part of the Series B Preferred
Stock of such Holder shall have been sought and obtained. In the
absence of such injunction, the Corporation shall issue Conversion Shares and,
if applicable, cash, upon a properly noticed conversion. Nothing
herein shall limit a Holder’s right to pursue actual damages or all other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive
relief. The exercise of any such rights shall not prohibit a Holder
from seeking to enforce damages pursuant to any other Section hereof or under
applicable law.
iii.
Liquidated
Damages
. If the Corporation fails to deliver to a Holder such
certificate or certificates representing Conversion Shares within five (5)
Trading Days after the Elective Conversion Date provided in a Notice of Elective
Conversion pursuant to Section 6(a), the Corporation shall pay to such Holder,
in cash, as liquidated damages and not as a penalty, for each share of Series B
Preferred Stock elected to be converted, $50 per Trading Day for each Trading
Day after such fifth (5th) Trading Day after the Elective Conversion Date until
such certificates are delivered or such Holder is reimbursed in accordance with
Section 6(e)(iv). Nothing herein shall limit a Holder’s right to pursue actual
damages for the Corporation’s failure to deliver Conversion Shares and such
Holder shall have the right to pursue all remedies available to it hereunder, at
law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief. The exercise of any such rights shall not
prohibit a Holder from seeking to enforce damages pursuant to any other Section
hereof or under applicable law.
iv.
Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion
. If the
Corporation fails to deliver to a Holder the applicable certificate or
certificates within five (5) Trading Days after the Elective Conversion Date,
and if after such date such Holder is required by its brokerage firm to purchase
(in an open market transaction or otherwise), or the Holder’s brokerage firm
purchases, shares of Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which such Holder was entitled to receive upon
the conversion relating to such Notice of Elective Conversion (a “
Buy-In
”), then the
Corporation shall (A) pay in cash to such Holder (in addition to any other
remedies available to or elected by such Holder) the amount by which (x) such
Holder’s total purchase price (including any brokerage commissions) for the
shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder was entitled to receive from
the conversion at issue multiplied by (2) the actual sale price at which the
sell order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of such Holder, either reissue (if
surrendered) the shares of Series B Preferred Stock equal to the number of
shares of Series B Preferred Stock submitted for conversion or deliver to such
Holder the number of shares of Common Stock that would have been issued if the
Corporation had timely complied with the Notice of Elective Conversion. For
example, if a Holder purchases shares of Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted conversion of
shares of Series B Preferred Stock with respect to which the actual sale price
(including any brokerage commissions) giving rise to such purchase obligation
was a total of $10,000 under clause (A) of the immediately preceding sentence,
the Corporation shall be required to pay such Holder $1,000. The Holder shall
provide the Corporation written notice indicating the amounts payable to such
Holder in respect of the Buy-In and, upon request of the Corporation, evidence
of the amount of such loss. Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Corporation’s failure to timely deliver
certificates representing shares of Common Stock upon conversion of the shares
of Series B Preferred Stock as required pursuant to the terms
hereof.
EXHIBIT
4.3
v.
Reservation of Shares
Issuable Upon Conversion
. The Corporation covenants that it
will, at all times while any Series B Preferred Stock: (A) remains outstanding
or (B) is reserved for issuance or otherwise issuable under any promissory note
or agreement to which the Corporation is a party, reserve and keep available out
of its authorized and unissued shares of Common Stock, for the sole purpose of
issuance upon conversion of such Series B Preferred Stock, free from preemptive
rights or any other purchase rights of Persons other than the Holder (and the
other holders of the Series B Preferred Stock), not less than 130% of the
aggregate number of shares of the Common Stock as shall be issuable (taking into
account the adjustments and restrictions of
Section 7
) upon: (A)
the conversion of such Series B Preferred Stock; and (B) payment of dividends on
such Series B Preferred Stock in shares of Common Stock
hereunder. The Corporation covenants that it will, at all times while
any Series B Preferred Stock: (A) remains outstanding or (B) is reserved for
issuance or otherwise issuable under any promissory note or agreement to which
the Corporation is a party, reserve and keep available out of its authorized and
unissued shares of Preferred Stock, for the sole purpose of issuance upon
payment of dividends on such Series B Preferred Stock in additional shares of
Series B Preferred Stock as herein provided, free from preemptive rights or any
other purchase rights of Persons other than the Holder (and the other holders of
the Series B Preferred Stock), not less than 130% of the aggregate number of
shares of the Series B Preferred Stock as shall (subject to the terms and
conditions set forth in the Purchase Agreement) be issuable (taking into account
the adjustments and restrictions of
Section 7
) upon the
payment of dividends on such Series B Preferred Stock in additional shares of
Series B Preferred Stock hereunder. The Corporation covenants that
all shares of Common Stock and Series B Preferred Stock that shall be so
issuable shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable and, if the Conversion Shares Registration Statement is then
effective under the Securities Act, shall be, with respect to such Common Stock
and the Common Stock issuable upon conversion of such Series B Preferred Stock,
registered for public resale in accordance with such Conversion Shares
Registration Statement (subject to such Holder’s compliance with its obligations
under the Registration Rights Agreement).
vi.
Fractional
Shares
. No fractional shares or scrip representing fractional
shares of Common Stock shall be issued upon the conversion of the Series B
Preferred Stock. As to any fraction of a share of Common Stock, which
the Holder would otherwise be entitled to receive upon such conversion, the
Corporation shall at its election, either pay a cash adjustment in respect of
such final fraction in an amount equal to such fraction multiplied by the
Conversion Price or round up to the next whole share. The Corporation
may issue fractional shares of Series B Preferred Stock.
EXHIBIT
4.3
vii.
Transfer
Taxes
. The issuance of certificates for shares of the Common
Stock upon conversion of the Series B Preferred Stock shall be made without
charge to any Holder for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificates,
provided
that the Corporation
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holders of such shares of Series B
Preferred Stock and the Corporation shall not be required to issue or deliver
such certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall have
established to the satisfaction of the Corporation that such tax has been
paid.
Section
7
.
Certain
Adjustments
.
a)
Stock Dividends and Stock
Splits
. If the Corporation, at any time while any Series B
Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Corporation upon
conversion of, or payment of a dividend on, the Series B Preferred Stock), (ii)
subdivides outstanding shares of Common Stock into a larger number of shares,
(iii) combines (including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Corporation, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding any
treasury shares of the Corporation) outstanding immediately before such event,
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made
pursuant to this
Section 7(a)
shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
b)
Subsequent Equity
Sales
. If, at any time while any Series B Preferred Stock is
outstanding, the Corporation or any Subsidiary, as applicable, sells or grants
any option to purchase or sells or grants any right to reprice, or otherwise
disposes of or issues (or announces any sale, grant or any option to purchase or
reprice or other disposition), any Common Stock or Common Stock Equivalents
(“
Additional Shares of
Common Stock
”) at an effective price per share of Common Stock that is
lower than the lower of: (i) 93% of the average of the VWAPs for the 10
consecutive Trading Days ending on the Trading Day that is immediately prior to
the date of issuance of the Additional Shares of Common Stock; or (ii) the then
effective Conversion Price of the Series A-1 Preferred A-1 Stock and the Series
A-2 Preferred Stock (“
Preferred A
”)(such
lower price, the “
Base
Conversion Price
” and such issuances, collectively, a “
Dilutive Issuance
”)
(if the holder of the Additional Shares of Common Stock so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due
to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock or Common Stock
Equivalents at an effective price per share that is lower than the Conversion
Price, such issuance shall be deemed to have occurred for less than the
Conversion Price on the date of the Dilutive Issuance), then the Conversion
Price shall be reduced to equal the price determined by multiplying the
Conversion Price in effect immediately prior to such issuance by a
fraction:
i. the
numerator of which shall be: (A) the number of shares of Common Stock issuable
upon the conversion of the Series B Preferred Stock immediately prior to such
Dilutive Issuance,
plus
(B) the number of shares of Common Stock or
Common Stock Equivalents
which the Aggregate Consideration received or deemed to be received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such then-existing Base Conversion Price; and
EXHIBIT
4.3
ii. the
denominator of which shall be the number of shares of Common Stock issuable upon
the conversion of the Series B Preferred Stock immediately prior to such
Dilutive Issuance
plus
the total number of Additional Shares of Common Stock actually so
issued.
Such
adjustment shall be made upon any issuance of Additional Shares of Common Stock;
provided, however
, that
no adjustment will be made under this
Section 7(b)
in
respect of an Exempt Issuance. The Corporation shall notify the
Holders in writing, no later than the Trading Day following the issuance of any
Additional Shares of Common Stock subject to this
Section 7(b)
,
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“
Dilutive Issuance
Notice
”). For purposes of clarification, whether or not the
Corporation provides a Dilutive Issuance Notice pursuant to this
Section 7(b)
, upon
the occurrence of any Dilutive Issuance, the Holders are entitled to receive a
number of Conversion Shares based upon the Base Conversion Price on or after the
date of such Dilutive Issuance, regardless of whether a Holder accurately refers
to the Base Conversion Price in the Notice of Conversion.
c)
Pro Rata
Distributions
. If the Corporation, at any time while any
Series B Preferred Stock is outstanding, distributes to all holders of Common
Stock (and not to the Holders) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for or
purchase any security (other than the Common Stock, which shall be subject to
Section 7(b)
),
then in each such case the Conversion Price shall be adjusted by multiplying
such Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness or rights or warrants so distributed
applicable to one outstanding share of Common Stock as determined by the Board
of Directors of the Corporation in good faith. In either case the
adjustments shall be described in a statement delivered to the Holders
describing the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date mentioned
above.
EXHIBIT
4.3
d)
Fundamental
Transaction
. If, at any time while any Series B Preferred
Stock is outstanding, (i) the Corporation, directly or indirectly, in one or
more related transactions effects any merger or consolidation of the Corporation
with or into another Person, (ii) the Corporation, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other
disposition of all or substantially all of its assets in one or a series of
related transactions, (iii) any, direct or indirect, purchase offer, tender
offer or exchange offer (whether by the Corporation or another Person) is
completed pursuant to which holders of Common Stock are permitted to sell,
tender or exchange their shares for other securities, cash or property and has
been accepted by the holders of 50% or more of the outstanding Common Stock,
(iv) the Corporation, directly or indirectly, in one or more related
transactions effects any reclassification, reorganization or recapitalization of
the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property, (v) the Corporation, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to,
such stock or share purchase agreement or other business combination), in each
case other than a Change of Control Transaction (each, a ”
Fundamental
Transaction
”), then, upon any subsequent conversion of Series B Preferred
Stock, the Holder shall have the right to receive, for each Conversion Share
that would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction, the number of shares of Common Stock
of the successor or acquiring corporation or of the Corporation, if it is the
surviving corporation, and any additional consideration (the “
Alternate
Consideration
”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which Series B Preferred
Stock is convertible immediately prior to such Fundamental
Transaction. For purposes of any such conversion, the determination
of the Conversion Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one share of Common Stock in such Fundamental Transaction, and the
Corporation shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of
Series B Preferred Stock following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions, any successor to
the Corporation or surviving entity in such Fundamental Transaction shall file a
new Certificate of Designation with the same terms and conditions as those
hereof, and issue to the Holders new Series B Preferred Stock consistent with
the foregoing provisions and evidencing the Holders’ right to convert such
Series B Preferred Stock into Alternate Consideration. The
Corporation shall cause any successor entity in a Fundamental Transaction in
which the Corporation is not the survivor (the “
Successor Entity
”) to
assume in writing all of the obligations of the Corporation under this
Certificate of Designation and the other Transaction Documents in accordance
with the provisions of this
Section 7(d)
,
pursuant to written agreements in form and substance reasonably satisfactory to
the Holders of a majority of the then outstanding shares of Series B Preferred
Stock issued pursuant to the Purchase Agreement and approved by such Holders
(without unreasonable delay) prior to such Fundamental Transaction, and shall
deliver to each Holder in exchange for its Series B Preferred Stock a security
of the Successor Entity evidenced by a written instrument substantially similar
in form and substance to the Series B Preferred Stock which is convertible for a
corresponding number of shares of capital stock of such Successor Entity (or its
parent entity) equivalent to the shares of Common Stock acquirable and
receivable upon conversion of the Series B Preferred Stock prior to such
Fundamental Transaction, and with a conversion price which applies the
conversion price hereunder to such shares of capital stock (but taking into
account the relative value of the shares of Common Stock pursuant to such
Fundamental Transaction and the value of such shares of capital stock, such
number of shares of capital stock and such conversion price being for the
purpose of protecting the economic value of the Series B Preferred Stock
immediately prior to the consummation of such Fundamental Transaction), and
which is reasonably satisfactory in form and substance to the Holders of a
majority of the then outstanding shares of Series B Preferred Stock issued
pursuant to the Purchase Agreement. Upon the occurrence of any such
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Certificate of Designation and the other
Transaction Documents referring to the “Corporation” shall refer instead to the
Successor Entity), and may exercise every right and power of the Corporation and
shall assume all of the obligations of the Corporation under this Certificate of
Designation and the other Transaction Documents with the same effect as if such
Successor Entity had been named as the Corporation herein.
e)
Calculations
. All
calculations under this
Section 7
shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may
be. For purposes of this
Section 7
, the number
of shares of Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding any treasury
shares of the Corporation) issued and outstanding.
EXHIBIT
4.3
f)
Notice to the
Holders
.
i.
Adjustment to Conversion
Price
. Whenever the Conversion Price is adjusted pursuant to
any provision of this
Section 7
, the
Corporation shall promptly deliver to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
ii.
Notice to Allow Conversion
by Holder
. If (A) the Corporation shall declare a dividend (or
any other distribution in whatever form) on the Common Stock, (B) the
Corporation shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Corporation shall authorize the granting
to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Corporation shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Corporation is a party, any sale or transfer of all or substantially
all of the assets of the Corporation, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property or (E) the
Corporation shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation, then, in each case,
the Corporation shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Series B Preferred Stock, and shall cause to be
delivered to each Holder at its last address as it shall appear upon the stock
books of the Corporation, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange,
provided
that the failure to
deliver such notice or any defect therein or in the delivery thereof shall not
affect the validity of the corporate action required to be specified in such
notice. To the extent that any notice provided hereunder constitutes,
or contains, material, non-public information regarding the Corporation or any
of the Subsidiaries, the Corporation shall, as required by applicable federal
securities law, file such notice with the Commission pursuant to a Current
Report on Form 8-K. The Holder shall remain entitled to convert the
Series B Preferred Stock during the 20-day period commencing on the date of such
notice through the effective date of the event triggering such notice, except as
may otherwise be expressly set forth herein.
Section
8
.
Negative Covenants
.
(a) As
long as at least 25% of the Parity Securities that were Originally Issued are
still outstanding, the Corporation shall not, and shall not permit any of the
Subsidiaries to, directly or indirectly, without the affirmative vote of the
holders of a majority of the then outstanding Parity Securities (which shall, as
long as the Winfield Group still holds at least 25% of the Parity Securities
that were Originally Issued, include the Winfield Group):
i)
other than Permitted Indebtedness,
enter into, create, incur, assume, guarantee or suffer to exist any Indebtedness
for borrowed money;
ii) other
than Permitted Liens, grant, assume or allow to exist any Liens of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom;
EXHIBIT
4.3
iii) repay,
repurchase or offer to repay, repurchase or otherwise acquire Common Stock
constituting more than 5% of the outstanding shares of Common Stock (measured as
of immediately after the Closing), other than as to (i) the Conversion Shares as
permitted or required under this Certificate of Designation or any other
Transaction Documents and (ii) repurchases of Common Stock or Common Stock
Equivalents of departing officers and directors of the Corporation, provided
that such repurchases shall not exceed an aggregate of $100,000 for all officers
and directors for so long as the Parity Securities are outstanding;
iv) enter
into any transaction with any Affiliate of the Corporation which would be
required to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Corporation (even if less than a
quorum otherwise required for board approval);
v) enter
into any transaction with any Affiliate of an Officer or Director of the
Corporation, if such transaction provides for the payment of services in
Securities of the Corporation;
vi) amend
the Corporation’s certificate of incorporation, by-laws or the Certificate of
Designation of any of the Parity Securities in any manner that materially
adversely affects any of the rights, preferences or privileges of the Holders of
such Parity Securities;
vii) approve
the issuance of any Preferred Stock, other than the Series A-1 Preferred Stock,
the Series A-2 Preferred Stock and the Series B Preferred Stock issued in
connection with the transactions contemplated under the Transaction
Documents;
viii) pay
any dividends or make any distributions on any Junior Securities (except in
additional shares of Junior Securities);
ix) adopt
an executive equity incentive plan which provides for the issuance of greater
than 6.0% of the fully diluted equity of the Corporation after taking into
account the transactions contemplated under the Transaction
Documents;
x) enter
into any transaction for the sale or pledge of a material asset of the
Corporation;
xi) approve
or consent to the initiation of a Bankruptcy Proceeding;
xii) issue
any securities of the Corporation in exchange for services to a consultant;
or
xiii) enter
into any agreement with respect to any of the foregoing.
b) As
long as at least 25% of the Parity Securities that were Originally Issued are
still outstanding, and as long as the Winfield Group still holds at least 25% of
the Parity Securities that were Originally Issued, the Corporation shall not,
and shall not permit any of the Subsidiaries to, directly or indirectly, without
the affirmative vote of the Winfield Group:
i)
enter into any transaction for
the acquisition of any business, property or asset pursuant to which the
Corporation will incur Indebtedness to finance such acquisition in principal
amount in excess of $500,000;
ii) pay
any dividends pursuant to Section 3(a) hereof in cash in an amount to exceed
$500,000;
EXHIBIT
4.3
iii) engage
in a private placement (or series of private placements within any twelve (12)
month period) of any Common Stock or Common Stock Equivalents of the
Corporation;
iv) enter
into any transaction that would constitute a Change of Control
Transaction;
v) enter
into any transaction that would constitute a Fundamental Transaction;
or
vi) engage
in a registered offering of any Common Stock or Common Stock Equivalents of the
Corporation.
c) If
the Corporation defaults in complying with the covenants set out in subsection
(a) or (b) above, the Corporation shall have thirty (30) days following notice
by the holders of the Parity Securities and/or the Winfield Group, respectively,
specifying the nature of the such default, to remedy such default by (i) taking
all necessary corporate action to void the action that is the subject of such
default; (ii) obtaining the requisite approval of the holders of the Parity
Securities and/or the Winfield Group, respectively, for such action consistent
with the provisions of this Section 8; or (iii) obtaining a waiver of such
default from the holders of the Parity Securities and/or the Winfield Group,
respectively.
Section
9
.
Preemptive
Rights
.
a) From
the date hereof until such time all Holders no longer hold any shares
of Series B Preferred Stock, upon any issuance by the Corporation or
any of its Subsidiaries of Common Stock, Common Stock Equivalents for cash
consideration, or a combination of units hereof (a “
Subsequent
Financing
”), each Holder, collectively with all holders of Parity
Securities, shall have the right to participate in up to an amount of the
Subsequent Financing equal to 100% of the Subsequent Financing (the “
Participation
Maximum
”) on the same terms, conditions and price provided for in the
Subsequent Financing.
b) At
least five (5) Trading Days prior to the closing of the Subsequent Financing,
the Corporation shall deliver to each Holder a written notice of its intention
to effect a Subsequent Financing (“
Pre-Notice
”), which
Pre-Notice shall ask such Holder if it wants to review the details of such
financing (such additional notice, a “
Subsequent Financing
Notice
”). Upon the request of a Holder, and only upon a
request by such Holder, for a Subsequent Financing Notice, the Corporation shall
promptly, but no later than one (1) Trading Day after such request, deliver a
Subsequent Financing Notice to such Holder. The Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder and the
Person or Persons through or with whom such Subsequent Financing is proposed to
be effected and shall include a term sheet or similar document relating thereto
as an attachment.
c) Any
Holder desiring to participate in such Subsequent Financing must provide written
notice to the Corporation by not later than 5:30 p.m. (New York City time) on
the fourth (4
th
)
Trading Day after all of the Holders have received the Pre-Notice that the
Holder is willing to participate in the Subsequent Financing, the amount of the
Holder’s participation, and representing and warranting that the Holder has such
funds ready, willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the Corporation receives no such
notice from a Holder as of such fourth (4
th
)
Trading Day, such Holder shall be deemed to have notified the Corporation that
it does not elect to participate.
EXHIBIT
4.3
d) If
by 5:30 p.m. (New York City time) on the fourth (4
th
)
Trading
Day after all of the Holders have received the Pre-Notice, notifications by the
Holders and holders of Parity Securities of their willingness to participate in
the Subsequent Financing (or to cause their designees to participate) is, in the
aggregate, less than the total amount of the Subsequent Financing, then the
Corporation may effect the remaining portion of such Subsequent Financing on the
terms and with the Persons set forth in the Subsequent Financing
Notice.
e) If
by 5:30 p.m. (New York City time) on the fourth (4
th
)
Trading Day after all of the Holders have received the Pre-Notice, the
Corporation receives responses to a Subsequent Financing Notice from Holders and
holders of Parity Securities seeking to purchase more than the aggregate amount
of the Participation Maximum, each such Holder shall have the right to purchase
its Pro Rata Portion (as defined below) of the Participation
Maximum. “
Pro Rata Portion
” of
a Holder means the ratio of: (x) the aggregate Stated Value of the Parity
Securities issued to such Holder on the Closing Date; and (y) the aggregate
Stated Value of the Parity Securities issued to all holders of Parity Securities
participating in such Subsequent Financing under this
Section 9
.
f) The
Corporation must provide the Holders with a second Subsequent Financing Notice,
and the Holders will again have the right of participation set forth above in
this
Section 9
,
if the Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such Subsequent
Financing Notice within thirty (30) Trading Days after the date of the initial
Subsequent Financing Notice.
g) Notwithstanding
the foregoing, this
Section 9
shall not
apply in respect of (i) an Exempt Issuance or (ii) an underwritten public
offering of Common Stock.
Section
10
.
Miscellaneous
.
a)
Notices
. Any
and all notices or other communications or deliveries to be provided by the
Holders hereunder including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, or sent by a nationally recognized
overnight courier service, addressed to the Corporation, at P.O. Box 1118, 1200
American Flat Road, Virginia City, NV 89440, Attention: President, or such other
address as the Corporation may specify for such purposes by notice to the
Holders delivered in accordance with this
Section
10(a)
. Any
and all notices or other communications or deliveries to be provided by the
Corporation hereunder shall be in writing and delivered personally, or sent by a
nationally recognized overnight courier service addressed to each Holder at the
address of such Holder appearing on the books of the Corporation, or if no such
address appears on the books of the Corporation, at the principal place of
business of such Holder, as set forth in the Purchase Agreement. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the second Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or
(ii) upon actual receipt by the party to whom such notice is required to be
given.
b)
Absolute
Obligation
. Except as expressly provided herein, no provision
of this Certificate of Designation shall alter or impair the obligation of the
Corporation, which is absolute and unconditional, to pay accrued dividends on
the shares of Series B Preferred Stock at the time, place, and rate, and in the
coin, currency or shares (as applicable), herein prescribed.
c)
Lost or Mutilated Series B
Preferred Stock Certificate
. If a Holder’s Series B Preferred
Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation
shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated certificate, or in lieu of or in substitution for a
lost, stolen or destroyed certificate, a new certificate for the shares of
Series B Preferred Stock so mutilated, lost, stolen or destroyed, but only upon
receipt of evidence of such loss, theft or destruction of such certificate, and
of the ownership hereof reasonably satisfactory to the
Corporation.
EXHIBIT
4.3
d)
Governing
Law
. All questions concerning the construction, validity,
enforcement and interpretation of this Certificate of Designation shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Nevada, without regard to the principles of conflict of laws
thereof. The Corporation and each Holder agrees that all legal
proceedings concerning the interpretation, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the “
New York
Courts
”). The Corporation and each Holder hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such New York Courts,
or such New York Courts are improper or inconvenient venue for such
proceeding. The Corporation and each Holder hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to it at the address in
effect for notices to it under this Certificate of Designation and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by applicable law. The
Corporation and each Holder hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Certificate of Designation or the
transactions contemplated hereby. If the Corporation or any Holder
shall commence an action or proceeding to enforce any provisions of this
Certificate of Designation, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.
e)
Waiver
. Any
waiver by the Corporation or a Holder of a breach of any provision of this
Certificate of Designation shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Certificate of Designation or a waiver by any other Holders. The
failure of the Corporation or a Holder to insist upon strict adherence to any
term of this Certificate of Designation on one or more occasions shall not be
considered a waiver or deprive that party (or any other Holder) of the right
thereafter to insist upon strict adherence to that term or any other term of
this Certificate of Designation on any other occasion. Any waiver by
the Corporation or a Holder must be in writing.
f)
Severability
. If
any provision of this Certificate of Designation is invalid, illegal or
unenforceable, the balance of this Certificate of Designation shall remain in
effect, and if any provision is inapplicable to any Person or circumstance, it
shall nevertheless remain applicable to all other Persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum rate of interest permitted under applicable law.
g)
Next Business
Day
. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.
h)
Headings
. The
headings contained herein are for convenience only, do not constitute a part of
this Certificate of Designation and shall not be deemed to limit or affect any
of the provisions hereof.
EXHIBIT
4.3
i)
Status of Converted or
Redeemed Series B Preferred Stock
. Shares of Series B
Preferred Stock may only be issued pursuant to the Transaction
Documents. If any shares of Series B Preferred Stock shall be
converted, redeemed or reacquired by the Corporation, such shares shall resume
the status of authorized but unissued shares of Preferred Stock and shall no
longer be designated as 7 ½% Series B Convertible Preferred Stock.
*********************
EXHIBIT
10.1
SECURITIES
PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “
Agreement
”) is dated
as of August 31, 2010, between Comstock Mining Inc., a Nevada corporation (the
“
Company
”), and
each Purchaser identified on
Schedule A
hereto
(each, including its successors and assigns, a “
Purchaser
” and
collectively, the “
Purchasers
”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “
Securities Act
”), and
Rule 506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement; and
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
1
DEFINITIONS
1.1
Definitions
. In
addition to the terms defined elsewhere in this Agreement: (a) capitalized terms
that are not otherwise defined herein have the meanings given to such terms in
the other Transaction Documents (as applicable), and (b) the following terms
have the meanings set forth in this
Section
1.1
:
“
Affiliate
” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person, as such terms are
used in and construed under Rule 405 under the Securities Act.
“
Board of Directors
”
means the board of directors of the Company.
“
Business Day
” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
“
Closing
” means the
closing of the purchase and sale of the Securities pursuant to
Section
2.1
.
“
Closing Date
” has the
meaning set forth in
Section
2.1
.
“
Commission
” means the
United States Securities and Exchange Commission.
“
Common Stock
” means
the common stock of the Company, par value $0.000666 per share, and any other
class of securities into which such common stock may hereafter be reclassified
or changed.
“
Common Stock
Equivalents
” means any securities of the Company or the Subsidiaries
which would, directly or indirectly, entitle the holder thereof to acquire at
any time Common Stock, including, without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time, directly or
indirectly, convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
EXHIBIT
10.1
“
Company Counsel
”
means Kelley Drye & Warren LLP, with offices located at 101 Park Avenue, New
York, NY 10178.
“
Cross-Receipt
” means
the cross receipts executed by the Purchasers and the Company, each in the form
of
Exhibit F
hereto.
“
Disclosure Schedules
”
shall have the meaning set forth in
Section
3.1
.
“
Effective
Date
” means the earlier of the date that (a) all of the Registrable
Securities (as defined in the Registration Rights Agreement) have been
registered for resale by the holders thereof pursuant to a registration
statement(s) declared effective by the Commission or (b) all of the Registrable
Securities have been sold pursuant to Rule 144 or may be sold pursuant to Rule
144 without volume or manner-of-sale restrictions, so long as the Company is
current with the public information requirements under Rule 144.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
Exempt Issuance
”
means the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or option plan (i)
duly adopted for such purpose, by a majority of the non-employee members of the
Board of Directors or a majority of the members of a committee of non-employee
directors established for such purpose, and (ii) approved pursuant to the
provisions of Section 8 of the Series A-1 Certificate of Designation and the
Series A-2 Certificate of Designation, (b) securities upon the exercise or
exchange of or conversion of any Securities issued hereunder (including, without
limitation, any Underlying Shares) and/or other securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement or as disclosed in the Company’s
Disclosure Schedules, provided that such securities have not been amended on or
after the date of this Agreement to increase the number of such securities or to
decrease the exercise price, exchange price or conversion price of such
securities (it being understood that such securities may be adjusted for
anti-dilution purposes in connection with this Agreement), (c) securities issued
pursuant to acquisitions or strategic transactions approved by (i) a majority of
the disinterested directors of the Company, and (ii) pursuant to the provisions
of Section 8 of the Series A-1 Certificate of Designation and the Series A-2
Certificate of Designation, and (d) securities issued as consideration for (i)
dividends to the Purchasers of the Preferred Stock under the Series A-1
Certificate of Designation and the Series A-2 Certificates of Designation and to
purchasers of any other Parity Securities (including, solely with respect to the
Series A-2 Preferred Stock and any other Parity Securities, as the case may be,
any and all shares of Common Stock issuable in lieu of cash payments pursuant to
the Make-Whole Payment and including, solely with respect to the Series A-1
Preferred Stock, any and all shares of Common Stock issuable in lieu of cash
payments pursuant to the Additional Dividend payment (as defined in the Series
A-1 Certificate of Designation)); or (ii) capital contributions to Northern
Comstock LLC made pursuant to the Limited Liability Company Operating
Agreement.
“
Existing Debt Amount
”
means, with respect to each Purchaser, the amount owed by the Company to such
Purchaser under such Purchaser’s Existing Promissory Note as of the Closing, as
set forth on
Schedule
A
hereto.
“
Existing Promissory
Notes
” means the promissory notes listed on
Schedule B
hereto.
“
GAAP
” shall have the
meaning ascribed to such term in
Section
3.1(h)
.
“
Liens
” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.
EXHIBIT
10.1
“
Limited Liability Company
Operating Agreement
” means the Northern Comstock LLC Limited Liability
Company Operating Agreement, dated August __, 2010, entered into among DWC
Resources Inc., John Winfield and the Company, in the form of
Exhibit G
hereto.
“
Lost Note Affidavit and
Indemnity Agreement
” means a Lost Note Affidavit and Indemnity Agreement
in a form reasonably acceptable to the Company in the form attached hereto as
Exhibit
E
.
