Securities
Purchase and Asset Acquisition Agreement
by and
among
EnerJex
Resources, Inc.,
a Nevada
corporation
("Company")
and
West
Coast Opportunity Fund, LLC
Montecito
Venture Partners, LLC
RGW
Energy, LLC
J&J
Operating Company, LLC
Working
Interest Holding, LLC
and
Frey
Living Trust
("Investors")
December
31, 2010
Securities
Purchase and Asset Acquisition Agreement
This
Securities Purchase and Asset Acquisition Agreement
(the "
Agreement
") is made
as of December 31, 2010 (the "
Effective Date
") by
and among
EnerJex
Resources, Inc.
, a Nevada corporation (the "
Company
");
West Coast
Opportunity Fund, LLC
, a Delaware limited liability company ("
WCOF
");
Montecito
Venture Partners, LLC
, a Delaware limited liability company ("
MVP
");
RGW Energy,
LLC
, a Texas limited liability company ("
RGW
");
J&J
Operating Company, LLC
, a Kansas limited liability company ("
J&J
");
Working
Interest Holding, LLC
, a Kansas limited liability company ("
WIH
LLC
"); and
Frey Living
Trust
("
Frey
Living Trust
" and, together with WCOF, MVP, RGW, J&J, and WIH LLC,
individually an "
Investor
" and
collectively the "
Investors
"), with
reference to the following facts:
Recitals
:
A.
WCOF and Frey Living Trust are
the holders of certain of the Company's Secured Debentures.
B.
MVP and RGW are the sole members of Black
Sable, which owns certain oil and gas working interests in the State of Texas
defined below as the "Black Sable Working Interests."
C.
The "WIH LLC Members" are the sole members of WIH LLC,
which owns all of the issued and outstanding membership interests in WI LLC, and
WI LLC owns the "WI LLC Working Interests," as such terms are defined
below.
D. The
parties have agreed to execute this Agreement in order to memorialize the terms
and conditions on which each Investor shall contribute its respective
Contributed Assets to the Company in exchange for certain shares of the
Company's capital stock and cash, as further described below.
Agreements
:
Now,
Therefore,
the parties hereto, intending to be legally bound, do hereby
agree as follows:
1.
Definitions.
For
purposes of this Agreement:
1.1
"Articles
of Incorporation
"
means the Company's Articles of Incorporation, as filed with the Secretary of
State of the State of Nevada on March 31, 1999, as amended through the date of
this Agreement and to be further amended by the Certificate of Designation
required to be filed hereunder.
1.2
"Assignment
of Membership Interest"
means that certain Assignment of Membership
Interest in the form attached hereto as
Exhibit
A
.
1.3
"Black
Sable"
means Black Sable Energy, LLC, a Texas limited liability
company.
1.4
"Black
Sable Working Interests"
means the working interests in the "El Toro
Project" and the "Cobb Field Prospect" listed on
Exhibit B
hereto.
1.5
"Certificate
of Designation"
means that certain Certificate of Designation, setting
forth the rights, preferences, restrictions and other matters relating to the
designation of Series A Preferred Stock, in the form attached hereto as
Exhibit
C
, which is to be filed with the Secretary of State of the State of
Nevada concurrently with the closing of the transactions contemplated by this
Agreement.
1.6
"Closing
"
shall have the meaning set
forth in Section
2.3
,
below.
1.7
"
Code
"
means the Internal Revenue
Code of 1986, as amended.
1.8
"
Common
Stock
"
means the
common capital stock, par value $0.001 per share, of the Company.
1.9
"Common
Stock Offering"
means the Company's issuance of shares of its Common
Stock to investors who invest, collectively, at least Five Million Dollars
($5,000,000) of gross offering proceeds in the purchase of shares of Common
Stock at a price of Forty Cents ($0.40) per share.
1.10
"Company
Intellectual Property"
means all patents, patent applications,
trademarks, trademark applications, service marks, tradenames, copyrights, trade
secrets, licenses, domain names, mask works, information and proprietary rights
and processes as are necessary to the conduct of the Company’s business as now
conducted and as presently proposed to be conducted.
1.11
"Compliance
Certificate"
means that certain Certificate of Officer in the form
attached hereto as
Exhibit
D
.
1.12
"Contributed
Assets"
means (a) all of the issued and outstanding membership interests
in WI LLC, (b) all of the issued and outstanding membership interests in Black
Sable, (c) 617,317 shares of the common stock of Oakridge Energy, Inc., (d)
700,000 shares of the common stock of Spindletop Oil & Gas Co, (e) the
Secured Debentures held by WCOF, and (f) the Secured Debentures held by Frey
Living Trust.
1.13
"Debenture
Assignment"
means that certain Debenture Assignment in the form
attached hereto as
Exhibit
E
, pursuant to which a holder of Secured Debentures assigns and
contributes such Secured Debentures to the Company hereunder.
1.14
"
Equity
Incentive Plan
" means that certain EnerJex Resources, Inc., Stock
Incentive Plan, as amended, under which the Company has reserved One Million Two
Hundred Fifty Thousand (1,250,000) shares of Common Stock for the granting of
options and the issuance of Common Stock as "restricted shares" to employees,
officers, and directors of and consultants to the Company.
1.15
"
Exchange
Act
"
means the Securities Exchange Act of 1934, as amended.
1.16
"
Expired
Leases
"
means those two mineral leases with Drehr and Jones as further described on
Exhibit
F
hereto.
1.17
"
Financial
Statements
Date
"
means September 30, 2010.
1.18
"
Key
Employee
" means any executive-level employee (including division director
and vice president-level positions) as well as any employee or consultant who
either alone or in concert with others develops, invents, programs or designs
any Company Intellectual Property.
1.19
"Knowledge,"
as applied to a party that (a) is a corporation, shall mean the current
actual Knowledge of such party's current Board of Directors and officers, (b) is
a limited liability company, shall mean the current actual Knowledge of such
party's managing member(s) or manager(s), as applicable, and (c) is either a
corporation or a limited liability company, shall include the current actual
Knowledge of those employees of the party who are responsible for the matter
that is the subject of the pertinent Knowledge-qualified
representation.
1.20
"Lien"
means, with respect to any asset (including any security), any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset;
provided,
however
, that the term "Lien" shall not include (a) statutory liens
for Taxes that are not yet due and payable, (b) statutory or common law
liens to secure obligations to landlords, lessors or renters under leases or
rental agreements confined to the premises rented, (c) statutory or common
law liens in favor of carriers, warehousemen, mechanics and materialmen, to
secure claims for labor, materials or supplies and other like liens, and
(d) restrictions on transfer of securities imposed by applicable state and
federal securities laws.
1.21
"Majority
Investors"
means Investors holding (or entitled to receive hereunder) a
majority of the shares of Common Stock issued or issuable pursuant to this
Agreement.
1.22
"
Material
Adverse Effect
"
means an occurrence or circumstance having a consequence that, individually or
in the aggregate, is materially adverse as to the business, properties, assets,
liabilities, affairs, prospects, operations, operating results, or condition
(financial or otherwise) of the Company, individually or taken as a whole;
provided
, however, that such
term shall not include any circumstance or change related to (a) general
economic conditions, or (b) securities markets generally.
1.23
"Non-Producing
Leases"
means those certain Leases listed on
Exhibit
O
hereto.
1.24
"Oakridge
Shares"
means 617,317 freely tradable shares of the common stock of
Oakridge Energy, Inc.
1.25
"Person"
means any individual, corporation, partnership, trust, limited liability
company, association, or other entity.
1.26
"SEC"
means the United States Securities and Exchange Commission.
1.27
"Secured
Debentures"
means those certain Senior Secured Debentures of
EnerJex
Kansas, Inc.
, a Nevada corporation formerly known as "
Midwest
Energy, Inc.
" ("
Subsidiary
"), in the
aggregate original principal amount of $9,000,000, which were issued by the
Subsidiary pursuant to that certain Securities Purchase Agreement dated as of
April 11, 2007, by and among the Subsidiary and the purchasers of such Secured
Debentures, as amended.
1.28
"
Securities
Act
"
means the
Securities Act of 1933, as amended.
1.29
"Series A
Preferred Stock"
means the Series A Preferred Stock of the Company having
the rights, preferences, and privileges, and subject to the limitations and
restrictions, set forth in the Certificate of Designation.
1.30
"
Shares"
means the shares of Common Stock issued and sold by the Company to the
Investors pursuant to this Agreement.
1.31
"Spindletop
Shares"
means 700,000 freely tradable shares of the common stock of
Spindletop Oil & Gas Co.
1.32
"Stock
Assignment"
means that certain Stock Assignment Separate from Certificate
in the form attached hereto as
Exhibit
G
.
1.33
"Stock
Repurchase Agreement"
means that certain Stock Repurchase Agreement
between the Company and WIH LLC in the form attached hereto as
Exhibit
G
, pursuant to which the Company has granted to WIH LLC the right to
require the Company to purchase from WIH LLC up to 3,750,000 Shares at a price
of $0.40 per Share and on the other terms and conditions set forth
therein.
1.34
"Tax"
or
"Taxes"
means (a) all federal, state, local, foreign and other net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties or other taxes, fees, levies, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to Tax or
additional amounts with respect thereto, (b) any liability for payment of
amounts described in clause (a) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, and (c) any
liability for the payment of amounts described in clauses (a) or (b) as a
result of any tax sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other person.
1.35
"Tax
Return"
means any return, declaration, report, statement, information
statement and other document required to be filed with respect to
Taxes.
1.36
"Termination
Date"
means December 31, 2010.
1.37
"
Transaction
Documents
"
means
this Agreement, the Assignment of Membership Interest instruments, Debenture
Assignments, and any other agreement, instrument, or document executed in
connection herewith.
1.38
"
WIH LLC
Cash Payment
"
means an amount equal to One Million Five Hundred Thousand Dollars ($1,500,000),
subject to adjustment pursuant to
Section 2.3(d)
,
below.
1.39
"
WIH LLC
Members
"
means AINO, LLC; Clifford Johnson; Alva F. Johnson; CalioFog, LLC; James Miller;
Samson, LLC; IRA Resources, Inc., f/b/o Richard A. Mathews IRA 15916; The Waters
Group; Coal Creek Energy, LLC; Domco, LLC; Global Equity Funding, LLC; DV-8
Energy Series 6, LLC; Enutroff, LLC; and Mallard Management, Inc.
1.40
"
WI
LLC
"
means
Working Interest, LLC, a Kansas limited liability company.
1.41
"
WI LLC
Working Interests
"
means
(a) a twelve and one-half percent (12.5%) working interest in the lease
identified as the "Thoren interest" described on
Exhibit
H
hereto, and (b) an eighty percent (80%) working interest in each of the
other leasehold interests listed on
Exhibit
H
hereto.
2.
Contribution
of Contributed Assets
2.1
Closing
. The
closing of the issuance and delivery of the Shares shall take place on the date
hereof at the offices of the Company's counsel, DeMint Law, PLLC, 3753 Howard
Hughes Parkway, Second Floor, Suite 314, Las Vegas, Nevada 89169 (or by an
exchange of executed counterpart copies of this Agreement and the other closing
documents via facsimile and overnight courier between counsel for the Company
and the Investors), or at such other time and place as the Company and Investors
mutually agree upon orally or in writing (which time and place are designated as
the "
Closing
").
2.2
Contribution.
At
the Closing hereunder:
(a)
Contribution
by WCOF.
(i)
WCOF
shall execute and deliver to the Company a Debenture Assignment, assigning to
the Company all rights in and to Secured Debentures in the original principal
amount of One Million Nine Hundred Sixty Thousand Dollars ($1,960,000), on which
the Company was indebted to WCOF as of September 30, 2010, in the aggregate
amount of Two Million Four Hundred Ninety-eight Thousand Seven Dollars and
Seventy-one Cents ($2,498,007.71);
(ii)
WCOF shall (A) execute and deliver to the Company a Stock
Assignment, assigning to the Company title to the Oakridge Shares, which the
parties agree have an aggregate value of One Million Six Hundred Seventy-six
Thousand Sixteen Dollars ($1,676,016), or $2.715 per share; and (B) transfer
such shares, of record, to an account at C.K. Cooper & Company and authorize
such brokerage firm to transfer such Oakridge Shares, by book transfer, to an
account maintained at such firm by the Company; and
(iii)
WCOF
shall (A) execute and deliver to the Company a Stock Assignment, assigning to
the Company title to the Spindletop Shares, which the parties agree have an
aggregate value of One Million Two Hundred Ninety-five Thousand Dollars
($1,295,000), or $1.85 per share; and (B) transfer such shares, of record, to an
account at C.K. Cooper & Company and authorize such brokerage firm to
transfer such Spindletop Shares, by book transfer, to an account maintained at
such firm by the Company.
(b)
Contribution
by MVP.
MVP shall execute and deliver an Assignment of
Membership Interest, assigning to the Company all right, title, and interest in
and to MVP's membership interest in Black Sable.
(c)
Contribution
by RGW.
RGW shall execute and deliver an Assignment of
Membership Interest, assigning to the Company all right, title, and interest in
and to RGW's membership interest in Black Sable.
(d)
Contribution
by WIH LLC.
WIH LLC shall
execute
and deliver an Assignment of Membership Interest, assigning to the Company all
right, title, and interest in and to WIH LLC's membership interest in WI
LLC.
(e)
Contribution
by Frey Living Trust.
Frey Living Trust shall execute and
deliver to the Company a Debenture Assignment, assigning to the Company all
rights in and to Secured Debentures in the original principal amount of One
Hundred Forty Thousand Dollars ($140,000), on which the Company was indebted to
Frey Living Trust as of September 30, 2010, in the aggregate amount of One
Hundred Seventy-eight Thousand Four Hundred Twenty-nine Dollars
($178,429).
2.3
Shares and
Other Consideration Delivered By Company
.
(a)
Transfer
Agent Instructions and Shares
.
(i)
Instructions
. The
Company shall issue to its transfer agent, and any subsequent transfer agent,
irrevocable instructions to issue certificates or credit Shares to the
applicable balance accounts at The Depository Trust Company ("
DTC
"), registered in
the name of each Investor identified in
Section 2.3(a)(ii)
,
below or its respective nominee(s), for the Shares of Common Stock issuable at
the Closing pursuant to
Section 2.3(a)(ii)
(the "
Irrevocable
Transfer Agent Instructions
"). The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this
Section
2.3(a)(i)
, will be given by the Company to its transfer agent with
respect to such Shares, and that the Shares shall be freely transferable on the
books and records of the Company to the extent provided in this Agreement and
the other Transaction Documents. If an Investor effects a sale,
assignment or transfer of such Shares, then the Company shall permit the
transfer and shall promptly instruct its transfer agent to issue one or more
certificates or credit shares to the applicable balance accounts at DTC in such
name and in such denominations as specified by such Buyer to effect such sale,
transfer or assignment to be delivered within three (3) business
days. In the event that such sale, assignment or transfer involves
Shares sold, assigned or transferred pursuant to an effective registration
statement or pursuant to Rule 144, the transfer agent shall issue such Shares to
the Investor, assignee or transferee, as the case may be, without any
restrictive legend. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to an
Investor. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this
Section 2.3(a)(i)
will be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this
Section 2.3(a)(i)
,
that an Investor shall be entitled, in addition to all other available remedies,
to seek an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
(ii)
Shares
. At
the Closing, and in consideration of the contribution of the Contributed Assets
by the Investors pursuant to
Section 2.2
, above,
the Company shall issue and deliver to:
(A) WCOF
Ten Million Five Hundred Fifty Thousand Forty-nine (10,550,049) shares of Common
Stock;
(B) MVP
Fifteen Million Five Hundred Ninety-five Thousand Five Hundred Forty
(15,595,540) shares of Common Stock;
(C) MVP
Four Million Seven Hundred Seventy-nine Thousand Four Hundred Sixty (4,779,460)
shares of Series A Preferred Stock;
(D) RGW
Four Million (4,000,000) shares of Common Stock;
(E) WIH
LLC Eighteen Million Seven Hundred Fifty Thousand (18,750,000) shares of Common
Stock, subject to adjustment pursuant to
Section 2.3(d)
,
below; and
(F) Frey
Living Trust 223,036 shares of Common Stock.
(b)
Cash to WIH
LLC
. Authorize the transfer to WIH LLC, by wire transfer of immediately
available funds on the Closing Date or as soon thereafter as reasonably
practicable, a sum equal to the WIH LLC Cash Payment, subject to adjustment
pursuant to
Section
2.3(d)
, below.
(c)
Put
Agreement with WIH LLC
. Execute and deliver to WIH LLC
that certain Stock Repurchase Agreement in the form attached hereto as
Exhibit
G
.
(d)
Adjustment
of WIH Cash and Stock
. If, as of the Closing, the WI LLC
Working Interests represent less than an eighty percent (80%) working interest
in each of the "WI LLC Leases" (as such term is defined in
Section 4.5(d)
,
below), then the amount of the WIH Cash Payment and the shares issuable to WIH
LLC pursuant to
Section
2.3(a)(ii)(E)
, above, shall be reduced proportionately to a percentage of
such full WIH Cash Payment and such shares that corresponds to the ratio of (x)
the actual percentage of the working interests in the WIH LLC Leases held by WI
LLC as of the Closing Date, to (y) eighty percent (80%).
3.
Representations
and Warranties of Company.
Except as otherwise set forth in
the Company Disclosure Schedule attached hereto as
Exhibit I,
specifically identifying the relevant subparagraphs hereof, which
exceptions shall be deemed to be representations and warranties of the Company
as if made hereunder (the "
Company Disclosure
Schedule
"), which has been furnished to each Investor prior to the
execution hereof, as a material inducement to the Investors to enter into this
Agreement and purchase the Common Stock hereunder, the Company hereby represents
and warrants to each Investor that as of the Closing Date:
3.1
Corporate
Organization and Authority
. The Company (a) is a corporation
duly organized, validly existing, authorized to exercise all its corporate
powers, rights and privileges, and in good standing under the laws of the State
of Nevada; (b) has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as now conducted
or contemplated to be conducted; (c) has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement and the
Transaction Documents; and (d) is duly qualified or licensed to do business as a
foreign corporation in, and is in good standing under the laws of, each
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect.
3.2
Capitalization.
Immediately
prior to the Closing, the authorized capital of the Company shall consist
of:
(a)
Common
Stock
. One Hundred Million (100,000,000) shares of Common
Stock, of which Five Million Eight Hundred Nine Thousand Six Hundred
Twenty-eight (5,809,628) shares are issued and outstanding.
(b)
Preferred
Stock
. Ten Million (10,000,000) shares of Preferred Stock, of
which (i) Four Million Seven Hundred Seventy-nine Thousand Four Hundred Sixty
(4,779,460) have been designated Series A Preferred Stock for issuance
hereunder, none of which shall be issued or outstanding immediately prior to the
Closing, and (ii) the remainder of which, none of which shall be issued or
outstanding immediately prior to the Closing, may be designated and issued by
the Board of Directors from time to time pursuant to a certificate of
designation hereafter approved by the Board of Directors. The rights,
restrictions, privileges and preferences of and restrictions upon the Series A
Preferred Stock are set forth in the Certificate of Designation.
(c)
Other
Securities
.
Except for Nine
Hundred Twenty-nine Thousand Two Hundred Fifty (929,250) shares of Common Stock
reserved for issuance pursuant to outstanding options granted to employees,
consultants, officers or directors under the Equity Incentive Plan, of which
options or shares have been respectively granted for the numbers of shares set
forth in Section 3.2(c) of the Company Disclosure Schedule (which shall also
show the vesting schedule and exercise price of such outstanding options and
shares that remain subject to any vesting schedule), there are not outstanding
any options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. Except for the Certificate of Designation, the
Securities Purchase Agreement, and the Transaction Documents, the Company is not
a party to or subject to any agreement or understanding, and to the Company's
Knowledge there is no agreement or understanding between any individuals and/or
entities, which affects or relates to the voting or giving of written consents
with respect to any Company security or the voting by a director of the Company.
Except as set forth in
Section 3.2(c)
of the
Company Disclosure Schedule, none of the Company's stock purchase agreements or
stock option documents or any other agreement, document or commitment (written
or oral) of the Company provides for acceleration of vesting (or lapse of a
repurchase right) upon the occurrence of any events. All outstanding
shares of the Company’s Common Stock and all shares of the Company’s Common
Stock underlying outstanding options are subject to (i) a right of first refusal
in favor of the Company upon any proposed transfer (other than transfers for
estate planning purposes); and (ii) a lock-up or market standoff agreement of
not less than 180 days following the Company’s initial public offering pursuant
to a registration statement filed with the Securities and Exchange Commission
under the Securities Act. Except as set forth in the Company’s public reports
filed with the SEC under the Exchange Act, the Company has never adjusted or
amended the exercise price of any stock options previously awarded, whether
through amendment, cancellation, replacement grant, repricing, or any other
means. Except as set forth in this Agreement, the Company has no
obligation (contingent or otherwise) to purchase or redeem any of its
securities.
(d)
Prior
Shares
. The outstanding shares of Common Stock are duly and
validly authorized and issued, fully paid and nonassessable. To the
Knowledge of the Company, all such shares were issued in compliance with all
applicable state and federal laws concerning the issuance of
securities.
(e)
409A C
ompliance
.
No stock options, stock appreciation rights or other equity-based awards issued
or granted by the Company are subject to the requirements of Section 409A of the
Code. Each "nonqualified deferred compensation plan" (as such term is
defined under Section 409A(d)(1) of the Code and the guidance thereunder)
under which the Company makes, is obligated to make or promises to make,
payments (each, a "
409A Plan
") complies
in all material respects, in both form and operation, with the requirements of
Section 409A of the Code and the guidance thereunder. No payment to
be made under any 409A Plan is, or to the Knowledge of the Company will be,
subject to the penalties of Section 409A(a)(1) of the Code.
3.3
Subsidiaries
. Except
as set forth in
Section 3.3
of the
Company Disclosure Schedule, the Company does not presently own, have any
investment in, or control, directly or indirectly, or hold any rights to acquire
any interest in any other corporation, partnership, trust, joint venture,
limited liability company, association or other business entity, nor has the
Company ever held such interest. The Company is not a participant in
any joint venture, partnership or similar arrangement.
3.4
Authorization
. All
corporate action required to be taken by the Company’s board of directors (the
"
Board of
Directors
") and stockholders in order to authorize the Company to enter
into the Transaction Documents, and to issue the Shares at the Closing and the
Common Stock issuable upon conversion of the Shares, has been taken or will be
taken prior to the Closing. All action on the part of the officers of
the Company necessary for the execution and delivery of the Transaction
Documents, the performance of all obligations of the Company under the
Transaction Documents to be performed as of the Closing, and the issuance and
delivery of the Shares has been taken or will be taken prior to the
Closing. The Transaction Documents, when executed and delivered by
the Company, shall constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, or other laws of general
application relating to or affecting the enforcement of creditors’ rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
3.5
Valid
Issuance of Shares.
The Shares, when issued, sold and
delivered in
accordance
with the terms and for the consideration set forth in this Agreement, will be
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under the Transaction Documents,
applicable state and federal securities laws and Liens created by or imposed by
an Investor. Assuming the accuracy of the representations of the
Investors in
Section 4
of
this Agreement and subject to the filings described in clause (ii) of
Section 3.6
,
below, the Shares will be issued in compliance with all applicable federal and
state securities laws. The Common Stock issuable upon conversion of
the Shares has been duly reserved for issuance, and upon issuance in accordance
with the terms of the Articles of Incorporation, will be validly issued, fully
paid and nonassessable and free of restrictions on transfer other than
restrictions on transfer under the Transaction Documents, applicable federal and
state securities laws and Liens created by or imposed by an
Investor. Based in part upon the representations of the Investors in
Section 4
of
this Agreement, and subject to
Section 3.6
, below,
the Common Stock issuable upon conversion of the Shares will be issued in
compliance with all applicable federal and state securities
laws.
3.6
Governmental
Consents and Filings
.
(a)
Assuming
the accuracy of the representations made by the Investors in
Section 4
of this
Agreement, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority is required on the part of the Company in
connection with the consummation of the transactions contemplated by this
Agreement, except for (i) the filing of the Certificate of Designation, which
will have been filed as of the Closing, and (ii) filings pursuant to
Regulation D of the Securities Act, and applicable state securities laws,
which have been made or will be made in a timely manner.
(b)
Without
limiting the generality of the foregoing, Company is not in violation of any of
the rules, regulations or requirements of the FINRA OTC Bulletin Board (the
"
Principal
Market
") and has no Knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. During the one (1) year period prior to the
date hereof, (i) the Common Stock has been listed on the Principal Market or
quoted on the "gray sheets" (the "
Gray Sheets
"),
(ii) trading in the Common Stock or quotation on the Gray Sheets has not been
suspended by the SEC, the Principal Market or the Gray Sheets and (iii) Company
has received no communication, written or oral, from the SEC or the Principal
Market regarding the suspension or delisting of the Common Stock from the
Principal Market. Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, and neither Company nor any
such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit.
