Document:

exwaa.htm

  

  

  

WARRANT AGENT AGREEMENT

 

THIS WARRANT AGENT AGREEMENT DATED AS OF APRIL 6, 2010 (THIS “WARRANT AGENT AGREEMENT”) IS BETWEEN TRI-VALLEY CORPORATION, A DELAWARE CORPORATION WITH OFFICES LOCATED AT 4550 CALIFORNIA AVENUE, SUITE 600, BAKERSFIELD, CALIFORNIA 93309 (THE “COMPANY”), AND REGISTRAR AND TRANSFER COMPANY, AS WARRANT AGENT (THE “WARRANT AGENT”).

 

RECITALS

 

A.           The Company and certain investors (the “Buyers”) have entered into that certain Securities Purchase Agreement, dated on even date herewith (the “Securities Purchase Agreement”), pursuant to which the Buyers desire to purchaser certain to purchase certain shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”) and Warrants (as defined below) pursuant to a currently effective shelf registration statement on Form S-3, which has at least 14,519,232 unallocated shares of Common Stock registered thereunder (Registration Number 333-163442) (the “Registration Statement”), which Registration Statement has been declared effective in accordance with the Securities Act of 1933, as amended (the “1933 Act”), by the United States Securities and Exchange Commission (the “SEC”).

 

 

B.           Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms stated herein and in the Securities Purchase Agreement, (i) a warrant to initially acquire up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers attached thereto (the “Series A Warrants”) (as exercised, collectively, the “Series A Warrant Shares”), (ii) a warrant to initially acquire  up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (5) on the Schedule of Buyers attached thereto (the “Series B Warrants”) (as exercised, collectively, the “Series B Warrant Shares”), (iii) a warrant to initially acquire  up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (6) on the Schedule of Buyers attached thereto (the “Series C Warrants”) (as exercised, collectively, the “Series C Warrant Shares”) and (iv) a warrant to initially acquire  up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (7) on the Schedule of Buyers attached thereto (the “Series D Warrants”) (as exercised, collectively, the “Series D Warrant Shares”). The Series A Warrants, the Series B Warrants, the Series C Warrants and the Series D Warrants are collectively referred to herein as the “Warrants.” The Series A Warrant Shares, the Series B Warrant Shares, the Series C Warrant Shares and the Series D Warrant Shares are collectively referred to herein as the “Warrant Shares.”

 

 

C.           The Company further desires the Warrant Agent to act on behalf of the Company in connection with the issuance, transfer, exchange and exercise of the Warrants and other matters as provided herein and the Warrant Agent is willing to so act.

 

NOW, THEREFORE, each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Warrants:

 

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                                                                                                                                                      ARTICLE I

 

                                                                                                                    DEFINITIONS AND RULES OF CONSTRUCTION

 

1.1           Definitions.

 

“Affiliate” shall mean with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person; for purposes of this definition, “control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or otherwise.

 

“Board of Directors” or “Board” means the board of directors of the Company or any committee thereof duly authorized to act on behalf of such board.

 

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law or executive order to close.

 

“Holder” means the Person in whose name a Warrant is registered on the Warrant Registrar’s books.

 

“Officer” means the Chairman of the Board of Directors, the Chief Executive Officer, the Chief Financial Officer, the President, any Vice President, the Treasurer, the Secretary or any Assistant Secretary of the Company.

 

“Opinion of Counsel” means a written opinion from legal counsel. Such counsel may be an employee of or counsel to the Company and in any event must be reasonably acceptable to the Warrant Agent.

 

“Person” means any individual, corporation, limited liability company, limited liability partnership, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.

 

“SEC” means the Securities and Exchange Commission.

 

“Uniform Commercial Code” means the Uniform Commercial Code as in effect in the State of New York.

 

“Warrant Agent” means Registrar & Transfer Company or any successor person to Registrar & Transfer Company under this Warrant Agent Agreement.

 

“Warrant Certificates” mean the registered certificates issued by the Company under this Warrant Agent Agreement representing the Warrants.

 

“Warrant Registrar” has the meaning set forth in Section 2.3.

 

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1.2           Rules of Construction.

 

Unless the context otherwise requires:

 

	
  

	
(a)

	
a defined term has the meaning assigned to it;

 

	
  

	
(b)

	
an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time;

 

	
  

	
(c)

	
“or” is not exclusive;

 

	
  

	
(d)

	
“including” means including without limitation; and

 

	
  

	
(e)

	
words in the singular include the plural and words in the plural include the singular.

 

ARTICLE II

 

WARRANT CERTIFICATES

 

2.1           Form and Dating.

 

Each Warrant shall initially be issued on the Closing Date (as defined in the Securities Purchase Agreement) in accordance with Section 1 of the Securities Purchase Agreement and will be offered and issued by the Company pursuant to a prospectus supplement dated March __, 2010 to the Company’s base shelf prospectus, which was contained in the Company’s registration statement on Form S-3 and declared effective by the SEC on March 16, 2010. In acting as the transfer agent for the Warrants, the Warrant Registrar shall be entitled to all the rights, privileges and immunities to which the Warrant Agent is entitled in performing such role pursuant to the terms of this Warrant Agent Agreement. The Warrant Certificates for (i) Series A Warrants shall each be in the form of Exhibit A attached hereto, (ii) Series B Warrants shall each be in the form of Exhibit B attached hereto, (iii) Series C Warrants shall each be in the form of Exhibit C attached hereto, and (iv) Series D Warrants shall each be in the form of Exhibit D attached hereto.  The Warrants may only be sold or transferred in accordance with this Warrant Agent Agreement and the Warrant Certificates may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (but which do not affect the rights, duties or responsibilities of the Warrant Agent, and provided that any such notation, legend or endorsement is in a form acceptable to the Company).  Each Warrant Certificate shall be dated as of the Closing Date.

 

2.2           Execution.

 

One Officer shall sign each Warrant Certificate for the Company by manual or facsimile signature. If an Officer whose signature is on a Warrant Certificate no longer holds that office at the time the Warrant Agent countersigns the Warrant Certificate, the Warrant Certificate shall be valid nevertheless. A Warrant shall not be valid until an authorized signatory of the Warrant Agent countersigns, by manual or facsimile signature, the Warrant Certificate. The signature shall be solely for the purpose of authenticating the Warrant Certificate and shall be

 

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conclusive evidence that the Warrant so countersigned has been duly authenticated and issued under this Warrant Agent Agreement.  The Warrant Agent may appoint an agent reasonably acceptable to the Company to countersign the Warrants, including, without limitation, the Company. Any such appointment shall be evidenced by an instrument signed by the Warrant Agent, a copy of which shall be furnished to the Company. Unless limited by the terms of such appointment, an agent may countersign Warrants whenever the Warrant Agent may do so. Each reference in this Warrant Agent Agreement to countersigning by the Warrant Agent includes countersigning by such countersigning agent. An agent has the same rights as any Warrant Registrar or agent for service of notices and demands.

 

2.3           Warrant Registrar.

 

	
  

	
(a)

	
The Company shall maintain an office or agency where Warrants may be presented for registration of transfer, exchange or exercise (the “Warrant Registrar”). The Warrant Registrar shall keep a register of the Warrants and of their transfer, exchange or exercise. The Company may have one or more co-registrars. The term Warrant Registrar includes any co-registrars. The Company appoints the Warrant Agent as Warrant Registrar in connection with the Warrants.

 

	
  

	
(b)

	
The Company shall enter into an appropriate agency agreement with any Warrant Registrar who is not a party to this Warrant Agent Agreement. The agreement shall implement the provisions of this Warrant Agent Agreement that relate to such agent. The Company shall notify the Warrant Agent of the name and address of any such agent. If the Company fails to maintain a Warrant Registrar, the Warrant Agent shall act as such and shall be entitled to appropriate compensation pursuant to Section 3.5 hereof. The Company or any of its domestically organized wholly owned subsidiaries may act as Warrant Registrar.

 

	
  

	
(c)

	
The Company may remove any Warrant Registrar upon written notice to such Warrant Registrar and to the Warrant Agent; provided, however, that no such removal shall become effective until (i) acceptance of an appointment by a successor as evidenced by an appropriate agreement entered into by the Company and such successor Warrant Registrar and delivered to the Warrant Agent or (ii) notification to the Warrant Agent that the Warrant Agent shall serve as Warrant Registrar until the appointment of a successor in accordance with clause (i) above. The Warrant Registrar may resign at any time upon written notice to the Company and the Warrant Agent; provided, however, that the Warrant Agent may resign as Warrant Registrar only if the Warrant Agent also resigns as Warrant Agent in accordance with Section 3.6.

 

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(d)

	
Until a Warrant Certificate is transferred in the Registry, the Company and the Warrant Agent may deem and treat the Person in whose name a Warrant Certificate is registered in the Registry as the absolute owner of such Warrant Certificate for all purposes whatsoever and neither the Company nor the Warrant Agent shall be affected by notice to the contrary.

 

2.4           Holder Lists.

 

The Warrant Agent shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders. If the Warrant Agent is not the Warrant Registrar, the Company shall furnish, or cause the Warrant Registrar to furnish, to the Warrant Agent, in writing at such times as the Warrant Agent may request in writing, a list in such form and as of such date as the Warrant Agent may reasonably require of the names and addresses of Holders.

 

	
  

	
(a)

	
Obligations with Respect to Transfers and Exchanges of Warrants.

 

	
  

	
(i)

	
To permit registrations of transfers and exchanges, the Company shall execute and the Warrant Agent shall countersign, by either manual or facsimile signature, Warrant Certificates at the Warrant Registrar’s request.

 

	
  

	
(ii)

	
No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax, assessments, or governmental charge payable in connection therewith (other than any such transfer taxes, assessments, or similar governmental charge payable upon exchanges to be registered in the name of the registered Holder effecting the exchange).  The Warrant Agent shall have no duty or obligation under any Section of this Warrant Agent Agreement requiring the payment of taxes, assessments, and/or governmental charges unless and until it is satisfied that all such taxes, assessments, and/or governmental charges have been paid.

 

	
  

	
(iii)

	
All Warrant Certificates issued upon any transfer or exchange pursuant to the terms of this Warrant Agent Agreement shall evidence the same terms and shall be entitled to the same benefits under this Warrant Agent Agreement as the Warrant Certificates surrendered upon such transfer or exchange.

 

	
  

	
(b)

	
The Warrant Agent shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Warrant Agent Agreement or under

 

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applicable law with respect to any transfer of any interest in any Warrant other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Warrant Agent Agreement, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

 

2.5           Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificate.

 

If a mutilated Warrant Certificate is surrendered to the Warrant Agent or if the Holder of a Warrant claims that the Warrant Certificate has been lost, destroyed, stolen or defaced, the Company shall issue and the Warrant Agent shall countersign, by either manual or facsimile signature, a replacement Warrant Certificate of like tenor and representing an equivalent number of Warrants, if the requirements of Section 8-405 of the Uniform Commercial Code are met, such that the Holder (a) notifies the Company or the Warrant Agent within a reasonable time after such Holder has notice of such loss, destruction or theft and the Warrant Registrar does not register a transfer prior to receiving such notification, (b) makes such request to the Company or the Warrant Agent prior to the Warrant being acquired by a protected purchaser as defined in Section 8-303 of the Uniform Commercial Code (a “protected purchaser”) and (c) satisfies any other reasonable requirements of the Warrant Agent.  If required by the Warrant Agent or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Warrant Agent to protect the Company and the Warrant Agent from any loss that either of them may suffer if a Warrant is replaced. The Warrant Agent may charge the Company for their expenses in replacing a Warrant Certificate. Every replacement Warrant Certificate is an additional obligation of the Company. The provisions of this Section 2.5 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement of mutilated, lost, destroyed or wrongfully taken Warrants.

 

2.6           Outstanding Warrants.

 

Warrants outstanding at any time are all Warrant Certificates executed by the Company and countersigned by the Warrant Agent except for those canceled by it, those delivered to it for cancellation and those described in this Section 2.6 as not outstanding. A Warrant does not cease to be outstanding because an Affiliate of the Company holds the Warrant. A Warrant ceases to be outstanding if the Company holds the Warrant. If a Warrant Certificate is replaced pursuant to Section 2.5, it ceases to be outstanding unless the Warrant Agent and the Company receive proof satisfactory to them that the replaced Warrant Certificate is held by a protected purchaser.

 

2.7           Temporary Warrants.

 

Until Warrant Certificates are ready for delivery, the Company may prepare and the Warrant Agent shall countersign, by either manual or facsimile signature, temporary Warrant Certificates (the “Temporary Warrant Certificates”). Temporary Warrant Certificates shall be substantially in the form of Warrant Certificates but may have variations that the Company considers appropriate for temporary Warrants. Without unreasonable delay, the Company shall

 

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prepare and the Warrant Agent shall countersign, by either manual or facsimile signature, Warrant Certificates and deliver them in exchange for Temporary Warrant Certificates upon surrender of such Temporary Warrant Certificates at the office or agency of the Company, without charge to the Holder.

 

2.8           Cancellation.

 

The Company at any time may deliver Warrant Certificates to the Warrant Agent for cancellation. The Warrant Agent and no one else shall cancel all Warrant Certificates surrendered for registration of transfer, exchange, replacement, exercise or cancellation and shall dispose of canceled Warrant Certificates in accordance with its customary procedures or deliver canceled Warrant Certificates to the Company pursuant to written direction by an Officer. The Company may not issue new Warrant Certificates to replace Warrant Certificates that have been exercised or Warrants which the Company has purchased or otherwise acquired. The Warrant Agent shall not countersign Warrant Certificates to replace canceled Warrant Certificates other than pursuant to the terms of this Warrant Agent Agreement.

 

2.9           CUSIP Numbers.

 

The Company may use “CUSIP” numbers (if then generally in use) in issuing the Warrants and, if so, the Warrant Agent shall also use “CUSIP” numbers in notices to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Warrant Certificates or as contained in any notice and that reliance may be placed only on the other identification numbers printed on the Warrant Certificates, and any such notice shall not be affected by any defect in or omission of such numbers.

 

2.10           Exercise Terms.  Each Warrant may be exercised in accordance with the terms of the applicable Warrant Certificates.  The Warrant Agent may rely exclusively on any Exercise Notice (as defined in the Warrant Certificate) delivered to the Warrant Agent by the Company to determine that a Warrant has been duly exercised by a holder thereof.

 

ARTICLE III

 

WARRANT AGENT

 

3.1           Appointment of Warrant Agent.

 

The Company hereby appoints the Warrant Agent to act as agent for the Company in accordance with the express provisions of this Warrant Agent Agreement (and no implied terms) and the Warrant Agent hereby accepts such appointment.  The Warrant Agent shall not be liable for anything that it may do or refrain from doing in connection with this Warrant Agent Agreement, except for its own gross negligence, willful misconduct or bad faith (each as determined by a final, non-appealable judgment of a court of competent jurisdiction).  The Warrant Agent shall act solely as agent for the Company, and its duties shall be determined solely by the provisions hereof.  The Warrant Agent shall not be liable for any error of judgment made by it, unless it shall be proved that the Warrant Agent was grossly negligent in ascertaining the pertinent facts.

 

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3.2           Rights and Duties of Warrant Agent.

 

	
  

	
(a)

	
Agent for the Company. In acting under this Warrant Agent Agreement and in connection with the Warrant Certificates, the Warrant Agent is acting solely as agent of the Company and does not assume any obligation or relationship or agency or trust for or with any of the holders of Warrant Certificates or beneficial owners of Warrants.

 

	
  

	
(b)

	
Counsel. The Warrant Agent may consult with counsel satisfactory to it (who may be counsel to the Company) (and may require an Opinion of Counsel before it acts or refrains from acting), and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in accordance with the advice of such counsel.

 

	
  

	
(c)

	
Documents. The Warrant Agent shall be protected and shall incur no liability for or in respect of any action taken or thing suffered by it in reliance upon any Warrant Certificate, notice, direction, consent, certificate, affidavit, statement or other paper or document (whether in its original or facsimile form) believed by it to be genuine and to have been presented or signed by the proper parties, and shall have no duty to inquire into or investigate the validity, accuracy or content thereof.  The Warrant Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Warrant Agent and conforming to the requirements of this Warrant Agent Agreement.  The Warrant Agent shall not take any instructions or directions except those given in accordance with this Warrant Agent Agreement.