“
Material Adverse
Effect
” shall have the meaning assigned to such term in
Section
3.1(b)
.
“
Northern Comstock
LLC
” means the limited liability company formed under Chapter 86 of the
Nevada Revised Statutes Act on August __, 2010.
“
Participation
Maximum
” shall have the meaning ascribed to such term in
Section
4.8(a)
.
“
Payoff Letter
” means
the payoff letters executed by the Purchasers in favor of the Company, each in
the form of
Exhibit
A
hereto, providing for termination and release of all obligations under
the applicable Existing Promissory Note and related Loan Documents (as defined
in such Payoff Letter).
“
Person
” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“
Preferred Stock
”
means shares of Series A-1 Preferred Stock and shares of Series A-2 Preferred
Stock issued to the Purchasers hereunder.
“
Pre-Notice
” shall
have the meaning ascribed to such term in
Section
4.8(b)
.
“
Pro Rata Portion
”
shall have the meaning ascribed to such term in
Section
4.8(e)
.
“
Proceeding
” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an informal investigation or partial proceeding, such as a deposition), whether
commenced or threatened.
“
Purchaser Party
”
shall have the meaning ascribed to such term in
Section
4.6
.
“
Registration Rights
Agreement
” means the Registration Rights Agreement, in the form of
Exhibit B
hereto, by
and among the Company and the Purchasers, providing registration rights with
respect to the Underlying Shares held by the Purchasers on the terms and
conditions set forth therein.
“
Required Approvals
”
shall have the meaning ascribed to such term in
Section
3.1(e)
.
“
Required Minimum
”
means, as of any date, the maximum aggregate number of shares of Common Stock
then issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares, ignoring any conversion or exercise
limits set forth therein and assuming that any previously unconverted shares of
Preferred Stock are held until the third anniversary of the Closing Date and all
dividends are paid in shares of Common Stock or Preferred Stock until such third
anniversary.
EXHIBIT
10.1
“
Rule 144
” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“
SEC Reports
” shall
have the meaning ascribed to such term in
Section
3.1(h)
.
“
Securities
” means the
Preferred Stock and the Underlying Shares.
“
Securities Act
” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Series A-1 Certificate of
Designation
” means the 7½% Series A-1 Convertible Preferred Stock
Certificate of Designation to be filed prior to the Closing by the Company with
the Secretary of State of Nevada, in the form of
Exhibit C
attached
hereto.
“
Series A-1 Preferred
Stock
” means the Company’s 7½% Series A-1 Convertible Preferred Stock
issued hereunder having the rights, preferences and privileges set forth in the
Series A-1 Certificate of Designation.
“
Series A-2 Certificate of
Designation
” means the 7½% Series A-2 Convertible Preferred Stock
Certificate of Designation to be filed prior to the Closing by the Company with
the Secretary of State of Nevada, in the form of
Exhibit D
attached
hereto.
“
Series A-2 Preferred
Stock
” means the Company’s 7½% Series A-2 Convertible Preferred Stock
issued hereunder having the rights, preferences and privileges set forth in the
Series A-2 Certificate of Designation.
“
Short Sales
” means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“
Stated Value
” means
$1,000 per share of Preferred Stock, subject to adjustment as provided in the
Series A-1 Certificate of Designation or the Series A-2 Certificate of
Designation (as applicable).
“
Subsequent Financing
”
shall have the meaning ascribed to such term in
Section
4.8(a)
.
“
Subsequent Financing
Notice
” shall have the meaning ascribed to such term in
Section
4.8(b)
.
“
Subsidiary
” shall
have the meaning ascribed to such term in
Section 3.1(a)
and
shall, where applicable, also include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.
“
Trading Day
” means a
day on which the principal Trading Market is open for trading.
“
Trading Market
” means
any of the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the New York Stock Exchange,
American Stock Exchange, the Toronto Stock Exchange, the Nasdaq Capital Market,
the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock
Exchange or the OTC Bulletin Board (or any successors to any of the
foregoing).
EXHIBIT
10.1
“
Transaction
Documents
” means this Agreement, the Series A-1 Certificate of
Designation, the Series A-2 Certificate of Designation, the Registration Rights
Agreement, all exhibits and schedules thereto and hereto, and any other
documents or agreements executed in connection with the transactions
contemplated hereunder (including, without limitation, the documents referenced
in
Section
2.2(c)(ii)(B)
).
“
Transfer Agent
” means
Corporate Stock Transfer Inc., the current transfer agent of the Company, with a
mailing address of 3200 Cherry Creek South Drive, Suite 430, Denver, CO 80209,
and any successor transfer agent of the Company.
“
Underlying Shares
”
means the shares of Common Stock that are:
(a)
issued and issuable upon conversion of the Series A-1 Preferred
Stock or Series A-2 Preferred Stock issued to the Purchasers hereunder;
and
(b)
issued or issuable in lieu of
cash payment of dividends on the Preferred Stock referenced in clause (a) in
accordance with the terms of the Series A-1 Certificate of Designation and the
Series A-2 Certificate of Designation, as applicable (including, solely with
respect to the Series A-2 Preferred Stock, any and all shares of Common Stock
issuable in lieu of cash payments pursuant to the Make-Whole Payment (as defined
in the Series A-2 Certificate of Designation) and including, solely with respect
to the Series A-1 Preferred Stock, any and all shares of Common Stock issuable
in lieu of cash payments pursuant to the Additional Dividend payment (as defined
in the Series A-1 Certificate of Designation).
ARTICLE
2
PURCHASE
AND SALE
2.1
Closing
.
(a)
On the date hereof (the “
Closing Date
”), upon
the terms and subject to the conditions set forth herein, substantially
concurrent with the execution and delivery of this Agreement by the parties
hereto, the Company agrees to sell, and the Purchasers, severally and not
jointly, each agree to purchase, the number of shares of Series A-1 Preferred
Stock or Series A-2 Preferred Stock (as applicable), as set forth on
Schedule A
hereto,
determined by dividing such Purchaser’s Existing Debt Amount, as set forth on
Schedule A
hereto, by the Stated Value of one (1) share of Series A-1 Preferred Stock or
Series A-2 Preferred Stock (as applicable)
(b)
The Company and each Purchaser shall each deliver the
items set forth in
Section 2.2
deliverable at the Closing. Upon satisfaction of the covenants and
conditions set forth in
Sections 2.2
and
2.3
, the
Closing shall occur at the offices of Company Counsel or such other location as
the parties shall mutually agree.
2.2
Deliveries
.
(a)
On or prior to the Closing Date, the Company shall
deliver or cause to be delivered to each Purchaser the following:
(i) this
Agreement and the Registration Rights Agreement, and such Purchaser’s Payoff
Letter and Cross-Receipt, each duly executed by the Company, and (ii) evidence
of the filing and acceptance of the Series A-1 Certificate of Designation or the
Series A-2 Certificate of Designation (as applicable), from the Secretary of
State of Nevada.
EXHIBIT
10.1
(b) Within
five (5) Business Days after the Closing Date, the Company shall deliver or
cause to be delivered to each Purchaser a certificate evidencing the number of
shares of Preferred Stock issued to such Purchaser, determined as provided
herein, registered in the name of such Purchaser.
(c) On
or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this
Agreement, the Registration Rights Agreement and such Purchaser’s Payoff Letter,
each duly executed by such Purchaser, and (ii) such Purchaser’s original
Existing Promissory Note or a Lost Note Affidavit and Indemnity Agreement, duly
executed by such Purchaser.
(d) Upon
receipt of the certificate identified in subsection (b) above, the Purchaser
shall deliver or cause to be delivered to the Company such Purchaser’s
Cross-Receipt, duly executed by such Purchaser.
2.3
Closing
Conditions
.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i)
the accuracy in all material respects on the Closing Date of the representations
and warranties of the Purchasers contained herein (unless as of a specific date
therein);
(ii) all
obligations, covenants and agreements of each Purchaser required to be performed
at or prior to the Closing Date shall have been performed; and
(iii) the
delivery by each Purchaser of the items set forth in
Sections 2.2(c) and
(d)
of this Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
(i)
the accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Company contained herein (unless as of a
specific date therein);
(ii)
all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;
and
(iii) the
delivery by the Company of the items set forth in
Sections 2.2(a) and
(b)
of this Agreement.
ARTICLE
3
REPRESENTATIONS
AND WARRANTIES
3.1
Representations and
Warranties of the Company
. Except as set forth in the
Disclosure Schedules
,
which Disclosure Schedules shall be deemed a part hereof and shall qualify any
representation otherwise made herein to the extent of the disclosure contained
in the corresponding section of the Disclosure Schedules, the Company hereby
makes the following representations and warranties to each
Purchaser:
EXHIBIT
10.1
(a)
Subsidiaries
. GoldSpring,
LLC, The Plum Mining Company, LLC, and the Plum Mine Special Purpose Company LLC
(collectively, the “
Subsidiaries,
” and
each a “
Subsidiary
”) are the
only direct or indirect subsidiaries of the Company. The Company
owns, directly or indirectly, all of the capital stock or other equity interests
of each Subsidiary free and clear of any Liens, other than Liens incurred in
connection with the Existing Promissory Notes and which shall be discharged at
the Closing of the transactions contemplated hereunder, and all of the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
(b)
Organization and
Qualification
. The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation or
default of any of the material provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in: (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “
Material Adverse
Effect
”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
(c)
Authorization;
Enforcement
. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company, the Board of Directors or the Company’s stockholders in connection
therewith. Each Transaction Document to which it is a party has been
(or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
EXHIBIT
10.1
(d)
No
Conflicts
. The execution, delivery and performance by the
Company of the Transaction Documents, the issuance and sale of the Securities
and the consummation by it of the transactions contemplated hereby and thereby
to which it is a party do not and will not: (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary, or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of
clauses (ii)
and
(iii)
, such as
could not have or reasonably be expected to result in a Material Adverse
Effect.
(e)
Filings, Consents and
Approvals
. The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to
Section 4.5
of this
Agreement, (ii) the filings with the Commission pursuant to the Registration
Rights Agreement, (iii) the notice and/or application(s) to each applicable
Trading Market for the issuance and sale of the Preferred Stock and the listing
of the Underlying Shares for trading thereon in the time and manner required
thereby, and (iv) the filing of Form D with the Commission and such filings as
are required to be made under applicable state securities laws (collectively,
the “
Required
Approvals
”).
(f)
Issuance of the
Securities
. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Underlying Shares, when issued
in accordance with the terms of the Transaction Documents, will be validly
issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction
Documents. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Underlying Shares
at least equal to 100% of the shares of Common Stock initially issuable upon
conversion of the Preferred Stock issuable hereunder.
(g)
Capitalization
. The
capitalization of the Company is as set forth on
Schedule 3.1(g)
,
which
Schedule
3.1(g)
also includes the number of shares of Common Stock owned
beneficially, and of record, by Affiliates of the Company as of the date
hereof. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the
purchase and sale of the Securities or as set forth in
Schedule 3.1(g)
or in
the SEC Reports, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under any of such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. No further
approval or authorization of any stockholder, the Board of Directors or others
is required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.
EXHIBIT
10.1
(h)
SEC Reports; Financial
Statements
. The Company has filed all quarterly and annual
reports required to be filed by the Company under the Exchange Act for the three
(3) years preceding the date hereof (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “
SEC Reports
”) on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (“
GAAP
”), except as may
be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i)
Material Changes;
Undisclosed Events, Liabilities or Developments
. Except as set forth on
Schedule 3.1(i)
or the SEC Reports, since the date of the latest audited financial statements
included within the SEC Reports: (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (a) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(b) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting, (iv) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated
by this Agreement or as set forth on
Schedule 3.1(i)
, no
event, liability, fact, circumstance, occurrence or development has occurred or
exists or is reasonably expected to occur or exist with respect to the Company
or its Subsidiaries or their respective business, properties, operations, assets
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made or
deemed made that has not been publicly disclosed at least one (1) Trading Day
prior to the date that this representation is made.
(j)
Private Placement
.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in
Section
3.2
, no registration under the Securities Act is required for the offer
and sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
EXHIBIT
10.1
(k)
No Integrated
Offering
. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in
Section 3.2
, neither
the Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of (i) the Securities Act which would require the
registration of any such securities under the Securities Act, or (ii) any
applicable stockholder approval provisions of any Trading Market on which any of
the securities of the Company are listed or designated.
(l)
No General
Solicitation
. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising. The Company has offered
the Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.
(m)
Litigation
. There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “
Action
”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company. The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities
Act.
(n)
Compliance
. Neither
the Company nor any Subsidiary: (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), except as described in the SEC Reports or as set
forth in
Schedule
3.1(n)
hereto, (ii) is in violation of any judgment, decree or order of
any court, arbitrator or governmental body or (iii) is or has been in violation
of any statute, rule, ordinance or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws relating
to taxes, environmental protection, occupational health and safety, product
quality and safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in a Material Adverse
Effect.
(o)
Title to
Assets
. Except as set forth in the SEC Reports, the Company
and the Subsidiaries have good and marketable title in fee simple to all real
property owned by them and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for Liens as do
not materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
the Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties. Any
real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases
with which the Company and the Subsidiaries are in compliance.
EXHIBIT
10.1
(p)
Sarbanes-Oxley; Internal
Accounting Controls
. The Company is in compliance with any and
all requirements of the Sarbanes-Oxley Act of 2002 applicable to smaller
reporting companies that are effective as of the date hereof, and any and all
applicable rules and regulations promulgated by the Commission thereunder that
are effective as of the date hereof and as of the Closing Date. The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that: (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded balances of assets are compared
with the actual assets of the Company at reasonable intervals and appropriate
action is taken with respect to any differences. The Company has
established disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls
and procedures to ensure that information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms. The Company’s certifying officers have
evaluated the effectiveness of the Company’s disclosure controls and procedures
as of the end of the period covered by the Company’s most recently filed
periodic report under the Exchange Act (such date, the “
Evaluation
Date
”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(q)
Tax
Status
. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary (i) has made or filed all required
United States federal and state income and all foreign income and franchise tax
returns (or extension requests related thereto), reports and declarations
required by any jurisdiction to which it is subject, (ii) 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 and (iii) has set
aside on its books provision reasonably adequate for the payment of all material
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 or of any Subsidiary know of no basis for any such
claim.
3.2
Representations and
Warranties of the Purchasers
. Each Purchaser, for itself and
for no other Purchaser, severally and not jointly, hereby represents and
warrants as of the date hereof and as of the Closing Date to the Company as
follows (unless as of a specific date therein):
(a)
Organization;
Authority
. Such Purchaser is either an individual or an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or other power and
authority to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of the Transaction Documents
and performance by such Purchaser of the transactions contemplated by the
Transaction Documents have been duly authorized by all necessary corporate,
partnership, limited liability company or similar action, as applicable, on the
part of such Purchaser. Each Transaction Document to which it is a
party has been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies, and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law. If the Purchaser(s) is a corporation, trust, partnership or
other entity that is not an individual person, it has not been organized for the
specific purpose of purchasing the Securities and is not prohibited from doing
so.
EXHIBIT
10.1
(b)
Own
Account
. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting such Purchaser’s right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws). Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its
business.
(c)
Purchaser
Status
. At the time such Purchaser was offered the Securities,
it was, and as of the date hereof it is, and on each date on which it converts
any shares of Preferred Stock, it will be either: (i) an “accredited investor”
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act. Such Purchaser is not required to
be registered as a broker-dealer under Section 15 of the Exchange
Act.
(d)
Experience of Such
Purchaser
. Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. Such Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time, is
able to afford a complete loss of such investment.
(e)
Reliance on
Exemptions
. Each Purchaser understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities. Each Purchaser understands that
no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities, or the fairness or suitability of the investment in the Securities,
nor have such authorities passed upon or endorsed the merits of the offering of
the Securities.
(f)
General
Solicitation
. Such Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
(g)
Representations of
Purchasers
. Each Purchaser solely owns all right, title and
interest in and to its respective Existing Promissory Note(s) and has not
conveyed any interest or other right in any such Existing Promissory Note to any
other Person or otherwise subjected, or allowed to be subjected, such Existing
Promissory Note to any lien or other encumbrance. The transactions
contemplated by this Agreement will result in the full and complete release and
satisfaction of any and all obligations of the Company with respect to each
Purchaser’s Existing Promissory Note(s). The Existing Promissory
Note(s) being tendered by each Purchaser to the Company pursuant to this
Agreement are the only promissory notes or other debt obligations of the Company
to such Purchaser.
EXHIBIT
10.1
(h)
No Legal Advice From the
Company; Sole Representations in Agreement
. Each Purchaser
acknowledges that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with his or its own legal counsel
and investment and tax advisors. Each Purchaser is relying solely on
such counsel and advisors and not on any statements or representations of the
Company or any of its representatives or agents for legal, tax or investment
advice with respect to this investment, the transactions contemplated by this
Agreement or the securities laws of any jurisdiction. Each Purchaser
acknowledges that the only representations being made by the Company in
connection with the transactions contemplated by this Agreement are set forth in
this
Article
III
and that in connection with its decision to enter into the
transactions contemplated by this Agreement, it is relying only on such
representations in this Article III and the SEC Reports, and not on any other
statements or representations of the Company or any of its representatives or
agents.
(i)
Each Purchaser
acknowledges, by its execution of this Agreement, that its obligations hereunder
are irrevocable.
The
Company acknowledges and agrees that the representations contained in
Section 3.2
shall not
modify, amend or affect such Purchaser’s right to rely on the Company’s
representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction Document or
any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated
hereby.
ARTICLE
4
OTHER
AGREEMENTS OF THE PARTIES
4.1
Transfer
Restrictions
.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in
Section
4.1(b)
, the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights and
obligations of a Purchaser under this Agreement.
(b)
The Purchasers agree to
the imprinting, so long as is required by this
Section 4.1
, of a
legend on any of the Securities in the following form:
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “
SECURITIES ACT
”),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
EXHIBIT
10.1
The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval
of the Company and no legal opinion of legal counsel of the pledgee, secured
party or pledgor shall be required in connection therewith. Further,
no notice shall be required of such pledge.
(c) Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in
Section 4.1(b)
hereof): (i) while a registration statement covering the resale of such security
is effective under the Securities Act, (ii) following any sale of such
Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are
eligible for sale under Rule 144, without the requirement for the Company to be
in compliance with the current public information required under Rule 144 as to
such Underlying Shares and without volume or manner-of-sale restrictions or (iv)
if such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the staff
of the Commission). The Company shall cause its counsel to issue a
legal opinion to the Transfer Agent promptly after the Effective Date if
required by the Transfer Agent to effect the removal of the legend
hereunder. If all or any shares of Preferred Stock are converted at a
time when there is an effective registration statement to cover the resale of
the Underlying Shares, or if such Underlying Shares may be sold under Rule 144
and the Company is then in compliance with the current public information
required under Rule 144, or if the Underlying Shares may be sold under Rule 144
without the requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such Underlying Shares and
without volume or manner-of-sale restrictions or if such legend is not otherwise
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission), then
such Underlying Shares shall be issued free of all legends. The
Company agrees that following the Effective Date or at such time as such legend
is no longer required under this
Section 4.1(c)
, it
will, no later than three Trading Days following the delivery by a Purchaser to
the Company or the Transfer Agent of a certificate representing Underlying
Shares, as applicable, issued with a restrictive legend, deliver or cause to be
delivered to such Purchaser a certificate representing such shares that is free
from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to the Transfer Agent that enlarge
the restrictions on transfer set forth in this
Section
4.1(c)
. Certificates for Underlying Shares subject to legend
removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System as directed by such Purchaser.
(d) Each
Purchaser, severally and not jointly with the other Purchasers, agrees with the
Company that such Purchaser will only sell any Securities pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom, and acknowledges
that the removal of the restrictive legend from certificates representing
Securities as set forth in this
Section 4.1
is
predicated upon the Company’s reliance upon this understanding.
EXHIBIT
10.1
4.2
Furnishing of
Information
. Until the time that no Purchaser owns any
Securities, the Company covenants to maintain the registration of the Common
Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act even if the Company is not then subject to the
reporting requirements of the Exchange Act. As long as any Purchaser
owns any Securities, if the Company is not required to file reports pursuant to
the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities, including without
limitation, under Rule 144. The Company further covenants that it
will take such further action as any holder of Securities may reasonably
request, to the extent required from time to time to enable such Person to sell
such Securities without registration under the Securities Act, including without
limitation, within the requirements of the exemption provided by Rule
144. With regard to the Securities purchased relating to the
Purchasers’ Existing Debt Amount owed by the Plum Mine Special Purpose Company
LLC, as evidenced by the Existing Promissory Notes issued by the Plum Mine
Special Purpose Company,
the Company
represents that it has been advised by counsel that, if the Purchasers sought to
transfer such Securities immediately after the Closing, such Securities would be
eligible for tacking under Rule 144.
4.3
Integration
. The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market such
that it would require stockholder approval prior to the closing of such other
transaction unless stockholder approval is obtained before the closing of such
subsequent transaction.
4.4
Conversion
Procedure
. The form of Notice of Conversion included in the
Series A-1 Certificate of Designation or the Series A-2 Certificate of
Designation (as applicable) sets forth the totality of the procedures required
of the Purchasers in order to convert the Preferred Stock. No
additional legal opinion, other information or instructions shall be required of
the Purchasers to convert their Preferred Stock. The Company shall
honor conversions of the Preferred Stock and shall deliver Underlying Shares in
accordance with the terms, conditions and time periods set forth in the
Transaction Documents.
4.5
Securities Laws Disclosure;
Publicity
. The Company shall, in accordance with applicable
federal securities law, issue a Current Report on Form 8-K and press release
disclosing the material terms of the transactions contemplated hereby, and
including the Transaction Documents as exhibits thereto. From and
after the issuance of such press release, the Company shall have publicly
disclosed all material, non-public information delivered to any of the
Purchasers by the Company or any of its subsidiaries, or any of their respective
officers, directors, employees or agents in connection with the transactions
contemplated by the Transaction Documents. The Company and each Purchaser shall
consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release nor otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
any Purchaser, or without the prior consent of each Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld or delayed, except if such disclosure is required by law, in which case
the disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except: (a) as required by federal securities law in connection with
(i) any registration statement contemplated by the Registration Rights Agreement
and (ii) the filing of final Transaction Documents (including signature pages
thereto) with the Commission; and (b) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under this
Section
4.5
.
EXHIBIT
10.1
4.6
Indemnification of
Purchasers
. Subject to the provisions of this
Section 4.6
, the
Company will indemnify and hold each Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“
Purchaser
Party
”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents. The indemnification required by this
Section 4.6
shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or are
incurred.
4.7
Reservation and Listing of
Securities
.
(a) The
Company shall maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount as may then be
required to fulfill its obligations in full under the Transaction
Documents.
(b) If,
on any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock and/or Preferred Stock is less than 130% of (i) the
Required Minimum on such date, minus (ii) the number of shares of Common Stock
or Preferred Stock (as applicable) previously issued pursuant to the Transaction
Documents, then the Board of Directors shall use commercially reasonable efforts
to amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock and/or Preferred Stock
(as applicable) to at least the Required Minimum at such time (minus the number
of shares of Common Stock and/or Preferred Stock (as applicable) previously
issued pursuant to the Transaction Documents), as soon as possible and in any
event not later than the 120
th
day
after such date; provided that the Company will not be required at any time to
authorize a number of shares of Common Stock and/or Preferred Stock (as
applicable) greater than the maximum remaining number of shares of Common Stock
or Preferred Stock (as applicable) that could possibly be issued after such time
pursuant to the Transaction Documents.
(c) The
Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing or quotation on such Trading Market as soon as possible
thereafter, (iii) provide to the Purchasers evidence of such listing or
quotation and (iv) maintain the listing or quotation of such Common Stock on any
date at least equal to the Required Minimum on such date on such Trading Market
or another Trading Market.
EXHIBIT
10.1
4.8
Participation in Future
Financing
.
(a) From
the date hereof until such time as the Purchasers no longer hold any shares of
Preferred Stock, upon any issuance by the Company or any of its Subsidiaries of
Common Stock, Common Stock Equivalents for cash consideration, or a combination
of units hereof (a “
Subsequent
Financing
”), each Purchaser shall have the right to participate in up to
an amount of the Subsequent Financing equal to 100% of the Subsequent Financing
(the “
Participation
Maximum
”) on the same terms, conditions and price provided for in the
Subsequent Financing.
(b) At
least five (5) Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing (“
Pre-Notice
”), which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “
Subsequent Financing
Notice
”). Upon the request of a Purchaser, and only upon a
request by such Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than one (1) Trading Day after such request, deliver a
Subsequent Financing Notice to such Purchaser. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder
and the Person or Persons through or with whom such Subsequent Financing is
proposed to be effected and shall include a term sheet or similar document
relating thereto as an attachment.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the fourth (4
th
)
Trading Day after all of the Purchasers have received the Pre-Notice that the
Purchaser is willing to participate in the Subsequent Financing, the amount of
the Purchaser’s participation, and representing and warranting that the
Purchaser has such funds ready, willing, and available for investment on the
terms set forth in the Subsequent Financing Notice. If the Company
receives no such notice from a Purchaser as of such fourth (4
th
)
Trading Day, such Purchaser shall be deemed to have notified the Company that it
does not elect to participate.
(d) If
by 5:30 p.m. (New York City time) on the fourth (4
th
)
Trading
Day after all of the Purchasers have received the Pre-Notice, notifications by
the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less than the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and with the Persons
set forth in the Subsequent Financing Notice.
(e) If
by 5:30 p.m. (New York City time) on the fourth (4
th
)
Trading Day after all of the Purchasers have received the Pre-Notice, the
Company receives responses to a Subsequent Financing Notice from Purchasers
seeking to purchase more than the aggregate amount of the Participation Maximum,
each such Purchaser shall have the right to purchase its Pro Rata Portion (as
defined below) of the Participation Maximum. “
Pro Rata Portion
” of
a Purchaser means the ratio of: (x) the aggregate Stated Value of the Preferred
Stock issued to such Purchaser on the Closing Date; and (y) the aggregate Stated
Value of the Preferred Stock issued to all Purchasers participating in such
Subsequent Financing under this
Section
4.8
.
(f)
The Company
must provide the Purchasers with a second Subsequent Financing Notice, and the
Purchasers will again have the right of participation set forth above in this
Section 4.8
, if
the Subsequent Financing subject to the initial Subsequent Financing Notice is
not consummated for any reason on the terms set forth in such Subsequent
Financing Notice within thirty (30) Trading Days after the date of the initial
Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this
Section 4.8
shall not
apply in respect of (i) an Exempt Issuance or (ii) an underwritten public
offering of Common Stock.
EXHIBIT
10.1
4.9
Equal Treatment of
Purchasers
. No consideration (including any modification of
any Transaction Document) shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the parties to
the Transaction Documents. For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.10
Certain Transactions and
Confidentiality
. Each Purchaser, severally and not jointly
with the other Purchasers, covenants that neither it, nor any Affiliate acting
on its behalf or pursuant to any understanding with it will execute any
purchases or sales, including Short Sales, of any of the Company’s securities
during the period commencing with the execution of this Agreement and ending at
such time that the transactions contemplated by this Agreement are first
publicly announced pursuant to the initial press release as described in
Section 4.5
.
Each Purchaser, severally and not jointly with the other Purchasers, covenants
that until such time as the transactions contemplated by this Agreement are
publicly disclosed by the Company pursuant to the initial press release as
described in
Section
4.5
, such Purchaser will maintain the confidentiality of the existence
and terms of this transaction and the information included in the Transaction
Documents and the Disclosure Schedules. Notwithstanding the
foregoing, and notwithstanding anything contained in this Agreement to the
contrary, the Company expressly acknowledges and agrees that (i) no Purchaser
makes any representation, warranty or covenant hereby that it will not engage in
effecting transactions in any securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in
Section 4.5
, (ii) no
Purchaser shall be restricted or prohibited from effecting any transactions in
any securities of the Company in accordance with applicable securities laws from
and after the time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.5
;
and (iii) no Purchaser shall have any duty of confidentiality to the Company or
its Subsidiaries after the issuance of the initial press release as described in
Section
4.5
. Notwithstanding the foregoing, in the case of a Purchaser that
is a multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.
4.11
Form D; Blue Sky
Filings
. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of any Purchaser. The Company shall
take such action as the Company shall reasonably determine is necessary in order
to obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
ARTICLE
5
MISCELLANEOUS
5.1
Fees and
Expenses
. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all
Transfer Agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities to the Purchasers.
EXHIBIT
10.1
5.2
Entire
Agreement
. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.
5.3
Notices
. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of: (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
(2
nd
) Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.
5.4
Amendments;
Waivers
. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and Purchaser(s) holding Existing
Promissory Note(s) representing at least a majority of the aggregate Existing
Debt Amount for all Existing Promissory Notes or, in the case of a waiver, by
the party against whom enforcement of any such waived provision is
sought. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right.
The parties agree and
acknowledge that this
Section 5.4
relates
solely to waivers, modifications, supplements and amendments to this Agreement,
and not to any other Transaction Document.
5.5
Headings
. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
5.6
Successors and
Assigns
. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser (other
than by merger). Any Purchaser may assign any or all of its rights
under this Agreement to any Person to whom such Purchaser assigns or transfers
any Securities, provided that such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the “Purchasers.”
5.7
No Third-Party
Beneficiaries
. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.9.
EXHIBIT
10.1
5.8
Governing
Law
.
ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION
OF THE TRANSACTION DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH PARTY AGREES THAT
ALL LEGAL PROCEEDINGS CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND DEFENSE OF
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND ANY OTHER TRANSACTION
DOCUMENTS (WHETHER BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES,
DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED
EXCLUSIVELY IN THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW
YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER
OR IS AN INCONVENIENT VENUE FOR SUCH PROCEEDING. EACH
PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO
PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY
THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF
DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS
AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL
BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. IF EITHER PARTY SHALL COMMENCE AN ACTION OR
PROCEEDING TO ENFORCE ANY PROVISIONS OF THE TRANSACTION DOCUMENTS, THEN, IN
ADDITION TO THE OBLIGATIONS OF THE COMPANY UNDER SECTION 4.6, THE PREVAILING
PARTY IN SUCH ACTION OR PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR
ITS REASONABLE ATTORNEYS’ FEES AND OTHER COSTS AND EXPENSES INCURRED WITH THE
INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH ACTION OR
PROCEEDING.