3.7
Securities
Matters
.
(a)
SEC
Filings.
The Company's issued and outstanding shares of Common
Stock are registered pursuant to Section 12(g) of the Exchange Act, and the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under the Exchange Act for the three (3)
years preceding the date of this Agreement (or such shorter period as the
Company was required by law or regulation to file such material) (all of the
foregoing filed within the period of three (3) years preceding the date hereof
or amended after the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein, being hereinafter referred to as the "
SEC Documents
") on
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Document prior to the expiration of any such
extension. The Company has delivered to the Investors or their
representatives, or made available through the SEC’s website at
http://www.sec.gov
,
true and complete copies of the SEC Documents. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, 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. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made and
not misleading.
(b)
Sarbanes-Oxley
. The
Company is in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 to small business issuers that are effective as of
the date hereof, and any and all applicable rules and regulations promulgated by
the SEC thereunder that are effective as of the date hereof.
(c)
Investment
Company.
Neither the Company nor any of its affiliates is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
3.8
Litigation
. Except
as set forth in Section 3.8 of the Company Disclosure Schedule, there is no
claim, action, suit, proceeding, arbitration, complaint, charge, investigation,
pending or, to the Company's Knowledge currently threatened (i) against the
Company or any officer, director or Key Employee of the Company arising out of
their employment or board relationship with the Company; (ii) that questions the
validity of the Transaction Documents or the right of the Company to enter into
them, or to consummate the transactions contemplated by the Transaction
Documents; or (iii) that would reasonably be expected to have, either
individually or in the aggregate, a Material Adverse
Effect. Neither the Company nor, to the Company’s Knowledge,
any of its officers, directors or Key Employees is a party or is named as
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality (in the case of officers,
directors or Key Employees, such as would affect the Company). There
is no action, suit, proceeding or investigation by the Company pending or which
the Company intends to initiate. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
in writing (or any basis therefor known to the Company) involving the prior
employment of any of the Company’s employees, their services provided in
connection with the Company’s business, or any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers.
3.9
Intellectual
Property
. The Company owns or possesses or can acquire on
commercially reasonable terms, sufficient legal rights to all Company
Intellectual Property without any known conflict with, or infringement of, the
rights of others.
To the Company’s
Knowledge, no product or service marketed or sold (or proposed to be marketed or
sold) by the Company violates or will violate any license or infringes or will
infringe any intellectual property rights of any other party. Other
than with respect to commercially available software products under standard
end-user object code license agreements, there are no outstanding options,
licenses, agreements, claims, encumbrances or shared ownership interests of any
kind relating to the Company Intellectual Property, nor is the Company bound by
or a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other
Person. The Company has not received any communications alleging that
the Company has violated or, by conducting its business, would violate any of
the patents, trademarks, service marks, tradenames, copyrights, trade secrets,
mask works or other proprietary rights or processes of any other
Person. The Company has obtained and possesses valid licenses to use
all of the software programs present on the computers and other software-enabled
electronic devices that it owns or leases or that it has otherwise provided to
its employees for their use in connection with the Company’s
business. To the Company’s Knowledge, it will not be necessary to use
any inventions of any of its employees or consultants (or Persons it currently
intends to hire) made prior to their employment by the Company. Each
employee and consultant has assigned to the Company all intellectual property
rights he or she owns that are related to the Company’s business as now
conducted and as presently proposed to be conducted.
Section 3.9
of the
Company Disclosure Schedule lists all Company Intellectual
Property. The Company has not embedded any open source, copyleft or
community source code in any of its products generally available or in
development, including but not limited to any libraries or code licensed under
any General Public License, Lesser General Public License or similar license
arrangement. For purposes of this
Section 3.9
, the
Company shall be deemed to have Knowledge of a patent right if the Company has
actual Knowledge of the patent right or would be found to be on notice of such
patent right as determined by reference to United States patent
laws.
3.10
Compliance
with Law and Other Instruments
.
(a)
No
Violations
. The Company is not in violation or default (i) of
any provisions of its Articles of Incorporation or Bylaws, (ii) of any
instrument, judgment, order, writ or decree, (iii) under any note, indenture or
mortgage, (iv) under any lease, agreement, contract or purchase order to which
it is a party or by which it is bound that is required to be listed on the
Company Disclosure Schedule, or (v) of any provision of federal or state
statute, rule or regulation applicable to the Company, the violation or default
of which would have a Material Adverse Effect. The execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated by the Transaction Documents will not result in
any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either (i) a default under any such
provision, instrument, judgment, order, writ, decree, contract or agreement or
(ii) an event which results in the creation of any Lien upon any assets of the
Company or the suspension, revocation, forfeiture, or nonrenewal of any material
permit or license applicable to the Company.
(b)
Foreign
Corrupt Practices
. Neither Company nor any of its Subsidiaries nor any
director, officer, agent, employee or other Person acting on behalf of Company
or any of its Subsidiaries has, in the course of its actions for, or on behalf
of, Company or any of its Subsidiaries (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
3.11
Agreements;
Actions
(a)
Except
for the Transaction Documents and as set forth in Section 3.11(a) of the Company
Disclosure Schedule, there are no agreements, understandings, instruments,
contracts or proposed transactions to which the Company is a party or by which
it is bound that involve (i) obligations (contingent or otherwise) of, or
payments to, the Company in excess of $50,000, (ii) the license of any
patent, copyright, trademark, trade secret or other proprietary right to or from
the Company, (iii) the grant of rights to manufacture, produce, assemble,
license, market, or sell its products to any other Person that limit the
Company’s exclusive right to develop, manufacture, assemble, distribute, market
or sell its products, or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
(b)
Except
as set forth in Section 3.11(b) of the Company Disclosure Schedule, the Company
has not (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) incurred any indebtedness for money borrowed or incurred any other
liabilities individually in excess of $50,000 in the aggregate, (iii) made
any loans or advances to any Person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business. For the purposes of subsections (ii) and (iii) of this
Section 3.11(b)
,
all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same Person (including Persons
the Company has reason to believe are affiliated with each other) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsection.
(c)
Except
as set forth in Section 3.11(c) of the Company Disclosure Schedule, the Company
is not a guarantor or indemnitor of any indebtedness of any other
Person.
3.12
Certain
Transactions
(a)
Except
as set forth in Section 3.12(a) of the Company Disclosure Schedule, other than
(i) standard employee benefits generally made available to all employees, (ii)
standard director and officer indemnification agreements approved by the Board
of Directors, and (iii) the purchase of shares of the Company’s capital stock
and the issuance of options to purchase shares of the Company’s Common Stock, in
each instance, approved in the written minutes of the Board of Directors
(previously provided to the Investors or their counsel), there are no
agreements, understandings or proposed transactions between the Company and any
of its officers, directors, consultants or Key Employees, or any Affiliate
thereof.
(b)
Except
as set forth in Section 3.12(b) of the Company Disclosure Schedule, the Company
is not indebted, directly or indirectly, to any of its directors, officers or
employees or to their respective spouses or children or to any Affiliate of any
of the foregoing, other than in connection with expenses or advances of expenses
incurred in the ordinary course of business or employee relocation expenses and
for other customary employee benefits made generally available to all
employees. None of the Company’s directors, officers or employees, or
any members of their immediate families, or any Affiliate of the foregoing are,
directly or indirectly, indebted to the Company or have any (i) material
commercial, industrial, banking, consulting, legal, accounting, charitable or
familial relationship with any of the Company’s customers, suppliers, service
providers, joint venture partners, licensees and competitors, (ii) direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company except that directors, officers or
employees or stockholders of the Company may own stock in (but not exceeding two
percent (2%) of the outstanding capital stock of) publicly traded companies that
may compete with the Company or (iii) financial interest in any material
contract with the Company.
3.13
R
ights of
Registration and Voting Rights
. Except as set forth in Section 3.13 of
the Company Disclosure Schedule, the Company is not under any obligation to
register under the Securities Act any of its currently outstanding securities or
any securities issuable upon exercise or conversion of its currently outstanding
securities.
3.14
Absence of
Liens.
Except
as set forth in Section 3.14 of the Company Disclosure Schedule, the property
and assets that the Company owns are free and clear of all mortgages, deeds of
trust, Liens, and loans, except for statutory Liens for the payment of current
Taxes that are not yet delinquent and Liens that arise in the ordinary course of
business and do not materially impair the Company’s ownership or use of
such property or assets. With respect to the property and assets it
leases, the Company is in compliance with such leases and, to its Knowledge,
holds a valid leasehold interest free of any Liens other than those of the
lessors of such property or assets.
3.15
Financial
Matters
.
(a)
Financial
Statements
. The Company has delivered to each Investor its
audited income statements for the twelve-month period ended March 31, 2010, and
its unaudited income statement for the six-month period ended September 30,
2010, and an audited balance sheet dated as of March 31, 2010, and an unaudited
balance sheet dated as of September 30, 2010 (collectively, the "
Financial
Statements
"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, except that the unaudited Financial
Statements may not contain all footnotes required by generally accepted
accounting principles. The Financial Statements fairly present in all
material respects the financial condition and operating results of the Company
as of the dates, and for the periods, indicated therein, subject in the case of
the unaudited Financial Statements to normal year-end audit adjustments. Except
as set forth in the Financial Statements, the Company has no material
liabilities or obligations, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
Financial Statements Date, (ii) obligations under contracts and commitments
incurred in the ordinary course of business, and (iii) liabilities and
obligations of a type or nature not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, in all such
cases, individually and in the aggregate would not have a Material Adverse
Effect. The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
generally accepted accounting principles.
(b)
Internal
Accounting and Disclosure Controls
. Company maintains 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 generally accepted
accounting principles and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference. Company maintains disclosure controls and procedures
(as such term is defined in Rule 13a-15 under the 1934 Act) that are effective
in ensuring that information required to be disclosed by Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed to ensure
that information required to be disclosed by Company in the reports that it
files or submits under the 1934 Act is accumulated and communicated to Company’s
management, including its principal executive officer or officers and its
principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. During the twelve months prior to the
date hereof, neither Company nor any of its Subsidiaries have received any
notice or correspondence from any accountant relating to any potential material
weakness in any part of the system of internal accounting controls of Company or
any of its Subsidiaries.
(c)
Off Balance
Sheet Arrangements
. There is no transaction, arrangement, or other
relationship between Company and an unconsolidated or other off balance sheet
entity that is required to be disclosed by Company in its Exchange Act filings
and is not so disclosed or that otherwise would be reasonably likely to have a
Material Adverse Effect.
3.16
Changes
. Since
the Financial Statements Date there has not been:
(a)
any
change in the assets, liabilities, financial condition or operating results of
the Company from that reflected in the Financial Statements, except changes in
the ordinary course of business that have not caused, in the aggregate, a
Material Adverse Effect;
(b)
any
damage, destruction or loss, whether or not covered by insurance, that would
have a Material Adverse Effect;
(c)
any
waiver or compromise by the Company of a valuable right or of a material debt
owed to it;
(d)
any
satisfaction or discharge of any Lien or payment of any obligation by the
Company, except in the ordinary course of business and the satisfaction or
discharge of which would not have a Material Adverse Effect;
(e)
any
material change to a material contract or agreement by which the Company or any
of its assets is bound or subject;
(f)
any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder;
(g)
any
resignation or termination of employment of any officer or Key Employee of the
Company;
(h)
any
mortgage, pledge, transfer of a security interest in, or Lien, created by the
Company, with respect to any of its material properties or assets, except Liens
for Taxes not yet due or payable and Liens that arise in the ordinary course of
business and do not materially impair the Company’s ownership or use of such
property or assets;
(i)
any
loans or guarantees made by the Company to or for the benefit of its employees,
officers or directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of its
business;
(j)
any declaration, setting aside or payment or other distribution in respect of
any of the Company’s capital stock, or any direct or indirect redemption,
purchase, or other acquisition of any of such stock by the Company;
(k)
any
sale, assignment or transfer of any Company Intellectual Property that could
reasonably be expected to result in a Material Adverse Effect;
(l)
receipt
of notice that there has been a loss of, or material order cancellation by, any
major customer of the Company;
(m)
to
the Company’s Knowledge, any other event or condition of any character, other
than events affecting the economy or the Company’s industry generally,
that could reasonably be expected to result in a Material Adverse Effect;
or
(n)
any
arrangement or commitment by the Company to do any of the things described in
this
Section 3.16
.
3.17
Employee
Matters
(a)
As of the date hereof, the Company employs such
full-time employees, part-time employees and consultants or independent
contractors as are listed in
Section 3.17
of the
Company Disclosure Schedule, which sets forth a detailed description of all
compensation, including salary, bonus, severance obligations and deferred
compensation paid or payable for each officer, employee, consultant and
independent contractor of the Company who received compensation in excess of
$75,000 for the fiscal year ended March 31, 2010, or is anticipated to receive
compensation in excess of $75,000 for the fiscal year ending March 31,
2011.
(b)
To
the Company’s Knowledge, none of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would materially interfere with such employee’s ability to promote
the interest of the Company or that would conflict with the Company’s
business. Neither the execution or delivery of the Transaction
Documents, nor the carrying on of the Company’s business by the employees of the
Company, nor the conduct of the Company’s business as now conducted and as
presently proposed to be conducted, will, to the Company’s Knowledge, conflict
with or result in a breach of the terms, conditions, or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
such employee is now obligated.
(c)
Except
as set forth in Section 3.17(c) of the Company Disclosure Schedule, the Company
is not delinquent in payments to any of its employees, consultants, or
independent contractors for any wages, salaries, commissions, bonuses, or other
direct compensation for any service performed for it to the date hereof or
amounts required to be reimbursed to such employees, consultants, or independent
contractors. The Company has complied in all material respects with all
applicable state and federal equal employment opportunity laws and with other
laws related to employment, including those related to wages, hours, worker
classification, and collective bargaining. The Company has withheld
and paid to the appropriate governmental entity or is holding for payment not
yet due to such governmental entity all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, Taxes,
penalties, or other sums for failure to comply with any of the
foregoing.
(d)
Except
as set forth in Section 3.17(d) of the Company Disclosure Schedule, to the
Company’s Knowledge, no Key Employee intends to terminate employment with the
Company or is otherwise likely to become unavailable to continue as a Key
Employee, nor does the Company have a present intention to terminate the
employment of any of the foregoing. The employment of each employee
of the Company is terminable at the will of the Company. Except as
set forth in
Section
3.17
of the Company Disclosure Schedule or as required by law, upon
termination of the employment of any such employees, no severance or other
payments will become due. Except as set forth in
Section 3.17
of the
Company Disclosure Schedule, the Company has no policy, practice, plan, or
program of paying severance pay or any form of severance compensation in
connection with the termination of employment services.
(e)
The
Company has not made any representations regarding equity incentives to any
officer, employees, director or consultant that are inconsistent with the share
amounts and terms set forth in the minutes of meetings of the Board of
Directors.
(f)
Each
former Key Employee whose employment was terminated by the Company has entered
into an agreement with the Company providing for the full release of any claims
against the Company or any related party arising out of such
employment.
(g)
Section 3.17
of the
Company Disclosure Schedule sets forth each employee benefit plan maintained,
established or sponsored by the Company, or which the Company participates in or
contributes to, which is subject to the Employee Retirement Income Security Act
of 1974, as amended ("
ERISA
"). The
Company has made all required contributions and has no liability to any such
employee benefit plan, other than liability for health plan continuation
coverage described in Part 6 of Title I(B) of ERISA, and has complied
in all material respects with all applicable laws for any such employee benefit
plan.
(h)
The
Company is not bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the Knowledge of the Company, has sought to represent any of the
employees, representatives or agents of the Company. There is no
strike or other labor dispute involving the Company pending, or to the Company’s
Knowledge, threatened, which could have a Material Adverse Effect, nor is the
Company aware of any labor organization activity involving its
employees.
(i)
To
the Company’s Knowledge, none of the Key Employees or directors of the Company
has been (i) subject to voluntary or involuntary petition under the federal
bankruptcy laws or any state insolvency law or the appointment of a receiver,
fiscal agent or similar officer by a court for his business or property; (ii)
convicted in a criminal proceeding or named as a subject of a pending criminal
proceeding (excluding traffic violations and other minor offenses);
(iii) subject to any order, judgment, or decree (not subsequently reversed,
suspended, or vacated) of any court of competent jurisdiction permanently or
temporarily enjoining him from engaging, or otherwise imposing limits or
conditions on his engagement in any securities, investment advisory, banking,
insurance, or other type of business or acting as an officer or director of a
public company; or (iv) found by a court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated any federal or state securities,
commodities, or unfair trade practices law, which such judgment or finding has
not been subsequently reversed, suspended, or vacated.
3.18
Tax Returns
and payments.
There are no federal, state county, local or
foreign Taxes due and payable by the Company which have not been timely
paid. There are no accrued and unpaid federal, state, country, local
or foreign Taxes of the Company which are due, whether or not assessed or
disputed. There have been no examinations or audits of any Tax
Returns or reports by any applicable federal, state, local or foreign
governmental agency. The Company has duly and timely filed all
federal, state, county, local and foreign Tax Returns required to have been
filed by it and there are in effect no waivers of applicable statues of
limitations with respect to Taxes for any year.
3.19
Insurance
. The
Company has in full force and effect fire and casualty insurance policies with
extended coverage, sufficient in amount (subject to reasonable deductions) to
allow it to replace any of its properties that might be damaged or
destroyed.
3.20
Confidential
Information and Invention Assignment Agreements
. Each current
and former employee, consultant and officer of the Company has executed an
agreement with the Company regarding confidentiality and proprietary information
substantially in the form or forms delivered to the counsel for the Investors
(the "
Confidential
Information Agreements
"). No current or former Key Employee
has excluded works or inventions from his or her assignment of inventions
pursuant to such Key Employee’s Confidential Information
Agreement. The Company is not aware that any of its Key Employees is
in violation thereof.
3.21
Permits
. The
Company has all franchises, permits, licenses and any similar authority
necessary for the conduct of its business, the lack of which could reasonably be
expected to have a Material Adverse Effect. The Company is not in
default in any material respect under any of such franchises, permits, licenses
or other similar authority.
3.22
Corporate
Documents
. The Articles of Incorporation and Bylaws of the
Company are in the form provided to the Investors. The copy of the
minute book of the Company provided to the Investors contains minutes of
meetings of directors and stockholders and actions by written consent without a
meeting by the directors and accurately reflects in all material respects
actions by the directors (and any committee of directors) and stockholders with
respect to all transactions referred to in such minutes.
3.23
83(
b
)
Elections
. To the Company's Knowledge, all elections and
notices under Section 83(b) of the Code have been or will be timely filed
by all individuals who have acquired shares of the Company's Common Stock
subject to substantial risk of forfeiture.
3.24
Environmental
and Safety Laws
. Except as could not reasonably be expected to
have a Material Adverse Effect and as set forth in Section 3.24 of the Company
Disclosure Schedule, (a) the Company is and has been in compliance with all
Environmental Laws; (b) there has been no release or threatened release of
any pollutant, contaminant or toxic or hazardous material, substance or waste,
or petroleum or any fraction thereof, (each a "
Hazardous Substance
")
on, upon, into or from any site currently or heretofore owned, leased or
otherwise used by the Company; (c) there have been no Hazardous Substances
generated by the Company that have been disposed of or come to rest at any site
that has been included in any published U.S. federal, state or local "superfund"
site list or any other similar list of hazardous or toxic waste sites published
by any governmental authority in the United States; and (d) there are no
underground storage tanks located on, no polychlorinated biphenyls ("
PCBs
") or
PCB-containing equipment used or stored on, and no hazardous waste as defined by
the Resource Conservation and Recovery Act, as amended, stored on, any site
owned or operated by the Company, except for the storage of hazardous waste in
compliance with Environmental Laws. The Company has made available to
the Investors true and complete copies of all material environmental records,
reports, notifications, certificates of need, permits, pending permit
applications, correspondence, engineering studies, and environmental studies or
assessments. For purposes of this
Section 3.24
,
"Environmental Laws" means any law, regulation, or other applicable requirement
relating to (a) releases or threatened release of Hazardous Substance; (b)
pollution or protection of employee health or safety, public health or the
environment; or (c) the manufacture, handling, transport, use, treatment,
storage, or disposal of Hazardous Substances.
3.25
Brokers and
Finders
.
Except as set
forth in Section 3.25 of the Company Disclosure Schedule, the Company has not
retained any investment banker, broker or finder in connection with the
transactions contemplated by this Agreement.
3.26
Disclosure
. No
representation or warranty of the Company contained in this Agreement, as
qualified by the Company Disclosure Schedule, and certificate furnished or to be
furnished to Investors at the Closing contains any untrue statement of a
material fact or, to the Company’s Knowledge, omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were
made. It is understood that this representation is qualified by the
fact that the Company has not delivered to the Investors, and has not been
requested to deliver, a private placement or similar memorandum or any written
disclosure of the types of information customarily furnished to purchasers of
securities.
4.
Representations
and Warranties of Investors.
4.1
Investment
Representations and Acknowledgments
. Each Investor, severally
and not jointly, represents, warrants and acknowledges to the Company (provided
that such representations and warranties do not limit or obviate the
representations and warranties of the Company set forth in this Agreement) as
follows:
(a)
Authorization
. Investor
has full power and authority to enter into this Agreement and all corporate
action on the part of Investor, its officers, directors, managers, members and
stockholders necessary for the purchase of the Shares has been taken, and this
Agreement constitutes the legally binding and valid obligation of Investor,
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
(b)
Brokers and
Finders
.
Investor has not
retained any investment banker, broker or finder in connection with the
transactions contemplated by this Agreement.
(c)
Purchase
Entirely for Own Account.
This Agreement is made with Investor
in reliance upon Investor's representation to the Company, which by Investor's
execution of this Agreement Investor hereby confirms, that the Shares to be
received by Investor will be acquired for investment for Investor's own account,
not as a nominee or agent, and not with a view to the sale or distribution of
any part thereof, and that Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. By
executing this Agreement, Investor further represents that it has no contract,
undertaking, agreement or arrangement with any Person to sell, transfer or grant
participation to such Person or to any third Person, with respect to any of the
Shares.
(d)
Restricted
Securities
.
(i)
Investor
understands and acknowledges that the offering of the Shares pursuant to this
Agreement will not be registered under the Securities Act on the grounds that
the offering and sale of securities contemplated by this Agreement are exempt
from registration pursuant to Section 4(2) and/or Regulation D of the Securities
Act, and that the Company's reliance upon such exemption is predicated, in part,
upon Investor's representations set forth in this Agreement.
(ii)
The
certificates for the Shares shall bear a legend in substantially the following
form:
"THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT BE
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO
SUCH TRANSFER OR, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY, SUCH TRANSFER MAY BE MADE PURSUANT TO RULE 144 OR REGISTRATION UNDER
THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE
ACT."
(e)
Limitations
on Disposition
.
(i)
In
no event will Investor dispose of any of its Shares (other than pursuant to an
effective registration statement under the Securities Act or pursuant to Rule
144 promulgated by the United States Securities and Exchange Commission (the
"
Commission
")
under the Securities Act ("
Rule 144
") or any
similar or analogous rule), unless and until (i) Investor shall have notified
the Company of the proposed disposition and shall have furnished the Company
with a statement of the circumstances surrounding the proposed disposition, and
(ii) if reasonably requested by the Company, Investor shall have furnished the
Company with an opinion of counsel satisfactory in form and substance to the
Company to the effect that such disposition will not require registration under
the Securities Act.
(ii)
Notwithstanding
the provisions of subsection (a) above, no such registration statement or
opinion of counsel shall be necessary for a transfer by an Investor that is
(i) a partnership to an affiliate, a partner of such partnership or a
retired partner of such partnership who retires after the date hereof, or to the
estate of any such partner or retired partner or the transfer by gift, will or
intestate succession of any partner to his or her spouse or to the siblings,
lineal descendants or ancestors of such partner or his or her spouse;
(ii) a corporation, to its stockholders in accordance with their interest
in the corporation; (iii) a limited liability company, to its members or
former members in accordance with their interest in the limited liability
company; or (iv) to the Investor's family member or trust for the benefit
of the individual Investor, if the transferee agrees in writing to be subject to
the terms hereof to the same extent as if he or she were an original Investor
hereunder.
(f)
Investment
Experience and Disclosure of Information.
Investor (i) has
such Knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its prospective investment in the Shares;
(ii) has the ability to bear the economic risks of its prospective investment;
and (iii) is able to bear the economic risk of its investment and to hold the
Shares for an indefinite period of time.
(g)
Accredited
Investor.
Investor is an "accredited investor," as such term
is defined for purposes of Rule 501 of Regulation D, as presently in effect,
promulgated by the Commission.
(h)
Residence.