 

	
  

	
(d)

	
No Implied Obligations. The Warrant Agent shall be obligated to perform only such duties as are specifically set forth herein, and no implied duties or obligations of the Warrant Agent shall be read into this Warrant Agent Agreement against the Warrant Agent. The Warrant Agent shall not be under any obligation to take any action hereunder which may involve it in any expense or liability the payment of which within a reasonable time is not, in its opinion, assured to it. The Warrant Agent shall not be accountable or under any duty or responsibility for the use by the Company of any of the Warrant Certificates countersigned by the Warrant Agent and delivered by it to the Holders or on behalf of the Holders pursuant to this Warrant Agent Agreement or for the application by the Company of the proceeds of the Warrants. The Warrant Agent shall have no duty or responsibility in case of any default by the Company in the performance of its covenants or agreements contained herein or in the Warrant Certificates or in the case of the

 

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receipt of any written demand from a Holder with respect to such default, including, without limiting the generality of the foregoing, any duty or responsibility to initiate or attempt to initiate any proceedings at law or otherwise or to make any demand upon the Company. Without limiting the foregoing, unless otherwise expressly provided in this Warrant Agent Agreement, the Warrant Agent shall not be subject to, nor be required to comply with, or determine if any person or entity has complied with, the Warrant Certificate or any other agreement between or among the parties hereto, even though reference thereto may be made in this Warrant Agent Agreement, or to comply with any notice, instruction, direction, request or other communication, paper or document other than as expressly set forth in this Warrant Agent Agreement.

 

	
  

	
(e)

	
Not Responsible for Adjustments or Validity of Stock. The Warrant Agent shall not at any time be under any duty or responsibility to any Holder to determine whether any facts exist that may require an adjustment of the number of Warrant Shares issuable upon exercise of each Warrant or the Exercise Price, or with respect to the nature or extent of any adjustment when made, or with respect to the method employed, or herein or in any supplemental agreement provided to be employed, in making the same. The Warrant Agent shall not be accountable with respect to the validity or value of any Warrant Shares or of any securities or property which may at any time be issued or delivered upon the exercise of any Warrant or upon any adjustment to the Exercise Price, and it makes no representation with respect thereto. The Warrant Agent shall not be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any Warrant Shares or stock certificates upon the surrender of any Warrant Certificate for the purpose of exercise or upon any adjustment to the Exercise Price, or to comply with the terms of the Warrant Certificate or this Warrant Agent Agreement.  The number of Warrant Shares to be issued on a Cashless Exercise (as defined in the Warrants) will be determined by the Company (with written notice thereof to the Warrant Agent) using the formula set forth in the Warrant.  The Warrant Agent shall have no duty or obligation to investigate or confirm whether the Company’s determination of the number of Warrant Shares to be issued on such exercise is accurate or correct.

 

	
  

	
(f)

	
May Act Through Agents. The Warrant Agent may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Warrant Agent shall not be responsible for any loss or expense arising out of, or in connection with, the actions, omissions, misconduct or negligence on the part of any agent or attorney, so long as the

 

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Warrant Agent acts without gross negligence, willful misconduct or bad faith (as each is determined by a final, non-appealable judgment of a court of competent jurisdiction) in connection with the selection of such agents or attorneys.  In accordance with this Section 3.2(f), the Warrant Agent hereby appoints the Company, and the Company hereby accepts such appointment, to act as the agent of the Warrant Agent with respect to the preparation and delivery of any Warrant Certificate issuable hereunder.  The Warrant Agent shall not be responsible for any failure of the Company in its performance of such duties with respect to any Warrant Certificate.

 

	
  

	
(g)

	
No Liability for Interest. The Warrant Agent shall not be under any liability for interest on any monies at any time received by it pursuant to any of the provisions of this Warrant Agent Agreement nor shall it be obligated to segregate such monies from other monies held by it, except as required by law. The Warrant Agent shall not be responsible for advancing funds on behalf of the Company.

 

	
  

	
(h)

	
Not Accountable for Application of Proceeds. The Warrant Agent shall not be accountable or under any duty or responsibility for the application by the Company of any proceeds of the issuance of any Warrants.

 

	
  

	
(i)

	
Not Liable for Special, Indirect or Consequential Loss or Damage. Notwithstanding anything in this Warrant Agent Agreement to the contrary, in no event will the Warrant Agent be liable for special, indirect, punitive, incidental or consequential loss or damage of any kind whatsoever (including but not limited to lost profits) even if the Warrant Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.  Any liability of the Warrant Agent under this Warrant Agent Agreement shall be limited to the amount of annual fees paid by the Company to the Warrant Agent.

 

	
  

	
(j)

	
Force Majeure. In no event shall the Warrant Agent be responsible or liable for any failure or delay in the performance of its obligations under this Warrant Agent Agreement arising out of or caused by, directly or indirectly, forces beyond its reasonable control, including without limitation strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software or hardware) services.

 

	
  

	
(k)

	
No Risk of Funds. No provision of this Warrant Agent Agreement shall require the Warrant Agent to expend or risk its own funds or

 

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otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights.

 

	
  

	
(l)

	
Whenever in the performance of its duties under this Warrant Agent Agreement the Warrant Agent deems it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter may be deemed to be conclusively proved and established by a certificate signed by any authorized officer and delivered to the Warrant Agent; and such certificate will be full authorization to the Warrant Agent for any action taken, suffered or omitted by it under the provisions of this Warrant Agent Agreement in reliance upon such certificate.  The Warrant Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the authorized officers, and to apply to such officers for advice or instructions in connection with its duties, and it will not be liable for any action taken, suffered or omitted to be taken by it in accordance with instructions of any such officer.

 

	
  

	
(m)

	
The Company will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing by the Warrant Agent of the provisions of this Warrant Agent Agreement.

 

	
  

	
(n)

	
The Warrant Agent will not be under any duty or responsibility to insure compliance with any applicable federal or state securities laws in connection with the issuance, transfer or exchange of Warrant Certificates.

 

	
  

	
(o)

	
In the event the Warrant Agent believes any ambiguity or uncertainty exists hereunder or in any notice, instruction, direction, request or other communication, paper or document received by the Warrant Agent hereunder, Warrant Agent, may, in its sole discretion, refrain from taking any action, and shall be fully protected and shall not be liable in any way to the Company or any Holder or other person or entity for refraining from taking such action, unless the Warrant Agent receives written instructions signed by the Company which eliminates such ambiguity or uncertainty to the satisfaction of Warrant Agent.  The provisions of this Section 3.2 shall survive the termination of this Warrant Agent Agreement and the resignation or removal of the Warrant Agent.

 

 

 

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3.3           Individual Rights of Warrant Agent.

 

The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or its Affiliates or become pecuniarily interested in transactions in which the Company or its Affiliates may be interested, or contract with or lend money to the Company or its Affiliates or otherwise act as fully and freely as though it were not the Warrant Agent under this Warrant Agent Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity.

 

3.4           Warrant Agent’s Disclaimer.

 

The Warrant Agent shall not be responsible for and makes no representation as to the validity or adequacy of this Warrant Agent Agreement or the Warrant Certificates and it shall not be responsible for any statement of fact or recitals of the Company in this Warrant Agent Agreement or the Warrant Certificates other than the Warrant Agent’s countersignature, or be required to verify the same, and all such statements and recitals are and will be deemed to have been made by the Company only.  The Warrant Agent will not be under any responsibility or liability in respect of the validity of this Warrant Agent Agreement or the execution and delivery hereof (except the due execution and delivery hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant Certificate (except the due countersignature thereof by the Warrant Agent); nor will it be responsible or liable for any breach by the Company of any covenant or condition contained in this Warrant Agent Agreement or in any Warrant Certificate; nor will it be responsible or liable for any adjustment required under the provisions hereof or responsible for the manner, method or amount of any adjustment or the ascertaining of the existence of facts that would require any adjustment (except with respect to the exercise of Warrants evidenced by Warrant Certificates after actual written notice of any adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of stock or other securities to be issued pursuant to this Warrant Agent Agreement or any Warrant Certificate or as to whether any shares of stock or other securities will, when issued, be validly authorized and issued, fully paid and nonassessable.

 

3.5           Compensation and Indemnity.

 

The Company agrees to pay to the Warrant Agent from time to time such compensation for its services as shall be agreed to in writing from time to time by the Company and the Warrant Agent. The Company shall reimburse the Warrant Agent upon request for all reasonable out-of-pocket expenses, including costs of collection, in addition to the compensation for its services, incurred by the Warrant Agent in connection with the preparation, delivery, administration, execution and amendment of this Warrant Agent Agreement and the exercise and performance of its duties hereunder. Such expenses shall include the reasonable compensation, expenses, disbursements and advances of the Warrant Agent’s agents and counsel. The Company shall indemnify the Warrant Agent, its officers, directors, agents and counsel, and any predecessor Warrant Agent against, and hold it harmless from, any and all loss, liability, suit, action, proceeding, judgment, settlement, cost, claim, damage or expense (including reasonable agents’ and attorneys’ fees and expenses), including taxes (other than taxes based upon, measured by, or determined by the income of the Warrant Agent) incurred by it without gross negligence, willful misconduct or bad faith (as each is determined by a final, nonappealable judgment of a court of competent jurisdiction) for any action taken, suffered or omitted by the

 

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Warrant Agent in connection with the acceptance and administration of this Warrant Agent Agreement, including the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly. The Warrant Agent shall notify the Company promptly of any claim for which it may seek indemnity promptly upon obtaining actual notice thereof; provided, however, that any failure so to notify the Company shall not relieve the Company of its indemnity obligations hereunder. The Company shall defend the claim and the Warrant Agent shall provide reasonable cooperation at the Company’s expense in the defense. The Warrant Agent may have separate counsel and the Company shall pay the fees and expenses of such counsel; provided, however, that the Company shall not be required to pay such fees and expenses if it assumes the Warrant Agent’s defense and, in the Warrant Agent’s reasonable judgment based upon the advice of counsel, there is no conflict of interest between the Company and the Warrant Agent in connection with such defense. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Warrant Agent through the Warrant Agent’s own willful misconduct, gross negligence or bad faith (as each is determined by a final, non-appealable judgment of a court of competent jurisdiction). The Company’s payment obligations pursuant to this Section 3.5 shall survive the termination of this Warrant Agent Agreement and the resignation or removal of the Warrant Agent.  To secure the Company’s payment obligations under this Warrant Agent Agreement, the Warrant Agent shall have a lien prior to the Holders on all money or property held or collected by the Warrant Agent.  The Warrant Agent shall not be obligated to take any action which it believes would expose it to expense or liability or to a risk of incurring expense or liability, unless it has been furnished with assurances of repayment or indemnity satisfactory to it.

 

3.6           Successor Warrant Agent.

 

	
  

	
(a)

	
The Company To Provide and Maintain Warrant Agent. The Company agrees for the benefit of the Holders that there shall be a Warrant Agent at all times until all of the Warrants have been exercised or are no longer exercisable.

 

	
  

	
(b)

	
Resignation and Removal. The Warrant Agent may at any time resign by giving written notice to the Company of such intention on its part, specifying the date on which its desired resignation shall become effective; provided, however, that such date shall not be less than 30 days after the date on which such notice is given unless the Company otherwise agrees. The Warrant Agent hereunder may be removed at any time by the filing with it of an instrument in writing signed by or on behalf of the Company and specifying such removal and the date when it shall become effective. Any removal under this Section 3.6(b) shall take effect upon the appointment by the Company as hereinafter provided of a successor Warrant Agent (which shall be a bank or trust company authorized under the laws of the jurisdiction of its organization to exercise corporate trust powers) and the acceptance of such appointment by such successor Warrant Agent.  The obligations of the Company under Sections 3.2, 3.3, 3.4 and 3.5 shall continue to

 

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the extent set forth herein notwithstanding the resignation or removal of the Warrant Agent.

 

	
  

	
(c)

	
The Company To Appoint Successor. In the event that at any time the Warrant Agent shall resign, or shall be removed, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or shall commence a voluntary case under the federal bankruptcy laws, as now or hereafter constituted, or under any other applicable federal or state bankruptcy, insolvency or similar law or shall consent to the appointment of or taking possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator (or other similar official) of the Warrant Agent or its property or affairs, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall take corporate action in furtherance of any such action, or a decree or order for relief by a court having jurisdiction in the premises shall have been entered in respect of the Warrant Agent in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or similar law, or a decree or order by a court having jurisdiction in the premises shall have been entered for the appointment of a receiver, custodian, liquidator, assignee, trustee, sequestrator (or similar official) of the Warrant Agent or of its property or affairs, or any public officer shall take charge or control of the Warrant Agent or of its property or affairs for the purpose of rehabilitation, conservation, winding up or liquidation, a successor Warrant Agent, qualified as aforesaid, shall be appointed by the Company by an instrument in writing, filed with the successor Warrant Agent. Upon the appointment of a successor Warrant Agent and acceptance by the successor Warrant Agent of such appointment, the Warrant Agent shall cease to be Warrant Agent hereunder; provided, however, that in the event of the resignation of the Warrant Agent under this subsection (c), such resignation shall be effective on the earlier of (i) the date specified in the Warrant Agent’s notice of resignation and (ii) the appointment and acceptance of a successor Warrant Agent hereunder.

 

	
  

	
(d)

	
Successor To Expressly Assume Duties. Any successor Warrant Agent appointed hereunder shall execute, acknowledge and deliver to its predecessor and to the Company an instrument accepting such appointment hereunder, and thereupon such successor Warrant Agent, without any further act, deed or conveyance, shall become vested with all the rights and obligations of such predecessor with like effect as if originally named as Warrant Agent hereunder, and such predecessor, upon payment of its charges and disbursements then unpaid, shall thereupon become

 

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obligated to transfer, deliver and pay over, and such successor Warrant Agent shall be entitled to receive, all monies, securities and other property on deposit with or held by such predecessor, as Warrant Agent hereunder.

 

	
  

	
(e)

	
Successor by Merger. If the Warrant Agent consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another entity or banking association, the resulting, surviving or transferee entity without any further act shall be the successor Warrant Agent without the execution or filing of any paper or any further act on the part of any of the parties hereto, including, without limitation any successor to the Warrant Agent first named above. In case at the time such successor or successors by merger, conversion or consolidation to the Warrant Agent shall succeed to the agency created by this Warrant Agent Agreement, any of the Warrant Certificates shall have been countersigned but not delivered, any such successor to the Warrant Agent may adopt the countersignature of any predecessor Warrant Agent, and deliver such Warrant Certificates so countersigned; and in case at that time any of the Warrant Certificates shall not have been countersigned, any successor to the Warrant Agent may countersign such Warrant Certificates either in the name of any predecessor hereunder or in the name of the successor to the Warrant Agent.

 

	
  

	
(f)

	
In the event that the Company has not appointed a successor Warrant Agent within 60 days of the Warrant Agent’s removal, the Company shall be the successor Warrant Agent.

 

ARTICLE IV

 

MISCELLANEOUS

 

4.1           Persons Benefiting.

 

Nothing in this Warrant Agent Agreement is intended or shall be construed to confer upon any Person other than the Company, the Warrant Agent and the Holders any right, remedy or claim under or by reason of this Warrant Agent Agreement or any part hereof.

 

 

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4.2           Rights of Holders.

 

Except as set forth herein or in the Warrant Certificates, holders of unexercised Warrants are not entitled to (i) receive dividends or other distributions, (ii) receive notice of or vote at any meeting of the stockholders, (iii) consent to any action of the stockholders, (iv) receive notice of any other proceedings of the Company, (v) exercise any preemptive right or (vi) exercise any other rights whatsoever as stockholders of the Company. Nothing in this Warrant Certificate shall be construed to give the Holders any rights as a holder of Warrant Shares until such time, if any, as the Warrants evidenced by the Warrant Certificates are exercised in accordance with the provisions of this Warrant Agent Agreement and the Warrant Certificates.

 

4.3           Amendment, Waiver, Modification, Etc.

 

Any term or terms of this Warrant Agent Agreement and the Warrant Certificates may be amended and the observance of any term of this Warrant Agent Agreement and the Warrant Certificates may be waived (either generally or in a particular instance and either retroactively or prospectively), as set forth in the Warrant Certificates. Any waiver, amendment or modification effected in accordance with this Section 4.3 shall be binding upon each Holder of Warrants at the time outstanding and the Company.  The Warrant Agent shall have no duty to determine whether any such amendment would have an effect on the rights or interests of the holders of the Warrants.  The Warrant Agent may, but shall not be obligated to, execute any amendment or supplement which affects the rights or changes or increases the duties or obligations of the Warrant Agent.