5.9
Survival
. The
representations and warranties contained herein shall survive the Closing and
the delivery of the Securities.
5.10
Execution
. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.
5.11
Severability
. If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
EXHIBIT
10.1
5.12
Replacement of
Securities
. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.13
Remedies
. (a) In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Purchasers and the Company will
be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and
not to assert in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
(b) If
the Company defaults in complying with the covenants set out in Section 4.2
hereof and the Company fails to remedy such default within 30 days after notice
by Purchasers specifying the nature of the default, the Company shall, at its
cost and in the manner described in the Registration Rights Agreement, as
promptly as practicable file with the Commission and thereafter cause to be
declared effective (unless it becomes effective automatically upon filing) on or
prior to the 90
th
day
after the expiration of such 30 day cure period, a registration statement on an
appropriate form under the Securities Act relating to the offer and sale of the
Underlying Shares; provided, that if the Commission comments on such
registration statement, then the Company shall cause such registration statement
to be declared effective on or prior to the 120th day after the expiration of
such 30 day cure period.
5.14
Independent Nature of
Purchasers’ Obligations and Rights
. The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or
in any other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by any of the Purchasers.
5.15
Saturdays, Sundays,
Holidays, etc.
If the last or appointed day for the taking of any
action or the expiration of any right required or granted herein shall not be a
Business Day, then such action may be taken or such right may be exercised on
the next succeeding Business Day.
5.16
Construction
. The
parties agree that each of them and/or their respective counsel has reviewed and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto. In addition, each and
every reference to share prices and shares of Common Stock in any Transaction
Document shall be subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common
Stock that occur after the date of this Agreement.
EXHIBIT
10.1
5.17
WAIVER OF
JURY TRIAL
. IN ANY ACTION, SUIT, OR
PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE
PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY
WAIVES FOREVER TRIAL BY JURY.
EXHIBIT
10.2
SECURITIES
PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “
Agreement
”) is dated
as of October 20, 2010, between Comstock Mining Inc., a Nevada corporation (the
“
Company
”), and
each Purchaser identified on
Schedule A
hereto
(each, including its successors and assigns, a “
Purchaser
” and
collectively, the “
Purchasers
”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “
Securities Act
”), and
Rule 506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement; and
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
1
DEFINITIONS
1.1
Definitions
. In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms that are not otherwise defined herein have the meanings given to such
terms in the other Transaction Documents (as applicable), and (b) the following
terms have the meanings set forth in this
Section
1.1
:
“
Affiliate
” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person, as such terms are
used in and construed under Rule 405 under the Securities Act.
“
Board of Directors
”
means the board of directors of the Company.
“
Business Day
” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
“
Closing
” means the
closing of the purchase and sale of the Securities pursuant to
Section
2.1
.
“
Closing Date
” has the
meaning set forth in
Section
2.1
.
“
Commission
” means the
United States Securities and Exchange Commission.
“
Common Stock
” means
the common stock of the Company, par value $0.000666 per share, and any other
class of securities into which such common stock may hereafter be reclassified
or changed.
“
Common Stock
Equivalents
” means any securities of the Company or the Subsidiaries
which would, directly or indirectly, entitle the holder thereof to acquire at
any time Common Stock, including, without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time, directly or
indirectly, convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
EXHIBIT
10.2
“
Company Counsel
”
means Kelley Drye & Warren LLP, with offices located at 101 Park Avenue, New
York, NY 10178.
“
Disclosure Schedules
”
shall have the meaning set forth in
Section
3.1
.
“
Effective
Date
” means the earlier of the date that (a) all of the Registrable
Securities (as defined in the Registration Rights Agreement) have been
registered for resale by the holders thereof pursuant to a registration
statement(s) declared effective by the Commission or (b) all of the Registrable
Securities have been sold pursuant to Rule 144 or may be sold pursuant to Rule
144 without volume or manner-of-sale restrictions, so long as the Company is
current with the public information requirements under Rule 144.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
Exempt Issuance
”
means the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or option plan (i)
duly adopted for such purpose, by a majority of the non-employee members of the
Board of Directors or a majority of the members of a committee of non-employee
directors established for such purpose, and (ii) approved pursuant to the
provisions of Section 8 of the Series A-1 Certificate of Designation, Series A-2
Certificate of Designation and the Series B Certificate of Designation, (b)
securities upon the exercise or exchange of or conversion of any Securities
issued hereunder (including, without limitation, any Underlying Shares) and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement or as
disclosed in the Company’s Disclosure Schedules, provided that such securities
have not been amended on or after the date of this Agreement to increase the
number of such securities or to decrease the exercise price, exchange price or
conversion price of such securities (it being understood that such securities
may be adjusted for anti-dilution purposes in connection with this Agreement),
(c) securities issued pursuant to acquisitions or strategic transactions
approved by (i) a majority of the disinterested directors of the Company, and
(ii) pursuant to the provisions of Section 8 of the Series A-1 Certificate of
Designation, Series A-2 Certificate of Designation and the Series B Certificate
of Designation, and (d) securities issued as consideration for (i) dividends to
the Purchasers of the Preferred Stock under the Series A-1 Certificate of
Designation, Series A-2 Certificate of Designation and the Series B Certificate
of Designation and to purchasers of any other Parity Securities (including,
solely with respect to the Series A-2 Preferred Stock, Series B Preferred Stock
and any other Parity Securities, as the case may be, any and all shares of
Common Stock issuable in lieu of cash payments pursuant to the Make-Whole
Payment and including, solely with respect to the Series A-1 Preferred Stock,
any and all shares of Common Stock issuable in lieu of cash payments pursuant to
the Additional Dividend payment (as defined in the Series A-1 Certificate of
Designation)); or (ii) capital contributions to Northern Comstock LLC made
pursuant to the Limited Liability Company Operating Agreement.
“
GAAP
” shall have the
meaning ascribed to such term in
Section
3.1(h)
.
“
Liens
” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.
“
Limited Liability Company
Operating Agreement
” means the Northern Comstock LLC Limited Liability
Company Operating Agreement, dated October 20, 2010, entered into among DWC
Resources Inc., John Winfield and the Company, in the form of
Exhibit E
hereto.
“
Material Adverse
Effect
” shall have the meaning assigned to such term in
Section
3.1(b)
.
EXHIBIT
10.2
“
Northern Comstock
LLC
” means the limited liability company formed under Chapter 86 of the
Nevada Revised Statutes Act on October 18, 2010.
“
Participation
Maximum
” shall have the meaning ascribed to such term in
Section
4.8(a)
.
“
Person
” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“
Placement Agents
”
mean the agents of the Company in the private offer and sale of the Series B
Preferred Stock, including Moelis & Company LLC, Merriman Curhan Ford,
Global Hunter Securities and Legend Merchant Group Inc.
“
Preferred Stock
”
means shares of Series A-1 Preferred Stock, Series A-2 Preferred Stock and
Series B Preferred Stock.
“
Pre-Notice
” shall
have the meaning ascribed to such term in
Section
4.8(b)
.
“
Pro Rata Portion
”
shall have the meaning ascribed to such term in
Section
4.8(e)
.
“
Proceeding
” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an informal investigation or partial proceeding, such as a deposition), whether
commenced or threatened.
“
Purchaser Party
”
shall have the meaning ascribed to such term in
Section
4.6
.
“
Registration Rights
Agreement
” means the Registration Rights Agreement, in the form of
Exhibit B
hereto, by
and among the Company and the Purchasers, providing registration rights with
respect to the Underlying Shares held by the Purchasers on the terms and
conditions set forth therein.
“
Required Approvals
”
shall have the meaning ascribed to such term in
Section
3.1(e)
.
“
Required Minimum
”
means, as of any date, the maximum aggregate number of shares of Common Stock
then issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares, ignoring any conversion or exercise
limits set forth therein and assuming that any previously unconverted shares of
Preferred Stock are held until the third anniversary of the Closing Date and all
dividends are paid in shares of Common Stock or Preferred Stock until such third
anniversary.
“
Rule 144
” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“
SEC Reports
” shall
have the meaning ascribed to such term in
Section
3.1(h)
.
“
Securities
” means the
Preferred Stock and the Underlying Shares.
“
Securities Act
” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
EXHIBIT
10.2
“
Series A-1 Certificate of
Designation
” means the 7 ½% Series A-1 Convertible Preferred Stock
Certificate of Designation attached
Exhibit C
hereto.
“
Series A-1 Preferred
Stock
” means the Company’s 7 ½% Series A-1 Convertible Preferred Stock
issued hereunder having the rights, preferences and privileges set forth in the
Series A-1 Certificate of Designation.
“
Series A-2 Certificate of
Designation
” means the 7 ½% Series A-2 Convertible Preferred Stock
Certificate of Designation attached as
Exhibit D
hereto.
“
Series A-2 Preferred
Stock
” means the Company’s 7 ½% Series A-2 Convertible Preferred Stock
issued hereunder having the rights, preferences and privileges set forth in the
Series A-2 Certificate of Designation.
“
Series B Certificate of
Designation
” means the 7 ½% Series B Convertible Preferred Stock
Certificate of Designation to be filed prior to the Closing by the Company with
the Secretary of State of Nevada, in the form of
Exhibit A
attached
hereto.
“
Series B Preferred
Stock
” means the Company’s 7 ½% Series B Convertible Preferred Stock
issued hereunder having the rights, preferences and privileges set forth in the
Series B Certificate of Designation.
“
Short Sales
” means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“
Stated Value
” means
$1,000 per share of Preferred Stock, subject to adjustment as provided in the
Series A-1 Certificate of Designation or the Series A-2 Certificate of
Designation (as applicable).
“
Subsequent Financing
”
shall have the meaning ascribed to such term in
Section
4.8(a)
.
“
Subsequent Financing
Notice
” shall have the meaning ascribed to such term in
Section
4.8(b)
.
“
Subsidiary
” shall
have the meaning ascribed to such term in
Section 3.1(a)
and
shall, where applicable, also include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.
“
Trading Day
” means a
day on which the principal Trading Market is open for trading.
“
Trading Market
” means
any of the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the New York Stock Exchange,
American Stock Exchange, the Toronto Stock Exchange, the Nasdaq Capital Market,
the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock
Exchange or the OTC Bulletin Board (or any successors to any of the
foregoing).
“
Transaction
Documents
” means this Agreement, the Series A-1 Certificate of
Designation, the Series A-2 Certificate of Designation, the Series B Certificate
of Designation, the Registration Rights Agreement, all exhibits and schedules
thereto and hereto, and any other documents or agreements executed in connection
with the transactions contemplated hereunder (including, without limitation, the
documents referenced in
Section
2.2(c)(ii)(B)
).
EXHIBIT
10.2
“
Transfer Agent
” means
Corporate Stock Transfer Inc., the current transfer agent of the Company, with a
mailing address of 3200 Cherry Creek South Drive, Suite 430, Denver, CO 80209,
and any successor transfer agent of the Company.
“
Underlying Shares
”
means the shares of Common Stock that are:
(a) issued
and issuable upon conversion of the Series A-1 Preferred Stock, Series A-2
Preferred Stock or Series B Preferred Stock; and
(b) issued
or issuable in lieu of cash payment of dividends on the Preferred Stock
referenced in clauses (a) in accordance with the terms of the Series A-1
Certificate of Designation, Series A-2 Certificate of Designation and the Series
B Certificate of Designation, as applicable (including, solely with respect to
the Series A-2 Preferred Stock and Series B Preferred Stock, any and all shares
of Common Stock issuable in lieu of cash payments pursuant to the Make-Whole
Payment (as defined in the Series A-2 Certificate of Designation and Series B
Certificate of Designation, respectively)) and including, solely with respect to
the Series A-1 Preferred Stock, any and all shares of Common Stock issuable in
lieu of cash payments pursuant to the Additional Dividend payment (as defined in
the Series A-1 Certificate of Designation).
ARTICLE
2
PURCHASE
AND SALE
2.1
Closing
. On
the date hereof (the “
Closing Date
”), upon
the terms and subject to the conditions set forth herein, substantially
concurrent with the execution and delivery of this Agreement by the parties
hereto:
(a) the
Company agrees to sell, and the Purchasers, severally and not jointly, each
agree to purchase, the number of shares of Series B Preferred Stock, as set
forth on
Schedule
A
hereto. The Company and each Purchaser shall each deliver
the items set forth in
Section 2.2
deliverable at the Closing. Upon satisfaction of the covenants and
conditions set forth in
Sections 2.2
and
2.3
, the
Closing shall occur at the offices of Company Counsel or such other location as
the parties shall mutually agree.
2.2
Deliveries
.
(a) On
or prior to the Closing Date, the Company shall deliver or cause to be delivered
to each Purchaser the following: (i) this Agreement and the Registration Rights
Agreement, each duly executed by the Company, and (ii) evidence of the filing
and acceptance of the Series B Certificate of Designation from the Secretary of
State of Nevada.
(b) Within
five (5) Business Days after the Closing Date, the Company shall deliver or
cause to be delivered to each Purchaser a certificate evidencing the number of
shares of Series B Preferred Stock issued to such Purchaser registered in the
name of such Purchaser.
(c) On
or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company this Agreement and the Registration Rights Agreement,
duly executed by such Purchaser.
2.3
Closing
Conditions
.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
EXHIBIT
10.2
(i) the
accuracy in all material respects on the Closing Date of the representations and
warranties of the Purchasers contained herein (unless as of a specific date
therein);
(ii) all
obligations, covenants and agreements of each Purchaser required to be performed
at or prior to the Closing Date shall have been performed; and
(iii) the
delivery by each Purchaser of the items set forth in
Sections 2.2(c)
of
this Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Company contained herein (unless as of a
specific date therein);
(ii) all
obligations, covenants and agreements of the Company required to be performed at
or prior to the Closing Date shall have been performed; and
(iii) the
delivery by the Company of the items set forth in
Sections 2.2(a) and
(b)
of this Agreement.
ARTICLE
3
REPRESENTATIONS
AND WARRANTIES
3.1
Representations and
Warranties of the Company
. Except as set forth in the
Disclosure Schedules
,
which Disclosure Schedules shall be deemed a part hereof and shall qualify any
representation otherwise made herein to the extent of the disclosure contained
in the corresponding section of the Disclosure Schedules, the Company hereby
makes the following representations and warranties to each
Purchaser:
(a)
Subsidiaries
. GoldSpring,
LLC, The Plum Mining Company, LLC, and the Plum Mine Special Purpose Company LLC
(collectively, the “
Subsidiaries,
” and
each a “
Subsidiary
”) are the
only direct or indirect subsidiaries of the Company. The Company
owns, directly or indirectly, all of the capital stock or other equity interests
of each Subsidiary free and clear of any Liens and all of the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
(b)
Organization and
Qualification
. The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation or
default of any of the material provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in: (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “
Material Adverse
Effect
”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
EXHIBIT
10.2
(c)
Authorization;
Enforcement
. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company, the Board of Directors or the Company’s stockholders in connection
therewith. Each Transaction Document to which it is a party has been
(or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
(d)
No
Conflicts
. The execution, delivery and performance by the
Company of the Transaction Documents, the issuance and sale of the Securities
and the consummation by it of the transactions contemplated hereby and thereby
to which it is a party do not and will not: (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary, or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of
clauses (ii)
and
(iii)
, such as
could not have or reasonably be expected to result in a Material Adverse
Effect.
(e)
Filings, Consents and
Approvals
. The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to
Section 4.5
of this
Agreement, (ii) the filings with the Commission pursuant to the Registration
Rights Agreement, (iii) the notice and/or application(s) to each applicable
Trading Market for the issuance and sale of the Preferred Stock and the listing
of the Underlying Shares for trading thereon in the time and manner required
thereby and (iv) the filing of Form D with the Commission and such filings as
are required to be made under applicable state securities laws (collectively,
the “
Required
Approvals
”).
EXHIBIT
10.2
(f)
Issuance of the
Securities
. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Underlying Shares, when issued
in accordance with the terms of the Transaction Documents, will be validly
issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction
Documents. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Underlying Shares
at least equal to 100% of the shares of Common Stock initially issuable upon
conversion of the Preferred Stock issuable hereunder.
(g)
Capitalization
. The
capitalization of the Company is as set forth on
Schedule 3.1(g)
,
which
Schedule
3.1(g)
also includes the number of shares of Common Stock owned
beneficially, and of record, by Affiliates of the Company as of the date
hereof. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the
purchase and sale of the Securities or as set forth in
Schedule 3.1(g)
or in
the SEC Reports, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under any of such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. No further
approval or authorization of any stockholder, the Board of Directors or others
is required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.
(h)
SEC Reports; Financial
Statements
. The Company has filed all quarterly and annual
reports required to be filed by the Company under the Exchange Act for the three
(3) years preceding the date hereof (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “
SEC Reports
”) on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (“
GAAP
”), except as may
be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
EXHIBIT
10.2
(i)
Material Changes;
Undisclosed Events, Liabilities or Developments
. Except as set forth on
Schedule 3.1(i)
or the SEC Reports, since the date of the latest audited financial statements
included within the SEC Reports: (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (a) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(b) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting, (iv) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated
by this Agreement or as set forth on
Schedule 3.1(i)
, no
event, liability, fact, circumstance, occurrence or development has occurred or
exists or is reasonably expected to occur or exist with respect to the Company
or its Subsidiaries or their respective business, properties, operations, assets
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made or
deemed made that has not been publicly disclosed at least one (1) Trading Day
prior to the date that this representation is made.
(j)
Private Placement
.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in
Section
3.2
, no registration under the Securities Act is required for the offer
and sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
(k)
No Integrated
Offering
. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in
Section 3.2
, neither
the Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of (i) the Securities Act which would require the
registration of any such securities under the Securities Act, or (ii) any
applicable stockholder approval provisions of any Trading Market on which any of
the securities of the Company are listed or designated.
(l)
No General
Solicitation
. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising. The Company has offered
the Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.
(m)
Litigation
. There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “
Action
”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company. The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities
Act.
EXHIBIT
10.2
(n)
Compliance
. Neither
the Company nor any Subsidiary: (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), except as described in the SEC Reports or as set
forth in
Schedule
3.1(n)
hereto, (ii) is in violation of any judgment, decree or order of
any court, arbitrator or governmental body or (iii) is or has been in violation
of any statute, rule, ordinance or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws relating
to taxes, environmental protection, occupational health and safety, product
quality and safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in a Material Adverse
Effect.
(o)
Title to
Assets
. Except as set forth in the SEC Reports, the Company
and the Subsidiaries have good and marketable title in fee simple to all real
property owned by them and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for Liens as do
not materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
the Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties. Any
real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases
with which the Company and the Subsidiaries are in compliance.
(p)
Sarbanes-Oxley; Internal
Accounting Controls
. The Company is in compliance with any and
all requirements of the Sarbanes-Oxley Act of 2002 applicable to smaller
reporting companies that are effective as of the date hereof, and any and all
applicable rules and regulations promulgated by the Commission thereunder that
are effective as of the date hereof and as of the Closing Date. The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that: (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded balances of assets are compared
with the actual assets of the Company at reasonable intervals and appropriate
action is taken with respect to any differences. The Company has
established disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls
and procedures to ensure that information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms. The Company’s certifying officers have
evaluated the effectiveness of the Company’s disclosure controls and procedures
as of the end of the period covered by the Company’s most recently filed
periodic report under the Exchange Act (such date, the “
Evaluation
Date
”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(q)
Tax
Status
. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary (i) has made or filed all required
United States federal and state income and all foreign income and franchise tax
returns (or extension requests related thereto), reports and declarations
required by any jurisdiction to which it is subject, (ii) 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 and (iii) has set
aside on its books provision reasonably adequate for the payment of all material
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 or of any Subsidiary know of no basis for any such
claim.
EXHIBIT
10.2
(r)
Listing
. The
Company presently intends to meet the listing requirements of the Toronto Stock
Exchange Venture and/or the American Stock Exchange in fiscal year
2011.
3.2
Representations and
Warranties of the Purchasers
. Each Purchaser, for itself and
for no other Purchaser, severally and not jointly, hereby represents and
warrants as of the date hereof and as of the Closing Date to the Company as
follows (unless as of a specific date therein):
(a)
Organization;
Authority
. Such Purchaser is either an individual or an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or other power and
authority to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of the Transaction Documents
and performance by such Purchaser of the transactions contemplated by the
Transaction Documents have been duly authorized by all necessary corporate,
partnership, limited liability company or similar action, as applicable, on the
part of such Purchaser. Each Transaction Document to which it is a
party has been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies, and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law. If the Purchaser(s) is a corporation, trust, partnership or
other entity that is not an individual person, it has not been organized for the
specific purpose of purchasing the Securities and is not prohibited from doing
so.
(b)
Own
Account
. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting such Purchaser’s right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws). Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its
business.
(c)
Purchaser
Status
. At the time such Purchaser was offered the Securities,
it was, and as of the date hereof it is, and on each date on which it converts
any shares of Preferred Stock, it will be either: (i) an “accredited investor”
as defined in Rule 501 under the Securities Act or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities
Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(d)
Experience of Such
Purchaser
. Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. Such Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time, is
able to afford a complete loss of such investment.
EXHIBIT
10.2
(e)
Reliance on
Exemptions
. Each Purchaser understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities. Each Purchaser understands that
no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities, or the fairness or suitability of the investment in the Securities,
nor have such authorities passed upon or endorsed the merits of the offering of
the Securities.
(f)
General
Solicitation
. Such Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
(g)
No Legal Advice From the
Company; Sole Representations in Agreement
. Each Purchaser
acknowledges that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with his or its own legal counsel
and investment and tax advisors. Each Purchaser is relying solely on
such counsel and advisors and not on any statements or representations of the
Company or any of its representatives or agents for legal, tax or investment
advice with respect to this investment, the transactions contemplated by this
Agreement or the securities laws of any jurisdiction. Each Purchaser
acknowledges that the only representations being made by the Company in
connection with the transactions contemplated by this Agreement are set forth in
this
Article
III
and that in connection with its decision to enter into the
transactions contemplated by this Agreement, it is relying only on such
representations in this Article III and the SEC Reports, and not on any other
statements or representations of the Company or any of its representatives or
agents. Each Purchaser agrees for the benefit of the Company and the Placement
Agents that the Purchaser has conducted and relied upon its own due diligence
investigation of the Company and its own in-depth analysis of the merits and
risks of the Securities in making its investment decision and has not relied
upon any information provide by the Placement Agents or any investigation of the
Company conducted by the Placement Agents and the Purchaser agrees that the
Placement Agents shall have no liability to the Purchaser in connection with its
purchase of the Securities.
(h) Each
Purchaser acknowledges, by its execution of this Agreement, that its obligations
hereunder are irrevocable.
The
Company acknowledges and agrees that the representations contained in
Section 3.2
shall not
modify, amend or affect such Purchaser’s right to rely on the Company’s
representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction Document or
any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated
hereby.
EXHIBIT
10.2
ARTICLE
4
OTHER
AGREEMENTS OF THE PARTIES
4.1
Transfer
Restrictions
.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in
Section
4.1(b)
, the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights and
obligations of a Purchaser under this Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this
Section 4.1
, of a
legend on any of the Securities in the following form:
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “
SECURITIES ACT
”),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval
of the Company and no legal opinion of legal counsel of the pledgee, secured
party or pledgor shall be required in connection therewith. Further,
no notice shall be required of such pledge.
EXHIBIT
10.2
(c) Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in
Section 4.1(b)
hereof): (i) while a registration statement covering the resale of such security
is effective under the Securities Act, (ii) following any sale of such
Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are
eligible for sale under Rule 144, without the requirement for the Company to be
in compliance with the current public information required under Rule 144 as to
such Underlying Shares and without volume or manner-of-sale restrictions or (iv)
if such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the staff
of the Commission). The Company shall cause its counsel to issue a
legal opinion to the Transfer Agent promptly after the Effective Date if
required by the Transfer Agent to effect the removal of the legend
hereunder. If all or any shares of Preferred Stock are converted at a
time when there is an effective registration statement to cover the resale of
the Underlying Shares, or if such Underlying Shares may be sold under Rule 144
and the Company is then in compliance with the current public information
required under Rule 144, or if the Underlying Shares may be sold under Rule 144
without the requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such Underlying Shares and
without volume or manner-of-sale restrictions or if such legend is not otherwise
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission), then
such Underlying Shares shall be issued free of all legends. The
Company agrees that following the Effective Date or at such time as such legend
is no longer required under this
Section 4.1(c)
, it
will, no later than three Trading Days following the delivery by a Purchaser to
the Company or the Transfer Agent of a certificate representing Underlying
Shares, as applicable, issued with a restrictive legend, deliver or cause to be
delivered to such Purchaser a certificate representing such shares that is free
from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to the Transfer Agent that enlarge
the restrictions on transfer set forth in this
Section
4.1(c)
. Certificates for Underlying Shares subject to legend
removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System as directed by such Purchaser.
(d) Each
Purchaser, severally and not jointly with the other Purchasers, agrees with the
Company that such Purchaser will only sell any Securities pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom, and acknowledges
that the removal of the restrictive legend from certificates representing
Securities as set forth in this
Section 4.1
is
predicated upon the Company’s reliance upon this understanding.
4.2
Furnishing of
Information
. Until the time that no Purchaser owns any
Securities, the Company covenants to maintain the registration of the Common
Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act even if the Company is not then subject to the
reporting requirements of the Exchange Act. As long as any Purchaser
owns any Securities, if the Company is not required to file reports pursuant to
the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities, including without
limitation, under Rule 144. The Company further covenants that it
will take such further action as any holder of Securities may reasonably
request, to the extent required from time to time to enable such Person to sell
such Securities without registration under the Securities Act, including without
limitation, within the requirements of the exemption provided by Rule
144.
4.3
Integration
. The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market such
that it would require stockholder approval prior to the closing of such other
transaction unless stockholder approval is obtained before the closing of such
subsequent transaction.
EXHIBIT
10.2
4.4
Conversion
Procedure
. The form of Notice of Conversion included in the
Series B Certificate of Designation sets forth the totality of the procedures
required of the Purchasers in order to convert the Preferred
Stock. No additional legal opinion, other information or instructions
shall be required of the Purchasers to convert their Preferred
Stock. The Company shall honor conversions of the Series B Preferred
Stock and shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.
4.5
Securities Laws Disclosure;
Publicity
. The Company shall, in accordance with applicable
federal securities law, issue a Current Report on Form 8-K and press release
disclosing the material terms of the transactions contemplated hereby, and
including the Transaction Documents as exhibits thereto. From and
after the issuance of such press release, the Company shall have publicly
disclosed all material, non-public information delivered to any of the
Purchasers by the Company or any of its subsidiaries, or any of their respective
officers, directors, employees or agents in connection with the transactions
contemplated by the Transaction Documents. The Company and each Purchaser shall
consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release nor otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
any Purchaser, or without the prior consent of each Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld or delayed, except if such disclosure is required by law, in which case
the disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except: (a) as required by federal securities law in connection with
(i) any registration statement contemplated by the Registration Rights Agreement
and (ii) the filing of final Transaction Documents (including signature pages
thereto) with the Commission; and (b) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under this
Section
4.5
.
4.6
Indemnification of
Purchasers
. Subject to the provisions of this
Section 4.6
, the
Company will indemnify and hold each Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“
Purchaser
Party
”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents. The indemnification required by this
Section 4.6
shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or are
incurred.
4.7
Reservation and Listing of
Securities
.
(a) The
Company shall maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount as may then be
required to fulfill its obligations in full under the Transaction
Documents.
EXHIBIT
10.2
(b) If,
on any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock and/or Preferred Stock is less than 130% of (i) the
Required Minimum on such date, minus (ii) the number of shares of Common Stock
or Preferred Stock (as applicable) previously issued pursuant to the Transaction
Documents, then the Board of Directors shall use commercially reasonable efforts
to amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock and/or Preferred Stock
(as applicable) to at least the Required Minimum at such time (minus the number
of shares of Common Stock and/or Preferred Stock (as applicable) previously
issued pursuant to the Transaction Documents), as soon as possible and in any
event not later than the 120
th
day
after such date; provided that the Company will not be required at any time to
authorize a number of shares of Common Stock and/or Preferred Stock (as
applicable) greater than the maximum remaining number of shares of Common Stock
or Preferred Stock (as applicable) that could possibly be issued after such time
pursuant to the Transaction Documents.
(c) The
Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing or quotation on such Trading Market as soon as possible
thereafter, (iii) provide to the Purchasers evidence of such listing or
quotation and (iv) maintain the listing or quotation of such Common Stock on any
date at least equal to the Required Minimum on such date on such Trading Market
or another Trading Market.
4.8
Participation in Future
Financing
.
(a) From
the date hereof until such time as the Purchasers no longer hold any shares of
Preferred Stock, upon any issuance by the Company or any of its Subsidiaries of
Common Stock, Common Stock Equivalents for cash consideration, or a combination
of units hereof (a “
Subsequent
Financing
”), each Purchaser shall have the right to participate in up to
an amount of the Subsequent Financing equal to 100% of the Subsequent Financing
(the “
Participation
Maximum
”) on the same terms, conditions and price provided for in the
Subsequent Financing.
(b) At
least five (5) Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing (“
Pre-Notice
”), which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “
Subsequent Financing
Notice
”). Upon the request of a Purchaser, and only upon a
request by such Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than one (1) Trading Day after such request, deliver a
Subsequent Financing Notice to such Purchaser. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder
and the Person or Persons through or with whom such Subsequent Financing is
proposed to be effected and shall include a term sheet or similar document
relating thereto as an attachment.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the fourth (4
th
)
Trading Day after all of the Purchasers have received the Pre-Notice that the
Purchaser is willing to participate in the Subsequent Financing, the amount of
the Purchaser’s participation, and representing and warranting that the
Purchaser has such funds ready, willing, and available for investment on the
terms set forth in the Subsequent Financing Notice. If the Company
receives no such notice from a Purchaser as of such fourth (4
th
)
Trading Day, such Purchaser shall be deemed to have notified the Company that it
does not elect to participate.
EXHIBIT
10.2
(d) If
by 5:30 p.m. (New York City time) on the fourth (4
th
)
Trading
Day after all of the Purchasers have received the Pre-Notice, notifications by
the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less than the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and with the Persons
set forth in the Subsequent Financing Notice.