The
State of the principal residence or principal executive office of the Investor
is set forth below the Investor's signature on the signature pages
hereto.
(
i
)
Non-Reliance
on Company.
Investor is not relying on the Company with respect to the
tax and other economic considerations relating to this Agreement and the
purchase of the Shares. In regard to such considerations, Investor has relied on
the advice of, or has consulted with, his, her or its own personal tax,
investment or other advisors and has not relied on the Company or any of its
affiliates, officers, directors, attorneys, accountants or any affiliates of any
thereof and each other person, if any, who controls any thereof, within the
meaning of Section 15 of the Securities Act, except to the extent such advisors
shall be deemed to be as such.
(
j
)
Full Access
to Company Records.
Investor has been granted the opportunity to conduct
a full and fair examination of the records, documents and files of the Company,
to ask questions of and receive answers from representatives of the Company, its
officers, directors, employees and agents concerning the terms and conditions of
this Agreement and the purchase of Shares, the Company and its business and
prospects, and to obtain any additional information which Investor deems
necessary to verify the accuracy of any information received.
(
k
)
No General
Solicitation.
The Shares were not offered to Investor through an
advertisement in printed media of general and regular circulation, radio or
television.
(
l
)
Limited
Market.
There is currently a very limited market for the Company’s Common
Stock on the Over-the-Counter Bulletin Board. There can be no assurances that a
liquid market will develop for the Company’s Common Stock or if developed, be
sustained in the future. Consequently, Investor may never be able to liquidate
its investment and Investor may bear the economic risk of its investment for an
indefinite period of time.
4.2
Separate
Representations of WCOF
. WCOF represents and warrants to
the Company that:
(a)
Contributed
Assets
. WCOF is the sole owner of the Secured Debentures,
Oakridge Shares, and Spindletop Shares, that WCOF is contributing to the Company
pursuant to
Section
2.2
, above, free and clear of all Liens, and has the sole power and every
right and lawful authority to transfer such Secured Debentures and shares to the
Company without the consent of any other Person. Upon execution and
delivery of the instruments contemplated by
Section 2.2
, above,
the Company shall acquire title to such Contributed Assets free and clear of all
Liens arising by or through any act of or claim against WCOF.
(b)
Waiver of
Claims for Interest
. WCOF agrees to accept the Shares being
issued to WCOF pursuant to
Section 2.3
, above,
in complete satisfaction of all claims against the Company with respect to the
principal of and interest on the Secured Debentures that WCOF is contributing to
the Company pursuant to
Section 2.2
,
above.
4.3
Separate
Representations of MVP
.
(a)
Contributed
Assets
. MVP is the sole owner of the membership interest in
Black Sable that MVP is contributing to the Company pursuant to
Section 2.2
, above,
free and clear of all Liens, and has the sole power and every right and lawful
authority to transfer such membership interest to the Company without the
consent of any Person other than BSE and RGW, which consent has been
obtained. Upon execution and delivery of the instruments contemplated
by
Section 2.2
,
above, to be executed by MVP, the Company shall acquire title to such
Contributed Assets free and clear of all Liens arising by or through any act of
or claim against MVP.
(b)
Operating
Agreement
. MVP has delivered to the Company a copy of the
articles of organization of Black Sable and the Amended and Restated Operating
Agreement of Black Sable dated effective January 1, 2010, as amended (as so
amended, the "
BSE
Operating Agreement
"). Such articles of organization and BSE
Operating Agreement have not been further modified or amended, and remain in
full force and effect.
(c)
Ownership
of Interests in Black Sable
. Except for the membership
interest in Black Sable that is held by RGW and is being contributed to the
Company pursuant to
Section 2.2
, above,
no Person other than MVP and RGW holds any membership interest or economic
interest in Black Sable, or any right, option, warrant or other security
exercisable for, convertible into, or exhangeable into a membership interest or
economic interest in Black Sable.
4.4
Separate
Representations of RGW
. RGW represents and warrants to the Company
that:
(a)
Contributed
Assets
. RGW is the sole owner of the membership interest in
Black Sable that RGW is contributing to the Company pursuant to
Section 2.2
, above,
free and clear of all Liens, and has the sole power and every right and lawful
authority to transfer such membership interest to the Company without the
consent of any other Person other than BSE and MVP, which consent has been
obtained. Upon execution and delivery of the instruments contemplated
by
Section 2.2
,
above, the Company shall acquire title to such Contributed Asset free and clear
of all Liens arising by or through any act of or claim against RGW.
(b)
Operating
Agreement
. RGW has delivered to the Company a copy of the
articles of organization of Black Sable and the Amended and Restated Operating
Agreement of Black Sable dated effective January 1, 2009 (the "
BSE Operating
Agreement
"). Such articles of organization and BSE Operating
Agreement have not been further modified or amended, and remain in full force
and effect.
(c)
Ownership
of Interests in Black Sable
. Except for the membership
interest in Black Sable that is held by RGW and is being contributed to the
Company pursuant to
Section 2.2
, above,
no Person other than MVP and RGW holds any membership interest or economic
interest in Black Sable, or any right, option, warrant or other security
exercisable for, convertible into, or exhangeable into a membership interest or
economic interest in Black Sable.
(d)
Black Sable
Working Interests
. The Black Sable Working Interests are
held by Black Sable free and clear of all Liens
whatsoever. Except as expressly set forth on
Exhibit
B
hereto, (i) all leases under which Black Sable holds such Black Sable
Working Interests (the "
Black Sable Leases
")
are in full force and effect, and (ii) all taxes with respect to each Black
Sable Working Interest for all periods prior to the Effective Date of this
Agreement have been paid in full. To the extent that it is hereafter
determined that any such taxes have not been paid (including but not limited to
all taxes attributable to all periods prior to the Effective Date of this
Agreement that are not yet due and payable), Black Sable shall pay or reimburse
the Company for such taxes upon written demand therefore. Neither
Black Sable nor, to the Knowledge of Black Sable, any of the lessors under any
Black Sable Lease, is in default of its respective obligations under any such
Black Sable Lease, and to the Knowledge of Black Sable there do not exist any
circumstances that, with the delivery of notice or passage of time, would
constitute a default by any such Person under any such Black Sable
Lease.
(e)
Condition
of Leaseholds
. Except as set forth on
Exhibit
B
hereto, to the Knowledge of Black Sable, (i) none of the leasehold
interests under any of the Black Sable Leases contains any waste materials
(whether toxic, hazardous, or extremely hazardous and related to the oil and gas
operations on such leasehold) or other adverse physical conditions, including,
but not limited to, the presence of unknown abandoned oil and gas wells, water
wells, sumps, pits, pipelines or other waste or spill sites, and (ii) all of the
equipment appurtenant to the real property that is included within any of the
Black Sable Leases is in good working order and condition, reasonable wear and
tear excepted.
(f)
"As is" and
"Where is."
Except for the express representations and
warranties of Black Sable set forth in this Agreement or any of the instruments
delivered by Black Sable to the Company regarding the Black Sable Working
Interests or the Black Sable Leases:
(i)
Neither
Black Sable nor any of its respective members, officers, directors, members,
agents, and attorneys, makes any warranties, express or implied, with respect to
the quality, design, physical condition, fitness for a particular purpose,
production volumes, profitability or capacity of any of the Black Sable Leases;
and
(ii)
All
such Black Sable Leases, and the wells, equipment and fixtures associated
therewith, are being delivered to the Company in their respective "AS IS, WHERE
IS" condition existing on the Closing Date, with reasonable exception for normal
wear and tear. The Company assumes all risks that the properties that
are subject to such Black Sable Leases may contain waste materials (whether
toxic, hazardous, extremely hazardous or otherwise) or other adverse physical
conditions, including, but not limited to, the presence of unknown abandoned oil
and gas wells, water wells, sumps, pits, pipelines or other waste or spill sites
which may or may not have been revealed by Company’s investigation.
4.5
Separate
Representations of J&J and WIH LLC
. J&J and WIH
LLC jointly and severally represent and warrant to the Company
that:
(a)
Contributed
Assets
. WIH LLC (i) is the sole owner of one hundred percent
(100%) of the issued and outstanding membership interests in WI LLC, which
membership interests WIH LLC is contributing to the Company pursuant to
Section 2.2
, above,
free and clear of all Liens, and (ii) has the sole power and every right and
lawful authority to transfer such membership interests in WI LLC to
the Company without the consent of any other Person. No Person has
any option, warrant, or other right to acquire any membership or economic
interest in WI LLC. Upon execution and delivery of the instruments
contemplated by
Section 2.2
, above,
the Company shall acquire title to such Contributed Asset free and clear of all
Liens arising by or through any act of or claim against WIH LLC or any Person
that assigned an interest in any of the WI LLC Working Interests to WIH LLC or
WI LLC.
(b)
Articles
and Operating Agreement
. WIH LLC has delivered to the Company
a copy of (i) the articles of organization and the Operating Agreement of WIH
LLC dated effective December 7, 2010 (the "
WIH LLC Operating
Agreement
"), and (ii) the articles of organization and the Operating
Agreement of WI LLC dated effective December 7, 2010 (the "
WI LLC Operating
Agreement
"). Such articles of organization, the WIH LLC
Operating Agreement, and the WI LLC Operating Agreement have not been further
modified or amended, and remain in full force and effect.
(c)
Ownership
of Interests in WI LLC
. Except for the membership interest in
WI LLC that is held by WIH LLC and is being contributed to the Company pursuant
to
Section 2.2
,
above, no Person holds any membership interest or economic interest in WI LLC,
or any right, option, warrant or other security exercisable for, convertible
into, or exhangeable into a membership interest or economic interest in WI
LLC.
(d)
WI LLC
Working Interests
.
(i)
The
WI LLC Working Interests are comprised of (A) a one hundred percent (100%)
interest in the "Thoren interest" described on
Exhibit
H
hereto, (B) an eighty percent (80%) working interest in the remainder
of the leasehold interests identified on
Exhibit
H
, under which WI LLC holds such WI LLC Working Interests (collectively,
the "
WI LLC
Leases
"), and are held by WI LLC free and clear of all Liens whatsoever,
and (C) the interests in the Non-Producing Leases identified on
Exhibit
O
hereto.
(ii)
Except
as expressly set forth on
Exhibit
H
, (i) all WI LLC Leases are in full force and effect, and (ii) all taxes
with respect to each WI LLC Working Interest for all periods prior to the
Effective Date of this Agreement have been paid in full. Each WI LLC
Working Interest has the respective Net Revenue Interest ("
NRI
") set forth for
such WI LLC Working Interest on
Exhibit
H
. To the extent that it is hereafter determined that any such
taxes have not been paid (including but not limited to all taxes attributable to
all periods prior to the Effective Date of this Agreement that are not yet due
and payable), J&J and WIH LLC shall pay or reimburse the Company for such
taxes upon written demand therefore. Neither WI LLC nor, to the
Knowledge of J&J or WIH LLC, the lessor under any WI LLC Lease, is in
default of its respective obligations under any such WI LLC Lease, and to the
Knowledge of WIH LLC there do not exist any circumstances that, with the
delivery of notice or passage of time, would constitute a default by any such
Person under any such WI LLC Lease.
(e)
Condition
of Leaseholds
. Except as set forth on
Exhibit
H
hereto, to the Knowledge of J&J and WIH LLC, (i) none of the
leasehold interests under any of the WIH LLC Leases contains any waste materials
(whether toxic, hazardous, or extremely hazardous and related to the oil and gas
operations on such leasehold) or other adverse physical conditions, including,
but not limited to, the presence of unknown abandoned oil and gas wells, water
wells, sumps, pits, pipelines or other waste or spill sites, and (ii) all of the
equipment appurtenant to the real property that is included within any of the
WIH LLC Leases is in good working order and condition, reasonable wear and tear
excepted.
(f)
"As is" and
"Where is."
Except for the express representations and
warranties of WIH LLC set forth in this Agreement or any of the instruments
delivered by WIH LLC to the Company regarding the WI LLC Working Interests or
the WI LLC Leases under which such WI LLC Working Interests are
held:
(i)
Neither
WIH LLC nor any of its respective members, officers, directors, members, agents,
and attorneys, makes any warranties, express or implied, with respect to the
quality, design, physical condition, fitness for a particular purpose,
production volumes, profitability or capacity of any of the WI LLC Leases;
and
(ii)
All
such WI LLC Leases, and the wells, equipment and fixtures associated therewith,
are being delivered to the Company in their respective "AS IS, WHERE IS"
condition existing on the Closing Date, with reasonable exception for normal
wear and tear. The Company assumes all risks that the properties that
are subject to such WI LLC Leases may contain waste materials (whether toxic,
hazardous, extremely hazardous or otherwise) or other adverse physical
conditions, including, but not limited to, the presence of unknown abandoned oil
and gas wells, water wells, sumps, pits, pipelines or other waste or spill sites
which may or may not have been revealed by Company’s investigation.
4.6
Separate
Representations of Frey Living Trust
. Frey Living Trust
represents and warrants to the Company that:
(a)
Contributed
Assets
. Frey Living Trust is the sole owner of the Secured
Debentures that Frey Living Trust is contributing to the Company pursuant to
Section 2.2
,
above, free and clear of all Liens, and has the sole power and every right and
lawful authority to transfer such Secured Debentures and shares to the Company
without the consent of any other Person. Upon execution and delivery
of the instruments contemplated by
Section 2.2
, above,
the Company shall acquire title to such Contributed Assets free and clear of all
Liens arising by or through any act of or claim against Frey Living
Trust.
(b)
Waiver of
Claims for Interest
. Frey Living Trust agrees to accept the
Shares being issued to Frey Living Trust pursuant to
Section 2.3
, above,
in complete satisfaction of all claims against the Company with respect to the
principal of and interest on the Secured Debentures that Frey Living Trust is
contributing to the Company pursuant to
Section 2.2
,
above.
4.7
Separate
Representations of J&J
. J&J represents, warrants,
covenants and agrees that (a) within ten (10) days following the Effective Date
of this Agreement, J&J shall convey or cause the conveyance to the Company
of the Expired Leases, and (b) each such Expired Lease shall be on the
respective terms set forth on
Exhibit
F
hereto.
4.8
State and
Federal Securities Laws.
No federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the transactions contemplated under this Agreement.
5.
Covenants
of Parties.
5.1
Operations
of the Company
. Except as contemplated by this Agreement
or as described in
Section 5.1
of
the Company Disclosure Schedule, during the period from the date hereof to the
Closing, the Company shall, and shall cause each of its subsidiaries to, conduct
its operations in the ordinary course of business consistent with past practice
and, to the extent consistent therewith, with no less diligence and effort than
would be applied in the absence of this Agreement, use its commercially
reasonable efforts to preserve intact its current business organizations, keep
available the service of its current officers and employees and preserve its
relationships with customers, suppliers, distributors, lessors, creditors,
employees, contractors and others having business dealings with it, with the
intention that its goodwill and ongoing businesses shall be unimpaired at the
Closing. Without limiting the generality of the foregoing, except as
otherwise expressly provided in this Agreement, and except as described in
Section 5.1 of the Company Disclosure Schedule, between the date hereof and
the Closing, neither the Company nor any of its subsidiaries shall, without the
prior written consent of the Majority Holders:
(a)
Amend
its Articles of Incorporation or Bylaws (or other similar governing
instruments), except to adopt and file the Certificate of Designation in order
to designate and authorize the issuance of 4,779,460 shares of Series A
Preferred Stock to be issued hereunder;
(b)
Authorize
for issuance or grant, issue, sell, grant, deliver or agree or commit to issue,
sell, grant or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other debt or equity securities or equity equivalents
(including any stock options or stock appreciation rights) except for the
issuance and sale of Company Shares upon (i) the exercise of Company Stock
Options and other convertible securities of the Company granted, issued and
outstanding prior to the date hereof, or (ii) the sale of shares of Company
Stock to employees of the Company issued under the Company Equity
Incentive Plan prior to the date hereof;
provided that
for purposes of
this
Section 6.1(b)
,
Company Stock Options and other convertible securities of the Company shall not
be deemed granted, issued and outstanding prior to the date hereof, and shares
of Company Stock shall not be deemed issued to employees under the Company
Equity Incentive Plan prior to the date hereof under such options, convertible
securities and Company Stock, unless the same are disclosed in
Section 2.2
,
above, or in Section 2.2 of the Company Disclosure Schedule;
(c)
Split,
combine or reclassify any shares of its capital stock, declare, set aside or pay
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, make any other actual,
constructive or deemed distribution in respect of its capital stock or otherwise
make any payments to stockholders in their capacity as such, or redeem or
otherwise acquire any of its securities or any securities of any of its
subsidiaries;
(d)
Adopt
a plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any of
its subsidiaries (other than the transactions contemplated hereunder and the
Common Stock Offering);
(e)
Alter
through merger, liquidation, reorganization, restructuring or any other fashion
the corporate structure or ownership of any subsidiary;
(f)
Either
(i) incur or assume any long-term or short-term Indebtedness or issue any
debt securities, in each case, except for borrowings under existing lines of
credit in the ordinary course of business and consistent with past practices, or
modify or agree to any amendment of the terms of any of the foregoing;
(ii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person except for obligations of subsidiaries of the Company incurred in the
ordinary course of business and consistent with past practices; (iii) make
any loans, advances or capital contributions to or investments in any other
person (other than customary loans or advances to employees in each case in the
ordinary course of business consistent with past practice not to exceed Fifty
Thousand Dollars ($50,000) in the aggregate and to the extent permitted by
applicable law); (iv) pledge or otherwise encumber shares of capital stock
of the Company or any of its subsidiaries; or (v) mortgage or pledge any of
its material assets, tangible or intangible, or create or suffer to exist any
material Lien thereupon;
(g)
Except
as may be required by applicable law or as contemplated by this Agreement, enter
into, adopt or amend or terminate any bonus, profit sharing, special
remuneration, compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock equivalent, stock
purchase agreement, pension, retirement, deferred compensation, employment,
health, life, or disability insurance, dependent care, severance or other
employee benefit plan agreement, trust, fund or other arrangement for the
benefit or welfare of any director, officer, employee or consultant in any
manner or increase in any manner the compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any plan and
arrangement as in effect as of the date hereof (including the granting of stock
appreciation rights or performance units);
(h)
Grant
any severance or termination pay to any director, officer, employee or
consultant;
(i)
Except
as expressly contemplated by this Agreement, enter into or amend any employment
agreements, oral or written, increase the compensation payable or to become
payable by the Company or any of its subsidiaries to any of its officers,
stockholders, directors, employees or consultants, or adopt or amend any
employee benefit plan or arrangement, oral or written (including any amendment
to the Company Equity Incentive Plan or the agreements thereunder), or increase
the salaries or wage rates of its officers, stockholders, directors, employees
or consultants, in amounts not greater than and not with greater frequency than
under prior Company practices;
(j)
Terminate
the employment of any employee, manager or officer or grant any severance or
termination pay to any member, manager, officer or any other employee, except
such terminations or payments in amounts not greater than under prior Company
practices or made pursuant to written agreements or other legally binding
commitments disclosed to the Investors in writing and in effect on the date
hereof;
(k)
Exercise
its discretion or otherwise voluntarily accelerate the vesting of any Company
Stock Option as a result of the transactions contemplated hereunder or the
Common Stock Offering, any other change of control of the Company (as defined in
the Company Equity Incentive Plan) or otherwise;
(l)
Other
than in the ordinary course of business and consistent with past practices,
(i) acquire, sell, lease, license, transfer or otherwise dispose of any
assets in any single transaction or series of related transactions having a fair
market value in excess of Fifty Thousand Dollars ($50,000) in the aggregate;
(ii) enter into any exclusive license, distribution, marketing, sales or
other agreement; (iii) enter into a "development services" or other similar
agreement; or (iv) acquire, sell, lease, license, transfer or otherwise dispose
of any Company Intellectual Property;
(m)
Except
as may be required as a result of a change in applicable law or in generally
accepted accounting principles, change any material accounting principle,
practice or method used by it;
(n)
Revalue
in any material respect any of its assets, including writing down the value of
inventory or writing-off notes or accounts receivable, other than in the
ordinary course of business and consistent with past practices;
(o)
Either
(i) acquire (by merger, consolidation or acquisition of stock or assets)
any corporation, partnership or other business organization or entity or
division thereof or any equity interest therein; (ii) enter into any contract or
agreement other than in the ordinary course of business consistent with past
practice that would be material to the Company and its subsidiaries, taken as a
whole; (iii) amend, modify or waive any material right under any Scheduled
Contract or any other material contract of the Company or any of its
subsidiaries; (iv) breach or otherwise violate the material terms of any
Scheduled Contracts; (v) materially modify its standard warranty terms for
its products or amend or modify any product warranties in effect as of the date
hereof in any material manner that is adverse to the Company or any of its
subsidiaries; (vi) authorize any new or additional capital expenditure or
expenditures if any such expenditure or expenditures or (vii) authorize any
new or additional manufacturing capacity expenditure or expenditures for any
manufacturing capacity contracts or arrangements;
(p)
Make
or revoke any Tax election or settle or compromise any income Tax liability,
other than any such election or revocation that would not have a Material
Adverse Effect on the Company;
(q)
Allow
any insurance policy relating to the Company's or any of its subsidiaries'
assets, properties or business to be amended or terminated without replacing
such policy with a policy providing at least equal coverage, insuring comparable
risks and issued by an insurance company financially comparable to the prior
insurance company;
(r)
Fail
to file any Tax Returns when due (or, alternatively, fail to file for available
extensions) or fail to cause such Tax Returns when filed to be complete and
accurate in all material respects other than any such failure that would not
have a Material Adverse Effect on the Company;
(s)
Fail
to pay any material Taxes or other material debts when due;
(t)
Except
for those claims to be settled as set forth on
Exhibit
M
hereto, commence any litigation or any binding dispute resolution
process (other than in respect of any breach of or claim arising under this
Agreement), or settle or compromise any pending or threatened suit, action,
claim or other dispute that (i) relates to the transactions contemplated
hereby, or (ii) the settlement or compromise of which would involve more
than Twenty-five Thousand Dollars ($25,000) or that would otherwise be material
to the Company and its subsidiaries, taken as a whole, or relates to any Company
Intellectual Property matters;
(u)
Take
any action or fail to take any action that could reasonably be expected to (i)
limit the utilization of any of the net operating losses, built-in losses, Tax
credits or other similar items of the Company or its subsidiaries under
Sections 382, 383, 384 or 1502 of the Code and the Treasury Regulations
thereunder, or (ii) cause any transaction in which the Company or any of its
subsidiaries was a party that was intended to be treated as a reorganization
under Section 368(a) of the Code to fail to qualify as a reorganization
under Section 368(a) of the Code;
(v)
Except
as set forth in Section 5.1(v) of the Company Disclosure Schedule, enter
into any licensing, distribution, sponsorship, advertising or other similar
contracts, agreements, or obligations which may not be canceled without penalty
by the Company or its subsidiaries upon notice of 30 days or less or which
provide for payments by or to the Company or its subsidiaries in an amount in
excess of Fifty Thousand Dollars ($50,000) over the term of the
agreement;
(w)
Engage
in any willful action with the intent to directly or indirectly adversely impact
any of the transactions contemplated by this Agreement, other than pursuant to
rights expressly conferred upon the Company under this Agreement;
or
(x)
Take
or agree in writing or otherwise to take any of the actions described in
Sections 5.1(a)
through
5.2(w)
that it is prohibited from taking (and it shall use all commercially reasonable
efforts not to take any action that would make any of the representations or
warranties of the Company contained in this Agreement (including the Exhibits
hereto) untrue or incorrect).
5.2
No
Shop
.
(a)
Subject
to the exception set forth in
Sections 6.2(b)
,
6.2(c)
, and
6.2(d)
, below,
until the earliest of (i) the execution of the Definitive Agreements, (b) the
Termination Date, or (c) the mutual termination of this Agreement (such period,
the "
Restricted
Period
"), neither the Company nor any subsidiary of the Company nor any
of the Company's officers or directors (or any representative acting on their
behalf) shall directly or indirectly solicit or provide any information to or
enter into any agreement with any corporation, other entity, or person other
than one or more of the Investors, or any of their respective affiliates,
concerning any acquisition of any of the securities of, or all or substantially
all of assets of, the Company or any merger of the Company or any subsidiary of
the Company or any sale of any material assets or any sale of any shares of the
Company or any of its affiliates, other than pursuant to outstanding
compensatory stock options, warrants, convertible debentures, other contractual
commitments made and approved by the Company's Board of Directors prior to
October 27, 2010 or with entities that have executed non-disclosure or other
agreements with the Company prior to October 27, 2010. If, during the
Restricted Period, the Company, any of its subsidiaries, or any officer,
director, employee, representative or other agent of the Company or any of its
subsidiaries, receives any inquiry or offer from any other company or person
with respect to the acquisition of the Company, its securities, or all or any
material portion of its assets (whether by stock purchase, asset acquisition,
merger, or otherwise), then the Company immediately shall advise WCOF of such
inquiry in detail or offer (including all terms thereof) and provide to WCOF
copies of all written documents memorializing or relating to such inquiry or
offer.