 

4.4           Notices.

 

All notices, demands and other communications provided for or permitted hereunder shall be made in accordance with Section 9(f) of the Securities Purchase Agreement.

 

4.5           Governing Law; Waiver of Jury Trial.

 

THIS WARRANT AGENT AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. EACH OF THE CORPORATION AND THE WARRANT AGENT IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AGENT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

4.6           Successors.

 

The terms of this Warrant Agent Agreement and the Warrant Certificates shall be binding upon and shall inure to the benefit of the respective successors or permitted assigns of the Company, the Warrant Agent and the Holders. Nothing in this Warrant Agent Agreement and the Warrant Certificates shall be construed to give to any Person other than the Company, the

 

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Warrant Agent or the Holders any legal or equitable right, remedy or claim under this Warrant Agent Agreement and the Warrant Certificates, and this Warrant Agent Agreement and the Warrant Certificates shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the Holders.

 

4.7           Counterparts.

 

This Warrant Agent Agreement may be executed in any number of counterparts, each of which shall be considered an original, but all of which together shall constitute one and the same instrument.

 

4.8           Headings.

 

The headings of the Articles and Sections of this Warrant Agent Agreement and the Warrant Certificates have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof.

 

4.9           Severability.

 

The provisions of this Warrant Agent Agreement and the Warrant Certificates are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Warrant Agent Agreement and the Warrant Certificates in any jurisdiction.

 

 

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties have caused this Warrant Agent Agreement to be duly executed as of the date first written above.

 

 

	
COMPANY:

	
TRI-VALLEY CORPORATION

By:

Name:

Title:

	  

 

  

  

  

 

IN WITNESS WHEREOF, the parties have caused this Warrant Agent Agreement to be duly executed as of the date first written above.

 

 

	
WARRANT AGENT:

	
REGISTRAR AND TRANSFER COMPANY,

      as Warrant Agent

By:

Name:

Title:exspa.htm

FOR NEGOTIATION AND

DISCUSSION PURPOSES ONLY

NOT AN OFFER OR SALE OF SECURITIES

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of April 6, 2010, is by and among Tri-Valley Corporation, a Delaware corporation with offices located at 4550 California Avenue, Suite 600, Bakersfield, California 93309 (the “Company”), and each of the investors listed on the Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

RECITALS

 

A.           The Company and each Buyer desire to enter into this transaction to purchase the Common Shares (as defined below) and related Warrants (as defined below) set forth herein pursuant to a currently effective shelf registration statement on Form S-3, which has at least 14,519,232 unallocated shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”) registered thereunder (Registration Number 333-163442) (the “Registration Statement”), which Registration Statement has been declared effective in accordance with the Securities Act of 1933, as amended (the “1933 Act”), by the United States Securities and Exchange Commission (the “SEC”).

 

B.           Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms stated in this Agreement and the Warrant Agreement (as defined below), (i) the aggregate number of shares of Common Stock set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers (which aggregate amount for all Buyers shall be 3,846,156 shares of Common Stock and shall collectively be referred to herein as the “Common Shares”), (ii) a warrant to initially acquire up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers, as evidenced by a certificate in the form attached hereto as Exhibit A (the “Series A Warrants”) (as exercised, collectively, the “Series A Warrant Shares”), (iii) a warrant to initially acquire  up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (5) on the Schedule of Buyers, as evidenced by a certificate in the form attached hereto as Exhibit B (the “Series B Warrants”) (as exercised, collectively, the “Series B Warrant Shares”), (iv) a warrant to initially acquire  up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (6) on the Schedule of Buyers, as evidenced by a certificate in the form attached hereto as Exhibit C (the “Series C Warrants”) (as exercised, collectively, the “Series C Warrant Shares”) and (v) a warrant to initially acquire  up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (7) on the Schedule of Buyers, as evidenced by a certificate in the form attached hereto as Exhibit D (the “Series D Warrants”) (as exercised, collectively, the “Series D Warrant Shares”). The Series A Warrants, the Series B Warrants, the Series C Warrants and the Series D Warrants are collectively referred to herein as the “Warrants.” The Series A Warrant Shares, the Series B Warrant Shares, the Series C Warrant Shares and the Series D Warrant Shares are collectively referred to herein as the “Warrant Shares.”

 

  

  

  

 

C.           Concurrently herewith, the Company and Registrar and Transfer Company, as warrant agent (the “Warrant Agent”) are entering into that certain Warrant Agent Agreement, in the form attached hereto as Exhibit F (the “Warrant Agreement”), pursuant to which, among other things, the Company shall issue the certificates with respect to the Warrants to the Buyers.

 

D.           The Common Shares, the Warrants and the Warrant Shares are collectively referred to herein as the “Securities.”

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each Buyer hereby agree as follows:

 

	
1.

	
PURCHASE AND SALE OF COMMON SHARES AND WARRANTS.

 

(a)           Common Shares and Warrants.  Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, shall purchase from the Company on the Closing Date (as defined below), such aggregate number of Common Shares as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers along with (i) Series A Warrants to initially acquire  up to that aggregate number of Series A Warrant Shares as is set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers, (ii) Series B Warrants to initially acquire  up to that aggregate number of Series B Warrant Shares as is set forth opposite such Buyer’s name in column (5) on the Schedule of Buyers, (iii) Series C Warrants to initially acquire  up to that aggregate number of Series C Warrant Shares as is set forth opposite such Buyer’s name in column (6) on the Schedule of Buyers. and (iv) Series D Warrants to initially acquire  up to that aggregate number of Series D Warrant Shares as is set forth opposite such Buyer’s name in column (7) on the Schedule of Buyers.

 

(b)           Closing. The closing (the “Closing”) of the purchase of the Common Shares and the Warrants by the Buyers shall occur at the offices of Greenberg Traurig, LLP, MetLife Building, 200 Park Avenue, New York, NY 10166. The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., New York time, on the third (3rd) Trading Day (as defined in the Warrants) after the date hereof (or such earlier date as is mutually agreed to by the Company and each Buyer). As used herein “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to remain closed.

 

(c)           Purchase Price. The aggregate purchase price for the Common Shares and the Warrants to be purchased by each Buyer (the “Purchase Price”) shall be the amount set forth opposite such Buyer’s name in column (8) on the Schedule of Buyers.

 

(d)           Form of Payment; Deliveries. On the Closing Date, (i) each Buyer shall pay its respective Purchase Price to the Company for the Common Shares and the Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of immediately available funds in accordance with the Company’s written wire instructions (less, in the case of Capital Ventures (as defined below) and Empery (as defined below), the amounts withheld pursuant to

 

 

2

  

  

Section 4(g)) and (ii) the Company shall (A) cause Registrar and Transfer Company (together with any subsequent transfer agent, the “Transfer Agent”) through the Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, to credit such aggregate number of Common Shares that such Buyer is purchasing as is set forth opposite such Buyer’s name in column (3) of the Schedule of Buyers to such Buyer’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system, and (B) deliver to each Buyer (w) a Series A Warrant pursuant to which such Buyer shall have the right to initially acquire  up to such number of Series A Warrant Shares as is set forth opposite such Buyer’s name in column (4) of the Schedule of Buyers, (x) a Series B Warrant pursuant to which such Buyer shall have the right to initially acquire  up to such number of Series B Warrant Shares as is set forth opposite such Buyer’s name in column (5) of the Schedule of Buyers, (y) a Series C Warrant pursuant to which such Buyer shall have the right to initially acquire  up to such number of Series C Warrant Shares as is set forth opposite such Buyer’s name in column (6) of the Schedule of Buyer and (z) a Series D Warrant pursuant to which such Buyer shall have the right to initially acquire up to such number of Series D Warrant Shares as is set forth opposite such Buyer’s name in column (7) of the Schedule of Buyers, in each case, duly executed on behalf of the Company and the Warrant Agent and registered in the name of such Buyer or its designee.

 

	
2.

	
BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer, severally and not jointly, represents and warrants to the Company with respect to only itself that:

 

(a)           Organization; Authority. Such Buyer is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents (as defined below) to which it is a party and otherwise to carry out its obligations hereunder and thereunder.

 

(b)             Validity; Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and constitutes the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

 

(c)           No Conflicts.  The execution, delivery and performance by such Buyer of this Agreement and the consummation by such Buyer of the transactions contemplated hereby will not (i) result in a violation of the organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.

 

  3

  

  

 

 

	 3.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers that:

 

(a)           Organization and Qualification. Each of the Company and its Subsidiaries (which for purposes of this Agreement means any "Significant Subsidiary" as such term is defined in Rule 1-02 of Regulation S-X of the 1933 Act) is an entity duly organized and validly existing and in good standing under the laws of the jurisdiction in which it is formed, and has the requisite power and authorization to own its properties and to carry on its business as now being conducted and as presently proposed to be conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any Subsidiary, either individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents or (iii) the authority or ability of the Company to perform any of its obligations under any of the Transaction Documents. Other than the Persons (as defined below) set forth on Schedule 3(a), the Company has no Subsidiaries.

 

(b)           Authorization; Enforcement; Validity. The Company has the requisite power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof.  The execution and delivery of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Common Shares, the issuance of the Warrants and the reservation for issuance and issuance of the Warrant Shares issuable upon exercise of the Warrants) have been duly authorized by the Company’s board of directors and (other than the filing with the SEC of the prospectus supplement required by the Registration Statement pursuant to Rule 424(b) under the 1933 Act (the “Prospectus Supplement”) supplementing the base prospectus forming part of the Registration Statement (the “Prospectus”) and any other filings as may be required by any state securities agencies) no further filing, consent or authorization is required by the Company, its board of directors or its stockholders or other governing body. This Agreement has been, and the other Transaction Documents will be prior to the Closing, duly executed and delivered by the Company, and each constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities law. “Transaction Documents” means, collectively, this Agreement, the Warrants, the Warrant Agreement, the Voting Agreements (as defined below), the Irrevocable Transfer Agent Instructions (as defined below) and each of the other agreements and instruments entered into or delivered by any of the parties hereto in connection with the transactions contemplated hereby and thereby, as may be amended from time to time.

 

4  

  

  

(c)           Issuance of Securities; Registration Statement. The issuance of the Common Shares and the Warrants are duly authorized and, upon issuance in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof. As of the Closing, the Company shall have reserved from its duly authorized capital stock 150% of the maximum number of shares of Common Stock issuable upon exercise of the Warrants (without taking into account any limitations on the exercise of the Warrants set forth therein). The issuance of the Warrant Shares is duly authorized, and upon exercise in accordance with the Warrants, the Warrant Shares, when issued, will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. The issuance by the Company of the Securities has been registered under the 1933 Act, the Securities are being issued pursuant to the Registration Statement and all of the Securities are freely transferable and freely tradable by each of the Buyers without restriction. The Registration Statement is effective and available for the issuance of the Securities thereunder and the Company has not received any notice that the SEC has issued or intends to issue a stop-order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened in writing to do so. The “Plan of Distribution” section under the Registration Statement permits the issuance and sale of the Securities hereunder and as contemplated by the other Transaction Documents. Upon receipt of the Securities, each of the Buyers will have good and marketable title to the Securities. The Registration Statement and any prospectus included therein, including the Prospectus and the Prospectus Supplement, complied in all material respects with the requirements of the 1933 Act and the Securities Exchange Act of 1934, as amended (the “1934 Act”) and the rules and regulations of the SEC promulgated thereunder and all other applicable laws and regulations. At the time the Registration Statement and any amendments thereto became effective, at the date of this Agreement and at each deemed effective date thereof pursuant to Rule 430B(f)(2) of the 1933 Act, the Registration Statement and any amendments thereto complied and will comply in all material respects with the requirements of the 1933 Act and did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus and any amendments or supplements thereto (including, without limitation the Prospectus Supplement), at the time the Prospectus or any amendment or supplement thereto was issued and at the Closing Date, complied, and will comply, in all material respects with the requirements of the 1933 Act and did not, and will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  The Company meets all of the requirements for the use of Form S-3 under the 1933 Act for the offering and sale of the Securities contemplated by this Agreement and the other Transaction Documents, and the SEC has not notified the Company of any objection to the use of the form of the Registration Statement pursuant to Rule 401(g)(1) under the 1933 Act. The Registration Statement meets the requirements set forth in Rule 415(a)(1)(x) under the 1933 Act. At the earliest time after the filing of the Registration Statement that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the 1933 Act) relating to any of the Securities, the Company was not and is not an “Ineligible Issuer” (as defined in Rule 405 under the 1933 Act). The Company (i) has not distributed any offering material in connection with the offer or sale of any of the Securities and (ii) until no Buyer holds any of the Securities, shall not distribute any offering material in

 

 

5

  

  

connection with the offer or sale of any of the Securities to, or by, any of the Buyers (if required), in each case, other than the Registration Statement, the Prospectus or the Prospectus Supplement. In accordance with Rule 5110(b)(7)(C)(i) of the Financial Industry Regulatory Authority Manual, the offering of the Securities has been registered with the SEC on Form S-3 under the 1933 Act pursuant to the standards for Form S-3 in effect prior to October 21, 1992, and the Securities are being offered pursuant to Rule 415 promulgated under the 1933 Act.

 

(d)           No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Common Shares, the Warrants and Warrant Shares and the reservation for issuance of the Warrant Shares) will not (i) result in a violation of the Certificate of Incorporation (as defined below) (including, without limitation, any certificates of designation contained therein) or other organizational documents of the Company or any of its Subsidiaries, any capital stock of the Company, or Bylaws (as defined below), (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including, without limitation, federal and state securities laws and regulations and the rules and regulations of the NYSE Amex LLC (the “Principal Market”)) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected except, in the case of clause (ii) or (iii) above, to the extent such violations that could not reasonably be expected to have a Material Adverse Effect.

 

(e)           Consents.  The Company is not required to obtain any consent from, authorization or order of, or make any filing or registration with (other than the filing with the SEC of the Prospectus Supplement and any other filings as may be required by any state securities agencies), any court, Governmental Entity or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Transaction Documents, in each case, in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain at or prior to the Closing have been obtained or effected on or prior to the Closing Date, and neither the Company nor any of its Subsidiaries are aware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings contemplated by the Transaction Documents. The Company is not in violation of the requirements of the Principal Market and has no knowledge of any facts or circumstances which could reasonably lead to delisting or suspension of the Common Stock in the foreseeable future.

 

(f)           Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer is (i) an officer or director of the Company or any of its Subsidiaries, (ii) an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule thereto) (collectively, “Rule 144”)) of the Company or any of its Subsidiaries or (iii) to its knowledge, a “beneficial owner” of more than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the 1934 Act). The Company further acknowledges that no

 

6

  

  

Buyer is acting as a financial advisor or fiduciary of the Company or any of its Subsidiaries (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Securities.  The Company further represents to each Buyer that the Company’s decision to enter into the Transaction Documents has been based solely on an independent evaluation by the Company and its representatives.

 

(g)           Placement Agent’s Fees. The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions (other than for Persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby. Other than Roth Capital Partners, LLC (the “Placement Agent”), neither the Company nor any of its Subsidiaries has engaged any placement agent or other agent in connection with the offer or sale of the Securities.

 

(h)           No Integrated Offering. None of the Company, its Subsidiaries or any of their affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to require approval of stockholders of the Company under any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated for quotation.  None of the Company, its Subsidiaries, their affiliates nor any Person acting on their behalf will take any action or steps that would cause the offering of any of the Securities to be integrated with other offerings of securities of the Company.

 

(i)           Dilutive Effect. The Company understands and acknowledges that the number of Warrant Shares will increase in certain circumstances. The Company further acknowledges that its obligation to issue the Warrant Shares upon exercise of the Warrants in accordance with this Agreement and the Warrants is absolute and unconditional, regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

 

(j)           Application of Takeover Protections; Rights Agreement. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, interested stockholder, business combination, poison pill (including, without limitation, any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation, Bylaws or other organizational documents or the laws of the jurisdiction of its incorporation or otherwise which is or could become applicable to any Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of shares of Common Stock or a change in control of the Company or any of its Subsidiaries.