(e) If
by 5:30 p.m. (New York City time) on the fourth (4
th
)
Trading Day after all of the Purchasers have received the Pre-Notice, the
Company receives responses to a Subsequent Financing Notice from Purchasers
seeking to purchase more than the aggregate amount of the Participation Maximum,
each such Purchaser shall have the right to purchase its Pro Rata Portion (as
defined below) of the Participation Maximum.“
Pro Rata Portion
” of
a Purchaser means the ratio of: (x) the aggregate Stated Value of the Preferred
Stock issued to such Purchaser on the Closing Date; and (y) the aggregate Stated
Value of the Preferred Stock issued to all Purchasers participating in such
Subsequent Financing under this
Section
4.8
.
(f) The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above in
this
Section
4.8
, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within thirty (30) Trading Days after the date
of the initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this
Section 4.8
shall not
apply in respect of (i) an Exempt Issuance or (ii) an underwritten public
offering of Common Stock.
4.9
Equal Treatment of
Purchasers
. No consideration (including any modification of
any Transaction Document) shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the parties to
the Transaction Documents. For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.10
Certain Transactions and
Confidentiality
. Each Purchaser, severally and not jointly
with the other Purchasers, covenants that neither it, nor any Affiliate acting
on its behalf or pursuant to any understanding with it will execute any
purchases or sales, including Short Sales, of any of the Company’s securities
during the period commencing with the execution of this Agreement and ending at
such time that the transactions contemplated by this Agreement are first
publicly announced pursuant to the initial press release as described in Section
4.5, provided that in no event shall such period extend beyond November 15,
2010. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company pursuant to the initial
press release as described in
Section 4.5
, such
Purchaser will maintain the confidentiality of the existence and terms of this
transaction and the information included in the Transaction Documents and the
Disclosure Schedules. Notwithstanding the foregoing, and
notwithstanding anything contained in this Agreement to the contrary, the
Company expressly acknowledges and agrees that (i) no Purchaser makes any
representation, warranty or covenant hereby that it will not engage in effecting
transactions in any securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in
Section 4.5
, (ii) no
Purchaser shall be restricted or prohibited from effecting any transactions in
any securities of the Company in accordance with applicable securities laws from
and after the time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.5
;
and (iii) no Purchaser shall have any duty of confidentiality to the Company or
its Subsidiaries after the issuance of the initial press release as described in
Section
4.5
. Notwithstanding the foregoing, in the case of a Purchaser that
is a multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.
EXHIBIT
10.2
4.11
Form D; Blue Sky
Filings
. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of any Purchaser. The Company shall
take such action as the Company shall reasonably determine is necessary in order
to obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
ARTICLE
5
MISCELLANEOUS
5.1
Fees and
Expenses
. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all
Transfer Agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities to the Purchasers.
5.2
Entire
Agreement
. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.
5.3
Notices
. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of: (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
(2
nd
)Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.
5.4
Amendments;
Waivers
. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and each Purchaser. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right.
The parties agree and
acknowledge that this
Section 5.4
relates
solely to waivers, modifications, supplements and amendments to this Agreement,
and not to any other Transaction Document.
5.5
Headings
. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
5.6
Successors and
Assigns
. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser (other
than by merger). Any Purchaser may assign any or all of its rights
under this Agreement to any Person to whom such Purchaser assigns or transfers
any Securities, provided that such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the “Purchasers.”
5.7
No Third-Party
Beneficiaries
. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.9 and Section
3.2.
5.8
Governing
Law
.
ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION
OF THE TRANSACTION DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH PARTY AGREES THAT
ALL LEGAL PROCEEDINGS CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND DEFENSE OF
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND ANY OTHER TRANSACTION
DOCUMENTS (WHETHER BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES,
DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED
EXCLUSIVELY IN THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW
YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER
OR IS AN INCONVENIENT VENUE FOR SUCH PROCEEDING. EACH PARTY HEREBY
IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA
REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY)
TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT
AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF
PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. IF EITHER PARTY SHALL COMMENCE AN ACTION OR PROCEEDING TO
ENFORCE ANY PROVISIONS OF THE TRANSACTION DOCUMENTS, THEN, IN ADDITION TO THE
OBLIGATIONS OF THE COMPANY UNDER SECTION 4.6, THE PREVAILING PARTY IN SUCH
ACTION OR PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS REASONABLE
ATTORNEYS’ FEES AND OTHER COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION,
PREPARATION AND PROSECUTION OF SUCH ACTION OR PROCEEDING.
EXHIBIT
10.2
5.9
Survival
. The
representations and warranties contained herein shall survive the Closing and
the delivery of the Securities.
5.10
Execution
. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.
5.11
Severability
. If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.12
Replacement of
Securities
. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.13
Remedies
. (a) In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Purchasers and the Company will
be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and
not to assert in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
(b)
If the Company defaults in complying with the covenants set out in
Section 4.2 hereof and the Company fails to remedy such default within 30 days
after notice by Purchasers specifying the nature of the default, the Company
shall, at its cost and in the manner described in the Registration Rights
Agreement, as promptly as practicable file with the Commission and thereafter
cause to be declared effective (unless it becomes effective automatically upon
filing) on or prior to the 90
th
day
after the expiration of such 30 day cure period, a registration statement on an
appropriate form under the Securities Act relating to the offer and sale of the
Underlying Shares; provided, that if the Commission comments on such
registration statement, then the Company shall cause such registration statement
to be declared effective on or prior to the 120th day after the expiration of
such 30 day cure period.
EXHIBIT
10.2
5.14
Independent Nature of
Purchasers’ Obligations and Rights
. The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or
in any other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by any of the Purchasers.
5.15
Saturdays, Sundays,
Holidays, etc.
If the last or appointed day for the taking of any
action or the expiration of any right required or granted herein shall not be a
Business Day, then such action may be taken or such right may be exercised on
the next succeeding Business Day.
5.16
Construction
. The
parties agree that each of them and/or their respective counsel has reviewed and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto. In addition, each and
every reference to share prices and shares of Common Stock in any Transaction
Document shall be subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common
Stock that occur after the date of this Agreement.
5.17
WAIVER OF
JURY TRIAL
. IN ANY ACTION, SUIT, OR
PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE
PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY
WAIVES FOREVER TRIAL BY JURY.
EXHIBIT
10.3
REGISTRATION
RIGHTS AGREEMENT
This
Registration Rights Agreement (this “
Agreement
”) is made
and entered into as of August 31, 2010, between Comstock Mining Inc., a Nevada
corporation (the “
Company
”), and each
of the Persons who are signatories hereto (each such purchaser, a “
Purchaser
” and,
collectively, the “
Purchasers
”).
This
Agreement is made pursuant to the Purchase Agreement (as defined
herein).
The
Company and each Purchaser hereby agrees as follows:
1.
Definitions
. Capitalized
terms used and not otherwise defined herein that are defined in the Purchase
Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have
the following meanings:
“
Advice
” shall have
the meaning set forth in
Section
6(c)
.
“
Additional Dividends
”
shall have the meaning set forth in
Section
6(a)
.
“
Commission
” means the
U.S. Securities and Exchange Commission.
“
Effectiveness Period
”
shall have the meaning set forth in
Section
2(b)
.
“
FINRA
” means the
Financial Industry Regulatory Authority.
“
Holder
” or “
Holders
” means the
holder or holders, as the case may be, from time to time of Registrable
Securities.
“
Indemnified Party
”
shall have the meaning set forth in
Section
5(c)
.
“
Indemnifying Party
”
shall have the meaning set forth in
Section
5(c)
.
“
Losses
” shall have
the meaning set forth in
Section
5(a)
.
“
Prospectus
” means the
prospectus included in a Registration Statement (including, without limitation,
a prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated by the Commission pursuant to the Securities Act), as amended or
supplemented, with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
“
Purchase Agreement
”
means the Securities Purchase Agreement, dated as of the date hereof, among the
Company and the initial Holders party hereto, as amended, modified or
supplemented from time to time in accordance with its terms.
“
Registration Default
”
shall have the meaning set forth in
Section
6(a)
.
EXHIBIT
10.3
“
Registrable
Securities
” means, as of any date of determination, (a) the Underlying
Shares with respect to the Preferred Stock; (b) any securities issued or then
issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the
foregoing;
provided,
however
, that any such Registrable Securities shall cease to be
Registrable Securities (and the Company shall not be required to maintain the
effectiveness of any, or file another, Registration Statement hereunder with
respect thereto) for so long as (i) a Registration Statement with respect to the
sale of such Registrable Securities is declared effective by the Commission
under the Securities Act and such Registrable Securities have been disposed of
by the Holder in accordance with such effective Registration Statement, (ii)
such Registrable Securities have been previously sold in accordance with Rule
144, or (iii) such securities become eligible for resale without volume or
manner-of-sale restrictions (provided the Company is current with the public
information requirements as determined by the counsel to the Company as set
forth in a written opinion letter to such effect, addressed, delivered and
acceptable to the Transfer Agent and the affected Holders (assuming that such
securities and any securities issuable upon exercise, conversion or exchange of
which, or as a dividend upon which, such securities were issued or are issuable,
were at no time held by any Affiliate of the Company), as reasonably determined
by the Company, upon the advice of counsel to the Company.
“
Registration
Statement
” means any registration statement required to be filed
hereunder pursuant to
Section 2
(Registration) or
Section 6(d)
(Piggyback Registrations), including (in each case) the Prospectus, amendments
and supplements to any such registration statement or Prospectus, including pre-
and post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference in any such
registration statement.
“
Rule 144
” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.
“
Rule 424
” means Rule
424 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.
“
Selling Stockholder
Questionnaire
” shall have the meaning set forth in
Section
3(a)
.
“
Significant Holder
”
shall have the meaning set forth in
Section
3(a)
.
“10-K Filing Date
”
shall have the meaning set forth in
Section
2(a)
.
2.
Registration
.
(a) The
Company shall, at its own cost, prepare and, not later than 45 days after (or if
the 45th day is not a business day, the first business day thereafter) the date
upon which the Company’s annual report on Form 10-K for the fiscal year ending
December 31, 2010 is filed with the Commission (the “10-K Filing Date”), file
with the Commission a Registration Statement covering the resale of the
Registrable Securities by each Holder.
(b) The
Registration Statement filed hereunder shall be on an appropriate form as
determined by the Board of Directors. Subject to the terms of this
Agreement, the Company shall cause a Registration Statement filed hereunder to
be declared effective under the Securities Act as promptly as possible after the
filing thereof but in no event later than the one (1) year anniversary of the
Closing Date, and shall use its best efforts to keep such Registration Statement
continuously effective under the Securities Act until the earlier of: (i) the
date on which all Registrable Securities covered by such Registration Statement
may be resold without registration and without regard to any volume or
manner-of-sale limitations by reason of Rule 144, without the requirement for
the Company to be in compliance with the current public information under Rule
144 or any other rule of similar effect; (ii) the date on which all Registrable
Securities covered by such Registration Statement have been sold pursuant to a
Prospectus or Rule 144 or any other rule of similar effect; or (iii) as
otherwise mutually agreed to between the parties hereto (the “
Effectiveness
Period
”). The Company shall telephonically request
effectiveness of a Registration Statement as of 5:00 p.m. New York City time on
a Trading Day. The Company shall immediately notify the Holders via
facsimile or by e-mail of the effectiveness of such Registration Statement on
the same Trading Day that the Company telephonically confirms effectiveness with
the Commission, which shall be the date requested for effectiveness of such
Registration Statement. The Company shall, by 9:30 a.m. New York City
time on the Trading Day after the effective date of such Registration Statement,
file a final Prospectus with the Commission as required by Rule
424.
EXHIBIT
10.3
3.
Registration
Procedures
. In connection with the Company’s registration
obligations hereunder, the Company shall:
(a) Not
less than ten (10) Trading Days prior to the filing of such Registration
Statement and not less than three (3) Trading Days prior to the filing of any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall (i) furnish to each Holder that has Registrable
Securities constituting at least 35% of the aggregate Registrable Securities
included in such Registration Statement (each, “
Significant Holder
”)
copies of all such documents proposed to be filed, which documents (other than
those incorporated or deemed to be incorporated by reference) will be subject to
the review of such Significant Holders, and (ii) cause its officers and
directors, counsel and independent registered public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to each Significant Holder, to conduct a reasonable investigation within
the meaning of the Securities Act. The Company shall not file a
Registration Statement or any amendments or supplements thereto to which the
Significant Holders shall reasonably object in good faith,
provided
that, the Company is
notified of such objection in writing no later than five (5) Trading Days after
the Significant Holders have been so furnished copies of a Registration
Statement or one (1) Trading Day after the Significant Holders have been so
furnished copies of any related Prospectus or amendments or supplements
thereto. Each Holder agrees to furnish to the Company a completed
questionnaire in the form attached to this Agreement as
Annex A
(a “
Selling Stockholder
Questionnaire
”) promptly after it has been requested by the Company, but
in no event less than five (5) Trading Days prior to the filing date of the
Registration Statement.
(b) (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep a Registration Statement effective as to
the applicable Registrable Securities for the Effectiveness Period and prepare
and file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities,
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement (subject to the terms of this Agreement), and, as so
supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as
promptly as reasonably possible to any comments received from the Commission
with respect to a Registration Statement or any amendment thereto and provide as
promptly as reasonably possible to the Significant Holders true and complete
copies of all correspondence from and to the Commission relating to a
Registration Statement (
provided
that, the Company
may excise any information contained therein which would constitute material
non-public information as to any Significant Holder which has not executed a
confidentiality agreement with respect thereto with the Company), and (iv)
comply in all material respects with the applicable provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by a Registration Statement during the applicable period in
accordance (subject to the terms of this Agreement) with the intended methods of
disposition by the Holders thereof set forth in such Registration Statement as
so amended or in such Prospectus as so supplemented.
(c) Provide
notice to the Holders whose Registrable Securities are to be sold (which notice
shall, pursuant to
clauses (iii)
through
(vi)
hereof, be
accompanied by an instruction to suspend the use of the Prospectus until the
requisite changes have been made) as promptly as reasonably possible (and, in
the case of
clause
(i)(A)
below, not less than one (1) Trading Day prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later than
one (1) Trading Day following the day:
EXHIBIT
10.3
(i) (A) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of when a Prospectus or
any Prospectus supplement or post-effective amendment to a Registration
Statement is proposed to be filed;
(B) with
respect only to the Significant Holders, notice when the Commission notifies the
Company whether there will be a “review” of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement;
and
(C) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of when the Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) with
respect only to the Significant Holders, notice of any request by the Commission
or any other federal or state governmental authority for amendments or
supplements to a Registration Statement or Prospectus or for additional
information;
(iii) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of the issuance by the
Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose;
(iv) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose;
(v) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of the occurrence of any
event or passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement made in
a Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the Prospectus, as
the case may be, it will not contain any untrue statement of a material fact or
omit to state any 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; and
(vi) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of the occurrence or
existence of any pending corporate development with respect to the Company that
the Company believes may be material and that, in the determination of the
Company, makes it not in the best interest of the Company to allow continued
availability of a Registration Statement or Prospectus,
provided
that, any and all of
such information shall remain confidential to each Holder until such information
otherwise becomes public, unless disclosure by a Holder is required by law;
provided, further
, that
notwithstanding each Holder’s agreement to keep such information confidential,
each such Holder makes no acknowledgement that any such information is material,
non-public information.
EXHIBIT
10.3
(d) Use
its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of (i) any order stopping or suspending the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) Furnish
to each Holder, without charge, at least one conformed copy of each such
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission;
provided
, that any such item
which is available on the EDGAR system (or successor thereto) need not be
furnished in physical form.
(f) Subject
to the terms of this Agreement, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto, except after
the giving of any notice pursuant to
Section
3(d)
.
(g) The
Company shall cooperate with any broker-dealer through which a Holder proposes
to resell its Registrable Securities in effecting a filing with the FINRA
Corporate Financing Department pursuant to FINRA Rule 5110, as requested by any
such Holder, and the Company shall pay the filing fee required by such filing
within two (2) Business Days of request therefor.
(h) Prior
to any resale of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling Holders
in connection with the registration or qualification (or exemption from the
Registration or qualification) of such Registrable Securities for the resale by
the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by each Registration Statement;
provided
, that, the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, subject the Company to any material tax in
any such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction.
(i) If
requested by a Holder, cooperate with such Holder to facilitate and coordinate
with the Company’s transfer agent the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a transferee
pursuant to a Registration Statement, which certificates shall be free, to the
extent permitted by the Purchase Agreement, of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and registered in
such names as any such Holder may request.
EXHIBIT
10.3
(j) Upon
the occurrence of any event contemplated by
Section 3(c)
, as
promptly as reasonably possible under the circumstances taking into account the
Company’s good faith assessment of any adverse consequences to the Company and
its stockholders of the premature disclosure of such event, prepare a supplement
or amendment, including a post-effective amendment, to a Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the Company notifies the Holders in accordance
with
clauses
(iii)
through
(vi)
of
Section 3(c)
above to
suspend the use of any Prospectus until the requisite changes to such Prospectus
have been made, then the Holders shall suspend use of such
Prospectus. The Company will use its best efforts to ensure that the
use of the Prospectus may be resumed as promptly as is reasonably
practicable. The Company shall be entitled to exercise its right
under this
Section
3(j)
to suspend the availability of a Registration Statement and
Prospectus for a period not to exceed 60 calendar days (which need not be
consecutive days) in any 12-month period.
(k) Comply
with all applicable rules and regulations of the Commission.
(l) The
Company may require each selling Holder to furnish to the Company a certified
statement as to the number of shares of Common Stock beneficially owned by such
Holder and, if required by the Commission, the natural persons thereof that have
voting and dispositive control over the shares.
4.
Registration
Expenses
. All fees and expenses incident to the performance of
or compliance with, this Agreement by the Company shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to a Registration
Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, reasonable fees and expenses of the Company’s
counsel and independent registered public accountants) (A) with respect to
filings made with the Commission, (B) with respect to filings required to be
made with any Trading Market on which the Common Stock is then listed for
trading, (C) in compliance with applicable state securities or Blue Sky laws
reasonably agreed to by the Company in writing (including, without limitation,
fees and disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities) and (D) with respect
to any sales of Registrable Securities in an underwritten offering any filing
fees payable to FINRA pursuant to FINRA Rule 5110, so long as the broker is
receiving no more than a customary brokerage commission in connection with such
sale, (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities), (iii) fees and disbursements
of counsel for the Company, (iv) Securities Act liability insurance, if the
Company so desires such insurance, and (v) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required
hereunder. In no event shall the Company be responsible for any
broker or similar commissions of any Holder or, except to the extent provided
for in the Transaction Documents, any legal fees or other costs of the
Holders.
EXHIBIT
10.3
5.
Indemnification
.
(a)
Indemnification by the
Company
. The Company shall, notwithstanding any termination of
this Agreement, indemnify and hold harmless each Holder, the officers,
directors, members, partners, agents, brokers (including brokers who offer and
sell Registrable Securities as principal as a result of a pledge or any failure
to perform under a margin call of Common Stock), investment advisors and
employees (and any other Persons with a functionally equivalent role of a Person
holding such titles, notwithstanding a lack of such title or any other title) of
each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, members, stockholders, partners, agents and employees (and
any other Persons with a functionally equivalent role of a Person holding such
titles, notwithstanding a lack of such title or any other title) of each such
controlling Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs (including,
without limitation, reasonable attorneys’ fees) and expenses (collectively,
“
Losses
”), as
incurred, arising out of or relating to (1) any untrue or alleged untrue
statement of a material fact contained in a Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, (2) any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading or (3) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act or any
state securities law, or any rule or regulation thereunder, in connection with
the performance of its obligations under this Agreement, except to the extent,
but only to the extent, that (i) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use in a Registration Statement, such
Prospectus or in any amendment or supplement thereto (it being understood that
the Holder has approved Annex A hereto for this purpose) or (ii) in the case of
an occurrence of an event of the type specified in
Section
3(c)(iii)
-
(vi)
, the use by such
Holder of an outdated, defective or otherwise unavailable Prospectus after the
Company has notified such Holder in writing that the Prospectus is outdated,
defective or otherwise unavailable for use by such Holder and prior to the
receipt by such Holder of the Advice contemplated in
Section
6(c)
. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding arising from or in connection
with the transactions contemplated by this Agreement of which the Company is
aware.
(b)
Indemnification by
Holders
. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses, as incurred, to the
extent arising out of or relating to: (x) such Holder’s failure to comply with
the prospectus delivery requirements of the Securities Act, (y) any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or in any amendment or supplement thereto or in any
preliminary prospectus, or (z) any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (i) to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in such Registration
Statement or such Prospectus or (ii) in the case of an occurrence of an event of
the type specified in
Section
3(c)(iii)
-
(vi)
, the use by such
Holder of an outdated, defective or otherwise unavailable Prospectus after the
Company has notified such Holder in writing that the Prospectus is outdated,
defective or otherwise unavailable for use by such Holder and prior to the
receipt by such Holder of the Advice contemplated in
Section
6(c)
. A Holder shall notify the Company promptly of the
institution, thread or assertion of any Proceeding arising from or in connection
with the transactions contemplated by this Agreement of which the Holder is
aware. In no event shall the liability of any selling Holder under
this
Section
5(b)
be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
(c)
Conduct of Indemnification
Proceedings
. If any Proceeding shall be brought or asserted
against any Person entitled to indemnity hereunder (an “
Indemnified Party
”),
such Indemnified Party shall promptly notify the Person from whom indemnity is
sought (the “
Indemnifying Party
”)
in writing, and the Indemnifying Party shall have the right to assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof;
provided
, that, the failure
of any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have prejudiced the Indemnifying Party.
EXHIBIT
10.3
An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses, (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding, or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and counsel to the
Indemnified Party shall reasonably believe that a material conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and the reasonable fees and expenses of no
more than one separate counsel shall be at the expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement
of any such Proceeding effected without its written consent, which consent shall
not be unreasonably withheld or delayed. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
Subject
to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten (10) Trading Days of written notice thereof to
the Indemnifying Party; provided, that, the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is judicially
determined not to be entitled to indemnification hereunder.
(d)
Contribution
. If
the indemnification under
Section 5(a)
or
5(b)
is unavailable
to an Indemnified Party or insufficient to hold an Indemnified Party harmless
for any Losses, then each Indemnifying Party shall contribute to the amount paid
or payable by such Indemnified Party, in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party and Indemnified Party in
connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount
paid or payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in this Agreement, any reasonable
attorneys’ or other fees or expenses incurred by such party in connection with
any Proceeding to the extent such party would have been indemnified for such
fees or expenses if the indemnification provided for in this
Section 5
was
available to such party in accordance with its terms.
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this
Section 5(d)
were
determined by
pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this
Section 5(d)
, no
Holder shall be required to contribute pursuant to this
Section 5(d)
, in the
aggregate, any amount in excess of the amount by which the net proceeds actually
received by such Holder from the sale of the Registrable Securities subject to
the Proceeding exceeds the amount of any damages that such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
EXHIBIT
10.3
The
indemnity and contribution agreements contained in this
Section 5
are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6.
Miscellaneous
.
(a)
Remedies
. (i) Additional
Dividends Under Certain Circumstances. Additional dividends (the
“Additional Dividends”) with respect to the Preferred Stock shall be assessed if
the Registration Statement is not declared effective by the Commission on or
prior to the one (1) year anniversary of the Closing Date as provided in Section
2(b) hereof (such event, a “Registration Default”). Additional Dividends shall
accrue on the Preferred Stock over and above the dividend rate set forth in the
title of the Securities from and including the date on which such Registration
Default shall occur to but excluding the date on which such Registration Default
has been cured. The rate of the Additional Dividends will be 1.00% per annum for
the first 30-day period (or pro rata portion thereof) immediately following the
occurrence of a Registration Default, and such rate will increase by an
additional 1.00% per annum with respect to each subsequent 30-day period (or pro
rata portion thereof) until such Registration Default has been cured. Additional
Dividends shall be paid on Dividend Payment Dates. Such Additional Dividends
will be in addition to any other dividends payable from time to time with
respect to the Preferred Stock.
(ii) In
the event of a breach by the Company or by a Holder of any of their respective
obligations under this Agreement, each Holder or the Company, as the case may
be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, shall be entitled to
specific performance of its rights under this Agreement. Each of the
Company and each Holder agrees that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall not assert
or shall waive the defense that a remedy at law would be adequate.
(b)
Compliance
. Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to a Registration Statement.
(c)
Discontinued
Disposition
. By its acquisition of Registrable Securities,
each Holder agrees that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in
Section 3(c)(iii)
through
(vi)
,
such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until it is advised in writing (the
“
Advice
”) by
the Company that the use of the applicable Prospectus (as it may have been
supplemented or amended) may be resumed. The Company will use its
best efforts to ensure that the use of the Prospectus may be resumed as promptly
as is practicable. The Company agrees and acknowledges that any
periods during which the Holder is required to discontinue the disposition of
the Registrable Securities hereunder shall be subject to the provisions of
Section
3(b)
.
(d)
Piggy-Back
Registrations
. If, at any time during the Effectiveness
Period, there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the Company’s stock option or
other employee benefit plans, then the Company shall deliver to each Holder a
written notice of such determination and, if within fifteen days after the date
of the delivery of such notice, any such Holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such Holder requests to be registered;
provided, however
, that the
Company shall not be required to register any Registrable Securities pursuant to
this
Section
6(d)
that are eligible for resale pursuant to Rule 144 promulgated by the
Commission pursuant to the Securities Act or that are the subject of a then
effective Registration Statement.
EXHIBIT
10.3
(e)
Amendments and
Waivers
. The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
same shall be in writing and signed by the Company and the Holders of at least
85% of the then outstanding Registrable Securities (including, for this purpose
any Registrable Securities issuable upon exercise or conversion of any Security
issued and issuable under the Purchase Agreement). If a Registration
Statement does not register all of the Registrable Securities pursuant to a
waiver or amendment done in compliance with the previous sentence, then the
number of Registrable Securities to be registered for each Holder shall be
reduced
pro rata
among
all Holders and each Holder shall have the right to designate which of its
Registrable Securities shall be omitted from such Registration
Statement. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of a Holder or some Holders and that does not directly
or indirectly affect the rights of other Holders may be given by such Holder or
Holders of all of the Registrable Securities to which such waiver or consent
relates;
provided,
however
, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the first
sentence of this
Section
6(e)
.
(f)
Notices
. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be delivered as set forth in the Purchase
Agreement.
(g)
Successors and
Assigns
. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and
shall inure to the benefit of each Holder. The Company may not assign
(except by merger) its rights or obligations hereunder without the prior written
consent of all of the Holders of the then outstanding Registrable
Securities. Each Holder may assign their respective rights hereunder
in the manner and to the Persons as permitted under
Section 5.6
of the
Purchase Agreement.
(h)
No Inconsistent
Agreements
. Neither the Company nor any of its Subsidiaries
has entered, as of the date hereof, nor shall the Company or any of its
Subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities, that would have the effect of impairing the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor any of its Subsidiaries
has previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person that have not been satisfied in
full.
(i)
Execution and
Counterparts
. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission or by e-mail delivery of a
“.pdf” format data file, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.
(j)
Governing
Law
. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement.
EXHIBIT
10.3
(k)
Cumulative
Remedies
. The remedies provided herein are cumulative and not
exclusive of any other remedies provided by law.
(l)
Severability
. If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(m)
Headings
. The
headings in this Agreement are for convenience only, do not constitute a part of
the Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
(n)
Independent Nature of
Holders’ Obligations and Rights
. The obligations of each
Holder hereunder are several and not joint with the obligations of any other
Holder hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder. Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to
constitute the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in any way
acting in concert with respect to such obligations or the transactions
contemplated by this Agreement. Each Holder shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose.
********************
EXHIBIT
10.4
REGISTRATION
RIGHTS AGREEMENT
This
Registration Rights Agreement (this “
Agreement
”) is made
and entered into as of October 20, 2010, between Comstock Mining Inc., a Nevada
corporation (the “
Company
”), and each
of the Persons who are signatories hereto (each such purchaser, a “
Purchaser
” and,
collectively, the “
Purchasers
”).
This
Agreement is made pursuant to the Purchase Agreement (as defined
herein).
The
Company and each Purchaser hereby agrees as follows:
1.
Definitions
. Capitalized
terms used and not otherwise defined herein that are defined in the Purchase
Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have
the following meanings:
“
Advice
” shall have
the meaning set forth in
Section
6(c)
.
“
Additional Dividends
”
shall have the meaning set forth in
Section
6(a)
.
“
Commission
” means the
U.S. Securities and Exchange Commission.
“
Effectiveness Period
”
shall have the meaning set forth in
Section
2(b)
.
“
FINRA
” means the
Financial Industry Regulatory Authority.
“
Holder
” or “
Holders
” means the
holder or holders, as the case may be, from time to time of Registrable
Securities.
“
Indemnified Party
”
shall have the meaning set forth in
Section
5(c)
.
“
Indemnifying Party
”
shall have the meaning set forth in
Section
5(c)
.
“
Losses
” shall have
the meaning set forth in
Section
5(a)
.
“
Prospectus
” means the
prospectus included in a Registration Statement (including, without limitation,
a prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated by the Commission pursuant to the Securities Act), as amended or
supplemented, with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
“
Purchase Agreement
”
means the Securities Purchase Agreement, dated as of the date hereof, among the
Company and the initial Holders party hereto, as amended, modified or
supplemented from time to time in accordance with its terms.
“
Registration Default
”
shall have the meaning set forth in
Section
6(a)
.
EXHIBIT
10.4
“
Registrable
Securities
” means, as of any date of determination, (a) the Underlying
Shares with respect to the Preferred Stock; (b) any securities issued or then
issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the
foregoing;
provided,
however
, that any such Registrable Securities shall cease to be
Registrable Securities (and the Company shall not be required to maintain the
effectiveness of any, or file another, Registration Statement hereunder with
respect thereto) for so long as (i) a Registration Statement with respect to the
sale of such Registrable Securities is declared effective by the Commission
under the Securities Act and such Registrable Securities have been disposed of
by the Holder in accordance with such effective Registration Statement, (ii)
such Registrable Securities have been previously sold in accordance with Rule
144, or (iii) such securities become eligible for resale without volume or
manner-of-sale restrictions (provided the Company is current with the public
information requirements as determined by the counsel to the Company as set
forth in a written opinion letter to such effect, addressed, delivered and
acceptable to the Transfer Agent and the affected Holders (assuming that such
securities and any securities issuable upon exercise, conversion or exchange of
which, or as a dividend upon which, such securities were issued or are issuable,
were at no time held by any Affiliate of the Company), as reasonably determined
by the Company, upon the advice of counsel to the Company.