(b)
Notwithstanding
the provisions of
Section 6.2(a)
,
above, during the Restricted Period, the Company shall be entitled to negotiate
with investors approved by the Majority Investors (the "
Approved Investors
")
regarding the terms and conditions on which the Approved Investors may purchase
shares of the Company's Common Stock pursuant to the Common Stock
Offering.
(c)
Notwithstanding
the provisions of
Section 6.2(a)
,
above, if at any time during the Restricted Period, the Company receives a
written proposal from a third party for the acquisition of a majority of the
Company’s securities or assets, a merger of the Company with or into any other
entity, or any other similar transaction with the Company (an "
Acquisition
Proposal
"), and if the Board of Directors of the Company determines in
good faith, after consultation with independent financial advisors and outside
legal counsel, that such action is required in order for the Board of Directors
of the Company to comply with its fiduciary obligations to the Company’s
stockholders under Nevada law, and that such Acquisition Proposal constitutes or
is reasonably expected to lead to a "Superior Proposal" (as defined below), then
the Company may (x) furnish, pursuant to an acceptable confidentiality
agreement, information with respect to the Company to the third party who has
made such Acquisition Proposal;
provided
that the
Company shall promptly (and in no event later than 24 hours) provide to the
Investors any material information concerning the Company that is provided to
any third party given such access which was not previously provided to the
Parties; and (y) engage in or otherwise participate in discussions or
negotiations with the third party making such Acquisition Proposal;
provided
,
further
, that the
Company shall promptly (and in no event later than 24 hours) provide to the
Investors (i) a written summary of the material terms of such Acquisition
Proposal (including the pricing, terms, conditions and other material provisions
and the identity of the proposed party or parties to such proposed Acquisition
Transaction) and (ii) if such Acquisition Proposal is in writing, a copy of
such Acquisition Proposal. For purposes of the foregoing, the
term "
Superior
Proposal
" means an unsolicited,
bona fide
written offer made
by a third party to consummate an Acquisition Proposal that the Board of
Directors of the Company has determined in its good faith judgment is reasonably
likely to be consummated in accordance with its terms, taking into account all
legal, regulatory and financial aspects of the proposal and the third party
making the proposal, and if consummated, would result in a transaction in which
(i) the Company’s senior secured debentures are redeemed in full for cash at
maturity without requiring the debenture holders to forfeit any Company shares
of common stock, and (ii) the Company’s Board of Directors unanimously agree
that the value of the Company’s common shares would exceed the value resulting
from completion of the Transactions).
(d)
Notwithstanding
the provisions of
Section 6.2(a)
,
above, the Board of Directors of the Company may enter into a definitive
agreement with respect to an Acquisition Proposal, if and only if, prior to
taking such action, the Board of Directors of the Company has determined in good
faith, after consultation with independent financial advisors and outside legal
counsel, (x) that such action is required in order for the Board of
Directors of the Company to comply with its fiduciary obligations to the
Company’s stockholders under Nevada law, and (y) that such Acquisition
Proposal constitutes a Superior Proposal;
provided
,
however
, that
(w) the Company has given the Parties at least ten (10) Business Days’
prior written notice of its intention to take such action (which notice shall
specify the material terms and conditions of any such Superior Proposal
(including the identity of the party making such Superior Proposal) and has
contemporaneously provided a copy of the relevant proposed transaction
agreements with the party making such Acquisition Proposal to the Parties),
(x) the Company has negotiated in good faith with the Parties during such
notice period to the extent the Parties wish to negotiate, to enable the Parties
to revise the terms of this Agreement such that it would cause the Superior
Proposal to no longer constitute a Superior Proposal, (y) following the end
of such notice period, the Board of Directors of the Company shall have
considered in good faith any changes to this Agreement proposed in writing by
the Parties, and shall have determined that the Superior Proposal would continue
to constitute a Superior Proposal if such revisions were to be given effect, and
(z) in the event of any material change to the material terms of such
Superior Proposal, the Company shall, in each case, have delivered to the
Parties an additional notice and the notice period shall have recommenced,
except that the notice period shall be at least two (2) business
days.
5.3
Access to
Information
. From and after the date hereof, Purchaser may,
directly or through its representatives, review the properties, books and
records of the Company and its financial and legal condition to the extent it
deems necessary or advisable to familiarize itself with such properties and
other matters. The Company hereby agrees to permit Investors and
their representatives to have, from and after the date hereof, after reasonable
notice, reasonable access to the premises and to all of the books and records of
the Company and to cause the officers of the Company to furnish Investors with
such financial and operating data and other information with respect to the
Business as Investors will from time to time reasonably request.
5.4
Commercially
Reasonable Efforts
. Each of the parties hereto will cooperate
and use commercially reasonable efforts to take, or cause to be taken, all
appropriate actions, and to make, or cause to be made, all filings necessary,
proper or advisable under applicable Law to satisfy all conditions to the
Closing and to consummate and make effective the transactions contemplated by
this Agreement.
5.5
Public
Announcements
. Except as otherwise required by law, neither
the Company, any of its respective subsidiaries and affiliates, or any of the
Investors or any of their affiliates shall issue any press release or otherwise
make any public statements with respect to the details of this Agreement, or any
proposed Third Party Acquisition (as defined in the Voting Agreements), without
the prior written consent of the other;
provided that
, nothing in
this Section 6.5 is intended or shall be construed as precluding the
Investors from disclosing to their members the existence and terms of this
Agreement to the reasonably required to obtain their approval of such
transactions and all other transactions incident thereto.
5.6
Notification
of Certain Matters
. The Company shall give prompt notice to
the Investors, and the Investors shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which has caused or would be likely to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time, and (ii) any material
failure of the Company, Company or Subsidiary, as the case may be, to comply
with or satisfy in any material respect any covenant condition or agreement to
be complied with or satisfied by it hereunder;
provided
,
however
, that the delivery
of any notice pursuant to this
Section 6.6
shall not cure such breach or non-compliance or limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
5.7
Additions
to and Modification of Company Disclosure
Schedule
. Concurrently with the execution and delivery of this
Agreement, the Company has delivered to Investor a Company Disclosure Schedule
that includes all of the material information required by the relevant
provisions of this Agreement. In addition, the Company shall deliver
to Investors such additions to or modifications of any Sections of the Company
Disclosure Schedule necessary to make the information set forth therein true,
accurate and complete in all material respects as soon as practicable after such
information is available to the Company after the date of execution and delivery
of this Agreement;
provided,
however,
that such disclosure shall not be deemed to constitute an
exception to its representations and warranties under
Section 3
, nor
limit the rights and remedies of the Investors under this Agreement for any
breach by the Company of such representation and warranties.
6.
Conditions
to Closing
6.1
Conditions
to Investors' Obligations
. The obligations of each Investor
under
Section 2
of
this Agreement are subject to the fulfillment on or before the Closing of each
of the following conditions, any of which may be waived in writing by such
Investor but which waiver shall not be effective against any Investor who does
not consent in writing thereto.
(a)
Representations
and Warranties
. The representations and warranties of the
Company contained in
Section 3
shall be
true on and as of the Closing with the same effect as if made on and as of the
Closing.
(b)
P
erformance
.
The Company shall
have performed or fulfilled all agreements, obligations and conditions contained
herein required to be performed or fulfilled by the Company before the
Closing.
(c)
Blue Sky
Compliance
. The Company shall have complied with and be
effective under the securities laws of the State of California and any other
state, as necessary to offer and sell the Shares to each Investor.
(d)
Secretary’s
Certificate
. The Secretary of the Company shall deliver to
each Investor at the Closing a certificate (i) stating that the copies attached
thereto of the Company’s Articles of Incorporation and Bylaws and the
resolutions of its Board of Directors and stockholders relating to the sale of
the Shares are true and complete copies of such documents and resolutions, and
(ii) certifying the incumbent officers and their signatures.
(e)
Compliance
Certificate
. The Company shall have delivered to Investors the
Compliance Certificate, dated as of the Closing, signed by the Company's
President, certifying that the conditions set forth in
Sections 6.1(a)
and
6.1(b)
have
been satisfied and stating that there shall have been no Material Adverse Effect
with respect to the Company since the Financial Statements Date.
(f)
Authorization
of the Board of Directors of the Company.
The Board of
Directors shall have duly adopted resolutions authorizing the execution,
delivery and performance of this Agreement, the Transaction Documents, and each
of the agreements contemplated hereby, the filing of the Certificate of
Designation, the acquisition of the Contributed Assets in exchange for the
issuance and sale of the Shares, the Stock Repurchase Agreement attached hereto
as
Exhibit
G
, and the WIH LLC Cash Payment, and the consummation of all other
transactions contemplated by this Agreement and the Transaction
Documents.
(g)
Closing of
Transactions Under Securities Purchase Agreement.
The
transactions contemplated by the Securities Purchase Agreement shall close
concurrently with the closing of the issuance of Shares under this
Agreement.
(h)
Board of
Directors.
Immediately following the Closing, the Board of
Directors of the Company shall consist of Atticus Lowe, Robert G. Watson, James
Miller, and Lance Helfert.
(i)
Deliveries
by Company
. The Company shall have delivered to the Investors
the share certificates, Promissory Note, and J&J Cash Consideration in
accordance with
Section 2.3(b)
,
above.
(j)
Stock
Repurchase Agreement
. The Company shall have executed and
delivered to WIH LLC the Stock Repurchase Agreement in the form attached hereto
as
Exhibit
G
.
(k)
Fairness
Opinion
. The Company's Board of Directors shall have received
from C.K. Cooper & Company a written opinion that the terms of the
transactions contemplated by this Agreement are fair to the Company and its
stockholders.
(l)
Employment
Agreement with Watson
. The Company and Robert G. Watson shall
have executed an Employment Agreement in the form attached hereto as
Exhibit
J
.
(m)
J&J
Contractor Agreements
. The Company shall have executed and
delivered to J&J a Service Agreement and a Joint Operating Agreement in the
respective forms attached hereto as
Exhibit
K
.
(n)
Resignations
. All
Persons serving as officers or directors of the Company immediately prior to the
Closing shall have tendered to the Company their written resignation from such
respective position, effective immediately after the Closing.
(o)
Settlements
with Vendors
. The Majority Investors shall have
delivered to the Company a certificate in the form attached hereto as
Exhibit
L,
confirming that the terms on which the Company shall have settled
claims of its vendors listed on
Exhibit M
hereto are acceptable to the Investors.
(p)
Opinion of
Counsel
. Counsel for the Company shall have delivered to each
Investor an opinion in the form attached hereto as
Exhibit
N
.
(q)
Share
Trading
. The Company's Common Stock (i) shall be
designated for quotation on the Principal Market and (ii) shall not have been
suspended, as of the Closing Date, by the SEC or the Principal Market from
trading on the Principal Market nor shall suspension by the SEC or the Principal
Market have been threatened, as of the Closing Date, either (A) in writing by
the SEC or the Principal Market, or (B) by falling below the minimum listing
maintenance requirements of the Principal Market.
(r)
No
Injunctions
. No provision of any applicable Law and no
judgment, injunction, order or decree will be in effect, and no action shall
have been commenced seeking any of the foregoing), which will prohibit the
consummation of the transactions contemplated under this Agreement.
(s)
Good
Standing Certificates.
The Company shall have delivered to
Investors a certificate of good standing issued by the Secretary of State for
the State of Nevada, the State of Kansas, and the applicable authority for each
other jurisdiction in which the Company is qualified to do business, dated a
recent date before the Closing.
(t)
Consents
and Qualifications.
The Company shall have obtained
(i) copies of all third party and governmental consents, approvals and
filings required in connection with the consummation of the transactions
hereunder (including, without limitation, all blue sky law filings and waivers
of all preemptive rights and rights of first refusal), and (ii) all
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Shares pursuant to this
Agreement shall be duly obtained and effective as of the Closing.
6.2
Conditions
to Company's Obligations
. The obligations of the Company under
Section 2
of this Agreement are subject to the fulfillment at or before the Closing of
each of the following conditions, any of which may be waived in writing by the
Company:
(a)
Representations
and Warranties
. The representations and warranties of each
Investor contained in
Section 4
shall be
true on and as of the Closing with the same effect as though said
representations and warranties had been made on and as of the
Closing.
(b)
Contribution
of Contributed Assets
. Each of the Investors shall have
executed and delivered to the Company the documents and instruments required
under
Section
2.2(a)
, above, to effect the contribution of the Contributed Assets to
the Company.
7.
Termination
of Agreement
7.1
Termination
. This
Agreement may be terminated at any time prior to the Closing:
(a)
by
the mutual written consent of Company and the Majority Investors;
(b)
by
Company, upon notice to the Investors, if an event occurs which, without any
breach by Company of its obligations under this Agreement related to such event,
render impossible the compliance with one or more of the conditions to the
obligations of Company set forth in
Section 7.2
(and such
compliance is not waived by Company);
(c)
by
the Investors, upon notice to Company, if an event occurs which, without any
breach by the Investors of their respective obligations under this Agreement
related to such event, render impossible the compliance with one or more of the
conditions to the obligations of the Investors set forth in
Section 7.1
(and such
compliance is not waived by the Majority Investors);
(d)
either:
(i)
by
the Investors, upon written notice to Purchaser, if (A) the Investors are
not then in material default of their respective obligations under this
Agreement, (B) the Company has materially breached any of its representations,
warranties or covenants hereunder, (C) the Majority Investors deliver to the
Company a written notice describing the breach by Company, and (D)
Company fails to cure such breach within fifteen (15) days following
delivery of that written notice describing the breach; or
(ii)
by
Company, upon written notice to the Investors, if (A) the Company is not
then in material default of its obligations under this Agreement, (B) any of the
Investors has materially breached any of his, her, or its respective
representations, warranties or covenants hereunder, (C) Company delivers to
Investors a written notice describing the breach, and (D) Investors fail to cure
such breach within fifteen (15) days following delivery of that written notice
describing the breach.
(e)
by
Company or the Investors, if the transactions contemplated hereby have not been
consummated on or before the Termination Date.
7.2
Break-up
Fee
. As the sole remedy of the Investors, if the Company
either breaches its obligations under this Agreement (including but not limited
to
Section 6.2
,
above), or exercises the "fiduciary out" described in
Section 6.2(c)
and
(d)
, above, and
fails to close the Transactions contemplated herein, and within 120 days after
the date of the last day of the Restricted Period, the Company signs a letter of
intent or other agreement relating to the acquisition of all or substantially
all of the Company's assets or any of the securities of the Company (except for
outstanding compensatory stock options, warrants, convertible debentures, or
other contractual commitments made and approved by the Company's Board of
Directors prior to October 27, 2010), whether directly or indirectly and whether
through purchase, merger, consolidation, or otherwise, and such transaction is
ultimately consummated, then immediately upon the closing of such transaction,
the Company shall pay to the Investors a transaction break-up fee equal to Seven
Hundred Fifty Thousand Dollars ($750,000) (which break-up fee shall be allocated
to and shared by the Investors in proportion to the number of shares of Common
Stock issuable to each such Investor under this Agreement).
8.
Additional
Covenants of Parties
8.1
Indemnification
.
In consideration of each Investor’s execution and delivery of the Transaction
Documents and acquiring the Shares thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall
jointly and severally defend, protect, indemnify and hold harmless each Investor
and each other holder of the Securities and all of their stockholders, partners,
members, officers, directors, employees and direct or indirect investors and any
of the foregoing Persons’ agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "
Indemnitees
") from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (the "
Indemnified
Liabilities
"), incurred by any Indemnitee as a result of, or arising out
of, or relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim brought
or made against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities, or (iii) the status of such Investor or holder of the
Securities as an investor in the Company pursuant to the transactions
contemplated by the Transaction Documents.
(a)
To
the extent that the foregoing undertakings by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law.
(b)
Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section
9.2 of notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this
Section 9.2
, deliver
to the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be;
provided, however,
that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Majority Investors. The Indemnified
Party or Indemnified Person shall cooperate reasonably with the indemnifying
party in connection with any negotiation or defense of any such action or Claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party or Indemnified Person
which relates to such action or Claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent,
provided, however
, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written
consent of the Indemnified Party or Indemnified Person, consent to entry of any
judgment or enter into any settlement or other compromise which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such Claim or litigation. Following indemnification as
provided for hereunder, the indemnifying party shall be subrogated to all rights
of the Indemnified Party or Indemnified Person with respect to all third
parties, firms or corporations relating to the matter for which indemnification
has been made. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this
(c)
The
indemnification required by this Section 9.2 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 Indemnified Damages are incurred.
(d)
The
indemnity agreements contained herein shall be in addition to (i) any cause of
action or similar right of the Indemnified Party or Indemnified Person against
the indemnifying party or others and (ii) any liabilities the indemnifying party
may be subject to pursuant to the law.
(e)
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under this
Section 9.2
to
the fullest extent permitted by law;
provided, however,
that: (i)
no Person involved in the sale of Shares which Person is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in
connection with such sale shall be entitled to contribution from any Person
involved in such sale of Shares who was not guilty of fraudulent
misrepresentation; and (ii) contribution by any seller of Shares shall be
limited in amount to the net amount of proceeds received by such seller from the
sale of such Shares.
8.2
Reports
Under Exchange Act
. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the 1933 Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of Company to the public without registration
("
Rule 144
"),
Company agrees to:
(a)
Make
and keep public information available, as those terms are understood and defined
in Rule 144;
(b)
File
with the SEC in a timely manner all reports and other documents required of
Company under the 1933 Act and the 1934 Act so long as Company remains subject
to such requirements (it being understood that nothing herein shall limit
Company’s obligations under Section 4(c) of the Securities Purchase Agreement)
and the filing of such reports and other documents is required for the
applicable provisions of Rule 144; and
(c)
Furnish
to each Investor so long as such Investor owns Registrable Securities, promptly
upon written request by an Investor, (i) a written statement by Company, if
true, that it has complied with the reporting requirements of Rule 144, the
Securities Act, and the 1934 Act, (ii) a copy of the most recent annual or
quarterly report of Company and such other reports and documents so filed by
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
8.3
WCOF
Counsel Fees
. At or promptly following the Closing, the
Company shall pay the fees and expenses of Reicker, Pfau, Pyle & McRoy LLP,
counsel to West Coast Opportunity Fund, LLC, in connection with the execution
and delivery of this Agreement and the transactions contemplated herein,
provided that in no event shall the Company be obligated to pay under this
Section 8.4
more than
Eighty-five Thousand Dollars ($85,000) in the aggregate for such fees and
expenses.
8.4
Post-Closing
Agreements Regarding WI LLC Leases
.
The Company shall pay to
J&J, in its capacity as an operator of the WI LLC Working Interests ("
Agent
"), for
distribution to the Persons entitled thereto, the following:
(a)
An adjustment amount for oil that is in the tanks located on each of the WI LLC
Leases as of the Closing Date. The adjustment amount for each Lease
shall be calculated as follows: The product of (i) the Net Revenue
Interest on each WI, LLC lease, multiplied by (ii) the measured amount of oil in
the tanks as of December 31, 2010, multiplied by (iii) the price per barrel at
which oil is sold on the New York Mercantile Exchange on December 31, 2010, less
$7.75 per barrel, which price the parties agree to represent the fair market
value of such oil. For the purposes of this calculation, the "Net
Revenue Interest" of each WI LLC Lease shall equal (x) the Net Revenue Interest
owned by WI LLC with respect to such respective WI LLC Lease,
multiplied by
(y) the 80%
working interest to be delivered to the Company pursuant to this
Agreement;
(b)
The
amount of all invoices paid by or to be paid by Agent for operating expenses
(including, without limitation, salaries, equipment costs, utilities, and
vendors) on the WI LLC Leases through the Closing Date. Agent shall
provide Company with a statement of such operating expenses on or before January
15, 2011 (the "
Statement
"), and
Company shall pay to Agent the amount thereof when due or, if later, within ten
(10) days after receipt of the Statement; and
(c)
The
Company shall be liable for, pay, and hold WIH LLC harmless from taxes
attributable to the WI LLC Leases and accruing in any periods after the Closing
Date. All severance and other gross production, collection, or use
taxes attributable to production from and after the Closing Date shall be paid
by the Company.
8.5
Post-Closing
Agreements Regarding Black Sable Leases
.
The Company shall pay 88.09%
to MVP and 11.91% to RGW, in their respective capacities as former members of
Black Sable, the owner of the Black Sable Working Interests, the
following:
(a)
An
adjustment amount for oil that is in the tanks located on each of the Black
Sable Leases as of the Closing Date. The adjustment amount for each
Lease shall be calculated as follows: The product of (i) the Net
Revenue Interest for such Black Sable Lease,
multiplied by
(ii) the
measured amount of oil in the tanks as of December 31, 2010, multiplied by (iii)
the price per barrel at which oil is sold on the New York Mercantile Exchange on
December 31, 2010, less $3.00 per barrel, which price the parties agree to
represent the fair market value of such oil. For the purposes of this
calculation, the "Net Revenue Interest" of each Black Sable Lease shall equal
the Net Revenue Interest owned by Black Sable on each respective Black Sable
Lease that will be delivered to the Company pursuant to this
Agreement;
(b)
The
amount of all invoices paid by or to be paid by Agent for operating expenses
(including, without limitation, salaries, equipment costs, utilities, and
vendors) on the WI LLC Leases through the Closing Date. MVP and RGW shall
provide Company with a statement of such operating expenses on or before January
15, 2011 (the "
Statement
"), and
Company shall pay to Agent the amount thereof when due or, if later, within ten
(10) days after receipt of the Statement; and
(c)
The
Company shall be liable for, pay, and hold MVP and RGW harmless from taxes
attributable to the Black Sable Leases and accruing in any periods after the
Closing Date. All severance and other gross production, collection,
or use taxes attributable to production from and after the Closing Date shall be
paid by the Company.
8.6
Title
Reports on WI LLC Leases
. J&J and WIH LLC (a) acknowledge
that the Company has not yet received written title reports with respect to the
WI LLC Leases, and that such written title reports will not be available until
after the closing of the transactions contemplated by this Agreement, and (b)
covenant and agree that if such title reports reveal any material defects in
title with respect to any of the WI LLC Leases or any of the WI LLC Working
Interests (including but not limited to any evidence that WI LLC does not hold
an 80% working interest in any of the WI LLC Leases), then J&J and WIH LLC,
shall, in their sole discretion either: (i) at their sole costs and
expense, cure such defects, including but not limited to procuring from all
third parties such quitclaims or other conveyances as may be necessary or
convenient for confirming that WI LLC holds an 80% working interest in each of
the WI LLC Leases; or (ii) return to the Company, upon demand, a number of
Shares (valued at $0.40 per share) and an amount of cash (in the respective
proportions in which the Company issued Shares and paid cash to WIH LLC pursuant
to
Sections
2.3(a)(ii)(E)
and
2.3(b)
, above) having
an aggregate value equal to the product of (x) Nine Million Dollars
($9,000,000),
multiplied
times
(y) a fraction, the numerator of which is the proved developed
PV-10 of the pertinent WIH LLC Lease, and the denominator of which is the
aggregate proved developed PV-10 of all such WIH LLC
Leases. For purposes of the foregoing, the proved developed
PV-10 of each WIH LLC Lease shall be the figure therefor set forth in that
certain report dated December 1, 2010, entitled "J&J Operating, LLC, NYMEX
Strip 11-19-10 Adjusted for Hedged Volumes," issued by Randy B. Miller,
PE.
8.7
Registration
of WIH LLC Shares
. The Company agrees that if the Shares
issued to WIH LLC pursuant to Section 2.3(a)(ii)(E) do not become readily
tradable under Rule 144 by the members of WIH LLC following the liquidation and
distribution of those Shares to those members more than six (6) months following
the date of issuance thereof, and if there is no reasonably available
work-around to permit the sale and disposition of those shares in the public
markets by or for the benefit of those members, then upon request of WIH LLC,
the Company shall prepare and file with the SEC a registration statement for
such shares and exercise its best efforts to cause that registration statement
to become effective under the Securities Act as promptly as reasonably
practicable. The Company and WIH LLC each shall pay fifty
percent (50%) of the costs and fees of preparing and filing such registration
statement. The members of WIH LLC shall provide to the Company
such commercially reasonable and customary representations, warranties, and
covenants as are customarily provided by investors on whose behalf an issuer of
securities is seeking to register such shares.
9.
Miscellaneous
9.1
Notices
.