 

(k)           SEC Documents; Financial Statements. During the two (2) years prior to the date hereof, except as disclosed in Schedule 3(k), the Company has timely filed all reports, schedules,

 

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forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”). The Company has delivered to the Buyers or their respective representatives true, correct and complete copies of each of the SEC Documents not available on the EDGAR system. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 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 as in effect as of the time of filing. 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 which will not be material, either individually or in the aggregate). No other information provided by or on behalf of the Company to any of the Buyers 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 not misleading, in the light of the circumstance under which they are or were made.

 

(l)           Absence of Certain Changes. Since the date of the Company’s most recent audited financial statements contained in a Form 10-K, there has been no material adverse change and no material adverse development in the business, assets, liabilities, properties, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any of its Subsidiaries. Since the date of the Company’s most recent audited financial statements contained in a Form 10-K, neither the Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets, individually or in the aggregate, outside of the ordinary course of business or (iii) made any material capital expenditures, individually or in the aggregate. Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does the Company or any Subsidiary have any knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company and its Subsidiaries, individually and on a consolidated basis, are not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing will not be, Insolvent (as defined below). For purposes of this Section 3(1), “Insolvent” means, (I) with respect to the Company and its Subsidiaries, on a consolidated basis, (i) the present fair saleable value of the Company’s and its Subsidiaries’ assets is less than the amount required to pay the Company’s and its Subsidiaries’ total Indebtedness (as defined below), (ii) the Company and its Subsidiaries are unable to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities

 

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become absolute and matured or (iii) the Company and its Subsidiaries intend to incur or believe that they will incur debts that would be beyond their ability to pay as such debts mature; and (II) with respect to the Company and each Subsidiary, individually, (i) the present fair saleable value of the Company’s or such Subsidiary’s (as the case may be) assets is less than the amount required to pay its respective total Indebtedness, (ii) the Company or such Subsidiary (as the case may be) is unable to pay its respective debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or (iii) the Company or such Subsidiary (as the case may be) intends to incur or believes that it will incur debts that would be beyond its respective ability to pay as such debts mature. Neither the Company nor any of its Subsidiaries has engaged in any business or in any transaction, and is not about to engage in any business or in any transaction, for which the Company’s or such Subsidiary’s remaining assets constitute unreasonably small capital.

 

(m)           No Undisclosed Events, Liabilities, Developments or Circumstances. No event, liability, development or circumstance has occurred or exists, or is reasonably expected to exist or occur with respect to the Company, any of its Subsidiaries or any of their respective businesses, properties, liabilities, prospects, operations (including results thereof) or condition (financial or otherwise) that (i) would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced, (ii) could have a material adverse effect on any Buyer’s investment hereunder or (iii) could have a Material Adverse Effect.

 

(n)           Conduct of Business; Regulatory Permits. Neither the Company nor any of its Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation, any certificate of designation, preferences or rights of any other outstanding series of preferred stock of the Company or any of its Subsidiaries or Bylaws or their organizational charter, certificate of formation or certificate of incorporation or bylaws, respectively. Neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except in all cases for possible violations which could not, individually or in the aggregate, have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements of the Principal Market and has no knowledge of any facts or circumstances that could reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future. Since January 1, 2008, (i) the Common Stock has been listed or designated for quotation on the Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the 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, except as disclosed in Schedule 3(n). The Company and each of its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

 

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(o)           Foreign Corrupt Practices.  Neither the Company nor any of its Subsidiaries nor any director, officer, agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the 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.

 

(p)           Sarbanes-Oxley Act. The Company and each Subsidiary is in compliance with all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of the date hereof.

 

(q)           Transactions With Affiliates. Except as disclosed in Schedule 3(q), none of the officers, directors or employees of the Company or any of its Subsidiaries is presently a party to any transaction with the Company or any of its Subsidiaries (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Company or any of its Subsidiaries, any corporation, partnership, trust or other Person in which any such officer, director or employee has a substantial interest or is an employee, officer, director, trustee or partner.

 

(r)           Equity Capitalization.  As of the date hereof, the authorized capital stock of the Company consists of (i) 100,000,000 shares of Common Stock, of which, 33,398,904 are issued and outstanding and 2,580,000 shares are reserved for issuance pursuant to stock purchase agreements and securities (other than the Warrants) exercisable or exchangeable for, or convertible into, shares of Common Stock and (ii) 20,000,000 shares of preferred stock, of which none are issued and outstanding. 100,025 shares of Common Stock are held in treasury.  All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and nonassessable. 100,025 shares of the Company’s issued and outstanding Common Stock on the date hereof are owned by Persons who are “affiliates” (as defined in Rule 405 of the 1933 Act and calculated based on the assumption that only officers, directors and holders of at least 10% of the Company’s issued and outstanding Common Stock are “affiliates” without conceding that any such Persons are “affiliates” for purposes of federal securities laws) of the Company or any of its Subsidiaries. To the Company’s knowledge, no Person owns 10% or more of the Company’s issued and outstanding shares of Common Stock (calculated based on the assumption that all Convertible Securities (as defined below), whether or not presently exercisable or convertible, have been fully exercised or converted (as the case may be) taking account of any limitations on exercise or conversion (including “blockers”) contained therein without conceding that such identified Person is a 10% stockholder for purposes of federal securities laws). Except as disclosed in Schedule 3(r): (i) none of the Company’s or any Subsidiary’s capital stock is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company or any Subsidiary; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or

 

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exchangeable for, any capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing statements securing obligations in any amounts filed in connection with the Company or any of its Subsidiaries; (v) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except pursuant to this Agreement); (vi) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (viii) neither the Company nor any Subsidiary has any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (ix) neither the Company nor any of its Subsidiaries have any liabilities or obligations required to be disclosed in the SEC Documents which are not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses and which, individually or in the aggregate, do not or could not have a Material Adverse Effect. The Company has furnished to the Buyers true, correct and complete copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all securities convertible into, or exercisable or exchangeable for, shares of Common Stock and the material rights of the holders thereof in respect thereto.

 

(s)           Indebtedness and Other Contracts. Neither the Company nor any of its Subsidiaries (i) except as disclosed on Schedule 3(s), has any outstanding Indebtedness (as defined below), (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect, (iii) is in violation of any term of, or in default under, any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (iv) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect. For purposes of this Agreement: (x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with generally accepted accounting principles) (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title

 

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retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, claim, lien, pledge, charge, tax, right of first refusal, encumbrance, security interest or other encumbrance (an “Encumbrance”) upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (z) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a Governmental Entity.

 

(t)           Absence of Litigation. There is no action, suit, proceeding, inquiry or investigation before or by the Principal Market, any Governmental Entity or other self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, the Common Stock or any of the Company’s or its Subsidiaries’ officers or directors which is outside of the ordinary course of business or individually or in the aggregate material to the Company or any of its Subsidiaries. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company, any of its Subsidiaries or any current or former director or officer of the Company or any of its Subsidiaries. The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the 1933 Act or the 1934 Act, including, without limitation, the Registration Statement.

 

(u)           Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor any such Subsidiary has any reason to believe that it will be unable to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

(v)           Employee Relations.  Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union. The Company

 

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believes that its and its Subsidiaries’ relations with their respective employees are good.  No executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or other key employee of the Company or any of its Subsidiaries has notified the Company or any such Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the Company or any such Subsidiary. No executive officer or other key employee of the Company or any of its Subsidiaries is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer or other key employee (as the case may be) does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.  The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

(w)           Title. The Company and its Subsidiaries have good and marketable title in fee simple to all real property, and have good and marketable title to all personal property, owned by them which is material to the business of the Company and its Subsidiaries, in each case, free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Any real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company or any of its Subsidiaries.

 

(x)           Intellectual Property Rights. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, original works, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor (“Intellectual Property Rights”) necessary to conduct their respective businesses as now conducted and as presently proposed to be conducted. None of the Company’s or its Subsidiaries’ Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire, terminate or be abandoned, within three years from the date of this Agreement. The Company has no knowledge of any infringement by the Company or any of its Subsidiaries of Intellectual Property Rights of others. There is no claim, action or proceeding being made or brought, or to the knowledge of the Company or any of its Subsidiaries, being threatened, against the Company or any of its Subsidiaries regarding their Intellectual Property Rights. The Company is not aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.

 

(y)           Environmental Laws. The Company and its Subsidiaries (i) are in compliance with all Environmental Laws (as defined below), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or

 

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approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.  The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

 

(z)           Subsidiary Rights. The Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or such Subsidiary.

 

(aa)           Tax Status.  Each of the Company and its Subsidiaries (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company and its Subsidiaries know of no basis for any such claim. The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

(bb)           Internal Accounting and Disclosure Controls. Each of the Company and its Subsidiaries maintains internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the 1934 Act) that is effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, including 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. Except as disclosed in Schedule 3(bb), the Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the 1934 Act) that are effective in ensuring that information required to be disclosed by the 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 the Company in the reports that it files or submits under the 1934 Act

 

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is accumulated and communicated to the 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. Except as disclosed in Schedule 3(bb), neither the Company nor any of its Subsidiaries has received any notice or correspondence from any accountant or other Person relating to any potential material weakness or significant deficiency in any part of the internal controls over financial reporting of the Company or any of its Subsidiaries.

 

(cc)           Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.

 

(dd)           Investment Company Status. The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,” an affiliate of an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of  1940, as amended.

 

(ee)           Acknowledgement Regarding Buyers’ Trading Activity. It is understood and acknowledged by the Company that (i) following the public disclosure of the transactions contemplated by the Transaction Documents, in accordance with the terms thereof, none of the Buyers have been asked by the Company or any of its Subsidiaries to agree, nor has any Buyer agreed with the Company or any of its Subsidiaries, to desist from effecting any transactions in or with respect to (including, without limitation, purchasing or selling, long and/or short) any securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) any Buyer, and counterparties in “derivative” transactions to which any such Buyer is a party, directly or indirectly, presently may have a “short” position in the Common Stock which was established prior to such Buyer’s knowledge of the transactions contemplated by the Transaction Documents; and (iii) each Buyer shall not be deemed to have any affiliation with or control over any arm’s length counterparty in any “derivative” transaction. The Company further understands and acknowledges that following the public disclosure of the transactions contemplated by the Transaction Documents pursuant to the Press Release (as defined below) one or more Buyers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value and/or number of the Warrant Shares deliverable with respect to the Securities are being determined and (b) such hedging and/or trading activities, if any, can reduce the value of the existing stockholders’ equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted. The Company acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement or any other Transaction Document or any of the documents executed in connection herewith or therewith.

 

(ff)           Manipulation of Price. Neither the Company nor any of its Subsidiaries has, and, to the knowledge of the Company, no Person acting on their behalf has, directly or indirectly, (i) taken any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company or any of its Subsidiaries to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any

 

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of the Securities (other than the Placement Agent), or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company or any of its Subsidiaries.

 

(gg)           U.S. Real Property Holding Corporation. Neither the Company nor any of its Subsidiaries is, or has ever been, and so long as any of the Securities are held by any of the Buyers, shall become, a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company and each Subsidiary shall so certify upon any Buyer’s request.

 

   (hh)           Registration Eligibility. The Company is eligible to register the issuance and sale of the Securities to the Buyers using Form S-3 promulgated under the 1933 Act.

 

   (ii)           Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the issuance and sale of the Securities to be sold to each Buyer hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.

 

  (jj)           Bank Holding Company Act.  Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).  Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any equity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

  (kk)           Shell Company Status. The Company is not, and has never been, an issuer identified in, or subject to, Rule 144(i).

 

  (ll)           Non-Oil, Gas and Mineral Real Property.  Each of the Company and its Subsidiaries holds good title to all real property, leases in real property, or other interests in real property owned or held by the Company or any of its Subsidiaries (other than any property included in the Interests (as defined below)) (the “Other Real Property”) owned by the Company or any of its Subsidiaries, as applicable. The Other Real Property is free and clear of all Encumbrances and is not subject to any rights of way, building use restrictions, exceptions, variances, reservations, or limitations of any nature except for (a) liens for current taxes not yet due, and (b) zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto.

 

 (mm)           Non-Oil, Gas and Mineral Fixtures and Equipment. Each of the Company and its Subsidiaries, as applicable, has good title to, or a valid leasehold interest in, the tangible personal property, equipment, improvements, fixtures, and other personal property and appurtenances that are used by the Company or its Subsidiary in connection with the conduct of its business (the “Company Fixtures and Equipment”), except that the Company Fixtures and Equipment do not include any property included in the Interests.  The Company Fixtures and Equipment are structurally sound, are in good operating condition and repair, are adequate for the uses to which

 

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they are being put, are not in need of maintenance or repairs except for ordinary, routine maintenance and repairs and are sufficient for the conduct of the Company's and/or its Subsidiaries’ businesses, as applicable, in the manner as conducted prior to the Closing.  Each of the Company and its Subsidiaries owns all of its Company Fixtures and Equipment free and clear of all Encumbrances except for (a) liens for current taxes not yet due, and (b) zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto.

 

(nn)           Oil, Gas and Mineral Interests.

 

(i)           For the purpose of this Agreement, the following definitions shall apply:

 

(1)           “Appurtenant Rights” means, with respect to the Properties (as defined below), in each case, insofar as they may relate to the Properties, the Company’s or any of its Subsidiaries’, as applicable, interest in (a) all presently existing and valid unitization and pooling declarations, agreements, and/or orders relating to or affecting the Properties and all rights in the Properties covered by the Units (as defined below) created thereby; (b) all wells, well and leasehold equipment, pipelines, platforms, facilities, improvements, goods and other personal property located on or used in connection with the Properties; (c) all presently existing production sales contracts, operating and other contracts or agreements which relate to the Properties; and (d) all permits, licenses, easements, rights-of-way, rights of use, and similar agreements pertaining to the Properties.

 

(2)            “Basic Documents” means all of the following documents and instruments, including those that are recorded and unrecorded, with respect to the Company or any of its Subsidiaries:

 

a.            All material contracts and agreements comprising any part of, or relating or pertaining to, the Interests, including but not limited to farm-in agreements, farm-out agreements, joint operating agreements, Unit agreements and contracts by which the Interests were acquired;

 

b.            All agreements or arrangements for the sale, gathering, transportation, compression, treating, processing or other marketing of a material volume of production from the Interests (including calls on, or other rights to purchase, production, whether or not the same are currently being exercised), comprising any part of or otherwise relating or pertaining to the Interests; and

 

   c.           All documents and instruments evidencing the Interests.

 

(3)           “Consent” means any consents, approvals, orders, authorizations, notifications, notices, estoppel certificates, releases, registrations, ratifications, declarations, filings, waivers, exemptions or variances.

 

(4)           “Good and Defensible Title” means, as to the Interest in question, (i) title to such Interest by virtue of which the Company or any of its Subsidiaries, as applicable, can successfully defend against a claim to the contrary made by a

 

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third party, based upon industry standards in the acquisition of oil and gas properties, and in the exercise of reasonable judgment and in good faith; and, (ii) in the case of the Wells (as defined below) or Mines (as defined below), title that entitles the Company or such Subsidiary, as applicable, to receive not less than the Net Revenue Interest (as defined below) for each of the Wells or Mines, as applicable, and obligates the Company or such Subsidiary, as applicable, to bear not more than the Working Interest for each of the Wells or Mines, as applicable (unless there is a corresponding increase in the Net Revenue Interest  for a respective Well or Mine, as applicable); and (iii) such Interest is subject to no liens, encumbrances, obligations or defects.

 

(5)           “Governmental Authorizations” means any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Entity or pursuant to any Legal Requirement.

 

(6)           “Governmental Entity” means any:

 

a.           nation, state, county, city, town, village, district, or other political jurisdiction of any nature;

 

b.           federal, state, local, municipal, foreign, or other government;

 

c.           governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal);

 

d.           multi-national organization or body; or

 

e.           body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.

 

(7)           “Interests” means the Properties and the Appurtenant Rights of the Company and its Subsidiaries.

 

(8)           “Legal Requirement” means any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty.

 

(9)           “Mine” or “Mines” means all of the Company's and its Subsidiaries' mines and interest in mineral reserves and resources.

 

(10)           “Net Revenue Interest” means a share, expressed as a decimal, of the oil, gas and other minerals (or the proceeds of sale thereof) produced and saved from or otherwise attributable to an Interest and the zones, horizons and reservoirs produced therefrom, after the deduction of all royalties, overriding royalties and other burdens on production.