“
Registration
Statement
” means any registration statement required to be filed
hereunder pursuant to
Section 2
(Registration) or
Section 6(d)
(Piggyback Registrations), including (in each case) the Prospectus, amendments
and supplements to any such registration statement or Prospectus, including pre-
and post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference in any such
registration statement.
“
Rule 144
” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.
“
Rule 424
” means Rule
424 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.
“
Selling Stockholder
Questionnaire
” shall have the meaning set forth in
Section
3(a)
.
“
Significant Holder
”
shall have the meaning set forth in
Section
3(a)
.
“10-K Filing Date
”
shall have the meaning set forth in
Section
2(a)
.
2.
Registration
.
(a) The
Company shall, at its own cost, prepare and, not later than 45 days after (or if
the 45th day is not a business day, the first business day thereafter) the date
upon which the Company’s annual report on Form 10-K for the fiscal year ending
December 31, 2010 is filed with the Commission (the “10-K Filing Date”), file
with the Commission a Registration Statement covering the resale of the
Registrable Securities by each Holder.
EXHIBIT
10.4
(b) The
Registration Statement filed hereunder shall be on an appropriate form as
determined by the Board of Directors. Subject to the terms of this
Agreement, the Company shall cause a Registration Statement filed hereunder to
be declared effective under the Securities Act as promptly as possible after the
filing thereof but in no event later than the one (1) year anniversary of the
Closing Date, and shall use its best efforts to keep such Registration Statement
continuously effective under the Securities Act until the earlier of: (i) the
date on which all Registrable Securities covered by such Registration Statement
may be resold without registration and without regard to any volume or
manner-of-sale limitations by reason of Rule 144, without the requirement for
the Company to be in compliance with the current public information under Rule
144 or any other rule of similar effect; (ii) the date on which all Registrable
Securities covered by such Registration Statement have been sold pursuant to a
Prospectus or Rule 144 or any other rule of similar effect; or (iii) as
otherwise mutually agreed to between the parties hereto (the “
Effectiveness
Period
”). The Company shall telephonically request
effectiveness of a Registration Statement as of 5:00 p.m. New York City time on
a Trading Day. The Company shall immediately notify the Holders via
facsimile or by e-mail of the effectiveness of such Registration Statement on
the same Trading Day that the Company telephonically confirms effectiveness with
the Commission, which shall be the date requested for effectiveness of such
Registration Statement. The Company shall, by 9:30 a.m. New York City
time on the Trading Day after the effective date of such Registration Statement,
file a final Prospectus with the Commission as required by Rule
424.
(c) If,
and for so long as the Company shall elect to pay dividends in the form of
Common Stock, the Company shall take the following actions:
(i) The
Company shall, at its cost, as promptly as practicable file with the Commission
and thereafter shall use its commercially reasonable efforts to cause to be
declared effective (unless it becomes effective automatically upon filing) a
registration statement (the “
Shelf Registration
Statement
”) on an appropriate form under the Securities Act relating to
the offer and sale of Registrable Securities delivered to Holders in connection
with dividends declared in the form of Common Stock, by the Holders thereof from
time to time in accordance with the methods of distribution set forth in the
Shelf Registration Statement and Rule 415 under the Securities Act; provided,
however, that no Holder (other than Holders party to this Agreement on the date
hereof) shall be entitled to have the Registrable Securities held by it covered
by such Shelf Registration Statement unless such Holder agrees in writing to be
bound by all the provisions of this Agreement applicable to such
Holder.
(ii) The
Company shall use its commercially reasonable efforts to keep the Shelf
Registration Statement continuously effective, or replace such Shelf
Registration Statement, in order to permit the prospectus included therein to be
lawfully delivered by the Holders of the relevant Securities, for such period of
time that will terminate when all the Securities covered by the Shelf
Registration Statement (i) have been sold pursuant thereto or (ii) can be sold
pursuant to Rule 144 under the Securities Act, or any successor rule thereof,
without any limitations under clauses (c), (e), (f) and (h) of Rule
144.
(iii) Notwithstanding
any other provisions of this Agreement to the contrary, the Company shall cause
the Shelf Registration Statement and the related prospectus and any amendment or
supplement thereto, as of the effective date of the Shelf Registration
Statement, amendment or supplement, (i) to comply in all material respects with
the applicable requirements of the Securities Act and the rules and regulations
of the Commission and (ii) not to contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(iv) Notwithstanding
any other provisions of this Agreement to the contrary, the Company shall be
entitled to postpone for a reasonable period of time (not to exceed ninety (90)
days) the filing or effectiveness of, or suspend for a reasonable period of time
(not to exceed ninety (90) days) the rights of the Holders to make offers or
sales pursuant to, any Shelf Registration Statement otherwise required to be
prepared, filed and made and kept effective by it hereunder if there has been a
determination by the Board of Directors that filing, amending or supplementing,
or making offers or sales pursuant to, such Shelf Registration Statement would
have a material adverse effect on (i) any proposal or plan by the Company or any
of its subsidiaries to engage in any financing, acquisition, divestiture, joint
venture, merger, consolidation, tender offer or other significant transaction or
(ii) the pursuit or defense of any material third party claim, and the Company
advises the Holders of such postponement or suspension; provided, however, that
the Company shall have the right to so postpone only one (1) time during any
period of twelve (12) consecutive months. If so advised, the Holders
shall comply therewith and, if in connection with such advice, the Holders
receive material non-public information from the Company, they shall keep such
information confidential and shall not effect (or allow others for whom they
could reasonably be expected to have responsibility to effect) transactions in
securities of the Company until such information becomes public or, if sooner,
the expiration of such ninety (90) day period.
EXHIBIT
10.4
3.
Registration
Procedures
. In connection with the Company’s registration
obligations hereunder, the Company shall:
(a) Not
less than ten (10) Trading Days prior to the filing of such Registration
Statement and not less than three (3) Trading Days prior to the filing of any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall (i) furnish to each Holder that has Registrable
Securities constituting at least 35% of the aggregate Registrable Securities
included in such Registration Statement (each, “
Significant Holder
”)
copies of all such documents proposed to be filed, which documents (other than
those incorporated or deemed to be incorporated by reference) will be subject to
the review of such Significant Holders, and (ii) cause its officers and
directors, counsel and independent registered public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to each Significant Holder, to conduct a reasonable investigation within
the meaning of the Securities Act. The Company shall not file a
Registration Statement or any amendments or supplements thereto to which the
Significant Holders shall reasonably object in good faith,
provided
that, the Company is
notified of such objection in writing no later than five (5) Trading Days after
the Significant Holders have been so furnished copies of a Registration
Statement or one (1) Trading Day after the Significant Holders have been so
furnished copies of any related Prospectus or amendments or supplements
thereto. Each Holder agrees to furnish to the Company a completed
questionnaire in the form attached to this Agreement as
Annex A
(a “
Selling Stockholder
Questionnaire
”) promptly after it has been requested by the Company, but
in no event less than five (5) Trading Days prior to the filing date of the
Registration Statement.
(b) (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep a Registration Statement effective as to
the applicable Registrable Securities for the Effectiveness Period and prepare
and file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities,
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement (subject to the terms of this Agreement), and, as so
supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as
promptly as reasonably possible to any comments received from the Commission
with respect to a Registration Statement or any amendment thereto and provide as
promptly as reasonably possible to the Significant Holders true and complete
copies of all correspondence from and to the Commission relating to a
Registration Statement (
provided
that, the Company
may excise any information contained therein which would constitute material
non-public information as to any Significant Holder which has not executed a
confidentiality agreement with respect thereto with the Company), and (iv)
comply in all material respects with the applicable provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by a Registration Statement during the applicable period in
accordance (subject to the terms of this Agreement) with the intended methods of
disposition by the Holders thereof set forth in such Registration Statement as
so amended or in such Prospectus as so supplemented.
EXHIBIT
10.4
(c) Provide
notice to the Holders whose Registrable Securities are to be sold (which notice
shall, pursuant to
clauses (iii)
through
(vi)
hereof, be
accompanied by an instruction to suspend the use of the Prospectus until the
requisite changes have been made) as promptly as reasonably possible (and, in
the case of
clause
(i)(A)
below, not less than one (1) Trading Day prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later than
one (1) Trading Day following the day:
(i) (A) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of when a Prospectus or
any Prospectus supplement or post-effective amendment to a Registration
Statement is proposed to be filed;
(B) with
respect only to the Significant Holders, notice when the Commission notifies the
Company whether there will be a “review” of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement;
and
(C) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of when the Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) with
respect only to the Significant Holders, notice of any request by the Commission
or any other federal or state governmental authority for amendments or
supplements to a Registration Statement or Prospectus or for additional
information;
(iii) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of the issuance by the
Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose;
(iv) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose;
(v) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of the occurrence of any
event or passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement made in
a Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the Prospectus, as
the case may be, it will not contain any untrue statement of a material fact or
omit to state any 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; and
EXHIBIT
10.4
(vi) with
respect to the Significant Holders and all other Holders whose Registrable
Securities are to be sold in such registration, notice of the occurrence or
existence of any pending corporate development with respect to the Company that
the Company believes may be material and that, in the determination of the
Company, makes it not in the best interest of the Company to allow continued
availability of a Registration Statement or Prospectus,
provided
that, any and all of
such information shall remain confidential to each Holder until such information
otherwise becomes public, unless disclosure by a Holder is required by law;
provided, further
, that
notwithstanding each Holder’s agreement to keep such information confidential,
each such Holder makes no acknowledgement that any such information is material,
non-public information.
(d) Use
its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of (i) any order stopping or suspending the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) Furnish
to each Holder, without charge, at least one conformed copy of each such
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission;
provided
, that any such item
which is available on the EDGAR system (or successor thereto) need not be
furnished in physical form.
(f) Subject
to the terms of this Agreement, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto, except after
the giving of any notice pursuant to
Section
3(d)
.
(g) The
Company shall cooperate with any broker-dealer through which a Holder proposes
to resell its Registrable Securities in effecting a filing with the FINRA
Corporate Financing Department pursuant to FINRA Rule 5110, as requested by any
such Holder, and the Company shall pay the filing fee required by such filing
within two (2) Business Days of request therefor.
(h) Prior
to any resale of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling Holders
in connection with the registration or qualification (or exemption from the
Registration or qualification) of such Registrable Securities for the resale by
the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by each Registration Statement;
provided
, that, the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, subject the Company to any material tax in
any such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction.
(i) If
requested by a Holder, cooperate with such Holder to facilitate and coordinate
with the Company’s transfer agent the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a transferee
pursuant to a Registration Statement, which certificates shall be free, to the
extent permitted by the Purchase Agreement, of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and registered in
such names as any such Holder may request.
EXHIBIT
10.4
(j) Upon
the occurrence of any event contemplated by
Section 3(c)
, as
promptly as reasonably possible under the circumstances taking into account the
Company’s good faith assessment of any adverse consequences to the Company and
its stockholders of the premature disclosure of such event, prepare a supplement
or amendment, including a post-effective amendment, to a Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the Company notifies the Holders in accordance
with
clauses
(iii)
through
(vi)
of
Section 3(c)
above to
suspend the use of any Prospectus until the requisite changes to such Prospectus
have been made, then the Holders shall suspend use of such
Prospectus. The Company will use its best efforts to ensure that the
use of the Prospectus may be resumed as promptly as is reasonably
practicable. The Company shall be entitled to exercise its right
under this
Section
3(j)
to suspend the availability of a Registration Statement and
Prospectus for a period not to exceed 60 calendar days (which need not be
consecutive days) in any 12-month period.
(k) Comply
with all applicable rules and regulations of the Commission.
(l) The
Company may require each selling Holder to furnish to the Company a certified
statement as to the number of shares of Common Stock beneficially owned by such
Holder and, if required by the Commission, the natural persons thereof that have
voting and dispositive control over the shares.
4.
Registration
Expenses
. All fees and expenses incident to the performance of
or compliance with, this Agreement by the Company shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to a Registration
Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, reasonable fees and expenses of the Company’s
counsel and independent registered public accountants) (A) with respect to
filings made with the Commission, (B) with respect to filings required to be
made with any Trading Market on which the Common Stock is then listed for
trading, (C) in compliance with applicable state securities or Blue Sky laws
reasonably agreed to by the Company in writing (including, without limitation,
fees and disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities) and (D) with respect
to any sales of Registrable Securities in an underwritten offering any filing
fees payable to FINRA pursuant to FINRA Rule 5110, so long as the broker is
receiving no more than a customary brokerage commission in connection with such
sale, (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities), (iii) fees and disbursements
of counsel for the Company, (iv) Securities Act liability insurance, if the
Company so desires such insurance, and (v) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required
hereunder. In no event shall the Company be responsible for any
broker or similar commissions of any Holder or, except to the extent provided
for in the Transaction Documents, any legal fees or other costs of the
Holders.
EXHIBIT
10.4
5.
Indemnification
.
(a)
Indemnification by the
Company
. The Company shall, notwithstanding any termination of
this Agreement, indemnify and hold harmless each Holder, the officers,
directors, members, partners, agents, brokers (including brokers who offer and
sell Registrable Securities as principal as a result of a pledge or any failure
to perform under a margin call of Common Stock), investment advisors and
employees (and any other Persons with a functionally equivalent role of a Person
holding such titles, notwithstanding a lack of such title or any other title) of
each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, members, stockholders, partners, agents and employees (and
any other Persons with a functionally equivalent role of a Person holding such
titles, notwithstanding a lack of such title or any other title) of each such
controlling Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs (including,
without limitation, reasonable attorneys’ fees) and expenses (collectively,
“
Losses
”), as
incurred, arising out of or relating to (1) any untrue or alleged untrue
statement of a material fact contained in a Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, (2) any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading or (3) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act or any
state securities law, or any rule or regulation thereunder, in connection with
the performance of its obligations under this Agreement, except to the extent,
but only to the extent, that (i) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use in a Registration Statement, such
Prospectus or in any amendment or supplement thereto (it being understood that
the Holder has approved Annex A hereto for this purpose) or (ii) in the case of
an occurrence of an event of the type specified in
Section
3(c)(iii)
-
(vi)
, the use by such
Holder of an outdated, defective or otherwise unavailable Prospectus after the
Company has notified such Holder in writing that the Prospectus is outdated,
defective or otherwise unavailable for use by such Holder and prior to the
receipt by such Holder of the Advice contemplated in
Section
6(c)
. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding arising from or in connection
with the transactions contemplated by this Agreement of which the Company is
aware.
(b)
Indemnification by
Holders
. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses, as incurred, to the
extent arising out of or relating to: (x) such Holder’s failure to comply with
the prospectus delivery requirements of the Securities Act, (y) any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or in any amendment or supplement thereto or in any
preliminary prospectus, or (z) any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (i) to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in such Registration
Statement or such Prospectus or (ii) in the case of an occurrence of an event of
the type specified in
Section
3(c)(iii)
-
(vi)
, the use by such
Holder of an outdated, defective or otherwise unavailable Prospectus after the
Company has notified such Holder in writing that the Prospectus is outdated,
defective or otherwise unavailable for use by such Holder and prior to the
receipt by such Holder of the Advice contemplated in
Section
6(c)
. A Holder shall notify the Company promptly of the
institution, thread or assertion of any Proceeding arising from or in connection
with the transactions contemplated by this Agreement of which the Holder is
aware. In no event shall the liability of any selling Holder under
this
Section
5(b)
be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
EXHIBIT
10.4
(c)
Conduct of Indemnification
Proceedings
. If any Proceeding shall be brought or asserted
against any Person entitled to indemnity hereunder (an “
Indemnified Party
”),
such Indemnified Party shall promptly notify the Person from whom indemnity is
sought (the “
Indemnifying Party
”)
in writing, and the Indemnifying Party shall have the right to assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof;
provided
, that, the failure
of any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have prejudiced the Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses, (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding, or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and counsel to the
Indemnified Party shall reasonably believe that a material conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and the reasonable fees and expenses of no
more than one separate counsel shall be at the expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement
of any such Proceeding effected without its written consent, which consent shall
not be unreasonably withheld or delayed. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
Subject
to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten (10) Trading Days of written notice thereof to
the Indemnifying Party; provided, that, the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is judicially
determined not to be entitled to indemnification hereunder.
(d)
Contribution
. If
the indemnification under
Section 5(a)
or
5(b)
is unavailable
to an Indemnified Party or insufficient to hold an Indemnified Party harmless
for any Losses, then each Indemnifying Party shall contribute to the amount paid
or payable by such Indemnified Party, in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party and Indemnified Party in
connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount
paid or payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in this Agreement, any reasonable
attorneys’ or other fees or expenses incurred by such party in connection with
any Proceeding to the extent such party would have been indemnified for such
fees or expenses if the indemnification provided for in this
Section 5
was
available to such party in accordance with its terms.
EXHIBIT
10.4
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this
Section 5(d)
were
determined by
pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this
Section 5(d)
, no
Holder shall be required to contribute pursuant to this
Section 5(d)
, in the
aggregate, any amount in excess of the amount by which the net proceeds actually
received by such Holder from the sale of the Registrable Securities subject to
the Proceeding exceeds the amount of any damages that such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
The
indemnity and contribution agreements contained in this
Section 5
are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6.
Miscellaneous
.
(a)
Remedies
. (i) Additional
Dividends Under Certain Circumstances. Additional dividends (the
“Additional Dividends”) with respect to the Preferred Stock shall be assessed if
the Registration Statement is not declared effective by the Commission on or
prior to the one (1) year anniversary of the Closing Date as provided in Section
2(b) hereof (such event, a “Registration Default”). Additional Dividends shall
accrue on the Preferred Stock over and above the dividend rate set forth in the
title of the Securities from and including the date on which such Registration
Default shall occur to but excluding the date on which such Registration Default
has been cured. The rate of the Additional Dividends will be 1.00% per annum for
the first 30-day period (or pro rata portion thereof) immediately following the
occurrence of a Registration Default, and such rate will increase by an
additional 1.00% per annum with respect to each subsequent 30-day period (or pro
rata portion thereof) until such Registration Default has been cured. Additional
Dividends shall be paid on Dividend Payment Dates. Such Additional Dividends
will be in addition to any other dividends payable from time to time with
respect to the Preferred Stock.
(ii) In
the event of a breach by the Company or by a Holder of any of their respective
obligations under this Agreement, each Holder or the Company, as the case may
be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, shall be entitled to
specific performance of its rights under this Agreement. Each of the
Company and each Holder agrees that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall not assert
or shall waive the defense that a remedy at law would be adequate.
(b)
Compliance
. Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to a Registration Statement.
(c)
Discontinued
Disposition
. By its acquisition of Registrable Securities,
each Holder agrees that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in
Section 3(c)(iii)
through
(vi)
,
such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until it is advised in writing (the
“
Advice
”) by
the Company that the use of the applicable Prospectus (as it may have been
supplemented or amended) may be resumed. The Company will use its
best efforts to ensure that the use of the Prospectus may be resumed as promptly
as is practicable. The Company agrees and acknowledges that any
periods during which the Holder is required to discontinue the disposition of
the Registrable Securities hereunder shall be subject to the provisions of
Section
3(b)
.
EXHIBIT
10.4
(d)
Piggy-Back
Registrations
. If, at any time during the Effectiveness
Period, there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the Company’s stock option or
other employee benefit plans, then the Company shall deliver to each Holder a
written notice of such determination and, if within fifteen days after the date
of the delivery of such notice, any such Holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such Holder requests to be registered;
provided, however
, that the
Company shall not be required to register any Registrable Securities pursuant to
this
Section
6(d)
that are eligible for resale pursuant to Rule 144 promulgated by the
Commission pursuant to the Securities Act or that are the subject of a then
effective Registration Statement.
(e)
Amendments and
Waivers
. The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
same shall be in writing and signed by the Company and the Holders of at least
85% of the then outstanding Registrable Securities (including, for this purpose
any Registrable Securities issuable upon exercise or conversion of any Security
issued and issuable under the Purchase Agreement). If a Registration
Statement does not register all of the Registrable Securities pursuant to a
waiver or amendment done in compliance with the previous sentence, then the
number of Registrable Securities to be registered for each Holder shall be
reduced
pro rata
among
all Holders and each Holder shall have the right to designate which of its
Registrable Securities shall be omitted from such Registration
Statement. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of a Holder or some Holders and that does not directly
or indirectly affect the rights of other Holders may be given by such Holder or
Holders of all of the Registrable Securities to which such waiver or consent
relates;
provided,
however
, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the first
sentence of this
Section
6(e)
.
(f)
Notices
. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be delivered as set forth in the Purchase
Agreement.
(g)
Successors and
Assigns
. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and
shall inure to the benefit of each Holder. The Company may not assign
(except by merger) its rights or obligations hereunder without the prior written
consent of all of the Holders of the then outstanding Registrable
Securities. Each Holder may assign their respective rights hereunder
in the manner and to the Persons as permitted under
Section 5.6
of the
Purchase Agreement.
(h)
No Inconsistent
Agreements
. Neither the Company nor any of its Subsidiaries
has entered, as of the date hereof, nor shall the Company or any of its
Subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities, that would have the effect of impairing the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor any of its Subsidiaries
has previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person that have not been satisfied in
full.
EXHIBIT
10.4
(i)
Execution and
Counterparts
. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission or by e-mail delivery of a
“.pdf” format data file, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.
(j)
Governing
Law
. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement.
(k)
Cumulative
Remedies
. The remedies provided herein are cumulative and not
exclusive of any other remedies provided by law.
(l)
Severability
. If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(m)
Headings
. The
headings in this Agreement are for convenience only, do not constitute a part of
the Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
(n)
Independent Nature of
Holders’ Obligations and Rights
. The obligations of each
Holder hereunder are several and not joint with the obligations of any other
Holder hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder. Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to
constitute the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in any way
acting in concert with respect to such obligations or the transactions
contemplated by this Agreement. Each Holder shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose.
********************
EXHIBIT
10.5
NORTHERN
COMSTOCK LLC
LIMITED
LIABILITY COMPANY OPERATING AGREEMENT
LIMITED
LIABILITY COMPANY OPERATING AGREEMENT dated as of October 19, 2010 among the
undersigned signatories hereto.
WITNESSETH
:
WHEREAS,
the undersigned have caused a Certificate of Formation to be filed with the
Secretary of State of the State of Nevada for the purpose of forming a limited
liability company under Chapter 86 of the Nevada Revised Statutes Act and such
Certificate of Formation has become effective; and
WHEREAS,
the name of such limited liability company is Northern Comstock LLC;
and
WHEREAS,
the undersigned desire to set forth in this Agreement the terms and conditions
which shall govern the affairs of such limited liability company;
NOW,
THEREFORE, in consideration of the premises, representations and warranties and
the mutual covenants and set forth herein and other good, valuable and
sufficient consideration, the receipt of which is hereby acknowledged, the
undersigned, intending to be legally bound, hereby agree as
follows:
ARTICLE
1
DEFINITIONS;
REPRESENTATIONS
1.1
Definitions
. As
used herein, the following terms shall have the following meanings:
“
Accelerated Capital
Call
” has the meaning set forth in Section 3.2(c).
“
Additional Member
”
means a Person who is admitted to the Company as a Member pursuant to Section
7.3.
“
Adjusted Capital Account
Balance
” of a Member means the balance in such Member’s Capital Account
(a) increased by any amount such Member is deemed to be obligated to contribute
to the Company pursuant to Treasury Regulation section 1.704-1(b)(2)(ii)(c),
1.704-2(g)(1) or 1.704-2(i)(5) and (b) reduced by any allocations or
distributions to such Member described in Treasury Regulation section
1.704-1(b)(2)(ii)(d)(4), (5) or (6).
“
Affiliate
” means,
with respect to any Person, any other Person that controls, is controlled by or
is under common control with, directly or indirectly, such Person, and, if such
Person is a natural person, includes any member of such Person’s immediate
family, or, if such Person is an entity, includes (a) any trustee, general
partner, manager, director or executive officer of, or any Person performing
similar functions for, such entity and (b) any Person with
the power
directly or indirectly to vote or direct the voting of more than 50% of the
voting shares in such entity, to elect or appoint a majority of the trustees,
directors, general partners or managers of such entity or to otherwise manage or
direct the management of the business and affairs of such entity, whether by
reason of ownership of securities, contractual rights or otherwise.
“
Agreement
” means this
Limited Liability Company Operating Agreement.
“
Assign
” an Ownership
Interest means to assign, transfer, sell, pledge, donate, bequeath, hypothecate,
mortgage or otherwise encumber or dispose of such Ownership Interest by any
means, whether voluntarily or involuntarily and including by merger, by transfer
of ownership of an entity that holds such Ownership Interest, in connection with
any Proceeding under any Law relating to bankruptcy, insolvency or the rights of
creditors generally, and by operation of Law.
“
Bankruptcy
” of a
Person means:
(a) the
filing by such Person of a petition commencing a voluntary Proceeding under any
applicable bankruptcy, insolvency or similar Law;
(b) the
entry against such Person of an order for relief under any applicable
bankruptcy, insolvency or similar Law, if such order shall not have been vacated
or stayed within 120 days after such entry;
(c) the
written admission by such Person of its inability to pay its debts as they
mature or the assignment by such Person of all or substantially of its assets
for the benefit of creditors; or
(d) the
appointment of a trustee, receiver or similar representative to manage or wind
up the affairs, or manage or liquidate all or substantially all of the assets,
of such Person.
“
Book Value
” of any
asset of the Company means the adjusted basis of such assets for federal income
tax purposes, except that:
(a) the
initial Book Value of any asset contributed by a Member to the Company will be
the Fair Market Value of such asset as of the date of contribution;
and
(b) the
Book Values of all assets (including intangible assets such as goodwill) will be
adjusted to equal their respective Fair Market Values as of the following
times:
(i) the
acquisition of an additional interest in the Company by any new or existing
Member in exchange for more than a
de
minimis
capital
contribution;
(ii) the
distribution by the Company to a Member of more than a
de
minimis
amount of
cash or property as consideration for an interest in the Company;
and
(iii) the
liquidation of the Company within the meaning of Treasury Regulation section
1.704-1(b)(2)(ii)(g).
This
definition is intended to comply with the provisions of Treasury Regulation
section 1.704-1(b)(2)(iv) and will be interpreted and applied consistently
therewith.
“
Capital Account
” of a
Member means the account maintained by the Company for such Member pursuant to
Section 3.4.
“
Capital Contribution
”
of a Member means the Fair Market Value of property contributed by such Member
to the capital of the Company.
“
Certificate
” means
the Certificate of Formation of Northern Comstock LLC filed with the Secretary
of State of the State of Nevada.
“
Claim
” means a
complaint, allegation, charge, petition, appeal, demand, notice, filing or claim
of any kind that commences, alleges a basis to commence or threatens to commence
any Proceeding by or before any Governmental Authority or Judicial Authority or
that asserts, alleges a basis to assert or threatens to assert any right,
breach, default, violation, noncompliance, termination, cancellation or other
action or omission that could reasonably be expected to result in a Liability or
Loss.
“
Code
” means the
Internal Revenue Code of 1986.
“
Company
” means the
limited liability company formed pursuant to the Certificate and governed by
this Agreement.
“
Company Business
” has
the meaning set forth in Section 2.3.
“
Company Expenses
”
mean expenses, costs, fees and other charges incurred by the
Company. Company Expenses shall include:
(a) costs
and expenses incurred in connection with the offices of the
Company;
(b) salaries,
bonuses and other compensation and benefits of employees of the
Company;
(c) fees
and expenses of consultants, accountants, counsel and other third-party
professionals engaged by the Company;
(d) premiums
and fees for insurance coverage maintained with respect to the Company Business
or the Managers, Managing Directors or employees of the Company;
(e) taxes,
fees and governmental charges assessed or levied against the Company or imposed
on property owned or used by the Company;
(f) indemnification
payments and expense advancements by the Company;
(g)
royalty expenses of 1% of Net Smelter Returns to Art Wilson with respect to the
DWC Property;
(h)
royalty expenses of 5% of Net Smelter Returns to Sutro Tunnel Company with
respect to the Sutro Property;
(i)
royalty expenses of 5% of Net Smelter Returns, pre-production rent of $500 per
month and post-production rent of $1,000 per month (credited against royalty
payments, if applicable), in each case, with respect to the VCV Property;
and
(j) fees,
expenses and costs incurred in connection with the formation of the
Company.
“
Company Minimum Gain
”
means the aggregate amount of gain (of whatever character), determined for each
nonrecourse liability of the Company, that would be realized by the Company if
it disposed of the property subject to such liability in a taxable transaction
in full satisfaction thereof, determined in accordance with Treasury Regulation
section 1.704-2(d).
“
Company Nonrecourse
Deductions
” mean the excess, if any, of the net increase, if any, in the
amount of Company Minimum Gain during a fiscal year over the aggregate amount of
any distributions during that fiscal year of proceeds of a nonrecourse liability
as defined in Treasury Regulation section 1.704-2(c).
“
Comstock Mining
”
means Comstock Mining Inc., a Nevada corporation.
“
Contract
” means a
written or oral contract, agreement, note, bond, mortgage, indenture, deed of
trust, lease, sublease, license, sublicense, purchase or sale order, or other
commitment, obligation or instrument of any kind that is legally binding or
enforceable under applicable Law.
“
DWC
” means DWC
Resources, Inc., a Nevada corporation.
“
DWC Property
” means
the real property and improvements, and all patented and unpatented lode mining
claims located in Storey County, Nevada as more particularly described on
Exhibit A
attached
hereto.
“
Fair Market Value
” of
any asset of the Company, any Ownership Interest or the Company Business means
the value thereof determined in accordance with Article 9.
“
Fiscal Year
”
has the meaning set
forth in Section 8.3.
“Force Majeure
” has
the meaning set forth in Section 6.11(b).
“
Governmental
Authority
” means a government (including any federal, foreign, state,
provincial, city, municipal, cantonal or county government), a political
subdivision thereof and a governmental, administrative, ministerial, regulatory,
central bank, self-regulatory, quasi-governmental, taxing, executive or
legislative department, commission, body, agency, authority or instrumentality
of any thereof.