All notices,
elections, requests, demands, and other communications required or permitted
under this Agreement shall be in writing, and shall be deemed to have been
delivered and received (a) when personally delivered, or (b) on the
fifth (5th) business day after the date on which deposited in the national mail
system of the country of the sender's residence and (for items transmitted under
this clause "(b)" from a source in the United States to a destination also in
the United States) as evidenced by a receipt for registered or certified mail
signed by the recipient or an authorized agent of recipient, or (c) on the
date on which transmitted by facsimile or other electronic means generating a
receipt evidencing a successful transmission; or (d) on the next business
day after the business day on which deposited with a nationally or
internationally recognized overnight commercial delivery service (e.g., Federal
Express or UPS) for the fastest commercially available overnight delivery, with
a return receipt (or equivalent thereof administered by such regulated public
carrier) requested, freight prepaid, addressed to the party for whom intended at
the address, facsimile number, or email address set forth on the signature page
of this Agreement, or such other address, facsimile number, or email address,
notice of which is given in a manner permitted by this
Section
9.1
.
9.2
Binding on
Successors; Assignment
. This Agreement shall be binding upon,
and shall inure to the benefit of, the heirs, successors, assigns, and personal
representatives of each of the parties.
9.3
Counterparts;
Electronic Signatures
. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which, taken
together, shall be one and the same instrument, binding on each of the
signatories hereto. A copy of this Agreement that is executed by a
party and transmitted by that party to the other party by facsimile or as an
attachment (
e.g
., in
".tif" or ".pdf" format) to an email shall be binding upon the signatory to the
same extent as a copy hereof containing that party's original
signature.
9.4
Titles and
Subtitles
. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
9.5
Amendments
and Waivers
. Any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Majority Investors. Notwithstanding
the foregoing, this Agreement may not be amended to create any obligation on
behalf of an Investor to advance funds to the Company or purchase Shares beyond
the amounts set forth in
Section 2.3(a)
without the consent or approval of such Investor. Any amendment or
waiver effected in accordance with this
Section 9.5
shall be
binding upon the Company, Investors, and any transferee of any
Shares.
(a)
Rights
Among Investors
. Each Investor (or transferee holder of Shares
issued hereunder) shall have the absolute right to exercise or refrain from
exercising any right or rights that such holder may have by reason of this
Agreement, including without limitation the right to consent to the waiver of
any obligation of the Company under this Agreement and to enter into an
agreement with the Company for the purpose of modifying this Agreement or any
agreement effecting any such modification, and such Investor or transferee
holder shall not incur any liability to any other Investor or holder of Shares
with respect to exercising or refraining from exercising any such right or
rights.
(b)
Exculpation
Among Investors.
Each Investor acknowledges that it is not
relying upon any person, firm or corporation, other than the Company and its
officers and directors, in making its investment or decision to invest in the
Company. Each Investor agrees that no Investor nor the respective
controlling Persons, officers, directors, partners, agents or employees of any
Investor shall be liable to any other Investor for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
issuance of the Shares hereunder and shares of Common Stock issuable upon
conversion of the Shares.
(c)
Effect of
Amendment or Waiver
. Each Investor acknowledges that by the
operation of this
Section 9.5
, less
than all of the Investors may effect an amendment or waiver of provisions of
this Agreement and therefore diminish or eliminate all rights of such Investor
under this Agreement even though such Investor has not consented to the
amendment or waiver.
9.6
Severability
. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
9.7
Aggregation
of Stock
. All shares of the Common Stock or shares of Common
Stock issued upon conversion thereof held or acquired by affiliated entities or
persons shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
9.8
Entire
Agreement
. This Agreement and the Exhibits attached hereto
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein.
9.9
Survival of
Representations and Warranties
. The representations and
warranties of the parties contained in
Sections 3
and
4
of this Agreement
shall survive the execution and delivery of this Agreement and the Closing and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the Investors or the Company.
9.10
Attorneys'
Fees
. If any action or proceeding is commenced to construe or
enforce the terms and conditions of this Agreement or the rights and duties
created hereunder, then the party prevailing in such action shall be entitled to
recover its attorneys' fees and the costs of enforcing any judgment entered
therein.
9.11
Governing
Law
. This Agreement shall be governed by and construed in
accordance with Nevada law, without regard to the application of the conflict of
law principles thereunder.
[
Signatures appear on the following
pages
.]
IN WITNESS WHEREOF
, the
parties hereto have executed this Securities Purchase and Asset Acquisition
Agreement as of the day and year first above written.
"
Company:"
EnerJex
Resources, Inc.,
a Nevada corporation
|
|
|
By
|
/s/ C. Stephen Cochennet
|
|
C.
Stephen Cochennet, Chief Executive Officer
|
|
Address,
Facsimile No., & Email for Notices
:
|
|
EnerJex
Resources, Inc.
|
ATTN: Chief
Executive Officer
|
27
Corporate Woods, Suite 350
|
10975
Grandview Drive
|
Overland
Park, KS 66210
|
|
Telephone
No.: (913) 754-7754
|
Facsimile
No.: (913) 754-7755
|
Email:
|
|
with
a copy to
:
|
|
ANTHONY
N. DEMINT
|
Attorney
at Law
|
DeMint
Law, PLLC
|
3753
Howard Hughes Parkway
|
Second
Floor, Suite 314
|
Las
Vegas, NV 89169
|
|
Telephone
No.: (702) 586-6436
|
Facsimile
No.: (702) 442-7995
|
Email:
anthony@demintlaw.com
|
[
Signatures continued on following
page
.]
"Common
Stock Investors:"
"WCOF:"
|
|
"MVP:"
|
|
|
|
West
Coast Opportunity Fund, LLC
, a
Delaware
limited liability company
|
|
Montecito
Venture Partners, LLC
, a
Delaware
limited liability company
|
|
|
|
By
|
/s/ Atticus Lowe
|
|
By
|
/s/ Atticus Lowe
|
|
Atticus
Lowe
|
|
|
Atticus
Lowe, Manager
|
|
Chief
Investment Officer of Managing Member
|
|
|
|
|
|
12/29/10
|
|
12/29/10
|
Date
|
|
Date
|
|
|
|
Address, Facsimile
No., & Email for Notices
:
|
|
Address, Facsimile
No., & Email for Notices
:
|
|
|
|
West
Coast Opportunity Fund, LLC
|
|
Montecito
Venture Partners, LLC
|
c/o
West Coast Asset Management, Inc.
|
|
c/o
West Coast Asset Management, Inc.
|
1205
Coast Village Road
|
|
1205
Coast Village Road
|
Montecito,
California 93108
|
|
Montecito,
California 93108
|
Attention:
R. Atticus Lowe
|
|
Attention:
R. Atticus Lowe
|
|
|
|
Telephone:
(805) 653-5333
|
|
Telephone:
(805) 653-5333
|
Facsimile
No.: (805) 648-6466
|
|
Facsimile
No.: (805) 648-6466
|
Email:
alowe@wcam.com
|
|
Email:
alowe@wcam.com
|
[
Signatures continue on following
page
.]
Signature
Page for Common Stock Investors
EnerJex
Securities Purchase and Asset Acquisition Agreement
"J&J
Operating Company, LLC:"
|
|
"WIH"
|
|
|
|
J&J
Operating Company, LLC
, a Kansas
limited
liability company
|
|
Working
Interest Holding, LLC
, a Kansas
limited
liability company
|
|
|
|
By
|
/s/ John Loeffelbein
|
|
By
|
/s/ Sam Boan
|
|
John
Loeffelbein, Member
|
|
|
Sam
Boan, Manager
|
|
|
|
By
|
/s/ James D. Loeffelbein
|
|
12/30/10
|
|
James
D. Loeffelbein, Member
|
|
Date
|
|
|
|
|
|
Address,
Facsimile & Email for Notices
:
|
|
|
|
Date
|
|
Working
Interest Holding, LLC
|
|
|
c/o
J&J Operating Company, LLC
|
Address,
Facsimile & Email for Notices
:
|
|
ATTN: Messrs.
Sam Boan, James D. Loeffelbein and John Loeffelbein
|
|
|
10380
W 179th St.
|
J&J
Operating Company, LLC
|
|
Bucyrus,
KS 66013
|
ATTN: Messrs.
James Loeffelbein and John Loeffelbein
|
|
|
10380
W 179th St.
|
|
Telephone
No.: (913) 709-0219
|
Bucyrus,
KS 66013
|
|
Facsimile
No.: (___) ________________________
|
|
|
Email:
jdlmailbox@yahoo.com
|
Telephone
No.: (913) 709-0219
|
|
|
Facsimile
No.: (___) ________________________
|
|
|
Email:
jdlmailbox@yahoo.com
|
|
|
[
Signatures continued on following
page.
]
Signature
Page for Investors
EnerJex
Securities Purchase and Asset Acquisition Agreement
"RGW:"
|
|
"Frey
Living Trust:"
|
|
|
|
RGW
Energy, LLC
, a Texas limited liability company
|
|
Frey
Living Trust
|
|
|
|
By
|
/s/ Robert G. Watson
|
|
By
|
/s/ Philip Frey, Jr.
|
|
Robert
G. Watson, Manager
|
|
|
Name
& title:
|
|
|
|
12/29/10
|
|
12/29/10
|
Date
|
|
Date
|
|
|
|
Address,
Facsimile & Email for Notices
:
|
|
Address,
Facsimile No., & Email for Notices
:
|
|
|
|
RGW
Energy, LLC
|
|
4105
NE Rigels Cove Way
|
ATTN: Mr.
Robert G. Watson
|
|
Jensen
Beach, FL 34957
|
123
Evans Avenue
|
|
|
San
Antonio, Texas 78209
|
|
Telephone
No.: (772) 334-0474
|
|
|
Facsimile
No.: (772) ________________________
|
Facsimile
No.: (123 Evans Avenue
|
|
Email:
pf4105@comcast.net
|
San
Antonio, Texas 78209
|
|
|
|
|
|
Telephone
No.: (210) 451-5545
|
|
|
Facsimile
No.: (___) ________________________
|
|
|
Email:
robert.watson@blacksableenergy.com
|
|
|
Signature
Page for Investors
EnerJex
Securities Purchase and Asset Acquisition Agreement
Exhibit
A
Assignment
of Membership Interest
Exhibit
B
List
of Black Sable Working Interests
Exhibit
C
Certificate
of Designation
Exhibit
D
Compliance
Certificate
Exhibit
E
Debenture
Assignment
Exhibit
F
Stock
Assignment
Exhibit
G
Stock
Repurchase Agreement
Exhibit
H
WI
LLC Working Interests
Exhibit
I
Company
Disclosure Schedule
Exhibit
J
Employment
Agreement with Robert G. Watson
Exhibit
K
Contract
Operating Agreement
and
Joint
Operating Agreement
with
J&J
Operating Company, LLC
Exhibit
L
Majority
Investor Approval Certificate
Exhibit
M
List
of Company Vendors with which Settlements to be Reached
Exhibit
N
Form
of Opinion of Counsel to Company
Exhibit
O
Non-Producing
Leases
Securities
Purchase Agreement
by and
among
EnerJex
Resources, Inc.,
a Nevada
corporation
and
The
"Purchasers" named in Schedule 1
Hereto
December
31, 2010
Securities
Purchase Agreement
This
Securities Purchase Agreement
(the "
Agreement
") is made
as of December 31, 2010 (the "
Effective Date
") by
and among
EnerJex
Resources, Inc.
, a Nevada corporation (the "
Company
"), and the
investors listed on
Schedule 1
hereto (each, a "
Purchaser
" and
collectively, the "
Purchasers
"), with
reference to the following facts:
Recitals:
The
parties have agreed to execute this Agreement in order to memorialize the terms
and conditions on which each Purchaser shall purchase the respective number of
shares of the Company's Common Stock set forth opposite the name of such
Purchaser on
Schedule
1
hereto.
Agreements
:
Now,
Therefore,
the parties hereto, intending to be legally bound, do hereby
agree as follows:
1.
Definitions.
For
purposes of this Agreement:
1.1
"
Articles of
Incorporation
"
means the Company's Articles of Incorporation, as filed with the Secretary of
State of the State of Nevada on March 31, 1999, as amended by the Certificate of
Designation.
1.2
"Certificate
of Designation"
means that certain Certificate of Designation in the form
attached hereto as
Exhibit
A
, which is to be filed with the Secretary of State of the State of
Nevada concurrently with the closing of the transactions contemplated by this
Agreement.
1.3
"Closing
"
shall have the meaning set
forth in Section
2.2
,
below.
1.4 "
Code
"
means the Internal Revenue Code of 1986, as amended.
1.5
"
Common
Stock
"
means the
common capital stock, par value $0.001 per share, of the Company.
1.6
"
Company
Intellectual Property"
means all patents, patent applications,
trademarks, trademark applications, service marks, tradenames, copyrights, trade
secrets, licenses, domain names, mask works, information and proprietary rights
and processes as are necessary to the conduct of the Company’s business as now
conducted and as presently proposed to be conducted.
1.7
"
Compliance
Certificate
"
means that certain Certificate of Officer in the form attached hereto as
Exhibit
B
.
1.8
"
Equity
Incentive Plan
"
means that
certain EnerJex Resources, Inc. Stock Incentive Plan, as amended (the "
Stock Incentive
Plan
"), under which the Company has reserved 1,250,000 shares of Common
Stock for the granting of options and the issuance of Common Stock as
"restricted shares" to employees, officers, and directors of and consultants to
the Company.
1.9
"Exchange
Act"
means the Securities Exchange Act of 1934, as amended.
1.10
"
Financial
Statements
Date"
means September 30, 2010.
1.11
“
Key
Employee
” means any executive-level employee (including division director
and vice president-level positions) as well as any employee or consultant who
either alone or in concert with others develops, invents, programs or designs
any Company Intellectual Property.
1.12
"Lien"
means, with respect to any asset (including any security), any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset;
provided,
however
, that the term "Lien" shall not include (a) statutory liens
for Taxes that are not yet due and payable or are being contested in good faith
by appropriate proceedings or that are otherwise not material and are fully
reserved against in the Financial Statements, (b) statutory or common law
liens to secure obligations to landlords, lessors or renters under leases or
rental agreements confined to the premises rented, (c) deposits or pledges
made in connection with, or to secure payment of, workers' compensation,
unemployment insurance, old age pension or other social security programs
mandated under applicable laws, (d) statutory or common law liens in favor
of carriers, warehousemen, mechanics and materialmen, to secure claims for
labor, materials or supplies and other like liens, and (e) restrictions on
transfer of securities imposed by applicable state and federal securities
laws.
1.13
"Majority
Investors"
means Purchasers holding (or entitled to purchase hereunder) a
majority of the shares of Common Stock issued or issuable pursuant to this
Agreement.
1.14
"
Material
Adverse Effect
"
means an occurrence or circumstance having a consequence that, individually or
in the aggregate, is materially adverse as to the business, properties, assets,
liabilities, affairs, prospects, operations, operating results, or condition
(financial or otherwise) of the Company, individually or taken as a whole;
provided
, however, that such
term shall not include any circumstance or change related to (a) general
economic conditions, or (b) securities markets generally.
1.15
"Person"
means any individual, corporation, partnership, trust, limited liability
company, association, or other entity.
1.16
"SEC"
means the United States Securities and Exchange Commission.
1.17
"Secured
Debentures"
means those certain Senior Secured Debentures of
EnerJex
Kansas, Inc.
, a Nevada corporation formerly known as "
Midwest
Energy, Inc.
" ("
Subsidiary
"), in the
aggregate original principal amount of $9,000,000, which were issued by the
Subsidiary pursuant to that certain Securities Purchase Agreement dated as of
April 11, 2007 (the "
Original Purchase
Agreement
"), by and among the Subsidiary and the purchasers of such
Secured Debentures, as amended.
1.18
"
Securities
Act
"
means the
Securities Act of 1933, as amended.
1.19
"
Shares
"
means the shares of Common Stock issued and sold by the Company to the
Purchasers pursuant to this Agreement.
1.20
"SP&AA
Agreement"
means that certain Securities Purchase and Asset Acquisition
Agreement dated effective concurrently herewith, by and among the Company, West
Coast Opportunity Fund, LLC; Montecito Venture Partners, LLC; RGW
Energy, LLC; J&J Operating Company, LLC; Working Interest Holding, LLC; and
Frey Living Trust, pursuant to which the Company has agreed to issue certain
shares of Common Stock, cash, and a promissory note to the other parties thereto
in exchange for the contribution of certain assets to and cancellation of
certain secured debentures of the Company.
1.21
"Tax"
or
"Taxes"
means (a) all federal, state, local, foreign and other net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties or other taxes, fees, levies, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to Tax or
additional amounts with respect thereto, (b) any liability for payment of
amounts described in clause (a) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, and (c) any
liability for the payment of amounts described in clauses (a) or (b) as a
result of any tax sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other person.
1.22
"Tax
Return"
means any return, declaration, report, statement, information
statement and other document required to be filed with respect to
Taxes.
1.23
"
Transaction
Documents
"
means
this Agreement and any other agreement or document executed in connection
herewith.
2. Purchase
and Sale of Common Stock
2.1 Authorization
and
Sale
of Common Stock
(a)
Sale.
The
Company shall authorize the issuance and sale of up to an aggregate Twenty-five
Million (25,000,000) shares of the Company's Common Stock, having the rights,
restrictions, preferences, and privileges as set forth in the Articles of
Incorporation, on or before the Closing.
(b)
Purchase.
Subject
to the terms and conditions of this Agreement, each Purchaser agrees, severally
and not jointly, to purchase at the Closing and the Company agrees to sell and
issue to each Purchaser at the Closing, that number of shares of the Company's
Common Stock set forth opposite each Purchaser's name on
Schedule 1
hereto for a purchase price of Forty Cents ($0.40) per share.
2.2
Initial
Closing
. The initial closing of the issuance and delivery of
the Shares shall take place on the date hereof at the offices of the Company's
counsel, DeMint Law, PLLC, 3753 Howard Hughes Parkway, Second Floor, Suite 314,
Las Vegas, Nevada 89169 (or by an exchange of executed counterpart copies of
this Agreement and the other closing documents via facsimile and overnight
courier between counsel for the Company and the Purchasers), or at such other
time and place as the Company and Purchasers mutually agree upon orally or in
writing (which time and place are designated as the "
Initial
Closing
"). At the Initial Closing, the Company shall deliver
to each Purchaser a certificate representing the
Shares issued in the
name of the Purchaser against payment of the purchase price therefor by check,
wire transfer, cancellation of indebtedness or any combination thereof in
accordance with
Schedule
1
hereto.
2.3
Additional
Closing(s)
. The Company may sell, at one or more additional closings
(each, an "
Additional
Closing
" and collectively, the "
Additional
Closings
"), a number of Shares not exceeding twenty-five million
(25,000,000), reduced by the number of Shares issued at the Intial Closing and
all prior Additional Closings, to such Investors as the Company shall select,
provided the closing thereof occurs on or before March 31, 2011. Each
Additional Closing shall take place at such time and place as shall be mutually
acceptable to the Company and the additional Investors subscribing for Shares at
such Additional Closings. The Initial Closing and any Additional
Closing shall be referred to herein as the "Closing" or the
"Closings."
2.4
Rounding of
Shares
. The Company and each Purchaser agree that no
fractional Shares shall be issued at the Closing, and that the number of Shares
to be issued to such Purchaser shall be rounded up to the nearest whole integer
for the aggregate amount of cash consideration paid by the Holder at the Closing
as set forth opposite such Purchaser's name on
Schedule
1
.
3.
Representations
and Warranties of Company.
Except as otherwise set forth in
the Company Disclosure Schedule attached hereto as
Exhibit C,
specifically identifying the relevant subparagraphs hereof, which
exceptions shall be deemed to be representations and warranties of the Company
as if made hereunder (the "
Company Disclosure
Schedule
"), which has been furnished to each Purchaser prior to the
execution hereof, as a material inducement to the Purchasers to enter into this
Agreement and purchase the Common Stock hereunder, the Company hereby represents
and warrants to each Purchaser that as of the Closing Date:
3.1
Corporate
Organization and Authority
. The Company (a) is a corporation
duly organized, validly existing, authorized to exercise all its corporate
powers, rights and privileges, and in good standing under the laws of the State
of Nevada; (b) has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as now conducted
or contemplated to be conducted; (c) has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement and the
Transaction Documents; and (d) is duly qualified or licensed to do business as a
foreign corporation in, and is in good standing under the laws of, each
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect.
3.2
Capitalization.
Immediately
prior to the Closing, the authorized capital of the Company shall consist
of:
(a)
Common
Stock
. One Hundred Million (100,000,000) shares of Common
Stock, of which Five Million Eight Hundred Nine Thousand Six Hundred
Twenty-eight (5,809,628) shares are issued and outstanding.
(b)
Preferred
Stock
. Ten Million (10,000,000) shares of Preferred Stock, of
which (i) Four Million Seven Hundred Seventy-nine Thousand Four
Hundred Sixty (4,779,460) have been designated Series A Preferred Stock for
issuance under the SP&AA Agreement, none of which shall be issued or
outstanding immediately prior to the Closing, and (ii) the remainder of which,
none of which shall be issued or outstanding immediately prior to the Closing,
may be designated and issued by the Board of Directors from time to time
pursuant to a certificate of designation hereafter approved by the Board of
Directors. The rights, restrictions, privileges and preferences of
and restrictions upon the Series A Preferred Stock are set forth in the
Certificate of Designation.
(c)
Other
Securities
.
Except for (i)
Nine Hundred Twenty-nine Thousand Two Hundred Fifty (929,250) shares of Common
Stock reserved and available for issuance or option grants to employees,
consultants, officers or directors under the Equity Incentive Plan, and shares
for which options or shares have been respectively granted for the numbers of
shares set forth in Section 3.2(c) of the Company Disclosure Schedule (which
shall also show the vesting schedule and exercise price of such outstanding
options and shares that remain subject to any vesting schedule), there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. Except for the Certificate of
Designation, the SP&AA Agreement, and the Transaction Documents, the Company
is not a party to or subject to any agreement or understanding, and to the
Company's knowledge there is no agreement or understanding between any
individuals and/or entities, which affects or relates to the voting or giving of
written consents with respect to any Company security or the voting by a
director of the Company. Except as set forth in
Section 3.2(c)
of the
Company Disclosure Schedule, none of the Company's stock purchase agreements or
stock option documents or any other agreement, document or commitment (written
or oral) of the Company provides for acceleration of vesting (or lapse of a
repurchase right) upon the occurrence of any events. All outstanding
shares of the Company’s Common Stock and all shares of the Company’s Common
Stock underlying outstanding options are subject to (i) a right of first refusal
in favor of the Company upon any proposed transfer (other than transfers for
estate planning purposes); and (ii) a lock-up or market standoff agreement of
not less than 180 days following the Company’s initial public offering pursuant
to a registration statement filed with the Securities and Exchange Commission
under the Securities Act. The Company has never adjusted or amended
the exercise price of any stock options previously awarded, whether through
amendment, cancellation, replacement grant, repricing, or any other
means. Except as set forth in the SP&AA Agreement, the Company
has no obligation (contingent or otherwise) to purchase or redeem any of its
securities.
(d)
Prior
Shares
. The outstanding shares of Common Stock are duly and
validly authorized and issued, fully paid and
nonassessable. All shares of the Company's capital stock issued
on or after May 15, 2009, has been issued in full compliance with all applicable
state and federal laws concerning the issuance of securities, and to the
knowledge of the Company, all shares issued by the Company and all
predecessors-by-merger since the respective date on which each such entity was
incorporated incorporation have been issued in full compliance with all
applicable state and federal laws concerning the issuance of
securities.
(e)
409A C
ompliance
. No
stock options, stock appreciation rights or other equity-based awards issued or
granted by the Company are subject to the requirements of Section 409A of the
Code. Each "nonqualified deferred compensation plan" (as such term is
defined under Section 409A(d)(1) of the Code and the guidance thereunder)
under which the Company makes, is obligated to make or promises to make,
payments (each, a "
409A Plan
") complies
in all material respects, in both form and operation, with the requirements of
Section 409A of the Code and the guidance thereunder. No payment to
be made under any 409A Plan is, or to the knowledge of the Company will be,
subject to the penalties of Section 409A(a)(1) of the Code.
3.3
Subsidiaries
. Except
as set forth in
Section 3.3
of the
Company Disclosure Schedule, the Company does not presently own, have any
investment in, or control, directly or indirectly, or hold any rights to acquire
any interest in any other corporation, partnership, trust, joint venture,
limited liability company, association or other business entity, nor has the
Company ever held such interest. The Company is not a participant in
any joint venture, partnership or similar arrangement.
3.4
Authorization
. All
corporate action required to be taken by the Company’s board of directors (the
"
Board of
Directors
") and stockholders in order to authorize the Company to enter
into the Transaction Documents, and to issue the Shares at the Closing and the
Common Stock issuable upon conversion of the Shares, has been taken or will be
taken prior to the Closing. All action on the part of the officers of
the Company necessary for the execution and delivery of the Transaction
Documents, the performance of all obligations of the Company under the
Transaction Documents to be performed as of the Closing, and the issuance and
delivery of the Shares has been taken or will be taken prior to the
Closing. The Transaction Documents, when executed and delivered by
the Company, shall constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, or other laws of general
application relating to or affecting the enforcement of creditors’ rights
generally, or (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
3.5
Valid
Issuance of Shares.