 

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(11)           "Over-produced" means to have taken more production from an Interest (or the Units in which the Interest participates) or any product thereof, than the ownership of the Company or any of its Subsidiaries and the Company's or any of its Subsidiaries’ predecessors in the Interest would entitle the Company or any of its Subsidiaries and/or the Company's or any of its Subsidiaries’ predecessors (absent any balancing agreement or arrangement) to receive.

 

(12)           “Preferential Right” means any preferential right or option to purchase or otherwise to acquire an Interest or any interest therein, held by another party to a Basic Document, which arises as a result of the transactions contemplated by this Agreement.

 

(13)           “Properties” means all of the Company's and its Subsidiaries’ rights, titles and interests in and to the following oil and gas and/or mineral properties:

 

a.           All oil, gas and/or mineral leases and other mineral interests, including, but not limited to, all of the Company's operating rights, record title interests, working interests, and overriding royalty interests, without depth or other restrictions or exclusions;

 

b.           All Wells and Mines of the Company and its Subsidiaries;

 

c.           All surface leases, rights-of-way, easements, servitudes and other rights-of-use (whether surface, subsurface or subsea); and

 

    d.           All licenses and servitudes.

 

(14)           “Routine Governmental Approvals” means Governmental Authorizations required to be obtained from any Governmental Entity that are customarily obtained after consummation of a transaction.

 

(15)           "Under-produced" means to have taken less production from an Interest (or the Units in which the Interest participates) or any product thereof, than the ownership of the Company or any of its Subsidiaries and the Company's or any of its Subsidiaries’ predecessors in the Interest would entitle the Company or any of its Subsidiaries and/or the Company's or any of its Subsidiaries’ predecessors (absent any balancing agreement or arrangement) to receive.

 

(16)           “Units” means oil, gas and other mineral production, proration, or other types of units, and any ownership interests therein.

 

(17)           “Well” or “Wells” means all of the Company's and any of its Subsidiaries' oil, gas and condensate wells, (whether producing, not producing or abandoned or temporarily abandoned).

 

(18)           “Working Interest” means a share, expressed as a decimal, of the costs of exploring, drilling, developing and operating an Interest and producing

 

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oil, gas and other minerals from the zones, horizons and reservoirs therein and thereunder.

 

(ii)           Except as disclosed in Schedule 3(nn), the Company holds Good and Defensible Title to the Interests.

 

(iii)           Except as disclosed in Schedule 3(nn), the Basic Documents are in full force and effect and constitute valid and binding obligations of the parties thereto.

 

(iv)           Except as disclosed in Schedule 3(nn), neither the Company nor any of its Subsidiaries is in material breach or default (and no situation exists which with the passing of time or giving of notice would give rise to such a breach or default) of its obligations under any Basic Document, and no breach or default by any other party to any Basic Document (or situation which with the passage of time or giving of notice would give rise to such a breach or default) exists, to the extent such breach or default (whether by the Company, any Subsidiary or another party to any Basic Document) could adversely affect any of the Interests.

 

(v)           All payments (including, without limitation, all delay rentals, royalties, excess royalties, minimum royalties, overriding royalty interests, shut in royalties and valid calls for payment or prepayment under operating agreements) owing under the Basic Documents have been and are being made timely and properly, and before the same became delinquent (by the Company or the applicable Subsidiary where the non payment of same by another party to any Basic Document could adversely affect any of the Interests) have been and are being made by such other party in all material respects.

 

(vi)           All conditions necessary to maintain the Basic Documents in force have been duly performed.

 

(vii)           No non-consent operations exist with respect to any of the Interests that have resulted or will result in a temporary or permanent increase or decrease in either the Company’s or any of its Subsidiaries’ Net Revenue Interest or Working Interest in such Interest.

 

(viii)           Except as disclosed in Schedule 3(nn), all expenses payable under the terms of the Basic Documents have been properly and timely paid except for such expenses as are being currently paid or will be paid prior to delinquency. Except for budgeted capital expenditures disclosed in the SEC Documents, no proposals calling for expenditures in excess of $250,000 for any one project are currently outstanding (whether made by the Company, any of its Subsidiaries, or by any other party) to drill additional wells, or to deepen, plug back, sidetrack, abandon, or rework existing Wells or Mines, as applicable, or to conduct other operations for which consent is required under the applicable operating agreement, or to conduct any other operations, other than normal operation of existing Wells or Mines, as applicable, on the Interests.

 

(ix)           Neither the Company nor any of its Subsidiaries has received prepayments (including, but not limited to, payments for oil and gas not taken pursuant to “take or pay” arrangements) for any oil or gas produced from the Interests as a result of which the obligation does (or may) exist (i) to deliver oil, gas or minerals produced from the

 

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Interests without then receiving payment therefor, or (ii) to make repayments in cash.  There is no Interest with respect to which the Company has taken an Over-Produced or Under-Produced position to the extent such Over-produced or Under-produced position has not, as of the day immediately preceding the date hereof been fully made up or otherwise extinguished.  No pipeline imbalances have arisen and remain outstanding due to the failure of nominations made by the Company or any of its Subsidiaries to match actual deliveries of production from any one or more of the Interests. None of the purchasers under any production sales contracts relating to an Interest has (i) exercised any economic out provision; (ii) curtailed its takes of natural gas in violation of such contracts; or (iii) given notice that it desires to amend the production sales contracts with respect to price or quantity of deliveries under take-or-pay provisions or otherwise.

 

(x)           To the Company’s knowledge, except as disclosed in Schedule 3(nn), no delinquent unpaid bills or past due charges exist for any labor and materials incurred by or on behalf of the Company or any of its Subsidiaries’ related to the exploration, development or operation of the Interests.

 

(xi)           Except as may be provided for by a Basic Document, neither the Company nor any of its Subsidiaries nor any of the Interests is subject to (i) any area of mutual interest agreements, (ii) any farm out or farm in agreement under which any party thereto is entitled to receive assignments of any Interest or any interest therein not yet made, or could earn additional assignments of any Interest or any interest therein after the date hereof, (iii) any tax partnership or (iv) any agreement, contract or commitment relating to the disposition or acquisition of the assets of, or any interest in, any other entity.

 

(xii)           All severance, production, ad valorem and other similar taxes based on or measured by ownership or operation of, or production from, the Interests have been, and are being, paid (properly and timely, and before the same become delinquent) by the Company or the applicable Subsidiary in all respects.

 

(xiii)           (i) The ownership and operation of the Interests has, to the extent that non conformance could adversely affect the Interests, been conducted in conformity with all applicable material Legal Requirements of all Governmental Entities having jurisdiction over the Interests or the Company, and (ii) the Company has not received any notice of noncompliance with regard to any material Legal Requirement of any Governmental Entity having jurisdiction over the Interests or the Company.

 

(xiv)           There are no Preferential Rights or Consents, other than Routine Governmental Approvals that affect any of the Interests and that will be triggered by the transactions contemplated by the Transaction Documents.

 

(xv)           There exist no agreements or other arrangements under which the Company or any of its Subsidiaries undertakes to perform gathering, transportation, processing or other marketing services for any other party for a fee or other consideration that is now, or may hereafter be, unrepresentative of commercial rates being received by other parties in comparable, arm’s length transactions.

 

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(xvi)           Except as disclosed in Schedule 3(nn), there are no Wells or Mines, as applicable, located on the Interests that (i) the Company or any of its Subsidiaries is currently obligated by law or contract to currently plug and abandon or to cease development or exploration, (ii) the Company or any of its Subsidiaries will be obligated by law or contract to plug and abandon with the lapse of time or notice or both because the Well or Mines, as applicable, is not currently capable of producing severed crude oil, natural gas, casinghead gas, drip gasoline, natural gasoline, petroleum, natural gas liquids, condensate, products, liquids, other hydrocarbons or other minerals or materials in paying quantities or otherwise currently being used in normal operations, (iii) are subject to exceptions to a requirement to plug and abandon issued by a Governmental Entity, or (iv) to the Company’s knowledge, have been plugged and abandoned, but have not been plugged in accordance in all material respects with all applicable requirements of any Governmental Entity.

 

(xvii)           Except as disclosed in Schedule 3(nn), no suit, action or proceeding (including, without limitation, tax or environmental demands proceedings) is pending or threatened, which might result in material impairment or loss of title to any of the Interests or the material value thereof.

 

(xviii)           All proceeds from the sale of hydrocarbons produced from the Company’s or the applicable Subsidiaries’ proportionate share of the Interests are currently being paid to the Company or such Subsidiary in all material respects, and no portion of such proceeds is currently being held in suspense by any purchaser thereof or any other party by whom proceeds are paid except for immaterial amounts.

 

(oo)           Illegal or Unauthorized Payments; Political Contributions.  Neither the Company nor any of its Subsidiaries nor, to the best of the Company's knowledge (after reasonable inquiry of its officers and directors), any of the officers, directors, employees, agents or other representatives of the Company or any of its Subsidiaries or any other business entity or enterprise with which the Company or any Subsidiary is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (a) as a kickback or bribe to any Person or (b) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company or any of its Subsidiaries.

 

(pp)           Money Laundering.  The Company and its Subsidiaries are in compliance with, and have not previously violated, the USA Patriot Act of 2001 and all other applicable U.S. and non-U.S. anti-money laundering laws and regulations, including, but not limited to, the laws, regulations and Executive Orders and sanctions programs administered by the U.S. Office of Foreign Assets Control, including, but not limited, to (i) Executive Order 13224 of September 23, 2001 entitled, "Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism" (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

 

(qq)           Management.  Except as set forth in Schedule 3(qq) hereto, during the past five year period, no current or former officer or director or, to the knowledge of the Company, stockholder of the Company or any of its Subsidiaries has been the subject of:

 

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                (i)           a petition under bankruptcy laws or any other insolvency or moratorium law or the appointment by a court of a receiver, fiscal agent or similar officer for such Person, or any partnership in which such    person was a general partner at or within two years before the filing of such petition or such appointment, or any corporation or business association of which such person was an executive officer at or within two years before the time of the filing of such petition or such appointment;

 

(ii)            a conviction in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations that do not relate to driving while intoxicated or driving under the influence);

 

(iii)            any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining any such person from, or otherwise limiting, the following activities:

 

(1)           Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the United States Commodity Futures Trading Commission or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 

(2)           Engaging in any type of business practice; or

 

(3)           Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of securities laws or commodities laws;

 

(iv)           any order, judgment or decree, not subsequently reversed, suspended or vacated, of any authority barring, suspending or otherwise limiting for more than 60 days the right of any such person to engage in any activity described in the preceding sub paragraph, or to be associated with persons engaged in any such activity;

 

(v)           a finding by a court of competent jurisdiction in a civil action or by the SEC or other authority to have violated any securities law, regulation or decree and the judgment in such civil action or finding by the SEC or any other authority has not been subsequently reversed, suspended or vacated; or

 

(vi)           a finding by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding has not been subsequently reversed, suspended or vacated.

 

(rr)           No Additional Agreements. The Company does not have any agreement or understanding with any Buyer with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents.

 

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(ss)           Registration Rights.  No holder of securities of the Company has rights to the registration of any securities of the Company because of the filing of the Registration Statement or the issuance of the Securities hereunder that could expose the Company to material liability or any Buyer to any liability or that could impair the Company’s ability to consummate the issuance and sale of the Securities in the manner, and at the times, contemplated hereby, which rights have not been waived by the holder thereof as of the date hereof.

 

(tt)           Public Utility Holding Act.  None of the Company nor any of its Subsidiaries is a “holding company,” or an “affiliate” of a “holding company,” as such terms are defined in the Public Utility Holding Act of 2005.

 

(uu)           Federal Power Act.  None of the Company nor any of its Subsidiaries is subject to regulation as a “public utility” under the Federal Power Act, as amended.

 

(vv)           Disclosure.  The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Buyers or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information concerning the Company or any of its Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other Transaction Documents. The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company. All disclosure provided to the Buyers regarding the Company and its Subsidiaries, their businesses and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of the Company or any of its Subsidiaries is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each press release issued by the Company or any of its Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.  No event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, liabilities, prospects, operations (including results thereof) or conditions (financial or otherwise), which, under applicable law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but which has not been so publicly disclosed. The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 2.

 

	
4.

	
COVENANTS.

 

(a)           Maintenance of Registration Statement  For so long as any of the Warrants remain outstanding, the Company shall use its best efforts to maintain the effectiveness of the Registration Statement for the issuance thereunder of the Warrant Shares, provided that, if at any time while the Warrants are outstanding the Company shall be ineligible to utilize Form S-3 (or any successor form) for the purpose of issuance of the Warrant Shares, the Company shall promptly amend the Registration Statement on such other form as may be necessary to maintain the effectiveness of the Registration Statement for this purpose. If at any time following the date hereof the Registration Statement is not effective or is not otherwise available for the issuance of the Securities or any prospectus contained therein is not available for use, the Company shall immediately notify the holders of the Securities in writing that the Registration Statement is not then effective or a prospectus contained therein is not available for use and thereafter shall promptly notify such holders when the Registration Statement is effective again and available for the issuance of the Securities or such prospectus is again available for use.

 

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(b)           Prospectus Supplement and Blue Sky. Immediately prior to execution of this Agreement, the Company shall have delivered, and as soon as practicable after execution of this Agreement the Company shall file, the Prospectus Supplement with respect to the Securities as required under, and in conformity with, the 1933 Act, including Rule 424(b) thereunder. If required, the Company, on or before the Closing Date, shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date. Without limiting any other obligation of the Company under this Agreement, the Company shall timely make all filings and reports relating to the offer and sale of the Securities required under all applicable securities laws (including, without limitation, all applicable federal securities laws and all applicable “Blue Sky” laws), and the Company shall comply with all applicable federal, state and local laws, statutes, rules, regulations and the like relating to the offering and sale of the Securities to the Buyers.

 

(c)           Reporting Status.  During the period from the date hereof until the date on which no Warrants are outstanding (such period, the “Reporting Period”), the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would no longer require or otherwise permit such termination.

 

(d)           Use of Proceeds. The Company shall use the proceeds from the sale of the Securities for drilling one SAGD injector well at the Company’s Pleasant Valley property, reactivating up to four wells at the Company’s Claflin project, reducing outstanding trade payables, the payment of the fees and expenses described in Section 4(g) below and general corporate purposes and not for the (i) repayment of any outstanding Indebtedness of the Company or any of its Subsidiaries except as described in Schedule 4(d) or (ii) redemption or repurchase of any securities of the Company or any of its Subsidiaries or (iii) the settlement of any outstanding litigation.

 

(e)           Financial Information. The Company agrees to send the following to each Buyer during the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are available to the public through the EDGAR system, within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, any interim reports or any consolidated balance sheets, income statements, stockholders’ equity statements and/or cash flow statements for any period other than annual, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the release thereof, facsimile copies of all press releases issued by the Company or any of its Subsidiaries and (iii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or delivery to the stockholders.

 

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(f)           Listing. The Company shall promptly (but in no event later than the Closing Date) secure the listing or designation for quotation (as the case may be) of all of the Common Shares and, subject to the Stockholder Approval (as defined below), the maximum number of Warrant Shares issuable upon exercise of the Warrants (without regard to any limitations on the exercise thereof) upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed or designated for quotation (as the case may be) (subject to official notice of issuance) and shall maintain such listing or designation for quotation (as the case may be) of all the shares of Common Stock from time to time issuable under the terms of the Transaction Documents on such national securities exchange or automated quotation system. The Company shall maintain the Common Stock’s listing or designation for quotation (as the case may be) on the Principal Market, The  New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market (each, an “Eligible Market”). Neither the Company nor any of its Subsidiaries shall take any action which could be reasonably expected to result in the delisting or suspension of the Common Stock on an Eligible Market. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(f).

 

(g)           Fees.