“
Indemnified Action
”
has the meaning set forth in Section 6.7(a).
“
Indemnified Party
”
has the meaning set forth in Section 6.7(a).
“
Information
” of a
Person (the “
Disclosing Party
”),
in relation to any other Person (the “
Receiving Party
”),
means all information (whether in written, electronic, oral or other form and
including trade secrets and non-public, confidential or proprietary
information), including information relating to technology, intellectual
property, financing sources, business opportunities, contact information, ideas,
developments, strategies and plans, developed or acquired by or for such
Disclosing Party
and all files, books, records,
notes, compilations, analyses, forecasts, studies, reports and other documents
(whether in written or electronic form) prepared
by or for such
Disclosing Party or any of its Representatives, to the extent they contain or
reflect any of such information. “
Information
” of a
Disclosing Party, in relation to a Receiving Party, includes any of such
information obtained through visual inspection of properties or through
meetings. “
Information
” does
not, however, include information which (i) is at the time of receipt by the
Receiving Party or becomes after such time publicly available or in the public
domain, other than as a result of a disclosure by the Receiving Party or its
Representatives which constitutes a breach of this Agreement, (ii) is at the
time of receipt or becomes after such time known on a non-confidential basis
from a source which is not prohibited from disclosing such information by a
contractual, statutory, fiduciary or other obligation or (iii) was or is
developed independent of any information furnished by or for the Disclosing
Party or any of its Representatives. Information will not be deemed
to be (i) so publicly available if it relates to business opportunities or
contact information and was directly or indirectly brought to the attention of
the Receiving Party or any of its Representatives by, for or through the
Disclosing Party or any of its Representatives (unless it is so widely known
that a reasonable individual could not consider it to be valuable confidential
information) or (ii) so known on a non-confidential basis or so independently
developed unless such knowledge or development is clearly demonstrated by dated
written records of a type customarily generated and maintained in the ordinary
course of business.
“
Judicial Authority
”
means a court, arbitrator, special master, receiver, tribunal or similar body of
any kind.
“
Law
” means a treaty,
code, statute, law (including common law of any Judicial Authority), rule,
regulation or ordinance of any kind of any Governmental Authority.
“
Leased Property
”
means the Sutro Property and the VCV Property.
“
Liability
” means a
liability, duty, responsibility, obligation, assessment, cost, expense,
expenditure, charge, fee, penalty, fine, contribution, premium or obligation of
any kind, whether known or unknown, asserted or unasserted, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, or due or to
become due.
“
Liquidator
” has the
meaning set forth in Section 10.2(a).
“
LLC Act
” means
Chapter 86 of the Nevada Revised Statutes.
“
Loss
” means a
Liability, shortage, damage, diminution in value, deficiency or loss of any
kind.
“
Majority
Interest
”
means one or more
Ownership Interests which, taken together, represent more than 50% of the
aggregate of all of the Ownership Interests as measured by the aggregate value
of Members’ Capital Accounts, without regard to any special allocations, bonuses
or similar adjustments of any kind.
“
Manager
” has the
meaning set forth in Section 6.1(a).
“
Managing Director
”
has the meaning set forth in Section 6.1(c).
“
Member
” means,
initially, each of the undersigned (an “
Initial Member
”) and,
at any time thereafter, each of the undersigned and each of the other Persons
who at such time shall have become an Additional Member or a Substituted Member
in accordance herewith, but excluding each of the undersigned and each of such
other Persons who, at such time, shall have ceased to be a Member in accordance
herewith.
“
Member Nonrecourse
Debt
” has the meaning set forth in Treasury Regulation section
1.704-2(b)(4).
“
Member Nonrecourse Debt
Minimum Gain
” means an amount, with respect to each Member Nonrecourse
Debt, equal to the Company Minimum Gain that would result if such Member
Nonrecourse Debt were treated as a nonrecourse liability, determined in
accordance with Treasury Regulation section 1.704-2(i).
“
Member Nonrecourse
Deductions
” mean the excess, if any, of the net increase, if any, in the
amount of Member Nonrecourse Debt Minimum Gain attributable to a Member
Nonrecourse Debt during a Fiscal Year over the aggregate amount of any
distributions during such Fiscal Year to the Member that bears the economic risk
of loss for the related Member Nonrecourse Debt to the extent such distributions
are made from the proceeds of such Member Nonrecourse Debt and are allocable to
an increase in Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury Regulation section
1.704-2(i).
“
Membership Period
”
has the meaning set forth in Section 7.6(b).
“
Minerals
” has the
meaning set forth in Section 6.10(a).
“
Minerals Produced
”
means the bullion or other minerals recovered from the ore mined out of the
ground but untreated and minerals produced from the milling or reduction of ore
to a higher grade produced from the DWC Property or Leased Property, as
applicable, or finished products produced from any such
property.
“
Net Income
”
and “
Net Loss
” for each
Fiscal Year or part thereof means the Company’s taxable income or loss for such
Fiscal Year determined in accordance with Code section 703(a) (and for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code section 703(a)(1) will be included in taxable income
or loss), with the following adjustments:
(a) any
income of the Company that is exempt from federal income tax will be added to
such taxable income or loss;
(b) any
expenditures of the Company described in Code section 705(a)(2)(B) or treated as
such pursuant to Treasury Regulation section 1.704-1(b)(2)(iv)(i) (to the extent
such expenditures are not taken into account in computing the Members’ shares of
Company Nonrecourse Deductions or Member Nonrecourse Deductions) will be
subtracted from such taxable income or loss;
(c) gain
or loss resulting from any disposition of property of the Company with respect
to which gain or loss is recognized for federal income tax purposes will be
computed with reference to the Book Value of the property disposed, rather than
the adjusted tax basis of such property;
(d) such
taxable income or loss will not be deemed to include any income, gain, loss,
deduction or other item thereof allocated pursuant to Section 5.1(b) (relating
to allocations caused by the occurrence of deficit Adjusted Capital Account
Balances or the presence of nonrecourse debt);
(e) if
any property of the Company is distributed in kind to any Member, the difference
between its Fair Market Value and its Book Value at the time of distribution
will be treated as Net Income or Net Loss, as the case may be, recognized by the
Company as if it arose from a sale of such property; and
(f) if
the value of any assets of the Company are adjusted pursuant to clause (b) of
the definition of Book Value, the difference between their Fair Market Value and
their Book Value at the time will be treated as Net Income or Net Loss, as the
case may be, recognized by the Company as if from a sale of such
assets.
“
Net Smelter Returns
”
shall mean the actual financial proceeds received from any mint, smelter,
refinery, or other purchaser from the sale of bullion, dore, concentrates or
finished products produced from the relevant property, less the following costs:
shipping, all minting, smelter or refinery costs. In the event
smelting or refining are carried out in facilities owned or controlled, in whole
or in part, by Comstock Mining, charges, costs and penalties for such operations
shall mean the amount Comstock Mining would have incurred if such operations
were carried out at facilities not owned or controlled by Comstock Mining then
offering comparable services for comparable products on prevailing
terms.
“
Order
” means a
judgment, writ, decree, directive, decision, injunction, ruling, award or order
(including any consent decree or cease and desist order) of any kind of any
Governmental Authority or Judicial Authority.
“
Ownership Interest
”
of a Member means the legal and beneficial ownership interest of such Member in
the Company, including all of such Member’s rights in and obligations to the
Company.
“
Person
” means an
individual, a partnership, a sole proprietorship, a company, a firm, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization, a union, a group
acting in concert, a Judicial Authority, a Governmental Authority or any other
entity or association of any kind.
“
Proceeding
” means an
action, suit, arbitration, mediation, litigation, hearing, investigation,
inquiry or other proceeding of any kind involving any Governmental Authority,
any Judicial Authority or any other Person.
“
Representatives
” of a
Person mean controlling persons, trustees, general partners, managers,
directors, officers, employees, representatives, advisors, attorneys,
consultants, accountants and agents of such Person.
“
RRA
” means the
Registration Rights Agreement dated August 31, 2010 among Comstock Mining and
the other parties thereto.
“
Securities Purchase
Agreement
” means the Securities Purchase Agreement dated as of August 31,
2010, among Comstock Mining and the other parties thereto.
“
Series A-1 Certificate of
Designation
” means the 7 ½% Series A-1 Convertible Preferred Stock
Certificate of Designation filed by Comstock Mining with the Secretary of State
of Nevada on October 19, 2010.
“
Series A-1 Preferred
Stock
” means Comstock Mining’s 7 ½% Series A-1 Convertible Preferred
Stock having the rights, preferences and privileges set forth in the Series A-1
Certificate of Designation.
“
Subsidiary
” means,
with respect to any Person, any other Person which, directly or indirectly, is a
controlled Affiliate of such Person.
“
Substituted Member
”
means a Person who is admitted to the Company as a Member pursuant to Section
7.2.
“
Sutro Property
” means
the real property that is the subject of the Mineral Exploration and Mining
Lease Agreement dated January 1, 2008 between Sutro Tunnel Company and John V.
Winfield as more fully described in the lease attached hereto as
Exhibit
B
.
“
VCV Property
” means
the real property that is the subject of the Mineral Exploration and Mining
Lease Agreement dated January 1, 2008 between Virginia City Ventures, Inc. and
John V. Winfield as more fully described in the lease attached hereto as
Exhibit
C
.
“
Winfield
” means John
V. Winfield, a resident of the State of California.
“
Yearly Distribution
Date
” has the meaning set forth in Section 5.2(a)(i).
1.2
Interpretations
. Unless
otherwise expressly stated in this Agreement:
(a) the
words “
hereof
”,
“
hereby
” and
“
hereunder
,”
and correlative words, refer to this Agreement as a whole and not any particular
provision;
(b) the
words “
includes
” and “
including
”, and
correlative words, are deemed to be followed by the phrase “without
limitation”;
(c) the
word “
written
”
and the phrase “
in
writing
,” and correlative words and phrases, include e-mail, pdf and
facsimile transmissions;
(d) the
words “
asset
”
and “
property
”
are synonymous and include owned, leased and licensed real, personal and
intangible property of every kind, including contractual rights, tort claims,
cash, securities and information;
(e) the
masculine, feminine or neuter form of a word includes the other forms of such
word and the singular and plural forms of a word have correlative
meanings;
(f) the
word “
or
” is
not exclusive;
(g) the
words “
will
”
and “
shall
”
shall be construed to have the same meaning and effect;
(h) references
to any Contract or Order mean such Contract or Order as amended and, in the case
of any Law, mean such Law as amended, supplemented or modified and any successor
Law and, in the case of any Contract, includes any and all exhibits, annexes,
schedules and documents attached thereto, incorporated therein or constituting a
part thereof;
(i) references
to an Article, Section, Schedule or Exhibit mean an Article or Section of, or a
Schedule or Exhibit to, this Agreement;
(j) references
to “
amendments
”
of a Contract or other document, and correlative terms, include amendments,
modifications, supplements, novations, waivers, releases, discharges and other
changes to such Contract or document; and
(k) capitalized
terms that are correlative to terms defined in Section 1.1 shall have
correlative meanings.
1.3
Representations and
Warranties of All Members.
Each Member represents and warrants
to the Company and the other Members, as of the date such Person becomes a
Member, as follows:
(a) If
it is a Person other than an individual, such Member is duly organized or
formed, validly existing and in good standing under the laws of its jurisdiction
of organization or formation.
(b) Such
Member has all power and authority necessary to execute, deliver and perform his
or its obligations under this Agreement and consummate the transactions
contemplated hereby to be consummated by him or it.
(c) If
it is a Person other than an individual, the execution and delivery by it of
this Agreement, the performance by it of its obligations hereunder and the
consummation by it of the transactions contemplated hereby to be consummated by
him or it have been duly authorized by all necessary action required to be taken
by it.
(d) This
Agreement constitutes the legal, valid and binding obligation of such Member,
enforceable against him or it in accordance with its terms. The
execution and delivery by such Member of this Agreement, the performance by such
Member of his or its obligations hereunder and the consummation by such Member
of the transactions contemplated hereby by him or it will not conflict with,
result in any violation of or constitute a default under any Contract or Order
to which he or it is a party or by which he or it is bound or, if such Member is
a Person other than individual, under its operating agreement, certificate or
articles of formation, by-laws or other organizational instruments.
(e) No
approval, consent, exemption, authorization or license is required to be
obtained from, no notice is required to be given to and no filing is required to
be made with any third party (including, without limitation, financial
institutions and governmental and quasi-governmental agencies, commissions,
boards, bureaus and instrumentalities) by such Member in order (i) for this
Agreement to constitute his or its legal, valid and binding obligation or (ii)
to authorize or permit the consummation by his or it of the transactions
contemplated hereby to be consummated by him or it.
1.4
Representations and
Warranties of Comstock Mining to each other Member
. Comstock
Mining hereby makes all of the representations and warranties set forth in
Section 3.1 of the Securities Purchase Agreement
mutatis mutandis,
as if such
representations and warranties were set forth in this Agreement in their
entirety.
1.5
Representations and
Warranties of DWC to each other Member
. DWC hereby represents and
warrants to each other Member that (a) it solely owns all right, title and
interest in and to the DWC Property and has not conveyed any interest or other
right in the DWC Property to any other Person or otherwise subjected, or allowed
to be subject, the DWC Property to any liens, easements, restrictions on use, or
other encumbrances, except as set forth on
Schedule 1.5
and (b)
the transactions contemplated by this Agreement will result in Comstock Mining
(on behalf of the Company) having the exclusive rights to mine and explore the
DWC Property, free and clear of any and all liens, easements, restrictions on
use, or other encumbrances, except as set forth on
Schedule
1.5
.
1.6
Representations and
Warranties of Winfield to each other Member
. Winfield hereby represents
and warrants to each other Member that (a) he holds valid and enforceable
leasehold interests in the Leased Property, free and clear of any and all liens
and other encumbrances, all of the terms and conditions of which leasehold
interest are set forth in the Mineral Exploration and Mining Lease Agreements,
each dated January 1, 2008, between Sutro Tunnel Company and Winfield, and
Virginia City Ventures, Inc. and Winfield, correct and complete copies of which,
including any amendments, supplements and other documents relating thereto, are
attached as
Exhibit
B
and
Exhibit
C
hereto, (b) none of Sutro Tunnel Company, Virginia City Ventures, Inc.
or Winfield is in breach of, or default under, the lease agreements pertaining
to the Leased Property and no event or occurrence has occurred that, with or
without the passage of time or the giving or receipt of notice, will result in
any breach of or default under either lease, (c) this Agreement will convey to
Comstock Mining (on behalf of the Company) the sole right to use all of the
Leased Property, (d) there are no other restrictions on use by Comstock Mining
of the Leased Property and (e) Winfield is permitted to contribute the Leased
Property to the Company pursuant to the terms of his leases of the Leased
Property.
ARTICLE
2
FORMATION;
GENERAL PROVISIONS
2.1
Formation
. The
Company has been formed as a limited liability company under the Certificate
pursuant to the LLC Act. When and as required under the LLC Act, the
Manager shall cause the Certificate to be properly amended.
2.2
Name
. The
name of the Company is “Northern Comstock LLC” or such other name as may be
determined from time to time by the Manager.
2.3
Business
. The
business of the Company (the “
Company Business
”)
shall be to:
(a) explore,
analyze, permit, drill, excavate, produce and sell gold and silver ore from the
DWC Property and the Leased Property;
(b) develop
and engage in any and all businesses and activities which are incidental,
ancillary, supplementary or complementary to, or may be associated with or
related to, the businesses described in Section 2.3(a); and
(c) engage
in any lawful activity for which a limited liability company may be formed under
the LLC Act as determined by the Manager.
2.4
Powers
. The
Company shall have the power to:
(a) acquire,
own, lease, license, sell and otherwise deal with real, personal and intangible
property of any kind;
(b) hire,
engage, compensate, provide benefits to, award interests in the Company to,
discharge and otherwise deal with employees, agents, consultants, counsel,
accountants, advisers, independent contractors, partners, investors, creditors
and other Persons in any manner;
(c) incur,
guaranty, pay, satisfy, discharge, defend against, commence, prosecute, settle
and otherwise deal with Liabilities, Losses, Claims and
Proceedings;
(d) prepare,
file, publish, acknowledge, execute, deliver, undertake, perform and terminate
Contracts and reports, applications, registrations, returns and other documents
of any kind; and
(e) exercise
any and all powers which a limited liability company may be permitted to
exercise under the LLC Act.
2.5
Offices
. The
principal offices of the Company shall be located at 1200 American Flat Road,
Virginia City, Nevada 89440 and such other locations as may be determined by the
Manager.
2.6
Term
. The
term of the Company commenced upon the date hereof and shall continue in
perpetuity, unless earlier terminated pursuant to Article 10.
2.7
Ownership of Company
Property
. Except as otherwise provided in this Agreement, all
property now held or hereafter acquired by the Company shall be owned by the
Company as an entity, and no Member, individually, shall have any ownership
interest therein. Each Member hereby expressly waives the right to
require partition of any Company property or any part thereof.
2.8
No Partnership; No
Agency
. The Members desire the Company to be treated as a
limited liability company, and not as a partnership, limited partnership or
joint venture
of
any kind. No Member shall be an agent, partner or joint venturer of
any other Member by virtue of this Agreement or admission to or membership in
the Company, except that a Member may act as an agent of any other Member for
tax purposes pursuant to tax elections duly made.
ARTICLE
3
CAPITAL
CONTRIBUTIONS; CAPITAL ACCOUNTS
3.1
Initial Capital
Contributions
. On or promptly after the date hereof, each of
the Initial Members shall contribute either real property rights or capital
stock to the capital of the Company as set forth on
Schedule A
opposite
its name in consideration for its initial Ownership Interest.
3.2
Additional Capital
Contributions
.
(a) On
each anniversary of this Agreement, up to and including the thirty-ninth
(39
th
)
anniversary of this Agreement, Comstock Mining shall make Capital Contributions
to the Company in the amount of Eight-Hundred Sixty-Two Thousand Five-Hundred
and 00/100 Dollars ($862,500.00). Such annual Capital Contributions
shall be made in the form of: (i) subject to the Equity Conditions (as defined
in the Series A-1 Certificate of Designation), in shares of Series A-1 Preferred
Stock; or (ii) if such stock is unavailable, or if the Equity Conditions have
not been satisfied, or if the Company requests the same (but subject to
subsection (b) below), then in the form of cash. Any Member may
contribute additional cash or property to the Company in such amount or amounts
and at such time or times as, but only as, shall have been approved by the
Manager. Except as set forth in this Section 3.2 and Section 3.3, no
Member shall be required to make any Capital Contributions to the Company, cure
any deficit in such Member’s Capital Account or lend any cash or property to the
Company.
(b) Notwithstanding
anything to the contrary set forth in subsection (a) above, if the Company
desires that a cash payment be made in lieu of any Series A-1 Preferred Stock,
the Company shall notify Comstock Mining no later than six (6) months prior to
the date of the next scheduled Capital Contribution. If Comstock
Mining’s Board of Directors, in good faith and upon reasonable diligence,
concludes that payment in cash would have a material adverse effect on Comstock
Mining’s cash flow or liquidity, then, subject to satisfaction of the Equity
Conditions, Comstock Mining may disregard such request and such payment shall be
made in Series A-1 Preferred Stock, as set forth in subsection (a)
above.
(c) Notwithstanding
anything to the contrary set forth in subsection (a) above, for each 200,000
ounces of gold equivalent validated after the date hereof through an independent
external report (that is, a National Instrument 43-101 Compliant Mineral
Resource Estimate Report or its successor of qualified resources (at least
measured and indicated) and reserves (probable and proven) on the DWC Property
and Leased Property, the Capital Contributions of Comstock Mining shall be
automatically accelerated (in reverse order beginning with the last Capital
Contribution due on the thirty-ninth (39
th
)
anniversary of this Agreement) equal to $5,000,000 (“
Accelerated Capital
Call
”) whereupon the Accelerated Capital Call shall be paid in shares of
Series A-1 Preferred Stock within sixty (60 days) after the date of such
occurrence. Upon the payment of an Accelerated Capital Call, the
amount of the aggregate future Capital Contributions to be made by Comstock
Mining to the Company shall be reduced by the difference of $5,000,000 less
$862,500 for each such Accelerated Capital Call.
(d) Any
expenditures made by Comstock Mining pursuant to its obligations set forth in
Section 6.10(b)
and
Section
6.10(c)
, shall be recorded in Comstock Mining’s Capital Account as
Capital Contributions to the Company.
3.3
Additional
Members
. Any Person admitted to the Company as an Additional
Member after the date hereof pursuant to Section 7.3 shall contribute cash and
property to the capital of the Company in such amount or amounts and at such
time or times as shall have been specified by the Manager in connection with
such admission.
3.4
Capital
Accounts
.
(a) A
separate Capital Account shall be established for each Member and maintained in
accordance with the provisions of Treasury Regulation section
1.704-1(b)(2)(iv). Each Member’s Capital Account shall be (i)
increased by such Member’s Capital Contributions and by such Member’s allocable
share of Net Income and items of Company income and gain, (ii)
decreased by such Member’s allocable share of Net Loss (calculated in accordance
with
Section
5.1
herein) and items of Company loss and deduction and by the amount of
cash and the net Fair Market Value of property distributed by the Company to
such Member and (iii) otherwise adjusted in the manner provided in this
Agreement.
(b) Immediately
prior to any distribution of Company assets in kind, each Member’s Capital
Account shall be adjusted to reflect the manner in which the unrealized income,
gain, loss or deduction inherent in the assets to be distributed (and not
already reflected in the Members’ Capital Accounts) would be allocated among the
Members pursuant to Article 5 if such assets were sold for Fair Market Value on
the date of distribution.
(c) Immediately
prior to (i) any contribution of cash or property to the capital of the Company
by a new or existing Member as consideration for an Ownership Interest in the
Company, (ii) any distribution of cash or property by the Company to a Member in
redemption of all or part of such Member’s Ownership Interest or (iii) the
liquidation of the Company pursuant to Article 10, each Member’s Capital Account
shall be adjusted to reflect the manner in which the unrealized income, gain,
loss or deduction inherent in all Company assets (and not already reflected in
the Members’ Capital Accounts) would be allocated among the Members pursuant to
Article 5 if such assets were sold for Fair Market Value on the date of such
contribution, distribution or liquidation.
(d) If
any asset is contributed by a Member to the capital of the Company, the amount
credited to such Member’s Capital Account for such contribution will be equal to
the Fair Market Value of such asset as of the date of contribution.
3.5
No Return of Capital; No
Interest
. No Member will have the right to the return of all
or any part of such Member’s Capital Account or Capital Contribution, to
withdraw all or any part of such Member’s Capital Account or Capital
Contribution, to require the acquisition of such Member’s Capital Account or
Ownership Interest by the Company, to receive interest on such Member’s Capital
Account or Capital Contributions or to receive any distributions or payments of
any kind from the Company, except as expressly provided in this
Agreement.
ARTICLE
4
COMPANY
EXPENSES
The
Company shall be responsible for and shall pay, and shall reimburse the Members
and the Manager for their payment of, Company Expenses. Company
Expenses shall be paid out of funds of the Company and, subject to the last
sentence of this Article 4, shall be paid when and as determined by the
Manager. Notwithstanding anything contained in the preceding two
sentences or the definition of Company Expenses to the contrary, expenses,
costs, fees and other charges incurred for the benefit of the Company by
Members, the Manager or employees shall not constitute Company Expenses to the
extent that such incurrence or related documentation shall be inconsistent with
policies or procedures adopted by the Manager. Promptly after the
date hereof, the Company shall pay or reimburse the Members for their payment of
all fees, expenses and costs incurred on behalf of the Company in connection
with the formation of the Company and, to the extent approved by the Manager,
other activities on behalf of the Company prior to the date hereof.
ARTICLE
5
ALLOCATIONS;
DISTRIBUTIONS; LOANS
5.1
Allocations of Net Income
and Net Losses
.
(a) Subject
to Section 5.1(b), the Net Income and Net Losses of the Company for each Fiscal
Year will be allocated to the Members in the following manner:
(i) Net
Income in an amount equal to any distribution made to DWC pursuant to Section
5.2(b)(i) shall be allocated to DWC as Net Income for such Fiscal
Year;
(ii) Net
Income in an amount equal to any distribution made to Winfield pursuant to
Section 5.2(b)(ii) shall be allocated to Winfield as Net Income for such Fiscal
Year; and
(iii) all
remaining Net Income or Net Losses of the Company, as the case may
be, for each Fiscal Year shall be allocated to Comstock
Mining.
(b) Notwithstanding
the general allocation rules set forth in Section 5.1(a), the following special
allocation rules shall apply under the circumstances described
therein.
(i) If
in any Fiscal Year a Member unexpectedly receives an adjustment, allocation or
distribution described in Treasury Regulation section 1.704-1(b)(2)(ii)(d)(4),
(5) or (6), and such adjustment, allocation or distribution causes or increases
a deficit Adjusted Capital Account Balance for such Member, then, before any
other allocations are made under this Agreement, such Member shall be allocated
items of income and gain (consisting of a pro rata portion of each item of
Company income, including gross income and gain) in an amount and manner
sufficient to eliminate such deficit Adjusted Capital Account Balance as quickly
as possible.
(ii) If
there is a net decrease in Company Minimum Gain during any Fiscal Year, each
Member shall be allocated items of income and gain for such Fiscal Year (and, if
necessary, for subsequent Fiscal Years) in proportion to and to the extent of an
amount equal to such Member’s share of the net decrease in Company Minimum Gain,
in accordance with Treasury Regulation section 1.704-2(f) and (g).
(iii) If
there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to
a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share of
the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse
Debt, determined in accordance with Treasury Regulation section 1.704-2(i), will
be specially allocated items of Company income and gain for such Fiscal Year
(and, if necessary, subsequent Fiscal Years) in an amount equal to such Member’s
share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Treasury
Regulation section 1.704-2(i).
(iv) Member
Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the
Member who bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in
accordance with Treasury Regulation section 1.704-2(i).
(c) The
following tax allocations shall be applicable.
(i) Except
as set forth in Section 5.1(c)(ii), allocations for tax purposes of items of
income, gain, loss, deduction and credit shall be made in the same manner as
allocations for book purposes.
(ii) In
accordance with Code section 704(c) and the Treasury Regulations thereunder,
income, gain, loss and deduction with respect to any property contributed to the
capital of the Company shall, solely for tax purposes, be allocated among the
Members so as to take account of any variation between the adjusted basis of
such property to the Company for federal income tax purposes and its initial
Book Value. The Manager will make such allocations in accordance with
Treasury Regulation section 1.704-3 using the method selected by the
Manager.
(iii) Allocations
pursuant to this Section 5.1(c) are solely for purposes of federal, state and
local taxes and will not affect, or in any way be taken into account in
computing, any Member’s Capital Account or share of profits, losses, tax items
or distributions pursuant to any other provision of this Agreement.
(d) Pursuant
to Treasury Regulation section 1.752-3(a), Company nonrecourse liabilities shall
be allocated in the following order:
(i) first,
to each Member to the extent of its respective share of Company Minimum Gain;
and
(ii) second,
to each Member in the amount of any taxable gain that would be allocated to that
Member under Code section 704(c) or in connection with a revaluation of Company
property pursuant to Treasury Regulation section 1.704-1(b)(2)(iv)(f) or (r), if
the Company disposed of (in a taxable transaction) all Company property subject
to one or more nonrecourse liabilities of the Company in full satisfaction of
such liabilities and for no other consideration; and
(iii) thereafter,
to the Members pro rata in proportion to their respective Capital
Accounts.
5.2
Distributions; Record
Dates
.
(a) To
the extent the Company holds Series A-1 Preferred Stock, and subject to Section
5.3, the Company shall make:
(i) to
DWC on the 366
th
day
after the date hereof and on each anniversary of such date thereafter (each such
date a “
Yearly
Distribution Date
”), a distribution of five hundred (500) shares of
Series A-1 Preferred Stock plus any shares previously retained pursuant to this
Section
5.2(a)(i)
and not so distributed; provided, that the Company shall not
make such distribution unless DWC shall deliver written notice to the Company at
least sixty (60) days prior to such Yearly Distribution Date requesting that
such shares be distributed; and
(ii) to
Winfield on each Yearly Distribution Date, a distribution of three hundred sixty
two and one half (362.5) shares of Series A-1 Preferred Stock plus any shares
previously retained pursuant to this
Section 5.2(a)(ii)
and not so distributed; provided, that the Company shall not make such
distribution unless Winfield shall deliver written notice to the Company at
least sixty (60) days prior to such Yearly Distribution Date requesting that
such shares be distributed.
(b) For
as long as the Company shall exist, the Company shall make:
(i) to
DWC (or its permitted Assigns), a distribution of cash flows as a percentage of
the Net Smelter Returns on the Minerals Produced from the DWC Property, as
listed in the following table:
Gold Price / Ounce
|
|
Up to 500,000
oz.
|
|
|
Over 500,000
oz.
|
|
$250.00
of less
|
|
|
1.0
|
%
|
|
|
2.0
|
%
|
$250.00
to $500.00
|
|
|
1.5
|
%
|
|
|
3.0
|
%
|
$501.00
to $750.00
|
|
|
2.0
|
%
|
|
|
5.0
|
%
|
$751.00
or over
|
|
|
3.0
|
%
|
|
|
6.0
|
%
|
(ii) to
Winfield (or his permitted Assigns), a distribution of cash flows as a
percentage of the Net Smelter Returns on the Minerals Produced from the Sutro
Property, as listed in the following table:
Gold Price / Ounce
|
|
Up to 500,000
oz.
|
|
|
Over 500,000
oz.
|
|
$250.00
of less
|
|
|
0.5
|
%
|
|
|
1.0
|
%
|
$250.00
to $500.00
|
|
|
1.0
|
%
|
|
|
2.0
|
%
|
$501.00
or over
|
|
|
1.0
|
%
|
|
|
2.0
|
%
|
(iii) to
Comstock Mining (or its permitted Assigns), a distribution of the remaining cash
flows on the Minerals Produced from the DWC Property and the Sutro Property
after any distributions made to DWC or Winfield pursuant to Section 5.2(b)(i)
and Section 5.2(b)(ii), and all cash flows on the Minerals Produced from the VCV
Property.