The Shares, when issued, sold and
delivered in
accordance
with the terms and for the consideration set forth in this Agreement, will be
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under the Transaction Documents,
applicable state and federal securities laws and Liens created by or imposed by
a Purchaser. Assuming the accuracy of the representations of the
Purchasers in
Section 4
of
this Agreement and subject to the filings described in clause (ii) of
Section 3.6
,
below, the Shares will be issued in compliance with all applicable federal and
state securities laws. The Common Stock issuable upon conversion of
the Shares has been duly reserved for issuance, and upon issuance in accordance
with the terms of the Articles of Incorporation, will be validly issued, fully
paid and nonassessable and free of restrictions on transfer other than
restrictions on transfer under the Transaction Documents, applicable federal and
state securities laws and Liens created by or imposed by a
Purchaser. Based in part upon the representations of the Purchasers
in
Section 4
of
this Agreement, and subject to
Section 3.6
, below,
the Common Stock issuable upon conversion of the Shares will be issued in
compliance with all applicable federal and state securities laws.
3.6
Governmental
Consents and Filings
.
(a)
Assuming
the accuracy of the representations made by the Purchasers in
Section
4
of this Agreement,
no consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority is required on the part of the Company in connection with
the consummation of the transactions contemplated by this Agreement, except for
(i) the filing of the Certificate of Designation, which will have been filed as
of the Closing, and (ii) filings pursuant to Regulation D of the Securities
Act, and applicable state securities laws, which have been made or will be made
in a timely manner.
(b)
Without
limiting the generality of the foregoing, Company is not in violation of any of
the rules, regulations or requirements of the FINRA OTC Bulletin Board (the
“
Principal
Market
”) and has no knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. During the one (1) year period prior to the
date hereof, (i) the Common Stock has been listed on the Principal Market or
quoted on the “gray sheets” (the “
Gray Sheets
”), (ii)
trading in the Common Stock or quotation on the Gray Sheets has not been
suspended by the SEC, the Principal Market or the Gray Sheets and (iii) Parent
has received no communication, written or oral, from the SEC or the Principal
Market regarding the suspension or delisting of the Common Stock from the
Principal Market. Parent and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, and neither Parent nor any
such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit.
3.7
Securities
Matters.
(a)
SEC
Filings.
The Company's issued and outstanding shares of Common
Stock are registered pursuant to Section 12(g) of the Exchange Act, and the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under the Exchange Act for the three (3)
years preceding the date of this Agreement (or such shorter period as the
Company was required by law or regulation to file such material) (all of the
foregoing filed within the period of three (3) years preceding the date hereof
or amended after the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein, being hereinafter referred to as the "
SEC Documents
") on
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Document prior to the expiration of any such
extension. The Company has delivered to the Purchasers or
their representatives, or made available through the SEC’s website at
http://www.sec.gov
, true and complete
copies of the SEC Documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, 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. As of their respective dates,
the financial statements of the Company included in the SEC Documents complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made and
not misleading.
(b)
Sarbanes-Oxley
. The
Company is in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 to small business issuers that are effective as of
the date hereof, and any and all applicable rules and regulations promulgated by
the SEC thereunder that are effective as of the date hereof.
(c)
Investment
Company.
Neither the Company nor any of its affiliates is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
3.8
Litigation
. Except
as set forth in Section 3.8 of the Company Disclosure Schedule, there is no
claim, action, suit, proceeding, arbitration, complaint, charge, investigation,
pending or, to the Company's knowledge currently threatened (i) against the
Company or any officer, director or Key Employee of the Company arising out of
their employment or board relationship with the Company; (ii) that
questions the validity of the Transaction Documents or the right of the Company
to enter into them, or to consummate the transactions contemplated by the
Transaction Documents; or (iii) that would reasonably be expected to have,
either individually or in the aggregate, a Material Adverse
Effect. Neither the Company nor, to the Company’s knowledge,
any of its officers, directors or Key Employees is a party or is named as
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality (in the case of officers,
directors or Key Employees, such as would affect the Company). There
is no action, suit, proceeding or investigation by the Company pending or which
the Company intends to initiate. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
in writing (or any basis therefor known to the Company) involving the prior
employment of any of the Company’s employees, their services provided in
connection with the Company’s business, or any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers.
3.9
Intellectual
Property
. The Company owns or possesses or can acquire on
commercially reasonable terms, sufficient legal rights to all Company
Intellectual Property without any known conflict with, or infringement of, the
rights of others.
To the Company’s
knowledge, no product or service marketed or sold (or proposed to be marketed or
sold) by the Company violates or will violate any license or infringes or will
infringe any intellectual property rights of any other party. Other
than with respect to commercially available software products under standard
end-user object code license agreements, there are no outstanding options,
licenses, agreements, claims, encumbrances or shared ownership interests of any
kind relating to the Company Intellectual Property, nor is the Company bound by
or a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other
Person. The Company has not received any communications alleging that
the Company has violated or, by conducting its business, would violate any of
the patents, trademarks, service marks, tradenames, copyrights, trade secrets,
mask works or other proprietary rights or processes of any other
Person. The Company has obtained and possesses valid licenses to use
all of the software programs present on the computers and other software-enabled
electronic devices that it owns or leases or that it has otherwise provided to
its employees for their use in connection with the Company’s
business. To the Company’s knowledge, it will not be necessary to use
any inventions of any of its employees or consultants (or Persons it currently
intends to hire) made prior to their employment by the Company. Each
employee and consultant has assigned to the Company all intellectual property
rights he or she owns that are related to the Company’s business as now
conducted and as presently proposed to be conducted.
Section 3.9
of the
Company Disclosure Schedule lists all Company Intellectual
Property. The Company has not embedded any open source, copyleft or
community source code in any of its products generally available or in
development, including but not limited to any libraries or code licensed under
any General Public License, Lesser General Public License or similar license
arrangement. For purposes of this
Section 3.9
, the
Company shall be deemed to have knowledge of a patent right if the Company has
actual knowledge of the patent right or would be found to be on notice of such
patent right as determined by reference to United States patent
laws.
3.10
Compliance
with Law and Other Instruments
.
(a)
No
Violations
. The Company is not in violation or default (i) of
any provisions of its Articles of Incorporation or Bylaws, (ii) of any
instrument, judgment, order, writ or decree, (iii) under any note, indenture or
mortgage, (iv) under any lease, agreement, contract or purchase order to which
it is a party or by which it is bound that is required to be listed on the
Company Disclosure Schedule, or (v) of any provision of federal or state
statute, rule or regulation applicable to the Company, the violation or default
of which would have a Material Adverse Effect. The execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated by the Transaction Documents will not result in
any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either (i) a default under any such
provision, instrument, judgment, order, writ, decree, contract or agreement or
(ii) an event which results in the creation of any Lien upon any assets of the
Company or the suspension, revocation, forfeiture, or nonrenewal of any material
permit or license applicable to the Company.
(b)
Foreign
Corrupt Practices
. Neither Parent nor any of its Subsidiaries nor any
director, officer, agent, employee or other Person acting on behalf of Parent or
any of its Subsidiaries has, in the course of its actions for, or on behalf of,
Parent or any of its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
3.11
Agreements;
Actions
(a)
Except
for the Transaction Documents, there are no agreements, understandings,
instruments, contracts or proposed transactions to which the Company is a party
or by which it is bound that involve (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $50,000, (ii) the
license of any patent, copyright, trademark, trade secret or other proprietary
right to or from the Company, (iii) the grant of rights to manufacture,
produce, assemble, license, market, or sell its products to any other Person
that limit the Company’s exclusive right to develop, manufacture, assemble,
distribute, market or sell its products, or (iv) indemnification by the Company
with respect to infringements of proprietary rights.
(b)
The
Company has not (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock, (ii) incurred any indebtedness for money borrowed or incurred any
other liabilities individually in excess of $50,000 in the aggregate,
(iii) made any loans or advances to any Person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed
of any of its assets or rights, other than the sale of its inventory in the
ordinary course of business. For the purposes of subsections (ii) and (iii) of
this
Section 3.11(b)
,
all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same Person (including Persons
the Company has reason to believe are affiliated with each other) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsection.
(c)
The
Company is not a guarantor or indemnitor of any indebtedness of any other
Person.
3.12
Certain
Transactions
(a)
Except
as set forth in Section 3.12(a) of the Company Disclosure Schedule, other than
(i) standard employee benefits generally made available to all employees, (ii)
standard director and officer indemnification agreements approved by the Board
of Directors, and (iii) the purchase of shares of the Company’s capital stock
and the issuance of options to purchase shares of the Company’s Common Stock, in
each instance, approved in the written minutes of the Board of Directors
(previously provided to the Purchasers or their counsel), there are no
agreements, understandings or proposed transactions between the Company and any
of its officers, directors, consultants or Key Employees, or any Affiliate
thereof.
(b)
Except
as set forth in Section 3.12(b) of the Company Disclosure Schedule, the Company
is not indebted, directly or indirectly, to any of its directors, officers or
employees or to their respective spouses or children or to any Affiliate of any
of the foregoing, other than in connection with expenses or advances of expenses
incurred in the ordinary course of business or employee relocation expenses and
for other customary employee benefits made generally available to all
employees. None of the Company’s directors, officers or employees, or
any members of their immediate families, or any Affiliate of the foregoing are,
directly or indirectly, indebted to the Company or have any (i) material
commercial, industrial, banking, consulting, legal, accounting, charitable or
familial relationship with any of the Company’s customers, suppliers, service
providers, joint venture partners, licensees and competitors, (ii) direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company except that directors, officers or
employees or stockholders of the Company may own stock in (but not exceeding two
percent (2%) of the outstanding capital stock of) publicly traded companies that
may compete with the Company or (iii) financial interest in any material
contract with the Company.
3.13
Rights
of Registration and Voting Rights
. Except as set forth in
Section 3.13 of the Company Disclosure Schedule, the Company is not under
any obligation to register under the Securities Act any of its currently
outstanding securities or any securities issuable upon exercise or conversion of
its currently outstanding securities.
3.14
Absence
of Liens.
Except as set forth in Section 3.14 of the Company
Disclosure Schedule, the property and assets that the Company owns are free and
clear of all mortgages, deeds of trust, and Liens, except for statutory Liens
for the payment of current Taxes that are not yet delinquent and encumbrances
and Liens that arise in the ordinary course of business and do not materially
impair the Company’s ownership or use of such property or
assets. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to its knowledge, holds a valid
leasehold interest free of any Liens other than those of the lessors of such
property or assets.
3.15 Financial
Matters
(a)
Financial
Statements
. The Company has delivered to each Investor its
audited income statements for the twelve-month period ended March 31, 2010, and
its unaudited income statement for the six-month period ended September 30,
2010, and an audited balance sheet dated as of March 31, 2010, and an
unaudited balance sheet dated as of September 30, 2010 (collectively, the "
Financial
Statements
"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, except that the unaudited Financial
Statements may not contain all footnotes required by generally accepted
accounting principles. The Financial Statements fairly present in all
material respects the financial condition and operating results of the Company
as of the dates, and for the periods, indicated therein, subject in the case of
the unaudited Financial Statements to normal year-end audit adjustments. Except
as set forth in the Financial Statements, the Company has no material
liabilities or obligations, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
Financial Statements Date, (ii) obligations under contracts and commitments
incurred in the ordinary course of business, and (iii) liabilities and
obligations of a type or nature not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, in all such
cases, individually and in the aggregate would not have a Material Adverse
Effect. The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
generally accepted accounting principles.
(b)
Internal
Accounting and Disclosure Controls
. Parent maintains 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 generally accepted
accounting principles and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization, and (iv) the
recorded accountability for assets and liabilities is compared with the existing
assets and liabilities at reasonable intervals and appropriate action is taken
with respect to any difference. Parent maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15 under the 1934 Act) that are
effective in ensuring that information required to be disclosed by Parent in the
reports that it files or submits under the 1934 Act is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms of the SEC, including, without limitation, controls and procedures
designed to ensure that information required to be disclosed by Parent in the
reports that it files or submits under the 1934 Act is accumulated and
communicated to Parent’s management, including its principal executive officer
or officers and its principal financial officer or officers, as appropriate, to
allow timely decisions regarding required disclosure. During the twelve months
prior to the date hereof, neither Parent nor any of its Subsidiaries have
received any notice or correspondence from any accountant relating to any
potential material weakness in any part of the system of internal accounting
controls of Parent or any of its Subsidiaries.
(c)
Off
Balance Sheet Arrangements
. There is no transaction, arrangement, or
other relationship between Company and an unconsolidated or other off balance
sheet entity that is required to be disclosed by Company in its Exchange Act
filings and is not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.
3.16
Changes
. Since
the Financial Statements Date there has not been:
(a)
any
change in the assets, liabilities, financial condition or operating results of
the Company from that reflected in the Financial Statements, except changes in
the ordinary course of business that have not caused, in the aggregate, a
Material Adverse Effect;
(b)
any
damage, destruction or loss, whether or not covered by insurance, that would
have a Material Adverse Effect;
(c)
any
waiver or compromise by the Company of a valuable right or of a material debt
owed to it;
(d)
any
satisfaction or discharge of any Lien or payment of any obligation by the
Company, except in the ordinary course of business and the satisfaction or
discharge of which would not have a Material Adverse Effect;
(e)
any
material change to a material contract or agreement by which the Company or any
of its assets is bound or subject;
(f)
any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder;
(g)
any
resignation or termination of employment of any officer or Key Employee of the
Company;
(h)
any
mortgage, pledge, transfer of a security interest in, or Lien, created by the
Company, with respect to any of its material properties or assets, except Liens
for Taxes not yet due or payable and Liens that arise in the ordinary course of
business and do not materially impair the Company’s ownership or use of such
property or assets;
(i)
any
loans or guarantees made by the Company to or for the benefit of its employees,
officers or directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of its
business;
(j)
any declaration, setting aside or payment or other distribution in respect of
any of the Company’s capital stock, or any direct or indirect redemption,
purchase, or other acquisition of any of such stock by the Company;
(k)
any
sale, assignment or transfer of any Company Intellectual Property that could
reasonably be expected to result in a Material Adverse Effect;
(l)
receipt
of notice that there has been a loss of, or material order cancellation by, any
major customer of the Company;
(m)
to
the Company’s knowledge, any other event or condition of any character, other
than events affecting the economy or the Company’s industry generally,
that could reasonably be expected to result in a Material Adverse Effect;
or
(n)
any
arrangement or commitment by the Company to do any of the things described in
this
Section 3.16
.
3.17
Employee Matters
(a)
As
of the date hereof, the Company employs such full-time employees, part-time
employees and consultants or independent contractors as are listed in
Section 3.17
of the
Company Disclosure Schedule, which sets forth a detailed description of all
compensation, including salary, bonus, severance obligations and deferred
compensation paid or payable for each officer, employee, consultant and
independent contractor of the Company who received compensation in excess of $75,000 for the fiscal year ended March 31, 2010, or is anticipated to receive
compensation in excess of $75,000 for the fiscal year ending March 31,
2011.
(b)
To
the Company’s knowledge, none of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would materially interfere with such employee’s ability to promote
the interest of the Company or that would conflict with the Company’s
business. Neither the execution or delivery of the Transaction
Documents, nor the carrying on of the Company’s business by the employees of the
Company, nor the conduct of the Company’s business as now conducted and as
presently proposed to be conducted, will, to the Company’s knowledge, conflict
with or result in a breach of the terms, conditions, or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
such employee is now obligated.
(c)
The
Company is not delinquent in payments to any of its employees, consultants, or
independent contractors for any wages, salaries, commissions, bonuses, or other
direct compensation for any service performed for it to the date hereof or
amounts required to be reimbursed to such employees, consultants, or independent
contractors. The Company has complied in all material respects with all
applicable state and federal equal employment opportunity laws and with other
laws related to employment, including those related to wages, hours, worker
classification, and collective bargaining. The Company has withheld
and paid to the appropriate governmental entity or is holding for payment not
yet due to such governmental entity all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, Taxes,
penalties, or other sums for failure to comply with any of the
foregoing.
(d)
To
the Company’s knowledge, no Key Employee intends to terminate employment with
the Company or is otherwise likely to become unavailable to continue as a Key
Employee, nor does the Company have a present intention to terminate the
employment of any of the foregoing. The employment of each employee
of the Company is terminable at the will of the Company. Except as
set forth in
Section
3.17
of the Company Disclosure Schedule or as required by law, upon
termination of the employment of any such employees, no severance or other
payments will become due. Except as set forth in
Section 3.17
of the
Company Disclosure Schedule, the Company has no policy, practice, plan, or
program of paying severance pay or any form of severance compensation in
connection with the termination of employment services.
(e)
The
Company has not made any representations regarding equity incentives to any
officer, employees, director or consultant that are inconsistent with the share
amounts and terms set forth in the minutes of meetings of the Board of
Directors.
(f)
Each
former Key Employee whose employment was terminated by the Company has entered
into an agreement with the Company providing for the full release of any claims
against the Company or any related party arising out of such
employment.
(g)
Section 3.17
of the
Company Disclosure Schedule sets forth each employee benefit plan maintained,
established or sponsored by the Company, or which the Company participates in or
contributes to, which is subject to the Employee Retirement Income Security Act
of 1974, as amended ("
ERISA
"). The
Company has made all required contributions and has no liability to any such
employee benefit plan, other than liability for health plan continuation
coverage described in Part 6 of Title I(B) of ERISA, and has complied
in all material respects with all applicable laws for any such employee benefit
plan.
(h)
The
Company is not bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the knowledge of the Company, has sought to represent any of the
employees, representatives or agents of the Company. There is no
strike or other labor dispute involving the Company pending, or to the Company’s
knowledge, threatened, which could have a Material Adverse Effect, nor is the
Company aware of any labor organization activity involving its
employees.
(i)
To
the Company’s knowledge, none of the Key Employees or directors of the Company
has been (i) subject to voluntary or involuntary petition under the federal
bankruptcy laws or any state insolvency law or the appointment of a receiver,
fiscal agent or similar officer by a court for his business or property; (ii)
convicted in a criminal proceeding or named as a subject of a pending criminal
proceeding (excluding traffic violations and other minor offenses);
(iii) subject to any order, judgment, or decree (not subsequently reversed,
suspended, or vacated) of any court of competent jurisdiction permanently or
temporarily enjoining him from engaging, or otherwise imposing limits or
conditions on his engagement in any securities, investment advisory, banking,
insurance, or other type of business or acting as an officer or director of a
public company; or (iv) found by a court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated any federal or state securities,
commodities, or unfair trade practices law, which such judgment or finding has
not been subsequently reversed, suspended, or vacated.
3.18
Tax Returns
and payments.
There are no federal, state county, local or
foreign Taxes due and payable by the Company which have not been timely
paid. There are no accrued and unpaid federal, state, country, local
or foreign Taxes of the Company which are due, whether or not assessed or
disputed. There have been no examinations or audits of any Tax
Returns or reports by any applicable federal, state, local or foreign
governmental agency. The Company has duly and timely filed all
federal, state, county, local and foreign Tax Returns required to have been
filed by it and there are in effect no waivers of applicable statues of
limitations with respect to Taxes for any year.
3.19
Insurance
. The
Company has in full force and effect fire and casualty insurance policies with
extended coverage, sufficient in amount (subject to reasonable deductions) to
allow it to replace any of its properties that might be damaged or
destroyed.
3.20
Confidential
Information and Invention Assignment Agreements
. Each current
and former employee, consultant and officer of the Company has executed an
agreement with the Company regarding confidentiality and proprietary information
substantially in the form or forms delivered to the counsel for the Purchasers
(the "
Confidential
Information Agreements
"). No current or former Key Employee
has excluded works or inventions from his or her assignment of inventions
pursuant to such Key Employee’s Confidential Information
Agreement. The Company is not aware that any of its Key Employees is
in violation thereof.
3.21
Permits
. The
Company has all franchises, permits, licenses and any similar authority
necessary for the conduct of its business, the lack of which could reasonably be
expected to have a Material Adverse Effect. The Company is not in
default in any material respect under any of such franchises, permits, licenses
or other similar authority.
3.22
Corporate
Documents
. The Articles of Incorporation and Bylaws of the
Company are in the form provided to the Purchasers. The copy of the
minute book of the Company provided to the Purchasers contains minutes of
meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and accurately reflects in all material
respects all actions by the directors (and any committee of directors) and
stockholders with respect to all transactions referred to in such
minutes.
3.23
83(b)
Elections
. To the Company's knowledge, all elections and
notices under Section 83(b) of the Code have been or will be timely filed
by all individuals who have acquired shares of the Company's Common Stock
subject to substantial risk of forfeiture.
3.24
Environmental
and Safety Laws
. Except as could not reasonably be expected to
have a Material Adverse Effect and as set forth in Section 3.24 of the Company
Disclosure Schedule, (a) the Company is and has been in
compliance with all Environmental Laws; (b) there has been no release or
threatened release of any pollutant, contaminant or toxic or hazardous material,
substance or waste, or petroleum or any fraction thereof, (each a "
Hazardous Substance
")
on, upon, into or from any site currently or heretofore owned, leased or
otherwise used by the Company; (c) there have been no Hazardous Substances
generated by the Company that have been disposed of or come to rest at any site
that has been included in any published U.S. federal, state or local "superfund"
site list or any other similar list of hazardous or toxic waste sites published
by any governmental authority in the United States; and (d) there are no
underground storage tanks located on, no polychlorinated biphenyls ("
PCBs
") or
PCB-containing equipment used or stored on, and no hazardous waste as defined by
the Resource Conservation and Recovery Act, as amended, stored on, any site
owned or operated by the Company, except for the storage of hazardous waste in
compliance with Environmental Laws. The Company has made available to
the Purchasers true and complete copies of all material environmental records,
reports, notifications, certificates of need, permits, pending permit
applications, correspondence, engineering studies, and environmental studies or
assessments. For purposes of this
Section 3.24
,
"Environmental Laws" means any law, regulation, or other applicable requirement
relating to (a) releases or threatened release of Hazardous Substance; (b)
pollution or protection of employee health or safety, public health or the
environment; or (c) the manufacture, handling, transport, use, treatment,
storage, or disposal of Hazardous Substances.
3.25
Brokers and
Finders
.
Except as set
forth in Section 3.25 of the Company Disclosure Schedule, the Company has not
retained any investment banker, broker or finder in connection with the
transactions contemplated by this Agreement.
3.26
Disclosure
. No
representation or warranty of the Company contained in this Agreement, as
qualified by the Company Disclosure Schedule,
and certificate furnished or to be furnished to
Purchasers at the Closing contains any untrue statement of a material fact or,
to the Company’s knowledge, omits to state a material fact necessary in order to
make the statements contained herein or therein not misleading in light of the
circumstances under which they were made. It is understood that this
representation is qualified by the fact that the Company has not delivered to
the Purchasers, and has not been requested to deliver, a private placement or
similar memorandum or any written disclosure of the types of information
customarily furnished to purchasers of securities.
4.
Representations,
Acknowledgments and Warranties of Purchasers.
Each Purchaser,
severally and not jointly, represents, acknowledges and warrants to the Company
(provided that such representations and warranties do not limit or obviate the
representations and warranties of the Company set forth in this Agreement) as
follows:
4.1
Authorization
. Purchaser
has full power and authority to enter into this Agreement and all corporate
action on the part of Purchaser, its officers, directors, managers, members and
stockholders necessary for the purchase of the Shares has been taken, and this
Agreement constitutes the legally binding and valid obligation of Purchaser,
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
4.2
Brokers and
Finders
.
Purchaser has not
retained any investment banker, broker or finder in connection with the
transactions contemplated by this Agreement.
4.3
Purchase
Entirely for Own Account.
This Agreement is made with
Purchaser in reliance upon Purchaser's representation to the Company, which by
Purchaser's execution of this Agreement Purchaser hereby confirms, that the
Shares to be received by Purchaser will be acquired for investment for
Purchaser's own account, not as a nominee or agent, and not with a view to the
sale or distribution of any part thereof, and that Purchaser has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, Purchaser further represents
that it has no contract, undertaking, agreement or arrangement with any Person
to sell, transfer or grant participation to such Person or to any third Person,
with respect to any of the Shares.
4.4
R
estricted
Securities.
Purchaser understands and acknowledges that the
offering of the Shares pursuant to this Agreement will not be registered under
the Securities Act on the grounds that the offering and sale of securities
contemplated by this Agreement are exempt from registration pursuant to Section
4(2) of the Securities Act, and that the Company's reliance upon such exemption
is predicated, in part, upon Purchaser's representations set forth in this
Agreement.