 

(i)           The Company shall reimburse Capital Ventures International (“Capital Ventures”) or its designee(s) for all reasonable costs and expenses incurred by it or its affiliates in connection with the transactions contemplated by the Transaction Documents (including, without limitation, all legal fees and disbursements in connection therewith, documentation and implementation of the transactions contemplated by the Transaction Documents and due diligence and regulatory filings in connection therewith), which amount shall be withheld by Capital Ventures from its Purchase Price at the Closing or paid by the Company upon termination of this Agreement on demand by Capital Ventures so long as such termination did not occur as a result of a material breach by Capital Ventures of any of its obligations hereunder (as the case may be), less $20,000 which was previously advanced to Capital Ventures by the Company. Subject to the limitation set forth in the immediately preceding sentence, if the amount so withheld at the Closing by Capital Ventures was less than the aggregate amount of reasonable costs and expenses actually incurred by it or its affiliates in connection with the transactions contemplated by the Transaction Documents, the Company shall promptly reimburse Capital Ventures on demand for all such costs and expenses not so reimbursed through such withholding at the Closing.

 

(ii)           The Company shall reimburse Empery Asset Master Ltd. (“Empery”) or its designee(s) for all reasonable costs and expenses incurred by it or its affiliates in connection with the transactions contemplated by the Transaction Documents, not to exceed $10,000 (including, without limitation, all legal fees and disbursements in connection therewith, documentation and implementation of the transactions contemplated by the Transaction Documents and due diligence and regulatory filings in connection therewith), which amount shall be withheld by Empery from its Purchase Price at the Closing or paid by the Company upon termination of this Agreement on demand by Empery so long as such termination did not occur as a result of a material breach by Empery of any of its obligations hereunder (as the case may be).

 

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(iii)           The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, transfer agent fees, DTC fees or broker’s commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated hereby (including, without limitation, any fees payable to the Placement Agent, who is the Company’s sole placement agent in connection with the transactions contemplated by this Agreement). The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment. Except as otherwise set forth in the Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers.

 

(h)           Pledge of Securities. Notwithstanding anything to the contrary contained in this Agreement, the Company acknowledges and agrees that the Securities may be pledged by a Buyer in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document. The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by a Buyer.

 

(i)           Disclosure of Transactions and Other Material Information. The Company shall, on or before 9:30 a.m. (but in no event prior to 9:15 a.m.), New York time, on the date of this Agreement, issue a press release (the “Press Release”) reasonably acceptable to the Buyers disclosing all the material terms of the transactions contemplated by the Transaction Documents. On or before 9:30 a.m. (but in no event prior to 9:15 a.m.), New York time, on the date of this Agreement, the Company shall file a Current Report on Form 8-K describing all the material terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching all the material Transaction Documents (including, without limitation, this Agreement (and all schedules to this Agreement) and the form of Warrants) (including all attachments, the “8-K Filing”). From and after the issuance of the Press Release, the Company shall have disclosed all material, non-public information (if any) delivered to any of the Buyers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. The Company shall not, and the Company shall cause each of its Subsidiaries and each of its and their respective officers, directors, employees and agents, not to, provide any Buyer with any material, non-public information regarding the Company or any of its Subsidiaries from and after the issuance of the Press Release without the express prior written consent of such Buyer. In the event of a breach of any of the foregoing covenants or any of the covenants contained in Section 4(n) by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents (as determined in the reasonable good faith judgment of such Buyer), in addition to any other remedy provided herein or in the Transaction Documents, such Buyer shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material, non-public information without the prior approval by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees or agents.

 

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No Buyer shall have any liability to the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees, stockholders or agents, for any such disclosure. Subject to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). Without the prior written consent of the applicable Buyer, the Company shall not (and shall cause each of its Subsidiaries and affiliates to not) disclose the name of such Buyer in any filing, announcement, release or otherwise unless required by applicable laws, rules or regulations.

 

(j)           Additional Issuance of Securities; Amendments and Registrations.

 

(i)           The Company agrees that for the period commencing on the date hereof and ending on the date immediately following the sixtieth (60th) calendar day after the Closing Date (provided that such period shall be extended by the number of days during such period and any extension thereof contemplated by this proviso on which the Registration Statement is not effective or any prospectus contained therein is not available for use) (the “Restricted Period”), neither the Company nor any of its Subsidiaries shall directly or indirectly issue, offer, sell, grant any option or right to purchase, or otherwise dispose of (or announce any issuance, offer, sale , grant of any option or right to purchase or other disposition of) any equity security or any equity-linked or related security (including, without limitation, any “equity security” (as that term is defined under Rule 405 promulgated under the 1933 Act), any Convertible Securities (as defined below), any debt, any preferred stock or any purchase rights) (any such issuance, offer, sale, grant, disposition or announcement (whether occurring during the Restricted Period or at any time thereafter) is referred to as a “Subsequent Placement”).

 

(ii)           The Company agrees that for the period commencing on the sixty-first (61st) calendar day after the Closing Date and ending on the date immediately following the one hundred and twentieth (120th) calendar day after the Closing Date (provided that such period shall be extended by the number of days during such period, and any extension thereof contemplated by this proviso, on which the Registration Statement is not effective or any prospectus contained therein is not available for use) (the “Additional Restricted Period”), neither the Company nor any of its Subsidiaries shall directly or indirectly effect any Subsequent Placement unless (i) the quotient of (x) the sum of the Closing Bid Price (as defined in the Warrants) of the Common Stock on each of the ten (10) consecutive Trading Days immediately preceding the date of the consummation of such Subsequent Placement divided by (y) 10, is at least equal to $2.522 (as adjusted for any stock dividend, stock split, stock combination or other similar transaction) and (ii) the average daily volume (as reported on Bloomberg (as defined in the Warrants)) of the Common Stock on the Eligible Market on which the Common Stock is listed or designated for quotation as of such date of determination over the ten (10) consecutive Trading Day period ending on the Trading Day immediately preceding such date of determination is at least equal to 200,000 shares per day (as adjusted for any stock dividend, stock split, stock combination or other similar transaction).

 

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(iii)           During the Restricted Period and the Additional Restricted Period, the Company shall not (i) file any registration statement with the SEC with respect to any equity securities of the Company or (ii) exchange (other than with respect to an exercise or conversion of such Convertible Security in accordance with its terms), amend, modify or waive any of its Convertible Securities outstanding prior to the date hereof.

 

(iv)           Notwithstanding the foregoing, this Section 4(j) shall not apply in respect of the issuance of (A) shares of Common Stock or standard options to purchase Common Stock to directors, officers or employees of the Company in their capacity as such pursuant to an Approved Share Plan (as defined below), provided that (1) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options) after the date hereof pursuant to this clause (A) do not, in the aggregate, exceed more than 10% of the Common Stock issued and outstanding immediately prior to the date hereof and (2) the exercise price of any such options is not lowered, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially changed in any manner that adversely affects any of the Buyers; (B) shares of Common Stock issued upon the conversion or exercise of Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Share Plan that are covered by clause (A) above) issued prior to the date hereof, provided that the conversion price of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Share Plan that are covered by clause (A) above) is not lowered, none of such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Share Plan that are covered by clause (A) above) are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Share Plan that are covered by clause (A) above) are otherwise materially changed in any manner that adversely affects any of the Buyers; (C) the Warrant Shares issuable upon exercise of any Warrant, provided that the exercise price of such Warrant is not lowered and such Warrant is not amended to increase the number of shares issuable thereunder (other than the holder of such Warrant) (each of the foregoing in clauses (A) through (C), collectively the “Excluded Securities”).  “Approved Share Plan” means any employee benefit plan which has been approved by the board of directors of the Company prior to or subsequent to the date hereof pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer or director for services provided to the Company in their capacity as such. “Convertible Securities” means any capital stock or other security of the Company or any of its Subsidiaries that is at any time and under any circumstances directly or indirectly convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any capital stock or other security of the Company (including, without limitation, Common Stock) or any of its Subsidiaries.

 

(k)           Reservation of Shares. So long as any Warrants remain outstanding, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 150% of the maximum number of shares of Common Stock issuable upon exercise of all the Warrants as of the date hereof (without regard to any limitations on the exercise of the Warrants set forth therein), less the number of Warrant Shares represented by any such Warrants that have been exercised.

 

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(l)           Conduct of Business.  The business of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance or regulation of any governmental entity, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect.

 

(m)           Variable Rate Transaction. Until none of the Warrants are outstanding, the Company and each Subsidiary shall be prohibited from effecting or entering into an agreement to effect any Subsequent Placement involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company or any Subsidiary (i) issues or sells any Convertible Securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of Common Stock at any time after the initial issuance of such Convertible Securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provision or (ii) enters into any agreement (including, without limitation, an equity line of credit) whereby the Company or any Subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights). Each Buyer shall be entitled to obtain injunctive relief against the Company and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

 

(n)           Participation Right. From the date hereof until the twelve (12) month anniversary of the Closing Date, neither the Company nor any of its Subsidiaries shall, directly or indirectly, effect any Subsequent Placement unless the Company shall have first complied with this Section 4(n).  The Company acknowledges and agrees that the right set forth in this Section 4(n) is a right granted by the Company, separately, to each Buyer.

 

           (i)           At least five (5) Trading Days prior to any proposed or intended Subsequent Placement, the Company shall deliver to each Buyer a written notice of its proposal or intention to effect a Subsequent Placement (each such notice, a “Pre-Notice”), which Pre-Notice shall not contain any information (including, without limitation, material, non-public information) other than: (i) a statement that the Company proposes or intends to effect a Subsequent Placement, (ii) a statement that the statement in clause (i) above does not constitute material, non-public information and (iii) a statement informing such Buyer that it is entitled to receive an Offer Notice (as defined below) with respect to such Subsequent Placement upon its written request. Upon the written request of a Buyer within three (3) Trading Days after the Company’s delivery to such Buyer of such Pre-Notice, and only upon a written request by such Buyer, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver to such Buyer an irrevocable written notice (the “Offer Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”) of the securities being offered (the “Offered Securities”) in a Subsequent Placement, which Offer Notice shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered

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 Securities to be issued, sold or exchanged, (y) identify the Persons (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with such Buyer in accordance with the terms of the Offer 50% of the Offered Securities, provided that the number of Offered Securities which such Buyer shall have the right to subscribe for under this Section 4(n) shall be (a) based on such Buyer’s pro rata portion of the aggregate number of Common Shares purchased hereunder by all Buyers (the “Basic Amount”), and (b) with respect to each Buyer that elects to purchase its Basic Amount, any additional portion of the Offered Securities attributable to the Basic Amounts of other Buyers as such Buyer shall indicate it will purchase or acquire should the other Buyers subscribe for less than their Basic Amounts (the “Undersubscription Amount”).

           (ii)           To accept an Offer, in whole or in part, such Buyer must deliver a written notice to the Company prior to the end of the third (3rd) Business Day after such Buyer’s receipt of the Offer Notice (the period from the date of such Buyer’s receipt of the Offer Notice until the end of such third Business day thereafter being, subject to the last sentence of this paragraph (ii), the “Offer Period”), setting forth the portion of such Buyer’s Basic Amount that such Buyer elects to purchase and, if such Buyer shall elect to purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Buyer elects to purchase (in either case, the “Notice of Acceptance”). If the Basic Amounts subscribed for by all Buyers are less than the total of all of the Basic Amounts, then such Buyer who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription Amount”), such Buyer who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts, subject to rounding by the Company to the extent it deems reasonably necessary. Notwithstanding the foregoing, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the Company may deliver to each Buyer a new Offer Notice and the Offer Period shall expire on the fifth (5th) Business Day after such Buyer’s receipt of such new Offer Notice.

           (iii)           The Company shall have five (5) Business Days from the expiration of the Offer Period above (i) to offer, issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by a Buyer (the “Refused Securities”) pursuant to a definitive agreement(s) (the “Subsequent Placement Agreement”), but only to the offerees described in the Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the acquiring Person or Persons or less favorable to the Company than those set forth in the Offer Notice and (ii) to publicly announce (a) the execution of such Subsequent Placement Agreement, and (b) either (x) the consummation of the transactions contemplated by such Subsequent Placement Agreement or (y) the termination of such Subsequent Placement Agreement, which shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent Placement Agreement and any documents contemplated therein filed as exhibits thereto.

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(iv)           In the event the Company shall propose to sell less than all of the Refused Securities (any such sale to be in the manner and on the terms specified in Section 4(n)(iii) above), then such Buyer may, at its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that such Buyer elected to purchase pursuant to Section 4(n)(ii) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Buyers pursuant to this Section 4(n) prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Buyer so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Buyers in accordance with Section 4(n)(i) above.

(v)           Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, such Buyer shall acquire from the Company, and the Company shall issue to such Buyer, the number or amount of Offered Securities specified in its Notice of Acceptance. The purchase by such Buyer of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and such Buyer of a separate purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to such Buyer and its counsel.

(vi)           Any Offered Securities not acquired by a Buyer or other Persons in accordance with this Section 4(n) may not be issued, sold or exchanged until they are again offered to such  Buyer under the procedures specified in this Agreement.

(vii)           The Company and each Buyer agree that if any Buyer elects to participate in the Offer, neither the Subsequent Placement Agreement with respect to such Offer nor any other transaction documents related thereto (collectively, the “Subsequent Placement Documents”) shall include any term or provision whereby such Buyer shall be required to agree to any restrictions on trading as to any securities of the Company or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, any agreement previously entered into with the Company or any instrument received from the Company.

           (viii)           Notwithstanding anything to the contrary in this Section 4(n) and unless otherwise agreed to by such Buyer, the Company shall either confirm in writing to such Buyer that the transaction with respect to the Subsequent Placement has been abandoned or shall publicly disclose its intention to issue the Offered Securities, in either case in such a manner such that such Buyer will not be in possession of any material, non-public information, by the fifth (5th) Business Day following delivery of the Offer Notice. If by such fifth (5th) Business Day , no public disclosure regarding a transaction with respect to the Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received by such Buyer, such transaction shall be deemed to have been abandoned and such Buyer shall not be in possession of any material, 

 

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non-public information with respect to the Company or any of its Subsidiaries. Should the Company decide to pursue such transaction with respect to the Offered Securities, the Company shall provide such Buyer with another Offer Notice and such Buyer will again have the right of participation set forth in this Section 4(n). The Company shall not be permitted to deliver more than one Offer Notice to such Buyer in any sixty (60) day period, except as expressly contemplated by the last sentence of Section 4(n)(ii).

 

(ix)           The restrictions contained in this Section 4(n) shall not apply in connection with the issuance of any Excluded Securities. The Company shall not circumvent the provisions of this Section 4(n) by providing terms or conditions to one Buyer that are not provided to all.

 

(o)           Dilutive Issuances.  Until the Stockholder Approval Date, (as defined below), the Company shall not, in any manner, enter into or effect any Dilutive Issuance (as defined in the Warrants).  For so long as any Warrants remain outstanding, the Company shall not, in any manner, enter into or effect any Dilutive Issuance (as defined in the Warrants) if the effect of such Dilutive Issuance is to cause the Company to be required to issue upon exercise of any Warrant any shares of Common Stock in excess of that number of shares of Common Stock which the Company may issue upon exercise of the Warrants without breaching the Company's obligations under the rules or regulations of the Principal Market.  At any time prior to the Stockholder Approval Date, the Company shall not consummate any Subsequent Placement at a price per share of Common Stock (as determined in accordance with Section 2(b) of the Warrants) below the higher of (x) the Purchase Price per share of Common Stock hereunder (as adjusted for stock splits, recapitalizations and similar events) and (y) the Exercise Price (as defined in the Series A Warrants) at such time.

 

(p)           Passive Foreign Investment Company. The Company shall conduct its business in such a manner as will ensure that the Company will not be deemed to constitute a passive foreign investment company within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

(q)           Restriction on Redemption and Cash Dividends. So long as any Warrants are outstanding, the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, any securities of the Company without the prior express written consent of the Buyers.

 

(r)           Recapitalizations. So long as any Warrants are outstanding, the Company shall not effect any stock combination, reverse stock split or other similar transaction (or make any public announcement or disclosure with respect to any of the foregoing) without the prior written consent of each of the Buyers.

 

(s)           Corporate Existence. So long as any Buyer owns any Warrants, the Company shall not be party to any Fundamental Transaction (as defined in the Warrants) unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Warrants.