Distributions
made pursuant to Section 5.2(b)(i), Section 5.2(b)(ii) or Section 5.2(b)(iii)
shall be made no later than thirty (30) days after receipt of payment from the
smelter or other purchaser; provided, that upon request by DWC, Winfield or
Comstock Mining, as the case may be (or their respective Assigns), the Company
shall give a written instruction to the smelter, refinery or other purchaser
that such distributions are to be paid directly to DWC, Winfield or Comstock
Mining (or their respective Assigns) from the sums payable to the
Company. If any Initial Member shall Assign less than all of its
Ownership Interests to another Person in accordance with this Agreement,
distributions made pursuant to Section 5.2(b)(i), Section 5.2(b)(ii) or Section
5.2(b)(iii) shall be prorated between or among such Initial Members and its
Assign(s) in proportion to the respective Capital Accounts of such Initial
Member and its Assign(s) (or as otherwise agreed to by the Initial Members and
their Assigns). All payments shall be accompanied by a statement explaining the
manner in which the payment was calculated, including a determination of weights
and values of the Minerals Produced.
(c) Except
as provided in Section 5.2(b) or Article 10, without the prior written consent
of each Member, the Company shall not be permitted, and none of the Manager(s),
any Managing Director or any other Person shall cause the Company, to make any
distributions of cash or any other property of the Company to the Members except
for distributions in the form of Series A-1 Preferred Stock. To the
extent deemed to be necessary or appropriate by the Manager, the Manager may fix
a record date for the determination of Members entitled to receive any such
distribution.
5.3
Limitation upon
Distributions
. No distribution shall be made by the Company
unless, after the distribution is made, the fair value of the assets of the
Company exceeds the liabilities of the Company, except liabilities to Members on
account of their Capital Contributions, in each case, as determined by the
Manager.
5.4
Loans by
Members
. Any Member may provide credit of any kind to the
Company so long as (but only so long as) such indebtedness by the Company shall
have been approved by the Manager.
ARTICLE
6
MANAGEMENT
OF THE COMPANY
6.1
Manager and Managing
Directors
.
(a) Subject
to Section 6.1(b), Section 6.1(c) and Section 6.1(d), the Company shall be
managed, and the conduct of its affairs, operations and activities shall be
controlled, exclusively by or under the direction of John V. Winfield
(the “
Manager
”)
in accordance with this Agreement.
(b) The
number of Managers shall be determined by, and only by, the Members holding a
Majority Interest of the Company. The initial number of Managers
shall be 1. A Manager must be an individual, but need not be a
Member. If there is more than one Manager, each Manager shall have no
authority as such, but shall act only as a board. Managers may
be elected at any time. Each Manager shall hold office until his or
her such successor is elected and qualified or until his or her earlier
resignation or removal as such. Removal as such will not affect any
rights or obligations of a Manager (i) such as those under Sections 6.4, 6.6 and
6.7 or (ii) as a Managing Director or a Member hereunder or under any other
Contract, in each case, except as otherwise expressly provided herein or
therein. A Manager may resign as such at any time by giving written
notice to that effect to the Members.
(c) The
Manager may delegate the management and conduct of the Company’s day-to-day
business affairs, operations and activities to one or more managing directors
(the “
Managing
Directors
”). The number of Managing Directors shall be
determined by, and only by, the Manager. The initial number of
Managing Directors shall be 1.
Managing Directors shall
be appointed by, and only by, the Manager. Managing Directors may be
appointed at any time. Each Managing Director shall hold office until
his or her such successor is elected and qualified or until his or her earlier
resignation or removal as such. Any or all Managing Directors (including those
set forth in
Schedule
B
) may be removed as such at any time by, and only by, the
Manager. Removal as such shall not affect any rights or obligations
of a Managing Director (i) such as those under Sections 6.4, 6.6 and 6.7 or (ii)
as a Manager or a Member hereunder or under any other Contract, in each case,
except as otherwise expressly provided herein or therein. A Managing
Director may resign as such at any time by giving written notice to the effect
to the Members. The initial Managing Directors shall be those Persons
set forth on
Schedule B
.
(d) Notwithstanding
any provision of this Agreement to the contrary, so long as Winfield is a
Member, none of the Company, any Manager or any Managing Director may take any
of the following actions without the prior written consent of
Winfield:
(i) the
sale, transfer, conveyance or other disposition of any portion of the DWC
Property or the Leased Property;
(ii) the
distribution of any assets of the Company to any Member;
(iii) the
admission of any Additional Member;
(iv) the
issuance of any equity interest in the Company;
(v) the
incurrence of any indebtedness other than trade payables in the ordinary course
of business; or
(vi) the
existence of any lien or other encumbrance on the DWC Property or the Leased
Property.
6.2
Action by Multiple
Managers
. If there is more than one Manager:
(a) Regular
meetings of the Managers shall be held when and as determined by the
Managers. A copy of every resolution fixing or changing the time or
place of regular meetings shall be given to all Managers at least 5 days before
the first meeting held pursuant thereto. Any and all business may be
transacted at a regular meeting.
(b) Special
meetings of the Managers may be held at any time. Special meetings
may be called by, and only by, (i) a Manager or (ii) Members holding a Majority
Interest. Written notice of the day, hour and place of each special
meeting shall be given to all Managers at least 2 days before the meeting by the
Person or Persons calling such meeting. No business shall be
transacted at any special meeting except the business described in the notice
thereof; provided, however, that, if all of the Managers shall be present, and
shall so agree, any other business may be transacted thereat.
(c) Meetings
shall be held at the principal office of the Company or at such other place as
the Managers or the Person or Persons calling such meetings, as the case may be,
may reasonably determine.
(d) The
presence of a majority of the Managers then serving at any duly called meeting
of the Managers shall be required in order to constitute a quorum for the
transaction of business thereat. If at any meeting of the Managers
there shall be less than a quorum, a majority of those Managers present may
adjourn such meeting to a different time and place. Any business which could
have been transacted at such meeting may be transacted at the adjourned meeting
so long as written notice of the adjourned meeting shall have been given to all
Managers at least 1 day prior to the adjourned meeting.
(e) No
proposed or purported act at any meeting of the Managers shall have been duly
authorized unless authorized (i) at a duly called meeting at which a quorum is
present at either the commencement of such meeting or the time such
authorization is given at such meeting and (ii) by a majority of the Managers
present at such meeting.
(f) Managers
may participate in a meeting of the Managers by means of conference telephone or
similar communications equipment by means of which all Persons participating in
the meeting can hear each other, and such participation shall constitute
presence in person at such meeting.
(g) Any
action required or permitted to be taken at any meeting of the Managers may be
taken without a meeting if all Managers consent thereto in writing.
(h) The
Managers shall use good faith reasonable efforts to keep minutes or other
records of their actions, decisions and determinations, including those relating
to matters that may be within or without the scope of the Company Business, and
minutes or other records of actions, decisions and determinations of the
Members.
6.3
Duties of the
Manager
.
(a) The
Manager shall take or cause to be taken all actions as may be necessary or
appropriate for the conduct of the Company Business in accordance with this
Agreement and applicable Laws. The Manager shall act at all times in
good faith and in such manner as he reasonably believes to be in the best
interests of the Company and the Members.
(b) Prior
to conducting any business in any jurisdiction, the Manager shall use reasonable
efforts to cause the Company either to comply with all requirements for the
qualification of the Company to conduct business as a limited liability company
in such jurisdiction or to conduct business in such jurisdiction through other
entities or by such other means as the Manager, upon the advice of counsel,
determines to be necessary or appropriate to preserve the Members’ limited
liability.
6.4
Reliance
. Each
Manager and Managing Director shall be fully protected in relying in good faith
upon the records of the Company and upon information, opinions, reports or
statements presented to the Company by any Manager, Managing Director or
employee of the Company (other than such Manager or Managing Director) or by any
other Person as to matters which such Manager or Managing Director reasonably
believes to be within the scope of responsibility and competence of such
Manager, Managing Director, employee or other Person and whom such Manager or
Managing Director reasonably believes to have been selected with reasonable care
by or on behalf of the Company, including information, opinions, reports or
statements as to the value or amount of Claims, Liabilities, Losses, profits or
assets or as to any facts pertinent to the existence and amount of assets from
which distributions to which Members might properly be paid.
6.5
Managing Director’s
Authority to Act for the Company
. Each Managing Director shall
have the authority inherent in such position, including the authority to act for
and bind the Company (including the authority to execute and deliver any
Contract on behalf of the Company) to the extent (but only to the extent) that
such act is taken in accordance with this Agreement, except as such authority
may be otherwise expanded or limited, generally or in a specific instance, by
the Manager.
6.6
Limitation on
Liability
. Notwithstanding anything contained herein to the
contrary, no Manager or Managing Director (i) shall be liable, responsible or
accountable in damages or otherwise to the Company or any Member for any action
taken or failure to act (including action or failure to act that constitutes a
breach of this Agreement), except to the extent that such action or failure to
act constitutes gross negligence, bad faith, willful misconduct or fraud, or
(ii) shall have any obligation, responsibility or duty (by virtue of this
Agreement, as a fiduciary to the Company or the Members, or otherwise) to
disclose information, take action or refrain from taking action to the extent
that such disclosure, taking or refraining could reasonably be expected to
violate or breach an obligation, responsibility or duty owed to another
Person. If such an obligation, responsibility or duty to another
Person could reasonably be expected to be materially adverse to the Company or
to present a material conflict of interest with the Company, such Manager or
Managing Director shall disclose it, in reasonable detail, to all of the
Managers prior to the date on which such Manager or Managing Director becomes
such or the date on which such service to such other Person commences, whichever
is later. Thereafter, such Manager or Managing Director shall seek to
establish arrangements satisfactory to the Members in its good faith judgment to
minimize any material adverse consequences to the Company (and, if such
obligation, responsibility or duty relates to a Managing Director who is not an
Affiliate of an Initial Member, the Manager shall have the right to exercise its
authority under Section 6.1(c) to limit or change the duties, responsibilities
and authority of, or to remove, such Managing Director).
6.7
Indemnification of Managers
and Managing Directors
.
(a) The
Company shall indemnify and hold harmless, to the fullest extent permitted by
Law, each Manager and Managing Director (an “
Indemnified Party
”)
for, from and against any and all Liabilities and Losses from any and all Claims
and Proceedings (each, an “
Indemnified Action
”)
in which such Indemnified Party may be involved, or threatened to be involved,
as a party, a witness or otherwise, as a result of such Person’s status as a
Manager or Managing Director, regardless of whether such Indemnified Party
continued or continues in such capacity at the time of occurrence, assertion,
commencement, incurrence or payment thereof, or otherwise, and regardless of
whether such Indemnified Action is brought by a third party or a Member or by or
in the right of the Company, so long as the Indemnified Party acted in good
faith and in a manner the Indemnified Party reasonably believed to be in or not
opposed to the best interests of the Company (and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful).
(b) The
Company shall pay or reimburse, to the fullest extent permitted by applicable
Law, in advance of the final disposition of each Indemnified Action, all fees,
charges, expenses and costs incurred by an Indemnified Party in connection with
any Indemnified Action, when and as incurred. Such Indemnified Party
shall repay all amounts received from the Company pursuant to this Section
6.7(b) if such Indemnified Party is a defendant or respondent in such
Indemnified Action and it shall ultimately be determined at the final
disposition of such Indemnified Action that such Indemnified Party is not
entitled to be indemnified by the Company hereunder, unless the relevant
Judicial Authority or the disinterested Members shall have determined that
repayment is not warranted under the circumstances. Such Indemnified
Party may request such a determination at any time before, or within a
reasonable time after, such final disposition. The Manager or Members
shall promptly afford the Indemnified Party a reasonable opportunity to be heard
in respect of such determination and shall make such determination in good
faith. If such a request is made, repayment shall not be required
until a decision as to such determination shall have been made.
(c) The
Manager may cause the Company to purchase and maintain insurance or establish
other arrangements to protect the Indemnified Parties or the Company against any
Claim, Liability or Loss asserted or incurred by reason of a Person’s status as
a Manager or Managing Director, regardless of whether the Company would have the
power to indemnify such Person in respect thereof under this Section
6.7. The indemnification and expense advancement provided by this
Section 6.7 shall be in addition to, and shall not be a limitation on, any other
rights to which the Indemnified Parties may be entitled under any Contract, by
reason of any determination or vote of the Members or the Manager, as a matter
of Law, or otherwise, and shall inure to the benefit of the estates, heirs,
successors, assigns and legal representatives of the Indemnified
Parties.
6.8
Compensation and
Reimbursement of Managers and Managing Directors
. Each Manager
and Managing Director shall be entitled to such compensation for his or her
services as such as may determined by the Members holding a Majority
Interest. The Company shall reimburse each Manager and Managing
Director for all out-of-pocket expenses reasonably incurred by him or her in his
or her capacity as such.
6.9
Acceptance by Managers and
Managing Directors
. Each Manager and Managing Director agrees,
by accepting to undertake the duties and accept the rights and benefits as such,
to observe and bound by the provisions of this Agreement relating to such
capacity as if a party to it.
6.10
Operations
.
(a) Other
than as provided in
Section 6.11
, for as
long as the Company shall exist, Comstock Mining, on behalf of the Company,
shall have the exclusive right to:
(i) explore,
develop and mine all minerals, metals and ores (collectively, the “
Minerals
”) on or in
the DWC Property and the Leased Property and, perform such exploration,
development and mining in any manner deemed necessary or convenient by Comstock
Mining, whether by surface, underground, solution or other mining
methods;
(ii) temporarily
to store, or permanently to dispose of minerals, water, waste rock or other
materials produced from or near the DWC Property or the Leased
Property;
(iii) to
crush, grind, or otherwise prepare for transportation to an off-site processing
facility all Minerals on the DWC Property or the Leased Property, whether such
Minerals were produced from the DWC Property, the Leased Property or other
proximate lands;
(iv) to
use, alter, or destroy, consume and deplete so much of the surface and surface
resources of the DWC Property or the Leased Property as Comstock Mining may deem
desirable or convenient in connection with its operations on the DWC Property or
the Leased Property. Notwithstanding the foregoing, Comstock Mining
shall be responsible for the undertaking and completing any and all land
reclamation resulting from its activities during the term of this Agreement as
required by federal and state law, and county ordinance; and
(v) exercise
such other rights as are reasonably necessary to accomplish the
foregoing.
(b) With
respect to the DWC Property, Comstock Mining shall expend not less than $150,000
in the first twelve (12) months following the date hereof, and at least $150,000
per year during each of the following four (4) years following the execution of
this Agreement. Within thirty (30) days after the end of each
twelve (12) month period, Comstock Mining shall deliver to the Members
reasonable supporting documentation showing compliance with Comstock Mining’s
obligations hereunder.
(c) With
respect to the Sutro Property, Comstock Mining shall expend not less than
$100,000 in the first twelve (12) months following the date hereof, and at least
$100,000 per year during each of the following five (5) years following the
execution of this Agreement, and not less than $750,000 in the aggregate during
the five (5) years following the execution of this
Agreement. Within thirty (30) days after the end of each twelve
(12) month period, Comstock Mining shall deliver to the Members reasonable
supporting documentation showing compliance with Comstock Mining’s obligations
hereunder.
(d) Comstock
Mining agrees to conduct its operations hereunder in a good and miner-like
manner and in compliance with all applicable laws, rules and regulations of any
governmental entity having jurisdiction over such operations or the DWC Property
or the Leased Property including, but not limited to, mine safety and health,
environmental, land-use and zoning and operational permits and
consents.
(e) Comstock
Mining shall continuously engage in exploration, development, mining or
processing operations upon the DWC Property and the Leased Property so that at
no time will there be any period of 180 consecutive days in which no
exploration, development, mining or processing operations are conducted on the
respective properties (excluding periods of Force Majeure as defined
below).
6.11
Defaults by Comstock Mining;
Remedies
.
(a) If:
(i) Comstock Mining fails to make any Capital Contribution pursuant to Section
3.2, and fails to remedy such default within thirty (30) days following notice
from the Company; or (ii) Comstock Mining defaults in fulfilling any other
covenant of this Agreement and Comstock Mining fails to remedy such default
within sixty (60) days after notice by the Company specifying the nature of such
default (or, if said default cannot be completely cured or remedied within said
sixty (60) day period and Comstock Mining shall not have diligently commenced
curing such default within such sixty (60) day period; or (iii) a Bankruptcy of
Comstock Mining, and such Bankruptcy shall continue and remain undischarged or
unstayed for an aggregate period of one hundred twenty (120) days (whether or
not consecutive) or shall not be remedied by Comstock Mining within one hundred
twenty (120) days; or (iv) Comstock Mining fails to comply with its obligations
set forth in Section 8 of the Series A-1 Certificate of Designation and Comstock
Mining fails to remedy such default pursuant to Section 8(c) of the Series A-1
Certificate of Designation within thirty (30) days after notice by the Company;
or (v) Comstock Mining defaults under Section 4.2 of the Securities Purchase
Agreement and fails to remedy such default under the provisions of Section
5.13(b) of the Securities Purchase Agreement; or (vi) Comstock Mining fails to
comply with its obligations under Section 2(a) of the RRA and fails to remedy
such default within thirty (30) days after notice by the Company; or (vii)
Comstock Mining fails to comply with its obligations under Section 2(b) of the
RRA in that the Registration Statement (as defined therein) is not declared
effective no later than the one (1) year anniversary of the Closing Date (as
defined therein) and Comstock Mining fails to remedy such default within thirty
(30) days after notice by the Company; or (viii) a Change of Control Transaction
(as defined in the Series A-1 Certificate of Designation) occurs; then the same
shall constitute a default by Comstock Mining under this Agreement and, if and
so long as such default shall continue uncured or unremedied, the Company shall
have and be entitled to exercise, in its sole discretion, by written notice one
of the remedies set forth below. If the Company’s notice of default
shall indicate its election of either remedy set forth in (i) or (ii) of
subsection (b) below and the date for expiration of the applicable cure period,
then the Company’s election of the remedy in subsection (b) below shall be
effective as of such date set forth in the default notice (provided, however,
that such default remains uncured or unremedied at such date) and, without any
further action by or notice from the Company, either (x) this Agreement shall
terminate and the Company shall be dissolved in accordance with Article 10
hereof; or (y) this Agreement shall continue in full force and
effect and the remaining Capital Contributions to be made by Comstock
Mining shall accelerate and be due and payable in the form of shares of Series
A-1 Preferred Stock to the Company on such date, as the case may be, as provided
by the Company in the notice of default. Notwithstanding the
foregoing, it shall be deemed that Comstock Mining is not in default under the
terms of this Agreement by reason of mining operations or other required
activities having been suspended or prevented or prohibited by Law, by the
inability to obtain permits or licenses, by scarcity or inability to obtain
equipment, material, power or fuel, by strike, lockout or industrial
disturbance, by failure of carriers to transport or furnish facilities for
transportation, by operation of any Acts of God (including, without limitation,
lightning, earthquake, fire, storm, flood, washout), by breakage or accident to
machinery or facilities, or by any cause beyond Comstock Mining’s control (the
foregoing are collectively referred to as “
Force Majeure
”);
provided, however, that Comstock Mining shall exercise reasonable diligence to
resume mining operations.
(b) In
case of any such default, the Manager shall have the right to either:
(i) terminate this Agreement and dissolve the Company in accordance with Article
10 hereof; or (ii) continue this Agreement in full force and effect and
accelerate the remaining Capital Contributions to be made by Comstock Mining in
the form of shares of Series A-1 Preferred Stock from such date until the thirty
ninth (39
th
)
anniversary of the execution of this Agreement. If this Agreement is
terminated, Comstock Mining may remove all of its personal property within three
(3) months after said termination. The 3-month period may be extended
for periods when inclement weather will not allow the removal of equipment. All
such items not removed within six months shall become the property of the then
holder of the DWC Property or the lessee of the Leased Property, as
applicable.
6.12
Rights of First Refusal;
Right to Purchase
.
(a) The
Company hereby assigns to Comstock Mining, subject to the condition of
limitation and termination that no default by Comstock Mining shall have
occurred and be continuing under
Section 6.11
of this
Agreement, (i) all of its rights under Section 29 of the lease with Sutro Tunnel
Company set forth in
Exhibit B
and, the
Company shall cause the Sutro Tunnel Company to recognize Comstock Mining’s
right of first refusal with respect to any sale of the Sutro Property and (ii)
all of its rights under Section 13 of the lease with Virginia City Ventures,
Inc. set forth in
Exhibit C
and, the
Company shall cause Virginia City Ventures, Inc. to recognize Comstock Mining’s
right of first refusal with respect to any sale of the VCV
Property.
(b) Notwithstanding
subsection (a) above, if Comstock Mining is unwilling or unable to purchase
either Leased Property in connection with the right of first refusal, or a
default by Comstock Mining shall have occurred and be continuing under
Section 6.11
of this
Agreement, the Company shall have the right to do so as if the right of first
refusal had never been assigned.
(c) In
the event the Company proposes to sell the DWC Property or any patents or lots
therein to a bona fide third party, it shall give Comstock Mining written notice
of its intention to sell, describing the property, the parcel number(s), the
price and the general terms upon which the Company proposes to sell the same.
Comstock Mining shall then have ten (10) days from receipt of notice sent by
registered mail to Comstock Mining to agree to purchase same under substantially
the same terms and conditions. If Comstock Mining does not exercise
its rights within such ten (10) day period then Comstock Mining shall be deemed
to have waived its right of first refusal with respect to the offer which was
the subject of the Company’s notice; provided, that Comstock Mining’s right of
first refusal shall not be deemed waived in connection with any subsequent offer
to purchase the DWC Property received by the Company or any
successor-in-interest to the Company. Notwithstanding the foregoing
if, following Comstock Mining’s waiver of its right of first refusal hereunder,
the terms of the underlying transaction change in any material respect, the
Company shall, again, send a notice to Comstock Mining describing the modified
terms and conditions of the offer and Comstock Mining shall have a right of
first refusal with respect to such modified offer.
(d) The
Company hereby assigns to Comstock Mining, subject to the condition of
limitation and termination that no default by Comstock Mining shall have
occurred and be continuing under
Section 6.11
of this
Agreement, all of its rights to purchase the VCV Property subject to the terms
and conditions set forth in Section 14 of the lease with Virginia City Ventures,
Inc. set forth in
Exhibit
C
.
6.13
Company
Covenants
.
(a) Promptly
following the execution and delivery of this Agreement by the parties, Winfield
and/or the Company shall furnish to Comstock Mining copies of any and all
records, reports, studies, analyses, permits, approvals, licenses, notices sent
to and from Sutro Tunnel Company, Virginia City Ventures, Inc. and all other
documents in Winfield’s or the Company’s possession which relate to the Leased
Property including, without limitation, all title abstracts under Section 4 of
the leases for each Leased Property, all current exploration data described in
Sections 20 and 22 of the leases for the Sutro Property and the VCV Property,
respectively, and all maps, reports and other data described in Sections 22 and
24 of the lease for the Sutro Property and the VCV Property,
respectively.
(b) As
long as no default by Comstock Mining shall have occurred and be continuing
under
Section
6.11
of this Agreement, the Company shall not enter into any amendment or
otherwise modify or amend the lease set forth in
Exhibit B
without the
prior written consent of Comstock Mining in its sole discretion; provided,
however, that the foregoing shall not preclude the Company from extending the
term of or reducing its payment obligations under such lease.
(c) As
long as no default by Comstock Mining shall have occurred and be continuing
under
Section
6.11
of this Agreement, the Company shall not terminate the lease set
forth in
Exhibit
B
in accordance with Sections 17 or 18(a) of such lease, or otherwise,
without the prior written consent of Comstock Mining in its sole
discretion.
(d) The
Company shall furnish to Comstock Mining copies of any notices issued to or
received from Sutro Tunnel Company or Virginia City Ventures, Inc. immediately
upon issuing or receiving such notices. Comstock Mining shall have
the right, but not the obligation, to cure any default by the Company under the
leases set forth in
Exhibit B
or
Exhibit C
, and the
Company shall promptly reimburse Comstock Mining for all costs and expenses
(including, without limitation, reasonable attorneys’ fees) incurred by Comstock
Mining in connection with such cure.
(e) As
long as no default by Comstock Mining shall have occurred and be continuing
under this Agreement, the Company shall not alienate its interest or encumber
its interests in the leases set forth in
Exhibit B
or
Exhibit C
, the Leased
Property or this Agreement or otherwise deal or attempt to deal with its right,
title and interest in the leases set forth in
Exhibit B
or
Exhibit C
, the Leased
Property, or this Agreement in any way that is adverse to Comstock Mining’s
rights under this Agreement.
(f) As
long as no default by Comstock Mining shall have occurred and be continuing
under
Section
6.11
of this Agreement, the Company shall not do anything or suffer or
permit anything to be done that would result in a default under the leases set
forth in
Exhibit
B
or
Exhibit
C
, or permit such leases to be canceled or terminated.
ARTICLE
7
MEMBERS
7.1
Initial Members; Limited
Liability
.
(a) The
Initial Members shall be those Persons set forth on
Schedule
A
on the date hereof.
(b) The
Members as such will not have any responsibility or obligation in any way or of
any kind for any Liabilities or Losses of the Company or to make contributions
to the Company in excess of their respective Capital Contributions.
7.2
Assignment of Ownership
Interests; Substituted Members
. A Member may Assign all or any
part of its Ownership Interest with, but only with, the approval of each
Member. An Assignee will become a Member when, but only when, the
Members shall have approved substitution of such Assignee for the Assigning
Member and the Assignee shall have executed and delivered a joinder agreement to
become a party to this Agreement in form and substance reasonably satisfactory
to the Manager. Any Substituted Member admitted to the Company will
succeed to all rights and be subject to all obligations, including with respect
to Comstock Mining the rights and obligations set forth in Section 6.10 hereof,
of the Assigning Member with respect to the Ownership Interest Assigned.
Notwithstanding anything contained herein (other than the next sentence) to the
contrary, the Members shall promptly give approval to: (a) the Assignment of an
Ownership Interest to the estates, heirs, legal representatives and Affiliates
of Members to whom such Ownership Interests are Assigned in connection with the
transfer of all or a majority of, or the restructuring or reorganization of,
their businesses or ownership interests or in connection with tax and estate
planning, or by reason of disability or death; and (b) the admission of any such
Assignee as a Substituted Member. Notwithstanding anything contained
herein to the contrary, no Person shall be admitted as a Substituted Member
unless such admission would not result in (i) a violation of any applicable Law,
including applicable securities Laws, or this Agreement or (ii) a change in the
Members’ limited liability.
7.3
Admission of Additional
Members
. One or more Persons may be admitted as Members with,
but only with, the consent of each Member. The terms of any such
admission, including such Person’s Capital Contributions, shall be determined by
the Members. Notwithstanding anything contained herein to the
contrary, no Person shall be admitted as an Additional Member unless such
Additional Member shall have executed and delivered a joinder agreement to
become a party to this Agreement in form and substance reasonably satisfactory
to each Member and such admission would not result in (i) a violation of any
applicable Law, including applicable securities Laws, or this Agreement or (ii)
a change in the Members’ limited liability.
7.4
No Acquisition of Ownership
Interests by the Company
. The Company shall not acquire, by
purchase, redemption or otherwise, all or any part of the Ownership Interest of
any Member, without the consent of each Member. Notwithstanding
anything contained herein to the contrary, no Ownership Interest shall be
acquired unless such acquisition would not result in (i) a violation of any
applicable Law, including applicable securities laws, or this Agreement or (ii)
a change in the Members’ limited liability.
7.5
Action by the
Members
.
(a) Meetings
of the Members may be held at any time. Meetings of the Members may
be called by, but only by, (i) the Manager, (ii) Members holding a Majority
Interest or (iii) an Initial Member. Written notice of the day, hour
and place of each special meeting shall be given to all Members at least 2 days
before such meeting by the Person or Persons calling such meeting. To
the extent deemed necessary or appropriate by the Manager, the Manager may fix a
record date for the determination of Members entitled to receive such notice and
to act at such meeting and their respective Ownership Interests at the time of
such meeting. The Manager may change the day and time of such meeting
to the extent necessary or appropriate to fix such record date and give written
notice thereof to all Members. No business shall be transacted at any
meeting except business which Members are expressly permitted to take hereunder
and which is described in the notice thereof.
(b) The
presence of Members holding a Majority Interest at any duly called meeting of
the Members shall be required in order to constitute a quorum for the
transaction of business thereat. If at any meeting of the Members
there shall be less than a quorum present, a majority of those Members present
may adjourn such meeting to a different time and place. Any business
which could have been transacted at such meeting may be transacted at the
adjourned meeting so long as written notice of the adjourned meeting shall have
been given to all Members at least 1 day prior to the adjourned
meeting.
(c) No
proposed or purported act at any meeting of the Members shall have been duly
authorized unless authorized (i) at a duly called meeting at which a quorum is
present at either the commencement of such meeting or the time such
authorization is given at such meeting and (ii) by Members holding a Majority
Interest (or such other interest as may be set forth herein).
(d) Members
may participate in a meeting of the Members by means of conference telephone or
similar communications equipment by means of which all Persons participating in
the meeting can hear each other, and such participation shall constitute
presence in person at such meeting.
(e) Any
action required or permitted to be taken at any meeting of the Members may be
taken without a meeting if Members holding the requisite number of Ownership
Interests necessary to take such action consent thereto in
writing. Notice of such action shall be given by the Company to the
other Members, but no failure to give or delay in giving such notice, and no
defect in such notice, shall impair or limit the validity of such
action.
7.6
Independent
Conduct
.
(a) Except
as provided in Section 6.6 or 7.6(b), each Member and its Affiliates shall have
the right to (i) engage in any and all businesses and activities of any kind
(irrespective of whether such businesses and activities compete with the
businesses and activities of the Company, the other Members or any of their
respective Affiliates), (ii) use, lease and own any and all rights and
properties of any kind, however used, leased or owned and wherever used, leased
or owned, and (iii) receive compensation or profit therefrom for its or their
own account and without in any manner being obligated to disclose or offer such
businesses, activities, rights, properties, compensation or profit to the
Company, the other Members or any of their respective
Affiliates.