4.5
Limitations
on Disposition.
(a)
In
no event will Purchaser dispose of any of its Shares (other than pursuant to an
effective registration statement under the Securities Act or pursuant to Rule
144 promulgated by the United States Securities and Exchange Commission (the
"
Commission
")
under the Securities Act ("
Rule
144
") or any similar
or analogous rule), unless and until (i) Purchaser shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, Purchaser shall have furnished the Company
with an opinion of counsel satisfactory in form and substance to the Company to
the effect that such disposition will not require registration under the
Securities Act.
(b)
Notwithstanding
the provisions of subsection (a) above, no such registration statement or
opinion of counsel shall be necessary for a transfer by a Purchaser that is
(i) a partnership to an affiliate, a partner of such partnership or a
retired partner of such partnership who retires after the date hereof, or to the
estate of any such partner or retired partner or the transfer by gift, will or
intestate succession of any partner to his or her spouse or to the siblings,
lineal descendants or ancestors of such partner or his or her spouse;
(ii) a corporation, to its stockholders in accordance with their interest
in the corporation; (iii) a limited liability company, to its members or
former members in accordance with their interest in the limited liability
company; or (iv) to the Purchaser's family member or trust for the benefit
of the individual Purchaser, if the transferee agrees in writing to be subject
to the terms hereof to the same extent as if he or she were an original
Purchaser hereunder.
4.6
Investment
Experience and Disclosure of Information.
Purchaser (i) has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its prospective investment in the Shares;
(ii) has the ability to bear the economic risks of its prospective investment;
and (iii) is able to bear the economic risk of its investment and to hold the
Shares for an indefinite period of time.
4.7
Accredited
Investor.
Purchaser is an "accredited investor," as such term
is defined for purposes of Rule 501 of Regulation D, as presently in effect,
promulgated by the Commission.
4.8
Non-Reliance
on Company.
Investor is not relying on the Company with respect to the
tax and other economic considerations relating to this Agreement and the
purchase of the Shares. In regard to such considerations, Investor has relied on
the advice of, or has consulted with, his, her or its own personal tax,
investment or other advisors and has not relied on the Company or any of its
affiliates, officers, directors, attorneys, accountants or any affiliates of any
thereof and each other person, if any, who controls any thereof, within the
meaning of Section 15 of the Securities Act, except to the extent such advisors
shall be deemed to be as such.
4.9
Full Access
to Company Records.
Investor has been granted the opportunity to conduct
a full and fair examination of the records, documents and files of the Company,
to ask questions of and receive answers from representatives of the Company, its
officers, directors, employees and agents concerning the terms and conditions of
this Agreement and the purchase of Shares, the Company and its business and
prospects, and to obtain any additional information which Investor deems
necessary to verify the accuracy of any information received.
4.10
No General
Solicitation.
The Shares were not offered to Investor through an
advertisement in printed media of general and regular circulation, radio or
television.
4.11
Limited
Market.
There is currently a very limited market for the Company’s Common
Stock on the Over-the-Counter Bulletin Board. There can be no assurances that a
liquid market will develop for the Company’s Common Stock or if developed, be
sustained in the future. Consequently, Investor may never be able to liquidate
its investment and Investor may bear the economic risk of its investment for an
indefinite period of time.
5. California
and Federal Securities Laws
5.1
N
o
Qualification.
THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5.2
Legend
. The
certificates for the Shares shall bear a legend in substantially the following
form (and any other legend required by the Commissioner of Corporations of the
State of California).
"THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT BE
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO
SUCH TRANSFER OR, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY, SUCH TRANSFER MAY BE MADE PURSUANT TO RULE 144 OR REGISTRATION UNDER
THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE
ACT."
6. Conditions
to Closing
6.1
Conditions
to Purchaser's Obligations
. The obligations of each Purchaser
under
Section 2
of
this Agreement are subject to the fulfillment on or before the Closing of each
of the following conditions, any of which may be waived in writing by such
Purchaser but which waiver shall not be effective against any Purchaser who does
not consent in writing thereto.
(a)
Representations
and Warranties
. The representations and warranties of the
Company contained in
Section 3
shall be
true on and as of the Closing with the same effect as if made on and as of the
Closing.
(b)
P
erformance
.
The Company shall
have performed or fulfilled all agreements, obligations and conditions contained
herein required to be performed or fulfilled by the Company before the
Closing.
(c)
Blue Sky
Compliance
. The Company shall have complied with and be
effective under the securities laws of the State of California and any other
state, as necessary to offer and sell the Shares to each Purchaser.
(d)
Secretary’s
Certificate
. The Secretary of the Company shall deliver to
each Purchaser at the Closing a certificate stating that the copies attached
thereto of the Company’s Articles of Incorporation and Bylaws and the
resolutions of its Board of Directors and stockholders relating to the sale of
the Shares are true and complete copies of such documents and
resolutions.
(e)
Compliance
Certificate
. The Company shall have delivered to Purchasers
the Compliance Certificate, dated as of the Closing, signed by the Company's
President, certifying that the conditions set forth in
Sections 6.1(a)
and
6.1(b)
have
been satisfied and stating that there shall have been no Material Adverse Effect
with respect to the Company since the Financial Statements Date.
(f)
Authorization
of the Board of Directors of the Company.
The Board of
Directors shall have duly adopted resolutions authorizing the execution,
delivery and performance of this Agreement, the Transaction Documents, and each
of the agreements contemplated hereby, the filing of the Articles of
Incorporation, the adoption of the Company's Bylaws, the issuance and sale of
the Shares, and the consummation of all other transactions contemplated by this
Agreement and the Transaction Documents.
(g)
Closing of
Transactions Under SP&AA Agreement.
The transactions
contemplated by the SP&AA Agreement shall close concurrently with the
closing of the issuance of Shares under this Agreement.
(h)
Board
of Directors.
As of the Closing, the Board of Directors shall
consist of Atticus Lowe, Robert G. Watson, James Miller, and Lance
Helfert.
(i)
Opinion of
Counsel
. Counsel for the Company shall have delivered to each
Purchaser an opinion in the form attached hereto as
Exhibit
D
.
(j)
Proprietary
Information and Inventions Agreement
. The Company shall have
entered into a proprietary information and inventions agreement, in form and
substance satisfactory to such Purchaser, with each of its officers, key
employees, and any consultants identified by the Majority
Purchasers.
(k)
Delivery
of Certificates
. The Company shall deliver certificates
representing the number of Shares set forth opposite each Purchaser's name on
Schedule
1
hereto.
(l)
Good
Standing Certificates.
The Company shall have delivered to
Purchasers a certificate of good standing (including Tax good standing) issued
by the Secretary of State for the State of Nevada, the State of Kansas, and the
applicable authority for each other jurisdiction in which the Company is
qualified to do business, dated a recent date before the Closing.
(m)
Consents
and Qualifications.
The Company shall have obtained
(i) copies of all third party and governmental consents, approvals and
filings required in connection with the consummation of the transactions
hereunder (including, without limitation, all blue sky law filings and waivers
of all preemptive rights and rights of first refusal), and (ii) all
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Shares pursuant to this
Agreement shall be duly obtained and effective as of the Closing.
6.2
Conditions
to Company's Obligations
. The obligations of the Company under
Section 2
of this Agreement are subject to the fulfillment at or before the Closing of
each of the following conditions, any of which may be waived in writing by the
Company:
(a)
Representations
and Warranties
. The representations and warranties of each
Purchaser contained in
Section 4
shall be
true on and as of the Closing with the same effect as though said
representations and warranties had been made on and as of the
Closing.
(b)
Payment of
Purchase Price
. Each of the Purchasers shall have delivered
the purchase price by wire transfer or other immediately available funds, the
sum set forth opposite such Purchaser's name specified in
Schedule
1
, in payment of the purchase price of the number of Shares being
purchased by such Purchaser pursuant to this Agreement.
7. Additional
Covenants of Parties
7.1
Indemnification
.
In consideration of each Purchaser’s execution and delivery of the Transaction
Documents and acquiring the Shares thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall
jointly and severally defend, protect, indemnify and hold harmless each
Purchaser and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "
Indemnitees
") from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (the "
Indemnified
Liabilities
"), incurred by any Indemnitee as a result of, or arising out
of, or relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim brought
or made against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities, or (iii) the status of such Purchaser or holder of the
Securities as an investor in the Company pursuant to the transactions
contemplated by the Transaction Documents.
(a)
To
the extent that the foregoing undertakings by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law.
(b)
Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this
Section 9.2
, deliver
to the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be;
provided, however,
that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Purchasers holding at least a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person
shall cooperate reasonably with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the Indemnified Party or Indemnified Person which relates to such action or
Claim. The indemnifying party shall keep the Indemnified Party or Indemnified
Person fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent,
provided, however
, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such Claim or
litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under
this
(c)
The
indemnification required by this Section 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 Indemnified Damages are incurred.
(d)
The
indemnity agreements contained herein shall be in addition to (i) any cause of
action or similar right of the Indemnified Party or Indemnified Person against
the indemnifying party or others and (ii) any liabilities the indemnifying party
may be subject to pursuant to the law.
(e)
To
the extent any indemnification by an indemnifying party is prohibited or limited
by law, the indemnifying party agrees to make the maximum contribution with
respect to any amounts for which it would otherwise be liable under this
Section 9.2
to the
fullest extent permitted by law;
provided, however,
that: (i)
no Person involved in the sale of Registrable Securities which Person is guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) in connection with such sale shall be entitled to contribution from any
Person involved in such sale of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities pursuant to such
Registration Statement.
7.2
Reports
Under Exchange Act
. With a view to making available to the
Purchasers the benefits of Rule 144 promulgated under the 1933 Act or any other
similar rule or regulation of the SEC that may at any time permit the Purchasers
to sell securities of Company to the public without registration (“
Rule 144
”), Company
agrees to:
(a)
Make
and keep public information available, as those terms are understood and defined
in Rule 144;
(b)
File
with the SEC in a timely manner all reports and other documents required of
Company under the 1933 Act and the 1934 Act so long as Company remains subject
to such requirements (it being understood that nothing herein shall limit
Company’s obligations under Section 4(c) of the Securities Purchase Agreement)
and the filing of such reports and other documents is required for the
applicable provisions of Rule 144; and
(c)
Furnish
to each Purchaser so long as such Purchaser owns Registrable Securities,
promptly upon written request by an Purchaser, (i) a written statement by
Company, if true, that it has complied with the reporting requirements of Rule
144, the Securities Act, and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of Company and such other reports and documents so filed by
Company, and (iii) such other information as may be reasonably requested to
permit the Purchasers to sell such securities pursuant to Rule 144 without
registration.
7.3
Purchasers'
Counsel Fees
. At or promptly following the Initial Closing, the Company
shall pay the fees and expenses of Reicker, Pfau, Pyle & McRoy LLP, counsel
to West Coast Opportunity Fund, LLC, in connection with the execution and
delivery of this Agreement and the transactions contemplated herein, provided
that in no event shall the Company be obligated to pay under this
Section 7.4
more
than Eighty-Five Thousand Dollars ($85,000.00) in the aggregate for such fees
and expenses.
8.
Miscellaneous
8.1
Notices
.
All notices,
elections, requests, demands, and other communications required or permitted
under this Agreement shall be in writing, and shall be deemed to have been
delivered and received (a) when personally delivered, or (b) on the
fifth (5th) business day after the date on which deposited in the national mail
system of the country of the sender's residence and (for items transmitted under
this clause "(b)" from a source in the United States to a destination also in
the United States) as evidenced by a receipt for registered or certified mail
signed by the recipient or an authorized agent of recipient, or (c) on the
date on which transmitted by facsimile or other electronic means generating a
receipt evidencing a successful transmission; or (d) on the next business
day after the business day on which deposited with a nationally or
internationally recognized overnight commercial delivery service (e.g., Federal
Express or DHL) for the fastest commercially available overnight delivery, with
a return receipt (or equivalent thereof administered by such regulated public
carrier) requested, freight prepaid, addressed to the party for whom intended at
the mailing address, facsimile number, or email address set forth on the
signature page of this Agreement, or such other mailing address, facsimile
number, or email address, notice of which is given in a manner permitted by this
Section
8.1
.
8.2
Binding on
Successors; Assignment
. This Agreement shall be binding upon,
and shall inure to the benefit of, the heirs, successors, assigns, and personal
representatives of each of the parties.
8.3
Counterparts
. This
Agreement may be executed in counterparts, each of which shall be deemed an
original and all of which, taken together, shall be one and the same instrument,
binding on each of the signatories hereto.
8.4
Titles and
Subtitles
. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
8.5
Amendments
and Waivers
. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Majority
Purchasers. Notwithstanding the foregoing, this Agreement may not be
amended to create any obligation on behalf of a Purchaser to advance funds to
the Company or purchase Shares beyond the amounts set forth on
Schedule
1
without the consent or approval of such Purchaser. Any
amendment or waiver effected in accordance with this
Section 8.5
shall be
binding upon the Company, Purchasers, and any transferee of any
Shares.
(a)
Rights
Among Purchasers
. Each Purchaser (or transferee holder of
Shares issued hereunder) shall have the absolute right to exercise or refrain
from exercising any right or rights that such holder may have by reason of this
Agreement, including without limitation the right to consent to the waiver of
any obligation of the Company under this Agreement and to enter into an
agreement with the Company for the purpose of modifying this Agreement or any
agreement effecting any such modification, and such Purchaser or transferee
holder shall not incur any liability to any other Purchaser or holder of Shares
with respect to exercising or refraining from exercising any such right or
rights.
(b)
Exculpation
Among Purchasers.
Each Purchaser acknowledges that it is not
relying upon any person, firm or corporation, other than the Company and its
officers and directors, in making its investment or decision to invest in the
Company. Each Purchaser agrees that no Purchaser nor the respective
controlling Persons, officers, directors, partners, agents or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
issuance of the Shares hereunder and shares of Common Stock issuable upon
conversion of the Shares.
(c)
Effect
of Amendment or Waiver
. Each Purchaser acknowledges that by
the operation of this
Section 8.5
, less
than all of the Purchasers may effect an amendment or waiver of provisions of
this Agreement and therefore diminish or eliminate all rights of such Purchaser
under this Agreement even though such Purchaser has not consented to the
amendment or waiver.
8.6
Severability
. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
8.7
Aggregation
of Stock
. All shares of the Common Stock or shares of Common
Stock issued upon conversion thereof held or acquired by affiliated entities or
persons shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
8.8
Entire
Agreement
. This Agreement and the Exhibits attached hereto
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein.
8.9
Survival of
Representations and Warranties
. The representations and
warranties of the parties contained in
Sections 3
and
4
of this Agreement
shall survive the execution and delivery of this Agreement and the Closing and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the Purchasers or the Company.
8.10
Attorneys'
Fees
. If any action or proceeding is commenced to construe or
enforce the terms and conditions of this Agreement or the rights and duties
created hereunder, then the party prevailing in such action shall be entitled to
recover its attorneys' fees and the costs of enforcing any judgment entered
therein.
8.11
Governing
Law
. This Agreement shall be governed by and construed in
accordance with Nevada law, without regard to the application of the conflict of
law principles thereunder.
[
Signatures appear on the following
pages
.]
IN WITNESS WHEREOF
, the
parties hereto have executed this Securities Purchase Agreement as of the day
and year first above written.
"
Company
:"
|
|
|
|
EnerJex
Resources, Inc.,
a Nevada corporation
|
|
|
|
By
|
|
|
|
C.
Stephen Cochennet, Chief Executive Officer
|
|
|
|
Address and Facsimile No. for
Notices
:
|
|
|
|
EnerJex
Resources, Inc.
|
|
ATTN: Chief
Executive Officer
|
|
27
Corporate Woods, Suite 350
|
|
10975
Grandview Drive
|
|
Overland
Park, KS 66210
|
|
|
|
Facsimile
No.: (913) 754-7755
|
|
Email:
scochennet@bizkc.rr.com
|
|
|
|
with a copy
to
:
|
|
|
|
ANTHONY
N. DEMINT
|
|
Attorney
at Law
|
|
DeMint
Law, PLLC
|
|
3753
Howard Hughes Parkway
|
|
Second
Floor, Suite 314
|
|
Las
Vegas, NV 89169
|
|
|
|
Facsimile
No.: (702) 442.7995
|
|
anthony@demintlaw.com
|
[
Signatures continued on following
page
.]
"Common
Stock Purchasers:"
|
|
|
|
Montecito
Venture Partners, LLC
, a
California limited liability
company
|
|
|
|
By
|
|
|
|
Atticus
Lowe
|
|
|
Chief
Investment Officer of Managing Member
|
|
|
|
|
|
Date
|
|
|
|
Address and Facsimile No. for
Notices
:
|
|
|
|
Montecito
Venture Partners, LLC
|
|
c/o
West Coast Asset Management, Inc.
|
|
1205
Coast Village Road
|
|
Montecito,
CA 93108
|
|
Attention:
Atticus Lowe
|
|
Telephone:
(805) 653-5333
|
|
Fax: (805)
648-6466
|
|
|
|
Amount
Being Invested by
|
|
Purchaser: $
_____________
|
|
|
[
Signatures continued on following
page.
]
Signature
Page for Common Stock Purchasers
EnerJex
Securities Purchase Agreement
Signatures
of Common Stock Purchasers Continued
|
|
|
Signature
|
Date
|
|
Signature
|
Date
|
|
|
|
|
|
|
Printed
Name of Purchaser
|
|
Printed
Name of Purchaser
|
|
|
|
|
|
|
Printed
Name and Title of Person Signing on behalf of Purchaser
|
|
Printed
Name and Title of Person Signing on behalf of Purchaser
|
|
|
|
Address and Facsimile No. for
Notices
:
|
|
Address and Facsimile No. for
Notices
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Facsimile
No.: (_____) _____________________
|
|
Facsimile
No.: (_____) _____________________
|
Email: ____________________________
|
|
Email: ___________________________
|
|
|
|
Amount
Being Invested by
|
|
Amount
Being Invested by
|
Purchaser: $ ____________________
|
|
Purchaser: $ ____________________
|
Signature
Page for Common Stock Purchasers
EnerJex
Securities Purchase Agreement
SCHEDULE
1
EnerJex
Resources, Inc.
PURCHASERS
OF COMMON STOCK
Purchaser
|
|
Cash
Invested
|
|
|
No. of Shares of
Common Stock
|
|
|
|
|
|
|
|
|
|
|
Montecito
Venture Partners, LLC
|
|
$
|
[_________
|
]
|
|
|
[_________
|
]
|
|
|
|
|
|
|
|
|
|
[____________]
|
|
|
[_________
|
]
|
|
|
[_________
|
]
|
|
|
|
|
|
|
|
|
|
[____________]
|
|
|
[_________
|
]
|
|
|
[_________
|
]
|
|
|
|
|
|
|
|
|
|
[____________]
|
|
|
[_________
|
]
|
|
|
[_________
|
]
|
|
|
|
|
|
|
|
|
|
TOTAL:
|
|
$
|
[_________
|
]
|
|
|
[_________
|
]
|
Exhibit
A
Certificate
of Designation
Exhibit
B
Compliance
Certificate
Exhibit
C
Company
Disclosure Schedule
Exhibit
D
Form
of Opinion of Counsel to Company
Employment
Agreement
This
Employment Agreement
(the "
Agreement
") is made
and entered into, effective as of December 31, 2010 (the "
Effective Date
"), by
and between
EnerJex
Resources, Inc.
,
a Nevada corporation (the "
Company
"), and
Robert G.
Watson, Jr.
("
Employee
"), with
reference to the following facts:
Recitals
:
The parties have agreed to execute this
Agreement in order to memorialize the terms and conditions on which the Company
shall employ Employee from and after the Effective Date of this
Agreement.
Agreements
:
Now,
Therefore
, the parties hereto, intending to be legally bound, do hereby
agree as follows:
1. Position
and Duties
1.1
Position
and Title
.
The Company
hereby hires Employee to serve as the Chief Executive Officer of the
Company.
(a)
Limits on
Authority
. Employee shall perform his duties as Chief
Executive Officer of the Company pursuant to this Agreement in compliance with
applicable law, consistent with such direction as the Company's Board of
Directors provides to Employee from time to time, and in accordance with
Company's policies and procedures as published from time to time.
(b)
Annual
Reviews
. Following each annual anniversary of the Effective
Date of this Agreement, the Board of Directors may review Employee's performance
of his duties pursuant to this Agreement and advise Employee of the results of
that review.
(c)
Reporting
and Authority
. Employee shall report to the Company's Board of
Directors. Subject to the power and authority of the Company's Board
of Directors to govern the affairs of the Company, Employee shall have full
authority and responsibility for supervising and managing the daily affairs of
the Company, including (i) working with the Company's Board of Directors to
develop and approve business objectives, policies and plans that improve profit
and growth objectives, (ii) communicating business objectives and plans within
the Company, (iii) ensuring that plans and policies are promulgated to and
implemented by subordinate managers, (iv) directing operations to achieve
planned performance goals and developing management systems to effectively
control each Company unit, (v) ensuring that each operating unit provides those
functions required for achieving its business objectives and that each unit is
properly organized, staffed and directed to fulfill its responsibilities, (vi)
developing the organization and personnel, products, facilities, technology, and
appropriate financial resources to secure the position of the Company and to
facilitate its planned development, (vii) directing periodic reviews of the
Company's strategic market position and combining this information with
corollary analysis of the Company's products and financial resources, (viii)
providing periodic financial information concerning the operations of the
business, human resources and sales growth plans to the Company's Board of
Directors, and (ix) ensuring that the operation of the Company complies with
applicable laws.
1.2
Acceptance
.
Employee hereby
accepts employment by the Company in the capacity set forth in
Section 1.1
, above,
and agrees to perform the duties of such position from and after the Effective
Date of this Agreement in a diligent, efficient, trustworthy, and businesslike
manner. Employee agrees that, to the best of the Employee's ability
and experience, Employee at all times shall loyally and conscientiously
discharge all of the duties and responsibilities imposed upon Employee pursuant
to this Agreement.
1.3
Business
Time
. Employee shall devote his exclusive business time to the
performance of his duties under this Agreement. Except with the prior
written approval of the Board of Directors of the Company, Employee may not be
employed by or provide paid consulting services to any business enterprise other
than the Company and its affiliates.
1.4
Location
. Employee
shall perform his duties under this Agreement from the offices maintained by
Employee in San Antonio, Texas, and from the Company's offices in Overland Park,
Kansas. Employee acknowledges and agrees that from time to time he
shall be required to travel (at the cost and expense of the Company) to other
locations outside of San Antonio, Texas, and Overland Park, Kansas, in order to
discharge his duties under this Agreement.
1.5
Term
.
The term of this
Agreement shall commence as of the Effective Date and shall expire on December
31, 2012, subject to sooner termination pursuant to
Section 4
,
below.
2.
Compensation.
The
Company shall compensate Employee for his services pursuant to this Agreement as
follows:
2.1
Salary
.
The Company shall
pay to Employee an annual salary in the amount of One Hundred Fifty Thousand
Dollars ($150,000.00) ("
Base Compensation
"),
payable in periodic installments in accordance with the Company's regular
payroll practices as in effect from time to time. Such annual salary
shall be subject to periodic increases, in such amounts (if any) as the Board of
Directors may determine to be appropriate, at the time of Employee's annual
review pursuant to
Section 1.1(b)
,
above, or at such other times (if any) as the Board of Directors may
select.
2.2
Annual
Bonus
. For each calendar year during the term of this
Agreement, Employee shall be eligible to receive a cash bonus in such amount,
and subject to achievement of such individual and Company-wide performance
criteria, as the Board of Directors determines to be appropriate.
2.3
Company
Stock.
Subject to approval of the Company's Board of
Directors, which the Company shall seek at the first meeting of the Board held
after the Effective Date of this Agreement, the Company shall grant to Employee
an option to purchase nine hundred thousand (900,000) shares of the Company's
Common Stock. That option will be exercisable at a price per share
equal to the fair market value of the Company's Common Stock on the date on
which that option is approved by the Board, and will be subject to the terms of
the Company's Stock Incentive Plan, as amended and as in effect from time to
time. In no such case will the option exercise price be less than $0.40 per
share.
2.4
Vacation
.
Employee shall
accrue four (4) weeks' paid vacation in each period of twelve (12) consecutive
months of employment during the term of this Agreement. If Employee
accumulates four (4) weeks' accrued and unused vacation time, then further
accruals shall cease until Employee's accrued and unused vacation time is less
than four (4) weeks.
2.5
Other
Fringe Benefits.
The Company shall either (a) provide health
insurance coverage for Employee and his dependents under the Company's group
health insurance plan, at the cost and expense of the Company, or (b) at the
election of Employee, reimburse Employee up to One Thousand Dollars ($1,000.00)
per month for an individual health insurance plan procured by
Employee. In addition to the foregoing, Employee shall be eligible
for coverage under such other fringe benefits as are provided to the Company's
employees generally from time to time.