 

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(t)           Stockholder Approval.  The Company shall provide each stockholder entitled to vote at either (x) the next annual meeting of stockholders of the Company or (y) a special meeting of stockholders of the Company (the "Stockholder Meeting"), which shall be promptly called and held not later than June 30, 2010 (or in the event that such proxy statement is subject to a full review by the SEC, July 31, 2010) (the "Stockholder Meeting Deadline"), a proxy statement, substantially in a form which shall have been previously reviewed by Greenberg Traurig LLP, at the expense of the Company but in any event such expense not to exceed $15,000; soliciting each such stockholder's affirmative vote at the Stockholder Meeting for approval of resolutions ("Stockholder Resolutions") providing for the Company's issuance of all of the Securities as described in the Transaction Documents in accordance with applicable law and the rules and regulations of the Principal Market (such affirmative approval being referred to herein as the "Stockholder Approval", and the date such Stockholder Approval is obtained, the “Stockholder Approval Date”), and the Company shall use its reasonable best efforts to solicit its stockholders' approval of such resolutions and to cause the Board of Directors of the Company to recommend to the stockholders that they approve such resolutions.  The Company shall be obligated to seek to obtain the Stockholder Approval by the Stockholder Meeting Deadline.  If, despite the Company's reasonable best efforts the Stockholder Approval is not obtained on or prior to the Stockholder Meeting Deadline, the Company shall cause an additional Stockholder Meeting to be held once in each of the three subsequent calendar quarters thereafter until such Stockholder Approval is obtained.  If, despite the Company's reasonable best efforts the Stockholder Approval is not obtained after such subsequent stockholder meetings, the Company shall cause an additional Stockholder Meeting to be held semi-annually thereafter until such Stockholder Approval is obtained.

 

(u)           No Waiver of Voting Agreements.  The Company shall not amend, waive or modify any provision of any of the Voting Agreements.

 

(v)           Warrant Agent Removal.  At the request of any initial Buyer holding Warrants following either (i) any Delivery Failure (as defined in any applicable Warrants) or (ii) the failure of the Company or the Warrant Agent, as applicable, to deliver Warrants to any Person within the time period specified in any applicable Warrant, the Company shall promptly, but in no event later than three (3) Business Days after notice from such initial Buyer, remove the Warrant Agent and cause the Company to become the successor Warrant Agent pursuant to the Warrant Agreement.

 

(w)           Closing Documents.  On or prior to fourteen (14) calendar days after the Closing Date, the Company agrees to deliver, or cause to be delivered, to each Buyer and Greenberg Traurig, LLP executed copies of the Transaction Documents, Securities and other document required to be delivered to any party pursuant to Section 6 hereof.

 

	
5.

	
REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.

 

(a)           Register. The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to each holder of Securities), a register for the Common Shares and the Warrants in which the Company shall record the name and address of the Person in whose name the Common Shares and the Warrants have been issued (including the name and address of each transferee), the number of Common Shares held by such Person and the number of Warrant Shares issuable upon exercise of the Warrants held by such Person. The Company shall keep the register open and available at all times during business hours for inspection of any Buyer or its legal representatives.

 

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(b)           Transfer Agent Instructions. The Company shall issue irrevocable instructions to the Transfer Agent in the form reasonably acceptable to such Buyer (the “Irrevocable Transfer Agent Instructions”) to issue certificates or credit shares to the applicable balance accounts at DTC, registered in the name of each Buyer or its respective nominee(s), for the Common Shares and the Warrant Shares in such amounts as specified from time to time by each Buyer to the Company upon delivery of the Common Shares or the exercise of the Warrants (as the case may be). The Company represents and warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5(b) will be given by the Company to the Transfer Agent with respect to the Securities, and that the Securities shall otherwise be freely transferable on the books and records of the Company. If a Buyer effects a sale, assignment or transfer of the Securities, the Company shall permit the transfer and shall promptly instruct the 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. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to each Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that each Buyer shall be entitled, in addition to all other available remedies, to 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. Any fees (with respect to the Transfer Agent, counsel to the Company or otherwise) associated with the issuance of such opinion shall be borne by the Company.

 

(c)           Legends. Certificates and any other instruments evidencing the Securities shall not bear any restrictive or other legend.

 

	
6.

	
CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Common Shares and the related Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof:

(a)           Such Buyer shall have executed this Agreement and delivered the same to the Company.

 

(b)           Such Buyer shall have delivered to the Company the Purchase Price (less, in the case of Capital Ventures and Empery, the amounts withheld pursuant to Section 4(g)) for the Common Shares and the related Warrants being purchased by such Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company.

 

(c)           The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specific date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the Closing Date.

 

 

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7.

	
CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

The obligation of each Buyer hereunder to purchase the Common Shares and the related Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:

(a)           The Company shall have (i) executed and delivered to such Buyer each of the Transaction Documents, (ii) electronically delivered the Common Shares being purchased by such Buyer at the Closing pursuant to this Agreement and (iii) executed and delivered the related Series A Warrants, Series B Warrants, Series C Warrants and Series D Warrants (in such amounts as such Buyer shall request) being purchased by such Buyer at the Closing pursuant to this Agreement.

 

(b)           Such Buyer shall have received the opinion of Strasburger & Price, LLP, the Company’s counsel, dated as of the Closing Date, in a form reasonably acceptable to the Buyers.

 

(c)           The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent Instructions, in the form reasonably acceptable to such Buyer, which instructions shall have been delivered to and acknowledged in writing by the Transfer Agent.

 

(d)           The Company shall have delivered to such Buyer a certificate evidencing the incorporation and good standing (if applicable) of the Company and each of its Subsidiaries in such corporation’s jurisdiction of incorporation issued by the Secretary of State or other comparable authority of such jurisdiction of incorporation as of a date within 10 days of the Closing Date.

 

(e)           The Company shall have delivered to such Buyer a certificate evidencing the Company’s qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office) of each jurisdiction in which the Company conducts business and is required to so qualify, as of a date within ten (10) days of the Closing Date.

 

(f)           The Common Stock (i) shall be listed 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.

 

(g)           From the date hereof to the Closing Date, (i) trading in the Common Stock shall not have been suspended by the SEC or the Principal Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, (ii) at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on the Principal Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Buyer, makes it impracticable or inadvisable to purchase the Securities at the Closing

 

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(h)           The Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation, certified within ten (10) days of the Closing Date.

 

(i)           The Company shall have delivered to such Buyer a certificate, in the form reasonably acceptable to such Buyer, executed by the Secretary of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company’s board of directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws of the Company, each as in effect at the Closing.

 

(j)           The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that were made as of a specific date, which shall be true and correct as of such specific date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date.  Such Buyer shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form reasonably acceptable to such Buyer.

 

(k)           The Company shall have delivered to such Buyer a letter from the Transfer Agent certifying the number of shares of Common Stock outstanding on the Closing Date immediately prior to the Closing.

 

(l)           The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Common Shares, the Warrants and the Warrant Shares.

 

(m)           The Registration Statement shall be effective and available for the issuance and sale of the Common Shares hereunder and the Company shall have delivered to such Buyer the Prospectus and the Prospectus Supplement as required thereunder.

 

(n)           There shall have been no Material Adverse Effect with respect to the Company since the date hereof.

 

(o)           The Company shall have delivered to such Buyer a copy of the Warrant Agreement, duly executed by the Company and the Warrant Agent in the form attached hereto as Exhibit F.

 

(p)           The Company shall have delivered to such Buyer a copy of the voting agreements in the form of Exhibit E hereof (collectively the “Voting Agreements”), by and between the Company and each of Persons listed on Schedule 7(p) attached hereto

 

37

  

  

(q)           The Company shall have delivered to such Buyer such other documents, instruments or certificates relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.

 

	
8.

	
TERMINATION.

 

In the event that the Closing shall not have occurred with respect to a Buyer within five (5) days of the date hereof, then such Buyer shall have the right to terminate its obligations under this Agreement with respect to itself at any time on or after the close of business on such date without liability of such Buyer to any other party; provided, however, (i) the right to terminate this Agreement under this Section 8 shall not be available to such Buyer if the failure of the transactions contemplated by this Agreement to have been consummated by such date is the result of such Buyer’s breach of this Agreement and (ii) the abandonment of the sale and purchase of the Common Shares and the Warrants shall be applicable only to such Buyer providing such written notice, provided further that no such termination shall affect any obligation of the Company under this Agreement to reimburse such Buyer for the expenses described in Section 4(g) above. Nothing contained in this Section 8 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.

	
9.

	
MISCELLANEOUS.

 

(a)           Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b)           Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.

 

38

  

  

(c)           Headings; Gender. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.”  The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the provision in which they are found.

 

(d)           Severability. If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

(e)           Entire Agreement; Amendments. This Agreement, the other Transaction Documents and the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein supersede all other prior oral or written agreements between the Buyers, the Company, their affiliates and Persons acting on their behalf solely with respect to the matters contained herein and therein, and this Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein contain the entire understanding of the parties solely with respect to the matters covered herein and therein; provided, however, nothing contained in this Agreement or any other Transaction Document shall (or shall be deemed to) (i) have any effect on any agreements any Buyer has entered into with the Company or any of its Subsidiaries prior to the date hereof with respect to any prior investment made by such Buyer in the Company or (ii) waive, alter, modify or amend in any respect any obligations of the Company or any of its Subsidiaries, or any rights of or benefits to any Buyer or any other Person, in any agreement entered into prior to the date hereof between or among the Company and/or any of its Subsidiaries and any Buyer and all such agreements shall continue in full force and effect. Except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. For clarification purposes, the Recitals are part of this Agreement. No provision of this Agreement may be amended or waived other than by an instrument in writing signed by, or voted by, the Company and holders of Warrants exercisable into 2/3rds of the Warrant Shares issuable upon exercise of the Warrants then outstanding (without regard for any limitations on exercise set forth therein and excluding any Warrants held by the Company or any of its Subsidiaries). The Company has not, directly or indirectly, made any agreements with any Buyers relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that, except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other obligation to provide any financing to the Company, any Subsidiary or otherwise.  As a material inducement for each Buyer to enter into this Agreement, the Company expressly acknowledges and agrees that (i) no due diligence investigation conducted by a Buyer or its advisors, if any, or its representatives shall affect such Buyer’s right to rely on, or modify, qualify or be an exception to any of, the Company’s representations and warranties contained in this Agreement or any other Transaction Document, (ii) nothing contained in the Registration Statement, the Prospectus or the Prospectus Supplement shall affect such Buyer’s right to rely on, or modify, qualify or be an exception to any of, the Company’s representations and warranties contained in this Agreement or any other Transaction Document and (iii) unless a provision of this Agreement or any other Transaction Document is expressly preceded by the phrase “except as disclosed in the SEC Documents,” nothing contained in any of the SEC Documents shall affect such Buyer’s right to rely on, or modify, qualify or be an exception to any of, the Company’s representations and warranties contained in this Agreement or any other Transaction Document.

39

  

  

 

(f)           Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

Tri-Valley Corporation

4550 California Avenue, Suite 600

Bakersfield, California 93309

Telephone:  661-864-0500

Facsimile:  661-864-0600

Attention:  John Durbin

With a copy (for informational purposes only) to:

 

Strasburger & Price, LLP

 

600 Congress Avenue, Suite 1600

 

Austin, Texas 78701

 

Telephone:  512-499-3600

 

Facsimile:  512-499-3660

 

Attention:  Lee Polson

 

If to the Transfer Agent:

 

Registrar & Transfer Company

10 Commerce Drive

Cranford, New Jersey 07016

Telephone:  908-497-2300

Facsimile:  908-497-2310

Attention:  Gleidy Pinho

40

  

  

If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers,

 

with a copy (for informational purposes only) to:

 

Greenberg Traurig, LLP

 

MetLife Building

 

200 Park Avenue

 

New York, NY 10166

 

Telephone:  (212) 801-9200

 

Facsimile:  (212) 805-9222

 

Attention:  Michael A. Adelstein, Esq.

 

or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change, provided that Greenberg Traurig, LLP shall only be provided copies of notices sent to Capital Ventures. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.

 

(g)           Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including, as contemplated below, any assignee of any of the Securities. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of holders of Warrants exercisable into 2/3rds of the Warrant Shares issuable upon exercise of the Warrants then outstanding (without regard for any limitations on exercise set forth therein and excluding any Warrants held by the Company or any of its Subsidiaries), including, without limitation, by way of a Fundamental Transaction (as defined in the Warrants) (unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Warrants). A Buyer may assign some or all of its rights hereunder in connection with any transfer of any of its Securities without the consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights.

 

(h)           No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, other than the Indemnitees referred to in Section 9(k).

 

41

  

  

(i)           Survival. The representations, warranties, agreements and covenants shall survive the Closing. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

 

(j)           Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

(k)           Indemnification.

 

(i)           In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each holder of any 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 any of the Transaction Documents, (b) any breach of any covenant, agreement or obligation of the Company contained in any of the Transaction Documents 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 any of the Transaction Documents, (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, (iii) any disclosure properly made by such Buyer pursuant to Section 4(i), or (iv) the status of such Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.

 

(ii)           Promptly after receipt by an Indemnitee under this Section 9(k) of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving an Indemnified Liability, such Indemnitee shall, if a claim in respect thereof is to be made against the Company under this Section 9(k), deliver to the Company a written notice of the commencement thereof, and the Company shall have the right to participate in, and, to the extent the Company so desires, to assume control of the defense thereof with counsel mutually satisfactory to the Company and the Indemnitee; provided, however, that an Indemnitee shall have the right to retain its own counsel with

 

42

  

  

 the fees and expenses of such counsel to be paid by the Company if: (i) the Company has agreed in writing to pay such fees and expenses; (ii) the Company shall have failed promptly to assume the defense of such Indemnified Liability and to employ counsel reasonably satisfactory to such Indemnitee in any such Indemnified Liability; or (iii) the named parties to any such Indemnified Liability (including any impleaded parties) include both such Indemnitee and the Company, and such Indemnitee shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnitee and the Company (in which case, if such Indemnitee notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, then the Company shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Company), provided further, that in the case of clause (iii) above the Company shall not be responsible for the reasonable fees and expenses of more than one (1) separate legal counsel for such Indemnitee. The Indemnitee shall reasonably cooperate with the Company in connection with any negotiation or defense of any such action or Indemnified Liability by the Company and shall furnish to the Company all information reasonably available to the Indemnitee which relates to such action or Indemnified Liability. The Company shall keep the Indemnitee reasonably apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. The Company shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the Company shall not unreasonably withhold, delay or condition its consent. The Company shall not, without the prior written consent of the Indemnitee, 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 Indemnitee of a release from all liability in respect to such Indemnified Liability or litigation, and such settlement shall not include any admission as to fault on the part of the Indemnitee. Following indemnification as provided for hereunder, the Company shall be subrogated to all rights of the Indemnitee 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 Company within a reasonable time of the commencement of any such action shall not relieve the Company of any liability to the Indemnitee under this Section 9(k), except to the extent that the Company is materially and adversely prejudiced in its ability to defend such action.

 

(iii)           The indemnification required by this Section 9(k) 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 Liabilities are incurred.

 

(iv)           The indemnity agreement contained herein shall be in addition to (A) any cause of action or similar right of the Indemnitee against the Company or others, and (B) any liabilities the Company may be subject to pursuant to the law.

 

(l)           No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

(m)           Remedies.  Each Buyer and each holder of any Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to seek specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security.

 

43

  

  

(n)           Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Buyer exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

(o)           Payment Set Aside; Currency. To the extent that the Company makes a payment or payments to any Buyer hereunder or pursuant to any of the other Transaction Documents or any of the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. Unless otherwise expressly indicated, all dollar amounts referred to in this Agreement and the other Transaction Documents are in United States Dollars (“U.S. Dollars”), and all amounts owing under this Agreement and all other Transaction Documents shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted into the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Agreement, the U.S. Dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation.

 

44

  

  

(p)           Independent Nature of Buyers’ Obligations and Rights.  The obligations of each Buyer under the Transaction Documents are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any other Buyer under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as, and the Company acknowledges that the Buyers do not so constitute, a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Buyers are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by the Transaction Documents or any matters, and the Company acknowledges that the Buyers are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or the transactions contemplated by the Transaction Documents. The decision of each Buyer to purchase Securities pursuant to the Transaction Documents has been made by such Buyer independently of any other Buyer. Each Buyer acknowledges that no other Buyer has acted as agent for such Buyer in connection with such Buyer making its investment hereunder and that no other Buyer will be acting as agent of such Buyer in connection with monitoring such Buyer’s investment in the Securities or enforcing its rights under the Transaction Documents. The Company and each Buyer confirms that each Buyer has independently participated with the Company in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors. Each Buyer shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose.  The use of a single agreement to effectuate the purchase and sale of the Securities contemplated hereby was solely in the control of the Company, not the action or decision of any Buyer, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Buyer.  It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Buyer, solely, and not between the Company and the Buyers collectively and not between and among the Buyers.