(b) So
long as a Member or any of its Affiliates is a member of the Company or a
Manager or Managing Director (the “
Membership Period
”)
and for 2 years thereafter, unless otherwise approved by the Manager, such
Member
shall not
and shall not permit its Affiliates to, directly or indirectly, either
individually or on behalf of or through any other Person (other than the
Company), (i) solicit or induce, or in any manner attempt to solicit or induce,
any customer of the Company or any Person who during the Membership Period had
been specifically identified as a prospective customer of the Company to become
a customer or client of another Person in respect of any business, transaction
or opportunity within the scope of the Company Business, (ii) solicit or induce,
or in any manner attempt to solicit or induce, any Person who is employed by, a
material agent or representative of or a material service provider to the
Company to terminate such Person’s relationship with the Company, (iii) divert,
or in any manner attempt to divert, any Person from doing business with the
Company or pursuing any business opportunity within the scope of the Company
Business with the Company, (iv) induce, or in any manner attempt to induce, any
Person to reduce the business such Person does with the Company or to cease
being a customer of, or maintaining such Person’s other business relationships
with, the Company or (v) compete with or take or divert to itself the Company
Business, any material part thereof or any material opportunity within the scope
thereof.
7.7
Confidentiality
.
(a) During
the Membership Period in relation to a Member and for 2 years thereafter, such
Member will keep, and with cause its Affiliates and its and their
Representatives to keep, all Information of the Company, each other Member and
each Affiliate of each other Member confidential and will not disclose or use,
or permit any of its Affiliates or its or their Representatives to disclose or
use, any of such Information in any manner;
provided
,
however
, that such
Information may be disclosed to Representatives of such Member who (i) need to
know such Information for the conduct of the affairs of the Company in
accordance with this Agreement (or for the purpose of assisting such Member to
meet or comply with legal requirements (e.g., the preparation and filing of tax
returns)), (ii) are informed in writing by such Member of the confidential
nature and restricted use of such Information and (iii) agree in writing to
observe the terms of this Section 7.7 as if they were such
Member. Such Member will and will cause its Representatives to only
make that number of copies of such Information (whether in written,
electronic or other form) that is necessary for the purpose set forth in clause
(i) of the preceding sentence.
(b) The
Company will keep, and will cause its Subsidiaries and its and their
Representatives (including the Managers and the Managing Directors) to keep, all
Information of the Members confidential and will not, and will not permit
its Subsidiaries or its or their Representatives (including the Managers and the
Managing Directors) to, disclose or use such Information in any manner;
provided
,
however
, that such
Information may be used by the Company and disclosed to and used by its
Subsidiaries and its and their Representatives who (i) need to know such
Information for the conduct of the Company Business and the affairs of the
Company in accordance with this Agreement and (ii) are informed by the
Company of the confidential nature and restricted use of such
Information.
(c) At
any time after such Membership Period, upon written of the Person to whom
Information belongs, such Member will, at its election, either (i) promptly
cause to be destroyed at its expense all of such Information (in any form other
than oral) in the possession of it, its Affiliates or its or their
Representatives (including all copies) and confirm such destruction to such
Person in writing or (ii) promptly cause to be delivered to such Person at such
Member’s expense all of such Information (in any form other than oral) in the
possession of it, its Affiliates or its or their Representatives (including all
copies). All of such Information in oral form will continue to be
subject to this Section 7.7;
provided
, that such
Member may retain and use any such Information as needed by such Member to meet
or comply with legal requirements (e.g., the preparation and filing of tax
returns).
(d) If
a Person subject to this Section 7.7 becomes required by Law to disclose any
Information of another Person which such Person is required to keep confidential
and not disclose under this Section 7.7, such Person will as promptly as
possible give written notice to that effect to such other
Person. Such other Person, in its sole discretion, shall be entitled
to seek a protective order or other appropriate remedy. If such other
Person seeks such an order or remedy, such Person will, upon request, use all
reasonable efforts to fully cooperate with such other
Person. Regardless of whether such protective order or other remedy
is obtained, such Person will furnish only that portion of such Information
which it is legally required to furnish. If such a protective order
or remedy is not obtained, such Person will exercise best efforts to obtain
reliable assurance that confidential treatment will be accorded such
Information. If such a protective order or other remedy is obtained,
such Person will exercise best efforts to obtain reliable assurance that such
Information is furnished in accordance with and subject to such protective order
or remedy. To the extent that such Person is an Affiliate of a Member
or a Representative of a Member or its Affiliates, such Member will cause them
to comply with this Section 7.7(e). To the extent that such Person or
its Representatives furnish Information in accordance with this Section 7.7(d),
such furnishing will not constitute a breach of this Section 7.7. The
Company shall provide such assistance as may be reasonably feasible and
necessary to carry out the purposes of this Section 7.7(d).
7.8
Certain
Remedies
. Each of the parties hereto agrees, on behalf of
itself, its Affiliates and its and their Representatives, that money damages for
a breach of Section 7.6 or 7.7 by it or them is unlikely to be calculable, that
such a breach is likely to cause irreparable harm to the aggrieved Person and
that remedies at law are likely to be inadequate to protect the aggrieved Person
against any actual or threatened breach of Section 7.6 or
7.7. Accordingly, each of the parties hereto agree, on behalf of
itself, its Affiliates and its and their Representatives, to the granting of
injunctive relief in favor of the aggrieved Person in the event of any such
breach or threatened breach, without proof of actual damages and without the
requirement of posting bond or other security. Such relief shall not
be the exclusive remedy for a breach or threatened breach of Section 7.6 or 7.7,
but shall be in addition to all other rights and remedies available at law, in
equity or otherwise to the aggrieved Person. In the event of
litigation relating to Section 7.6 or 7.7 wherein a court of competent
jurisdiction determines in a final, non-appealable order that Section 7.6 or 7.7
has been breached, then each of the parties hereto agrees, on behalf of itself,
its Affiliate and its and their Representatives, that the breaching Person will
also be liable to the aggrieved Person for all costs and expenses (including
reasonable legal fees and expenses) incurred in connection with such litigation
and all other litigation related to such breach.
7.9
Obligations and Material
Developments
. The Members intend to act in good faith and in
close cooperation on all matters relating to this Agreement and the Company
Business. Each Member shall use reasonable and good faith efforts to
promptly inform the Manager of material developments relating thereto, consult
with the Manager as to such developments and act by consensus with respect to
such developments.
7.10
Member Books and
Records
. Each Member shall maintain (and shall cause its
respective Affiliates to maintain) accurate and complete books and records, in
accordance with generally accepted accounting principles and practices and
otherwise, to the extent necessary to demonstrate compliance with this
Agreement.
7.11
Further
Assurances
. Each of the parties hereto will (and will cause
its Affiliates and Representatives to)
use its
respective commercially reasonable efforts to take or cause to be taken all
appropriate actions, do or cause to be done all things necessary, proper or
advisable, and
execute such applications,
filings, certific
ates and other
documents
to carry out and give effect to this
Agreement
.
ARTICLE
8
ACCOUNTS;
RETURNS
8.1
Books
. The
Manager shall use reasonable efforts to cause the Company to maintain complete
and accurate books and records, in accordance with general accepted accounting
principles and practice and otherwise, of all transactions, operations and
activities of the Company and its Subsidiaries. Each Member shall
have the right to inspect the Company’s books and records at any reasonable
time.
8.2
Reports and
Returns
. The Manager shall use reasonable efforts to cause to
be furnished to each Member:
(a) within
90 days after the end of each Fiscal Year, an Internal Revenue Service Schedule
K-1 with respect to such Member (and, within the applicable period under
applicable foreign Law, any similar information statement with respect to such
Member); and
(b) within
120 days after the end of each Fiscal Year, a balance sheet of the Company as at
the end of such Fiscal Year and statements of income and cash flow of the
Company for such Fiscal Year.
8.3
Fiscal
Year
. The fiscal year of the Company for both financial
reporting and tax purposes shall be the calendar year (the “
Fiscal
Year
”).
8.4
Method of Accounting and
Reporting
. The books and accounts of the Company shall be
maintained using the cash method of accounting for both financial reporting and
tax purposes. The Company shall elect to be treated as a partnership
for federal income tax purposes.
8.5
Tax
Returns
. The Manager shall use reasonable efforts to cause to
be prepared and filed on a timely basis all foreign, federal, state and local
tax returns and tax information returns required on the part of the
Company.
8.6
Bank
Accounts
. The Manager shall use reasonable efforts to cause
all funds of the Company to be deposited in the name of the Company in an
account or accounts maintained with a bank or banks selected by the
Manager. Checks shall be drawn upon the Company account or accounts
only for the purposes of the Company and must be signed by at least one Managing
Director or, if they exceed $1,000, at least two Managing
Directors.
ARTICLE
9
VALUATION
OF ASSETS
For
purposes of this Agreement, the Fair Market Value of any asset of the Company,
of a Member’s Ownership Interest or of the Company Business shall be determined
by agreement of all Members affected thereby or, at the option of any such
Member or if such Members are unable to agree on such value within a reasonable
time, by an independent expert selected by the Manager. If required
to make such a selection, the Manager shall make any such selection
promptly.
ARTICLE
10
DISSOLUTION
OF THE COMPANY
10.1
Dissolution
. Subject
to the LLC Act, the Company shall be dissolved upon the earliest to occur
of:
(a) the
determination, at a duly called and convened meeting of the Members, of Members
holding a Majority Interest to dissolve the Company; or
(b) the
sale or distribution by the Company of all or substantially all of its
assets.
Except as
otherwise expressly provided under the LLC Act, the withdrawal, removal, death
or incompetency of a Member, the Bankruptcy of a Member, the reorganization,
termination, dissolution or liquidation of a Member, the distribution or sale by
a Member of its Ownership Interest, or the occurrence of a similar event or
transaction will not effect a dissolution of the Company.
10.2
Liquidation
.
(a) Upon
dissolution and liquidation of the Company pursuant to Section 10.1, the assets,
liabilities, business and affairs of the Company will be liquidated and wound up
in an orderly manner. The Manager shall select a Person or Persons, any or all
of whom may be a Member or a Manager, to serve as liquidator (individually and
collectively, the “
Liquidator
”). The
Liquidator shall have the same duties, power and authority, and shall be
entitled to the same rights and protections, as those afforded to the Manager
and a Managing Director. Upon appointment of the Liquidator, the
Manager shall cease to have any duties, power or authority and the Manager shall
be discharged as such.
(b) Upon
dissolution and liquidation of the Company, a final allocation of all items of
income, gain, loss and deduction shall be made in accordance with Article 5 and
all of the Company’s assets, or the proceeds therefrom, shall be distributed or
used as follows and in the following order of priority (which order shall be
without prejudice to the liability of the Company to its
creditors):
(i) for
the payment of the Company’s debts, liabilities and obligations (including
liabilities and obligations to the Manager and Managing Directors) and the
expenses of its liquidation;
(ii) to
the setting up of any reserves that the Liquidator may deem necessary or
appropriate for any contingent or unforeseen debts, liabilities or obligations
(including debts, liabilities and obligations to the Manager and Managing
Directors) of the Company; and
(iii) to
the Members in accordance with the positive balances in their respective Capital
Accounts (after adjustments under Articles 3 and 5 have been made to such
Capital Accounts, until such balances have been reduced to zero).
10.3
Liability for Return of
Capital Contributions
. Each Member shall look solely to the
assets of the Company for all distributions by the Company, including
distributions in connection with the dissolution of the Company. No
Member shall have any recourse therefor against any of the other Members, any
Manager, any Managing Director or any of the Representatives of the Company
(other than by reason of a breach of this Agreement or another Contract between
or among any of them and the Company).
ARTICLE
11
AMENDMENTS;
WAIVERS
11.1
Amendments
. No
addition to, and no cancellation, renewal, extension, modification or amendment
of, this Agreement shall be binding upon any party hereto unless such addition,
cancellation, renewal, extension, modification or amendment is set forth in a
written instrument which states that it adds to, amends, cancels, renews,
extends or modifies this Agreement and which is executed and delivered by each
party hereto.
11.2
Waivers
. No
waiver of any provision of this Agreement shall be binding upon a party hereto
unless such waiver is expressly set forth in a written instrument which is
executed and delivered by such party. Such waiver shall be effective
only to the extent specifically set forth in such written
instrument. Neither the exercise (from time to time and at any time)
by a party hereto of, nor the delay or failure (at any time or for any period of
time) to exercise, any right, power or remedy shall constitute a waiver of the
right to exercise, or impair, limit or restrict the exercise of, such right,
power or remedy or any other right, power or remedy at any time and from time to
time thereafter. No waiver of any right, power or remedy or a party
hereto shall be deemed to be a waiver of any other right, power or remedy of
such party or shall, except to the extent so waived, impair, limit or restrict
the exercise of such right, power or remedy.
ARTICLE
12
NOTICES
All
notices, requests, demands and other communications required or permitted to be
given pursuant to this Agreement shall be given in writing, shall be transmitted
by personal delivery, by a nationally recognized courier service, by registered
or certified mail, return receipt requested, postage prepaid, by facsimile, or
by email
,
receipt
requested, and shall be addressed as follows:
(a) when
the Company is the intended recipient, to the address of its principal office
set forth in Section 2.5; and
(b) when
any Member, Manager or Managing Director is the intended recipient, to its
address set forth on
Schedule A
or
B
.
The
Company, a Member, a Manager or a Managing Director, or any other party hereto,
may designate a new address to which notices, requests, demands and other
communications required or permitted to be given pursuant to this Agreement
shall thereafter be transmitted by giving written notice to that effect to the
Manager. The Manager shall use reasonable efforts to advise all
affected Persons of such change. Each notice, request, demand or
other communication transmitted in the manner described in this Article 12 shall
be deemed to have been given, received and become effective for all purposes at
the time it shall have been (a) delivered to the addressee as indicated by the
receipt (if transmitted by mail or email), the affidavit of the messenger (if
transmitted by personal delivery), the receipt of the courier service (if
transmitted by courier service), or the e-mail receipt, answer back or call back
(if transmitted by e-mail or facsimile) or (b) presented for delivery to the
addressee as so indicated during normal business hours, if such delivery shall
have been refused for any reason.
ARTICLE
13
MISCELLANEOUS
13.1
Publicity
. Each
party hereto agrees that it shall not and shall not permit its Affiliates or its
or their Representatives to issue any publicity, release or announcement
concerning the execution, delivery, performance or termination of this
Agreement, the provisions hereof or the transactions contemplated hereby without
the prior written consent of the form and content of such publicity, release or
announcement by the Manager;
provided
,
however
, that no such
consent shall be required when such publicity, release or announcement is
required by any applicable Law and, provided further, that, prior to issuing any
such required publicity, release or announcement without such prior written
consent, the party hereto issuing or whose Affiliates or Representatives is
issuing such publicity, release or announcement shall have given reasonable
prior notice to the Manager of such intended issuance and shall have used good
faith efforts to take or cause to be taken into account any comments thereon
that it may have.
13.2
Expenses of
Members
. Except as otherwise provided in this Agreement, each
party hereto
agrees
to pay or cause its Affiliates to pay all expenses, fees and costs (including
legal, accounting and consulting expenses) incurred by it or its Affiliates in
connection with the transactions contemplated by this Agreement.
13.3
Entire
Agreement
. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and cancels
and supersedes all of the previous or contemporaneous agreements,
representations, warranties and understandings (whether oral or written) by,
between or among the parties hereto with respect to the subject matter hereof
(including the Letter of Intent dated August 13, 2008, between GoldSpring, Inc.
and DWC Resources, Inc. and the Letter of Intent dated August 13, 2008, between
GoldSpring, Inc. and John V. Winfield).
13.4
Governing Law; Forum; Jury
Trial
. THE VALIDITY, INTERPRETATION, PERFORMANCE AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
NEVADA (WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW RULE THAT WOULD
CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE INTERNAL
LAWS OF THE STATE OF NEVADA). EACH PARTY HERETO, ON BEHALF OF ITSELF,
ITS AFFILIATES AND ITS AND THEIR REPRESENTATIVES, AGREES THAT ANY CLAIM OR
PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE BREACH OR THREATENED BREACH OF
THIS AGREEMENT SHALL BE COMMENCED AND PROSECUTED IN A COURT IN THE STATE OF
NEVADA. EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND
ITS AND THEIR REPRESENTATIVES, CONSENTS AND SUBMITS TO THE NON-EXCLUSIVE
PERSONAL JURISDICTION OF ANY COURT IN THE STATE OF NEVADA IN RESPECT OF ANY SUCH
CLAIM OR PROCEEDING. EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS
AFFILIATES AND ITS AND THEIR REPRESENTATIVES, CONSENTS TO SERVICE OF PROCESS
UPON IT OR THEM WITH RESPECT TO ANY SUCH CLAIM OR PROCEEDING BY REGISTERED MAIL,
RETURN RECEIPT REQUESTED, AND BY ANY OTHER MEANS PERMITTED BY APPLICABLE
LAWS. EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND ITS
AND THEIR REPRESENTATIVES, WAIVES ANY OBJECTION THAT IT OR THEY MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH CLAIM OR PROCEEDING IN ANY
COURT IN THE STATE
OF NEVADA AND ANY CLAIM
THAT IT OR THEY MAY NOW OR HEREAFTER HAVE THAT ANY SUCH CLAIM OR PROCEEDING IN
ANY COURT IN THE STATE OF NEVADA HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND ITS
AND THEIR REPRESENTATIVES, WAIVES TRIAL BY JURY IN ANY SUCH CLAIM OR
PROCEEDING.
13.5
Binding Effect; Assignment;
Third Party Beneficiaries
. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Except as expressly provided in Section 7.2, no
party hereto shall assign any of its rights or delegate any of its duties under
this Agreement (by operation of Law or otherwise) without the prior written
consent of each Member, and any purported assignment of rights or delegation of
duties under this Agreement without such prior written consent, if such consent
is required hereby, shall be void. No such assignment or delegation
shall relieve the assignor or delegator of its obligations
hereunder. No Person (including any employee), other than Indemnified
Parties as provided in the next sentence, shall be, or be deemed to be, a third
party beneficiary of this Agreement. Each Indemnified Party is
intended to be a third party beneficiary of Section 6.6.
13.6
Headings;
Counterparts
.
(a) The
headings set forth herein have been inserted for convenience of reference only,
shall not be considered a part of this Agreement and shall not limit, modify or
affect in any way the meaning or interpretation of this Agreement.
(b) This
Agreement may be signed in any number of counterparts, each of which (when
executed and delivered) shall constitute an original instrument, but all of
which together shall constitute one and the same instrument. It shall
not be necessary when making proof of this Agreement to account for any
counterparts other than a sufficient number of counterparts which, when taken
together, contain signatures of all of the parties hereto. Delivery
of a counterpart by facsimile, PDF or similar means shall be as effective as
delivery of an original.
13.7
Severability
. If
any provision of this Agreement shall hereafter be held to be invalid,
unenforceable or illegal, in whole or in part, in any jurisdiction under any
circumstances for any reason, (a) such provision shall be reformed to the
minimum extent necessary to cause such provision to be valid, enforceable and
legal while preserving the intent of the parties hereto as expressed in, and the
benefits and burdens provided by, this Agreement or (b) if such provision cannot
be so reformed, such provision shall be severed from this Agreement and an
equitable adjustment shall be made to this Agreement (including addition of
necessary further provisions to this Agreement) so as to give effect to the
intent so expressed and the benefits and burdens so provided. Such
holding shall not affect or impair the validity, enforceability or legality of
such provision in any other jurisdiction or under any other
circumstances. Neither such holding nor such reformation nor
severance shall affect or impair the legality, validity or enforceability of any
other provision of this Agreement.
13.8
Interpretation
. All
parties hereto have participated substantially in the negotiation and drafting
of this Agreement and no ambiguity herein shall be construed against the
draftsman.
13.9
No Consequential
Damages
. Except for the indemnification provisions
specifically set forth in this Agreement, no party hereto shall
be liable for any special, indirect,
incidental, consequential or punitive damages arising out of any breach of this
Agreement, even if informed of the possibility of such damages in
advance.
EXHIBIT
99.1
Comstock
Mining Raises $35.75 million in New Equity
Comstock
Exchanges All Senior Debt for Equity, Secures Land
Virginia
City, NV (October 21, 2010)
-
Comstock Mining Inc. (the
“Company”) (OTCBB: LODE) announced today the successful completion of the
remaining three principal features of its previously announced restructuring and
recapitalization plan. The completed features of the plan include raising $35.75
million of new equity, exchanging all of the Company’s previously defaulted
senior secured debt and related obligations for new equity and securing integral
land mineral rights. The Company will use the net proceeds to meet its capital
and operating needs for production and the remaining parts of its three-year
strategic plan, including exploration, mine development, and land
acquisition.
“The new
capital, successful debt restructuring and land consolidation represent a
watershed event for the Company. This builds on the success of our
recent NI 43-101 technical report, that validated total measured, indicated,
inferred, and historic resources of over 1.6 million gold equivalent ounces and
mapped a path for near-term production,” stated Mr. Corrado De Gasperis,
Comstock Mining Chief Executive Officer.
“The
recapitalization was a prerequisite for the Company’s April 2010 strategic plan.
The goal of that plan includes enhancing stockholder value by commencing
commercial mining and processing operations in 2011, and validating qualified
resources of at least 3,250,000 gold equivalent ounces by 2013,” stated Mr.
William Nance, Comstock’s Chairman of the Board.
The
following are key highlights from the transactions:
|
·
|
Raised
$35.75 million in gross proceeds ($32.75 million, net of commissions and
transaction related expenses) by issuing shares of a newly created Series
B Preferred Convertible Stock (“Series B Preferred Stock”) to fund the
Company’s business plan to accelerate mine development and production and
enhance exploration.
|
|
·
|
Exchanged
all $29.4 million of its defaulted senior secured convertible notes and
related obligations for shares of a newly created Series A-1 Convertible
Preferred Stock and Series A-2 Convertible Preferred Stock (collectively,
the “Series A Preferred Stock”). This transaction also clears all defaults
under the terms of the notes being
converted.
|
|
·
|
Acquired
exclusive rights of production and exploration with respect to extensive
mining properties, integral to the Company’s nearly 6,000-acre land
position, through an operating venture agreement, named Northern Comstock
LLC.
|
Mr. De
Gasperis, continued, “Securing these exploration target-rich land and mineral
rights in a long-term and safely capitalized manner, completes the consolidation
of the Comstock Lode District and enables tremendous exploration
potential. These properties include the historically bonanza-rich
Gould and Curry, Woodville, Savage, Hale-Norcross, Yellow Jacket, Justice and
Keystone properties, among many others. The land consolidation,
together with our successful recapitalization of our balance sheet, ushers in a
new era for the Company, enabling our commitment to maximize the value of our
Comstock Lode land holdings for all of our shareholders.”
The net
proceeds the Company received from the sale of the Series B Preferred Stock was
approximately $32.75 million after deducting commissions and the estimated
expenses of the offering payable by the Company. The Company intends to use the
net proceeds to meet its capital and operating needs for the first three years
of its strategic plan to accelerate mine development and production and continue
exploration. The common stock underlying the Series B Preferred Stock is
issuable at a fixed conversion rate equal to 21.7 million shares of common
stock. The Company also exchanged all of its senior secured convertible and
senior indebtedness for shares of its newly created Series A Preferred
Convertible Stock. The common stock underlying the Series A is issuable at a
fixed conversion rate equal to 45.1 million shares of common stock. The Company
has approximately 20.5 million shares of common stock outstanding.
Mr. De
Gasperis added, “We couldn’t be more pleased with the tremendous quality and
breadth of our new investors. The strength of this capital raise coupled with
the continued support of our existing stakeholders has positioned the Company
with a strong balance sheet for accelerated growth. We appreciate the patience
of our stakeholders and the persistence of our management team.” Mr. De Gasperis
concluded, “Our fall drilling program is on target for commencement next week
and we look forward to the results of our ongoing metallurgical testing by
February, both representing key prerequisites for commencing production in
2011.”
Each
share of Series A Preferred Stock has an initial stated value of $1,000, is
entitled to receive dividends at a rate of 7.5% per annum on the stated value
commencing January 1, 2011 and is convertible into 1,536 shares of common stock.
Dividends on the Series A Preferred Stock are payable in cash or stock or a
combination of cash and stock.
Each
share of Series B Preferred Stock has an initial stated value of $1,000, is
entitled to receive dividends at a rate of 7.5% per annum on the stated value
commencing January 1, 2011 and is convertible into 606.0606 shares of common
stock. Dividends on the Series B Preferred Stock are payable in cash, stock or a
combination of cash and stock.
The
Series A Preferred Stock and the Series B Preferred Stock were issued in
reliance upon exemptions from registration pursuant to Sections 3(a)(9) and 4(2)
of the Securities Act of 1933, as amended, and Regulation D thereunder. The
Company has agreed to file a registration statement with the Securities and
Exchange Commission covering the resale of the shares of common stock underlying
the Series A Preferred Stock and the Series B Preferred Stock. The Company is
also pursuing a listing of its Common Stock on both the TSX Venture Exchange and
the NYSE AMEX.
Moelis
& Company acted as exclusive financial advisor to the Company. Moelis &
Company also acted as lead placement agent and Global Hunter Securities, LLC,
Rodman & Renshaw, LLC, Merriman Capital Inc., Legend Merchant Group Inc.,
and Anderson & Strudwick, Inc., acted as placement agents in connection with
the private placement.
This
press release does not constitute an offer to sell or the solicitation of an
offer to buy nor will there be any sale of these securities in any state or
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such state or
jurisdiction. This press release is also an Exhibit to the Company’s Current
Report on Form 8-K filed today with the U.S. Securities and Exchange
Commission.
About
Comstock Mining Inc.
Comstock
Mining Inc. is a Nevada-based precious metals mining company with extensive,
contiguous property in the Comstock District. The Company began acquiring
properties in the Comstock District in 2003. Since then, the Company has
consolidated a significant portion of the Comstock District, amassed the single
largest known repository of historical and current geological data on the
Comstock region, secured permits, built an infrastructure and brought the
exploration project into test mining production. We continue acquiring
additional properties in the district, expanding our footprint and creating
opportunities for exploration and mining. The goal of our strategic plan is to
deliver stockholder value by validating qualified resources (at least measured
and indicated) and reserves (probable and proven) of 3,250,000 gold equivalent
ounces by 2013, and commencing commercial mining and processing operations in
2011, with annual production rates of 20,000 gold equivalent
ounces.
Important
Note to U.S. Investors
This
press release uses the terms “measured resources,” “indicated resources,”
“inferred resources,” and “historical resources” which are calculated in
accordance with the Canadian National Instrument 43-101 and the Canadian
Institute of Mining, Metallurgy and Petroleum Classification system. The United
States Securities and Exchange Commission (the “SEC”) does not recognize these
terms and the SEC guidelines (Industry Guide 7) provide that such terms shall
not be included in a registrant’s filings with the SEC (unless required to be
disclosed by foreign or state law). The SEC permits U.S. mining companies, in
their filings with the SEC, to disclose only those mineral deposits that a
company can economically and legally extract or produce. “Inferred resources”
have a great amount of uncertainty as to their existence, and great uncertainty
as to their economic and legal feasibility. It cannot be assumed that all or any
part of an “inferred mineral resource” will ever be upgraded to a higher
category. U.S. investors are cautioned not to assume that any part or all of a
measured, indicated or inferred resource exists or is economically or legally
mineable. U.S. investors are urged to consider closely the disclosure in our
Form 10-K which may be secured from us, or from the SEC's website at
http://www.sec.gov.
Forward-Looking
Statements
This
press release and any related calls or discussions may contain forward-looking
statements. All statements, other than statements of historical facts, are
forward-looking statements. Forward-looking statements include statements about
matters such as: future prices and sales of and demand for our products; future
industry market conditions; future changes in our exploration activities,
production capacity and operations; future exploration, production, operating
and overhead costs; operational and management restructuring activities
(including implementation of methodologies and changes in the board of
directors); future employment and contributions of personnel; tax and interest
rates; capital expenditures and their impact on us; nature and timing of
restructuring charges and the impact thereof; productivity, business process,
rationalization, investment, acquisition, consulting, operational, tax,
financial and capital projects and initiatives; contingencies; environmental
compliance and changes in the regulatory environment; and future working
capital, costs, revenues, business opportunities, debt levels, cash flows,
margins, earnings and growth.
The words
"believe," "expect," "anticipate," "estimate," "project," "plan," "should,"
"intend," "may," "will," "would," "potential" and similar expressions identify
forward-looking statements, but are not the exclusive means of doing so. These
statements are based on assumptions and assessments made by our management in
light of their experience and their perception of historical and current trends,
current conditions, possible future developments and other factors they believe
to be appropriate. Forward-looking statements are not guarantees,
representations or warranties and are subject to risks and uncertainties that
could cause actual results, developments and business decisions to differ
materially from those contemplated by such forward-looking statements. Some of
those risks and uncertainties include the risk factors set forth in our SEC
filings and the following: current global economic and capital market
uncertainties; the speculative nature of gold or mineral exploration, including
risks of diminishing quantities or grades of qualified resources and reserves;
operational or technical difficulties in connection with exploration or mining
activities; contests over our title to properties; potential dilution to our
stockholders from our recapitalization and balance sheet restructuring
activities; potential inability to continue to comply with government
regulations; adoption of or changes in legislation or regulations adversely
affecting our businesses; business opportunities that may be presented to or
pursued by us; changes in the United States or other monetary or fiscal policies
or regulations; interruptions in our production capabilities due to unexpected
equipment failures; fluctuation of prices for gold or certain other commodities
(such as silver, copper, diesel fuel, and electricity); changes in generally
accepted accounting principles; geopolitical events; potential inability to
implement our business strategies; potential inability to grow revenues
organically; potential inability to attract and retain key personnel;
interruptions in delivery of critical supplies and equipment raw materials due
to credit or other limitations imposed by vendors; assertion of claims, lawsuits
and proceedings against us; potential inability to maintain an effective system
of internal controls over financial reporting; potential inability or failure to
timely file periodic reports with the SEC; potential inability to list our
securities on any securities exchange or market; and work stoppages or other
labor difficulties. Occurrence of such events or circumstances could have a
material adverse effect on our business, financial condition, results of
operations or cash flows or the market price of our securities. All subsequent
written and oral forward-looking statements by or attributable to us or persons
acting on our behalf are expressly qualified in their entirety by these factors.
We undertake no obligation to publicly update or revise any forward-looking
statement.
Neither
this press release nor any related calls or discussions constitutes an offer to
sell or the solicitation of an offer to buy any securities.
Contact information for
Comstock Mining
Inc.:
P.O. Box
1118
Virginia
City, NV 89440
Tel
775.847.4755
Fax
800-750-5740
info@comstockmining.com
www.comstockmining.com