2.6
Reimbursement
of Expenses
.
The Company shall
reimburse Employee for authorized expenses incurred by Employee in the
performance of Employee's duties,
provided that
such expenses
are reasonable in amount, incurred for the benefit of the Company, and are
supported by itemized accountings and expense receipts submitted to the Company
prior to any reimbursement.
3.
Board
Position.
On or promptly following the Effective Date of this
Agreement, the Company shall cause Employee to be nominated for election to the
Company's Board of Directors.
4.
PROPRIETARY
INFORMATION
4.1
No
Improper Use of Third-Party Confidential Information
. Employee
acknowledges that the Company does not desire to obtain improperly any
proprietary or confidential information owned by any company or other person
with whom Employee now has or heretofore has had a consulting engagement or
employment relationship, and therefore agrees that (a) Employee shall not bring
to the Company or share with any employee or other representative of the Company
any written, electronic, or other materials containing any confidential
information belonging to any such current or former employer or other person,
and (b) Employee shall not provide any such information in any other form to the
Company (or any representative of the Company) in violation of any agreements or
any other obligations that Employee may owe to any other persons.
4.2
Assignment
of Inventions and Works of Authorship and Improvements
.
(a)
Assignment
. Employee
shall keep the Company fully informed of inventions and works of authorship
conceived by Employee (either alone or with others) during Employee's engagement
with the Company and hereby assigns to the Company all rights in and to such
inventions and works of authorship. Employee covenants and agrees
that, upon the request of the Company, Employee shall make, execute, and deliver
such additional assignments and other instruments as may be necessary or
convenient for effectuating or further memorializing such
assignment.
(b)
Further
Assurances
. Employee further agrees that (i) all such
inventions and works of authorship (to the extent of Employee’s interest
therein) shall be the property of the Company, (ii) Employee shall not
assign to any person other than the Company any interest therein, and (iii)
Employee shall, without charge to the Company, assign to the Company all of
Employee's right, title and interest in any such inventions and works of
authorship, and execute, acknowledge and deliver such instruments as are
necessary to confirm the ownership thereof by the Company.
(c)
Patents,
Etc.
Upon the request and at the expense of the Company,
Employee shall (i) assist the Company or its nominees in obtaining patents,
copyright, trademark, or other right of protection for any such inventions and
works of authorship, in any country the Company determines to be appropriate,
and (ii) provide the Company all facts and data concerning any such inventions
and works of authorship for such applications and other documents as are
necessary to apply for and to obtain patents or other appropriate protection
therefor.
(
d
)
Depictions
. To
deliver to the Company any and all sketches, drawings, models, figures and other
information with respect to any such inventions and works of authorship
immediately upon the request of the Company, and, at the cost and expense of the
Company, to cooperate with the Company in prosecuting to completion any
litigation or other proceedings necessary to protect and enforce the proprietary
rights of the Company therein.
4.3
Nondisclosure,
Non-Circumvention and Noncompetition
. Employee agrees, as a
condition of Employee's engagement hereunder, to execute and deliver,
concurrently herewith, that certain Nondisclosure and Non-Circumvention
Agreement in the form attached hereto as
Appendix
1
, and to perform Employee's obligations thereunder.
4.4
Injunctive
Relief.
The parties agree that due to the nature of the
position for which Employee is being employed engaged and the information that
Employee will receive during the course of Employee's employment hereunder, the
Company would be irreparably harmed by any violation, or threatened violation of
this
Section 4
of this Agreement, and that the Company shall be entitled to an injunction,
without having to furnish any form of bond, prohibiting Employee from any actual
or threatened violation of
Section 4
of this
Agreement. Employee further agrees that the services to be performed
by Employee under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character that gives them peculiar value to the
Company, the loss of which cannot be reasonably or adequately compensated in
damages in an action at law. Employee agrees that the Company, in
addition to any other rights or remedies it may have, shall be entitled to
injunctive and other equitable relief to prevent or remedy a breach of this
Agreement by Employee.
5.
Termination
5.1
Definitions
. For
purposes of this Agreement, the term:
(
a
)
"Date of
Termination
" shall mean the date specified in the Notice of Termination
(as defined below).
(
b
)
"Disability"
or "Disabled"
shall mean that Employee either (i) is unable to engage in
any substantial gainful activity, with or without reasonable accommodation, due
to physical or mental impairment which can be expected to result in death or to
last for a continuous period of twelve (12) months or more, or (ii) is, by
reason of any medically determinable physical mental impairment which can be
expected to last for a continuous period of not less than twelve (12) months,
receiving income replacement benefits for a period of not less than three months
under an accident and health plan sponsored by the Company. Employee
covenants and agrees to submit to a reasonable physical examination by such
licensed medical doctor for the purpose of evaluating whether Employee is
Disabled.
(
c
)
"Cause"
shall mean (i) the willful and repeated failure by Employee to
substantially perform his duties with the Company (other than any such failure
resulting from Employee's incapacity due to Disability), after a written demand
for substantial performance is delivered to Employee by the Board, which demand
specifically identifies the manner in which the Board believes that Employee has
not substantially performed his duties and provides fourteen (14) days for
Employee to cure, or (ii) Employee's willfully engaging in conduct which is
demonstrably and materially injurious to the Company, monetarily or
otherwise. For purposes hereof, no act, or failure to act, on
Employee's part shall be deemed "willful" unless done, or omitted to be done, by
Employee not in good faith and without reasonable belief that Employee's action
or omission was in the best interest of the Company.
(
d
)
"Notice of
Termination"
shall mean a written notice which is delivered by the
Company in connection with the Company's decision to terminate Employee's
employment with the Company, setting forth in reasonable detail the reason for
termination of Employee's employment.
5.2
Termination
by Company
.
(
a
)
For
Cause
. The Company may terminate this Agreement as of the Date
of Termination for Cause. Notwithstanding the foregoing,
Employee shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Employee a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice to Employee and an opportunity for Employee, together with
Employee's counsel, to be heard before the Board), finding that in the good
faith opinion of the Board that Employee was guilty of conduct set forth above
and specifying the particulars thereof in reasonable detail,
provided, however
, that if at
such time Employee is a member of the Board of Directors, he shall abstain from
voting with respect to any matter relating to termination of his
employment. Upon termination for Cause, the Company shall pay to
Employee all accrued and unpaid compensation for the period ending on the Date
of Termination (including payment for any accrued and unused vacation time and
the Annual Bonus accrued through the Date of Termination), and shall not be
obligated to pay any additional amounts to Employee hereunder.
(
b
)
Other than
Cause or Disability.
Employee's employment is at will and the
Company may terminate this Agreement and Employee's employment for any reason
deemed sufficient by the Company, including by reason of Employee's Disability,
upon delivery of a Notice of Termination (or as of such date as is specified
therein). However, in the event that Employee's employment is
terminated by the Company other than for Cause or by reason of his Disability,
then in addition to paying to Employee all accrued and unpaid wages due to
Employee for periods ended on or prior to the effective date of the termination
(including payment for any accrued and unused vacation time and the Annual Bonus
accrued through the Date of Termination), the Company shall pay to Employee (i)
the Base Compensation that Employee would have earned during the remainder of
Term of this Agreement, and (ii) if such termination occurs after the first date
as of which Employee has been employed hereunder for at least sixteen (16)
consecutive calendar months, then the Company also shall pay to Employee the
additional sum of One Hundred Thousand Dollars ($100,000). Such
amounts shall be paid in equal periodic installments at the time when, and in
the periodic amounts in which, such Base Compensation would have been paid to
Employee if he had remained employed during the remainder of the Term
hereof.
(
c
)
Disability.
By
reason of Employee's Disability. If the Company elects to terminate
Employee's employment hereunder by reason of Employee's Disability, and if
Employee is then covered by a disability income policy sponsored by the Company,
then in addition to all accrued and unpaid wages then due to Employee (including
payment for any accrued and unused vacation time and the Annual Bonus accrued
through the Date of Termination).
5.3
Termination
by Employee.
Employee may resign from employment and terminate this
Agreement at any time. If Employee terminates this
Agreement:
(
a
)
Disability.
By
reason of Employee's Disability, and if Employee is then covered by a disability
income policy sponsored by the Company, then the Company shall pay to Employee
all accrued and unpaid wages due to Employee with respect to all periods ended
on or prior to the effective date of the termination of Employee's employment
hereunder, and the Company shall not owe any additional amounts to Employee by
reason of such termination.
(
b
)
Other.
Other
than by reason of Employee's Disability, then the Company shall pay to Employee
all accrued and unpaid wages due to Employee with respect to all periods ended
on or prior to the effective date of the termination of Employee's employment
hereunder, and the Company shall not owe any additional amounts to Employee by
reason of such termination.
5.4
Conditional
Nature of Severance Payments.
Notwithstanding any other
provision of this
Section 5
or any
other provision of this Agreement to the contrary:
(
a
)
Noncompete.
Employee
acknowledges that the nature of the Company's business is such that if Employee
were to become employed by, or substantially involved in, the business of a
competitor of the Company during the period of one (1) year following the
termination of Employee's employment with the Company, then it would be very
difficult for Employee not to rely on or use the Company's trade secrets and
confidential information in connection with that employment.
(
i
)
Thus, to avoid the inevitable disclosure of the Company's trade secrets
and confidential information, Employee acknowledges and agrees that his right to
receive the severance consideration described in
Sections 5.2
and
5.3
, above (to
the extent Employee is otherwise entitled to such payments thereunder) shall be
conditioned upon Employee not directly or indirectly engaging in (whether as an
employee, consultant, agent, proprietor, principal, partner, stockholder,
corporate officer, director or otherwise), or having any ownership interest in
or participating in the financing, operation, management or control of, any
person, firm, corporation or business that directly competes with Company or is
a customer of the Company and has operations located within a radius of five (5)
miles from any lease owned or operated by the Company. If Employee
engages, invests, or otherwise participates in any competitive activity
described in this
Section 5.4(a)
, then
all severance payments consideration to which Employee otherwise may be entitled
under
Section
5.2
and
5.3
above, as
applicable, thereupon shall cease.
(
ii
)
Notwithstanding the foregoing, Employee shall not be deemed to be in
violation of the foregoing restriction solely by reason of Employee's owning not
more than one percent (1.0%) of the equity securities of any corporation or
other business enterprise, the equity securities of which are listed for trading
on a national securities exchange.
(
b
)
Non-Solicitation.
Until
the date one (1) year after the termination of Employee's employment with
the Company for any reason, Employee agrees and acknowledges that Employee's
right to receive the severance consideration described in
Sections 5.2
and
5.3
(to the
extent Employee is otherwise entitled to such payments thereunder) shall be
conditioned upon Employee not either directly or indirectly soliciting,
attempting to hire, recruiting, encouraging, taking away, hiring any employee of
the Company or inducing or otherwise causing an employee to leave his or her
employment with the Company (regardless whether to commence employment with
Employee or with any other entity or person). If Employee engages in
any such activity, then all severance consideration to which Employee otherwise
would be entitled under
Sections 5.2
or
5.3
, above, as
applicable, thereupon shall cease.
(
c
)
General
Release
. Employee shall not be entitled to receive any of the
severance consideration described in
Sections 5.2
and
5.3
above,
unless Employee executes and delivers to the Company, within fifteen (15) days
of the Date of Termination, a release in the form attached hereto as
Appendix
2
.
(
d
)
Resignation
from Board.
Employee shall not be entitled to receive any of
the severance consideration described in
Sections 5.2
and
5.3
above,
unless Employee resigns from the Board of Directors in accordance with
Section 5.8
,
below. If the Company requests such resignation until after payment
of severance consideration has commenced hereunder, then the Company shall be
excused from any further obligation to pay such severance consideration if
Employee thereafter fails to resign from the Board of Directors in accordance
with such
Section
5.8
.
5.5
Death.
This
Agreement shall terminate automatically upon the death of
Employee. If Employee's employment is terminated by reason of
Employee's death, then the Company shall pay to Employee's beneficiaries or
legal representatives (i) within 15 days, all accrued and unpaid Base
Compensation and vacation pay for all periods ended on or before the date of
Employee's death, and (ii) the Company shall not be obligated to make any
further payments hereunder.
5.6
Mitigation
. Employee
shall not be required to mitigate the amount of any payment provided for in this
Section 5
by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
Employee as a result of employment by another employer, self employment
earnings, by retirement benefits, by offset against any amount claimed to be
owing by Employee to the Company, or otherwise. No amounts payable to
Employee under any plan or program of the Company shall reduce or offset any
amounts payable to Employee under this Agreement.
5.7
Deferral
in Commencement Per IRC §409A.
The
parties intend that any amounts payable hereunder that could constitute
"deferred compensation" within the meaning of Section 409A of the Internal
Revenue Code ("
Section
409A
") shall comply with Section 409A, and this Agreement shall be
administered, interpreted and construed in a manner that does not result in the
imposition of additional taxes, penalties or interest under Section
409A. The Company and Employee agree to negotiate in good faith to
make amendments to the Agreement, as the parties mutually agree are necessary or
desirable to avoid the imposition of taxes, penalties or interest under Section
409A. Notwithstanding the foregoing, the Company does not guarantee
any particular tax effect, and Employee shall be solely responsible and liable
for the satisfaction of all taxes, penalties and interest that may be imposed on
or for the account of Employee in connection with the Agreement, as amended by
this Amendment, (including any taxes, penalties and interest under Section
409A), and none of the Company Group shall have any obligation to indemnify or
otherwise hold Employee (or any beneficiary) harmless from any or all of such
taxes, penalties or interest.
(a)
Notwithstanding anything in the Agreement to the contrary, in the event
that Employee is deemed to be a "specified employee" within the meaning of
Section 409A(a)(2)(B)(i) of the Internal Revenue Code and Employee is not
"disabled" within the meaning of Section 409A(a)(2)(C) of the Internal Revenue
Code, no payments in this Agreement that are "deferred compensation" subject to
Section 409A shall be made to Employee prior to the date that is six months
after the date of Employee's "separation from service" (as defined in Section
409A) or, if earlier, Employee's date of death. Following any
applicable six month delay, all such delayed payments shall be paid in a single
lump sum on the earliest date permissible under Section 409A that is also a
business day.
(b)
For purposes of Section 409A, each of the payments that may be made under
this Agreement shall be deemed to be a separate payment for purposes of Section
409A. Amounts payable under this Agreement shall be deemed not to be
a "deferral of compensation" subject to Section 409A to the extent provided in
the exceptions in Treasury Regulation §§ 1.409A-1(b)(4) ("short-term deferrals")
and (b)(9) ("separation pay plans," including the exceptions under subparagraph
(iii) and subparagraph (v)(D)) and other applicable provisions of Treasury
Regulation §§ 1.409A-1 through A-6.
(c)
With respect to the time of payments of any amounts under the Agreement
that are "deferred compensation" subject to Section 409A, references in the
Agreement to "termination of employment" (and substantially similar phrases)
shall mean "separation from service" within the meaning of Section
409A.
(d)
For the avoidance of doubt, it is intended that any indemnification
payment to Employee or expense reimbursement made hereunder shall be exempt from
Section 409A. Notwithstanding the foregoing, if any indemnification
payment or expense reimbursement made hereunder shall be determined to be
"deferred compensation" within the meaning of Section 409A, then (i) the amount
of the indemnification payment or expense reimbursement during one taxable year
shall not affect the amount of the indemnification payments or expense
reimbursement during any other taxable year, (ii) the indemnification payments
or expense reimbursement shall be made on or before the last day of Employee's
taxable year following the year in which the expense was incurred, and (iii) the
right to indemnification payments or expense reimbursement hereunder shall not
be subject to liquidation or exchange for another benefit. In
addition, any reimbursements for COBRA coverage premiums described in this
Agreement shall be paid to Employee as promptly as practicable, and in all
events on or before the last day of the third taxable year of Employee following
the taxable year of the Company in which Employee's employment
terminated.
5.8
Resignation
from Board Following Termination
. Employee covenants and
agrees that (a) at any time following the termination of Employee's employment
with the Company for any reason, the Company may request that Employee resign
from the Board of Directors, and (b) within two (2) business days following
Employee's receipt of the Company's written request that Employee resign from
the Board of Directors of the Company, Employee shall tender to the Company an
immediately effective written resignation from the Company's Board of
Directors.
6.
Miscellaneous
6.1
Notices
. All
notices permitted or required by this Agreement shall be in writing, and shall
be deemed to have been delivered and received (i) when personally
delivered, or (ii) on the third (3
rd
)
business day after the date on which deposited in the United States mail,
postage prepaid, certified or registered mail, return receipt requested, or
(iii) on the date on which transmitted by facsimile or other electronic means
generating a receipt confirming a successful transmission (
provided that
on that same
date a copy of such notice is deposited in the United States mail, postage
prepaid, certified or registered mail, return receipt requested), or (iv) on the
next business day after the date on which deposited with a regulated public
carrier (
e
.
g
., Federal Express)
designating overnight delivery service with a return receipt requested or
equivalent thereof administered by such regulated public carrier, freight
prepaid, and addressed in a sealed envelope to the party for whom intended at
the address appearing on the signature page of this Agreement, or such other
address or facsimile number, notice of which is given in a manner permitted by
this
Section 6.1
.
6.2
Effect on
Other Remedies
. Nothing in this Agreement is intended to
preclude, and no provision of this Agreement shall be construed to preclude, the
exercise of any other right or remedy which the Company may have by reason of
Employee's breach of his obligations under this Agreement.
6.3
Arbitration
. Except
for any action seeking a temporary restraining order, injunctive order, or other
equitable relief, all disputes, claims and controversies arising out of or
relating to the interpretation or enforcement of this Agreement, including but
not limited to the determination of the scope or applicability of the agreement
to arbitrate set forth in this
Section 6.3
, shall be
determined by arbitration in San Antonio, Texas, or Los Angeles, California, as
determined by the party initiating the arbitration, before one arbitrator. The
arbitration shall be administered by JAMS pursuant to its Streamlined
Arbitration Rules and Procedures. Judgment on the arbitrator's award
may be entered in any court of competent jurisdiction. This
Section 6.3
shall not
preclude parties from seeking provisional remedies in aid of arbitration from a
court of appropriate jurisdiction. The arbitrator may, in the award,
allocate all or part of the costs of the arbitration, including the fees of the
arbitrator and the reasonable attorneys’ fees of the prevailing
party.
6.4
Binding on
Successors; Assignment
. This Agreement shall be binding upon,
and inure to the benefit of, each of the parties hereto, as well as their
respective heirs, successors, assigns, and personal
representatives.
6.5
Governing
Law; Venue
. This Agreement shall be governed by and construed
in accordance with applicable provisions of the laws of the State of Texas
(without regard to application of its conflict-of-law principles), and each
party hereby consents to the jurisdiction of the courts of the State of Texas
for purposes of all actions commenced to construe or enforce this
Agreement.
6.6
Severability
. If
any of the provisions of this Agreement shall otherwise contravene or be invalid
under the laws of any state, country or other jurisdiction where this Agreement
is applicable but for such contravention or invalidity, such contravention or
invalidity shall not invalidate all of the provisions of this Agreement but
rather it shall be construed, insofar as the laws of that state or other
jurisdiction are concerned, as not containing the provision or provisions
contravening or invalid under the laws of that state or jurisdiction, and the
rights and obligations created hereby shall be construed and enforced
accordingly.
6.7
Further
Assurances
. Each party agrees, upon the request of another
party, to make, execute, and deliver, and to take such additional steps as may
be necessary to effectuate the purposes of this Agreement.
6.8
Entire
Agreement; Amendment
. This Agreement (a) represents the
entire understanding of the parties with respect to the subject matter hereof,
and supersedes all prior and contemporaneous understandings, whether written or
oral, regarding the subject matter hereof, except the Nondisclosure and
Non-Circumvention Agreement by and between Employee and the Company, and
(b) may not be modified or amended, except by a written instrument,
executed by the party against whom enforcement of such amendment may be
sought.
6.9
Counterparts;
Electronic Signatures
. This Agreement may be executed in
counterparts, each of which shall be deemed an original and both of which, taken
together, shall constitute one and the same instrument, binding on each
signatory thereto. A copy of this Agreement that is executed by a
party and transmitted by that party to the other party by facsimile or as an
attachment (
e.g
., in
".tif" or ".pdf" format) to an email shall be binding upon the signatory to the
same extent as a copy hereof containing that party's original
signature.
[
Signatures appear on the following
page.
]
In Witness
Whereof,
the parties hereto have executed this Employment Agreement,
effective as of the date set forth above.
"Company:"
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"Employee:"
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EnerJex
Resources, Inc.,
a Nevada corporation
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By
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/s/ C. Stephen Cochennet
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/s/ Robert G. Watson, Jr.
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C.
Stephen Cochennet, Chief Executive Officer
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Robert
G. Watson, Jr.
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Address, Facsimile No. and
Email for Notices
:
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Address, Facsimile No. and
Email for Notices
:
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EnerJex
Resources, Inc.
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Mr.
Robert G. Watson, Jr.
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ATTN: Chief
Executive Officer
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c/o
RGW Energy, LLC
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27
Corporate Woods, Suite 350
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123
Evans Avenue
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10975
Grandview Drive
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San
Antonio, TX 78209
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Overland
Park, KS 66210
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Facsimile
No.: (___) ________________________
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Facsimile
No.: (913) 754-7755
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Email:
___________________________________
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Email:
_____________________________________
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Appendix
1
Nondisclosure
and Non-Circumvention Agreement
Appendix
2
General
Release
This
General Release
(the "
Release
") is made and
entered into, dated for reference purposes as of __________, 20__, and effective
as of the date identified below, by and between
Robert
G. Watson, Jr.
("
Watson
"), and
EnerJex
Resources, Inc.
, a Nevada corporation (the "
Company
").
As a
condition of and in order to induce the Company to pay to Watson the severance
pay due to Watson under that certain Employment Agreement between the Company
and Watson dated effective December ___, 2010, and as specifically
described in that certain Notice of Termination dated _________, 20__(the "
Notice of
Termination
"), the parties hereby agree as follows:
1.
Warranty
. Watson
hereby warrants that he is the sole owner of the claims identified in
Section 2
, below, and
that he has not assigned to any other person any right, title, or interest in or
to any such claims.
2.
Release
. Watson
hereby releases the Company, its subsidiaries and affiliates, and each of its
agents, employees, directors, shareholders, officers and other agents
(collectively, the "
Company Released
Parties
") of and from any and all costs, liabilities, losses, expenses,
and compensation (the "
Claims
"), except
Excluded Claims (as defined below), which Watson has or hereafter may have or be
entitled to assert against any of the Company Released Parties arising from or
relating in any way to Watson's employment with the Company or the termination
of that employment, for any wrongful termination of employment, including
termination based on age, sex, race, disability or other discrimination under
the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment
Act of 1967, as amended, or other federal, state, or local laws prohibiting such
discrimination, or under federal, state, or local employment laws. In
connection with the foregoing, Watson further waives and releases all rights, if
any, which Watson may have under Section 1542 of the California Civil Code,
which reads in pertinent part as follows: "A general release does not
extend to claims which the creditor does not know or suspect to exist in his or
her favor at the time of executing the release, which if known by him or her
must have materially affected his or her settlement with the
debtor."
3.
Excluded
Claims
. The parties agree that the term "
Excluded Claims
"
means (i) claims for payment of the separation pay due under the Employment
Agreement, (ii) claims under any written stock option agreement between Watson
and the Company, (iii) claims for benefits under any qualified retirement plan
sponsored by the Company and in which Watson may participate, (iv) any right
that Watson may have to elect "COBRA" continuation coverage under any group
health plan sponsored by the Company, and (v) any right that Watson may have to
demand indemnification under the Articles of Incorporation or Bylaws of the
Company or any written Indemnification Agreement between the Company and
Watson.
4.
Miscellaneous
. This
Release shall be governed by and construed in accordance with Texas
law. This Release (a) memorializes the entire understanding and
agreement between the Company and Watson regarding the subject matter hereof,
and supersedes all prior and contemporaneous understandings, whether oral or
written, regarding such matters, and (ii) may not be modified or amended, except
by a written instrument executed after the date hereof by Watson and the
Company. If any action is commenced to construe or enforce this
Agreement or the rights and duties created herein, then the party prevailing in
that action shall be entitled to recover its attorneys' fees and costs in that
action, as well as all costs and fees of enforcing any judgment entered
therein.
5.
Effective
Date
. This Release shall become effective only if (a) it is
signed by the Company and Watson, and (b) Watson does not revoke this Release,
in writing, within seven (7) days following the date on which Watson signs this
Release (which date of Watson's signature is indicated below his signature,
below).
EnerJex
Resources, Inc.,
a Nevada corporation
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By
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Name
& title:
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Robert
G. Watson, Jr.
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Date
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Date
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