 

[signature pages follow]

 

45  

  

  

IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

	
COMPANY:

 

	
TRI-VALLEY CORPORATION

By:

Name:

Title:

	  

  

  

  

IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

 

	  	
BUYER:

 

	  	
CAPITAL VENTURES INTERNATIONAL

 

 

 

By:

Name:

Title:

	  	  

 

  

  

  

IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

	  	
BUYER:

 

	  	
HUDSON BAY FUND, LP

 

 

 

By:

Name:

Title:

	  	  

  

  

  

IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

	  	
BUYER:

 

	  	
HUDSON BAY OVERSEAS FUND, LTD.

 

 

 

By:

Name:

Title:

	  	  

 

  

  

  

IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

	  	
BUYER:

 

	  	
RAMIUS NAVIGATION MASTER FUND LTD

 

 

 

By:

Name:

Title:

	  	  

 

  

  

  

IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

	  	
BUYER:

 

	  	
RAMIUS ENTERPRISE MASTER FUND LTD

 

 

 

By:

Name:

Title:

	  	  

 

  

  

  

IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

	  	
BUYER:

 

	  	
EMPERY ASSET MASTER LTD.

 

 

 

By:

Name:

Title:

	  	  

 

  

  

  

SCHEDULE OF BUYERS

 

	 	(1	)	 	 	(2	)	 	 	(3	)	 	 	(4	)	 	 	(5	)	 	 	(6	)	 	 	(7	)	 	 	(8	)	 	 	(9	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

Buyer

	 	 	

Address and Facsimile Number

	 	 	

Aggregate

Number of Common Shares

	 	 	

Aggregate

Number of Series A

Warrant Shares

	 	 	

Aggregate

Number of

Series B

Warrant Shares

	 	 	

Aggregate

Number of

Series C

Warrant Shares

	 	 	

Aggregate

Number of

Series D

Warrant Shares

	 	 	

Purchase Price

	 	 	

Legal Representative’s

Address and Facsimile Number

	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Capital Ventures International

	 	 	
c/o Heights Capital Management

101 California Street, Suite 3250

San Francisco, CA 94111

Attention: Martin Kobinger,

Investment Manager

Facsimile: 415-403-6525

Telephone: 415-403-6500

Residence: Cayman Islands

	 	 	 	961,539	 	 	 	288,462	 	 	 	288,462	 	 	 	600,961	 	 	 	600,961	 	 	$	1,250,000	 	 	
Greenberg Traurig, LLP

MetLife Building

200 Park Avenue

New York, NY 10166

Telephone: (212) 801-9200

Facsimile: (212) 805-9222

Attention: Michael A. Adelstein, Esq.

	 
	
Hudson Bay Fund, LP

	 	 	
120 Broadway, 40th Floor

New York, New York 10271

Attention: Yoav Roth

Facsimile: (646) 214-7946

Telephone: (212) 571-1244

E-mail: investments@hudsonbaycapital.com

	 	 	 	394,231	 	 	 	118,269	 	 	 	118,269	 	 	 	246,394	 	 	 	246,394	 	 	$	512,500	 	 	 	N/A	 
	
Hudson Bay Overseas Fund, Ltd.

	 	 	
c/o Walkers SPV Limited

Walker House

P.O. Box 908GT

Mary Street

George Town, Grand Cayman

Cayman Islands

 

with a copy to:

 

120 Broadway, 40th Floor

New York, New York 10271

Attention: Yoav Roth

Facsimile:  (646) 214-7946

Telephone: (212) 571-1244

E-mail: investments@hudsonbaycapital.com

	 	 	 	567,308	 	 	 	170,193	 	 	 	170,193	 	 	 	354,567	 	 	 	354,567	 	 	$	737,500	 	 	 	N/A	 
	
Ramius Navigation Master Fund Ltd

	 	 	
c/o Ramius LLC

599 Lexington Avenue

20th Floor

New York, NY 10022

Attention: Jeffrey Smith

 Owen Littman

Facsimile: (212) 845-7986

Telephone: (212) 845-7955

 (212) 201-4841

	 	 	 	480,770	 	 	 	144,231	 	 	 	144,231	 	 	 	300,481	 	 	 	300,481	 	 	$	625,000	 	 	 	N/A	 
	
Ramius Enterprise Master Fund Ltd

	 	 	
c/o Ramius LLC

599 Lexington Avenue

20th Floor

New York, NY 10022

Attention: Jeffrey Smith

 Owen Littman

Facsimile: (212) 845-7986

Telephone: (212) 845-7955

 (212) 201-4841

	 	 	 	480,770	 	 	 	144,231	 	 	 	144,231	 	 	 	300,481	 	 	 	300,481	 	 	$	625,000	 	 	 	N/A	 
	
Empery Asset Master Ltd.

	 	 	
c/o Empery Asset Management LP

120 Broadway, Suite 1019

New York, NY 10271

Attention: Ryan M. Lane

Facsimile: 212-608-3307

Telephone: 212-608-3300

	 	 	 	961,540	 	 	 	288,462	 	 	 	288,462	 	 	 	600,962	 	 	 	600,962	 	 	$	1,250,000	 	 	
Schulte Roth & Zabel LLP

919 Third Avenue

New York, NY 10022

Attn: Eleazer Klein, Esq.

Fax: (212) 593-5955

Tel: (212)756-2376

Email: Eleazer.Klein@srz.com

	 

 

  

  

  

SECURITIES PURCHASE AGREEMENT

DISCLOSURE SCHEDULES

Schedule 3(a)

The Company has the following subsidiaries:

Tri-Valley Oil and Gas Company

Select Resources Corporation

Great Valley Production Services, LLC

Great Valley Drilling Company, LLC

Tri-Valley Power Corporation

Pleasant Valley Energy Corporation

Schedule 3(k)

Since March 1, 2008, the following events were not timely reported to the SEC on Form 8-K:

	
1.

	
The Company’s Form 10-Q dated March 31, 2008, reported the issuance of 721,946 shares of common stock in the first quarter of 2008, which had not been previously reported on Form 8-K.  The Company had 25,991,189 shares of common stock outstanding on March 31, 2008.

	
2.

	
The Company’s Form 10-Q dated June 30, 2008, reported the issuance of 527,155 shares of common stock during the second quarter of 2008, which had not been previously reported on Form 8-K.  The Company had 26,941,764 shares of common stock outstanding on June 30, 2008.

	
3.

	
The Company’s Form 10-Q dated September 30, 2008, reported the issuance of 426,603 shares of common stock during the third quarter of 2008, which had not been previously reported on Form 8-K.  The Company had 27,368,367 shares outstanding on September 30, 2008.

	
Schedule 3(n)

	
1.

	
On September 23, 2009, NYSE Amex LLC notified the Company by letter that the Company was not currently in compliance with the requirement for continued listing on the exchange that companies listed on NYSE Amex are required by Section 1003(a)(iii) of the Company Guide to maintain a minimum of $6 million in stockholders’ equity,  if the company has sustained losses from continuing operations and/or net losses in its five most recent fiscal years.

	
2.

	
On December 3, 2009, the NYSE Amex LLC  notified the Company by letter that the company had resolved the continued listing deficiency referenced in the Company’s Form 8-K dated September 23, 2009.

Disclosure Schedules Page 1

  

  

	
Schedule 3(q)

The Company’s board of directors has approved the entry of a consulting agreement with Pinnacle Capital Management, LLC , to provide financial consulting services to the Company.  Pinnacle is owned by James S. Mayer, a director of Tri-Valley.  The agreement has not been executed as of the date of this Stock Purchase Agreement.

The Company has a related party payable of $850,000 to Mr. G. Thomas Gamble, Director and Chairman of the Board of Directors, and our largest shareholder.  This payable resulted from Mr. Gamble’s ordinary, intended purchase of the Company’s common stock.  When it was determined that the intended purchase of shares did not satisfy NYSE Amex, LLC, exchange requirements, the Company did not provide timely notice to Mr. Gamble.  Upon such notification, the Company offered Mr. Gamble a refund of his investment funds.  The Company remains in negotiation with Mr. Gamble on this transaction.

	
Schedule 3(r)

	
(ii)

	
Outstanding Options  and Warrants.

	
1.

	
The Company has agreed to issue warrants to purchase 700,000 shares of common stock at a purchase price of $1.85 per share to F. Lynn Blystone as part of an executive retirement agreement.

	
2.

	
The company has outstanding options to issue a total of 1,880,000 shares of common stock at exercise prices between $10.00 and $1.10 per share.

	
(iii)

	
Outstanding Debt

	
The following is a schedule of notes payable at December 31, 2009 and 2008:

	  	 	
2009

	 	 	
2008

	 
	
Note payable to Rabobank dated October 5, 2005. The note is secured by a vehicle at an interest rate of 6.5%, payable in 60 monthly installments of $599.

	 	$	5,813	 	 	$	12,380	 
	
Note payable to Jim Burke Ford dated November 18, 2005; secured by a vehicle; interest at 6.49%; payable in 60 monthly installments of $714.

	 	 	7,602	 	 	 	15,387	 
	
Note payable to Sealaska Corporation dated July 15, 2005; secured by mining machines and equipment; imputed interest at 7.5%; payable in 10 yearly installments of $200,000. Face amount was $2,000,000 before the imputed interest discount of $627,184 which resulted in a principal amount of $1,372,816.

	 	 	944,551	 	 	 	1,029,405	 
	
Note payable to Three Way Chevrolet dated April 03, 2006; secured by a vehicle; interest at 5.90%; payable in 60 monthly installments of $577.

	 	 	8,865	 	 	 	15,073	 
	
Note payable to Three Way Chevrolet dated February 24, 2006; secured by a vehicle; interest at 9.86%; payable in 60 monthly installments of $1,324.

	 	 	-	 	 	 	31,937	 
	
Note payable to Moss Family Trust dated February 14, 2006; secured by 200,000 shares of Tri Valley corporation unregistered restricted common stock, interest at 12.00%; payable in 60 monthly installments of $13,747.

	 	 	190,604	 	 	 	323,876	 
	
Note payable to Moss Family Trust dated March 8, 2006; secured by 80,000 shares of Tri Valley corporation unregistered restricted common stock; interest at 12.00%; payable in 60 monthly installments of $5,728

	 	 	79,418	 	 	 	134,948	 
	
Note payable to Three Way Chevrolet dated January 22, 2007; secured by a vehicle; interest at 6.90%; payable in 60 monthly installments of $622.

	 	 	14,450	 	 	 	20,685	 
	
Note payable to Gary D, Borgna and Julie R. Borgna, and Equipment 2000 dated December 30, 2006; secured by Rig Equipment; imputed interest at 8.00%; payable in 120 monthly installments of $9,100 and a payment of $300,000 paid January 3, 2007. Face amount was $1,392,000 before the discount of $342,000 which resulted in a principal amount of $1,050,000.

	 	 	583,829	 	 	 	643,690	 
	
 Total Debt at December 31, 2009

	 	 	1,835,132	 	 	 	2,227,381	 
	
 Less Current Portion

	 	 	439,483	 	 	 	389,648	 
	
 Long-Term Portion of Notes Payable

	 	$	1,395,649	 	 	$	1,837,733	 

	
(iv)

	
As indicated in subsection (iii) above, all of the Company’s outstanding promissory notes are secured by financing statements, deeds of trust or similar instruments.

Disclosure Schedules Page 2

  

  

	
Schedule 3(s)

	
(i)

	
The schedule of notes payable at December 31, 2009, contained in Schedule 3(r)(iii) above, is incorporated herein by reference.

	
  

	
(ii)

	
1.

	
The Company, either directly or through its wholly owned subsidiaries, is a party to various oil and gas leases which cover the company’s oil and gas reserves.  A material violation or default on its leases on which it has proven or probable reserves could have a Material Adverse Effect.  The Company’s leases on which it has oil and gas reserves are described in the Company’s reserve report of Leland B. Cecil, P.E., dated January 27, 2010, and of AJM Petroleum Consultants dated March 8, 2010, which have been filed as Exhibits 99.1 and 99.2 to the Company’s Form 10-K for the year ended December 31, 2009, filed with the SEC on March 29, 2010, which Exhibits are incorporated herein by reference.

	
2.

	
The Company’s subsidiary, Select Resources Corporation, is party to mining claims and the Admiral calcium carbonate quarry in Alaska.  A material violation or default on its claims or default in its obligations with respect to the calcium carbonate mine, including the obligation to make annual payments on the note payable to Sealaska Corporation dated July 15, 2005 and secured by the mine, which is described in Schedule 3(s), would have a Material Adverse Effect.

	
  

	
The Company’s mining claims and calcium quarry are described in Item 2 of its Form 10-K for the year ended December 31, 2009, filed with the SEC on March 29, 2010, which is incorporated herein by reference.

	
Schedule 3(bb)

Item 9A of the Company’s 10-K for the year ended December 31, 2009, filed with the SEC on March __, 2010, which is incorporated herein by reference, describes the Company’s determinations that it has not maintained effective internal control over financial reporting or effective disclosure controls and procedures as of December 31, 2010, and the correspondence received by the Company from its independent auditors regarding potential material weaknesses and significant deficiencies in internal control over financial reporting.

Disclosure Schedules Page 3

  

  

	
Schedule 3(mm)

The notes payable schedule contained in Schedule 3(r)(iii), which is incorporated herein by reference, lists outstanding liens and encumbrances against the personal property of the Company.

	
Schedule 3(nn)

	
  

	
(ii ) – (iv), (xvii)  Good and Defensible Title; Litigation.  The Company is involved in two legal actions to quiet title to its oil and gas leases as disclosed in Item 3 of its Form 10-K for the year ended December 31, 2009, filed with the SEC on March 29, 2010, which is incorporated herein by reference.

	
(viii)

	
Capital Expenditures.  The Company expects to use the proceeds of this Agreement to, among other things, fund development of a SAGD injector well at its Pleasant Valley properties at a cost of approximately $2.5 million and to begin production operations at its Claflin project at a cost of approximately $1.0 million.

	
(x)

	
Charges for Labor and Materials.  The Company has trade payables of approximately $6 million as of December 31, 2010, consisting mainly of charges due for labor and materials related to the exploration, development or operation of the Interests.

	
(xvi)

	
Asset Retirement Obligations.  The Company expects to incur asset retirement obligations in connection with its well operations in 2009 and in subsequent years in the normal course, as is the case the other oil and gas exploration and development companies and as is consistent with past practices disclosed Note 2 – Summary of Significant Accounting Policies – Asset Retirement Obligations  to its Consolidated Financial Statements contained in its Form 10-K for the year ended December 31, 2009, which was filed with the SEC on March 29, 2010, and is incorporated herein by reference.

	
Schedule 4(d)

The use of proceeds of from the sale of the Securities include using approximately $1 million to reduce outstanding trade payables.

Disclosure Schedules Page 4

  

  

Schedule 7(p)

The following table sets forth the common stock ownership of officers and directors who have agreed to execute voting agreements.

	  	  	
Number of

	  	
Percent of

	
Directors and Executive Officers

	  	
Shares (1)

	  	
Total (2)

	  	  	  	  	  
	
Maston N. Cunningham

	  	
200,000

	  	
0.6%

	  	  	  	  	  
	
John E. Durbin

	  	
100,000

	  	
0.3%

	  	  	  	  	  
	
G. Thomas Gamble

	  	
3,005,650

	  	
9.0%

	  	  	  	  	  
	
Paul W. Bateman

	  	
105,000

	  	
0.3%

	  	  	  	  	  
	
Edward M. Gabriel

	  	
104,000

	  	
0.3%

	  	  	  	  	  
	
Joseph R. Kandle

	  	
360,946

	  	
1.1%

	  	  	  	  	  
	
James G. Bush

	  	
120,500

	  	
0.4%

	  	  	  	  	  
	
Henry Lowenstein, Ph.D.

	  	
107,200

	  	
0.3%

	  	  	  	  	  
	
Loren J. Miller

	  	
249,236

	  	
0.8%

	  	  	  	  	  
	
James S. Mayer

	  	
102,000

	  	
0.3%

	  	  	  	  	  
	
James C. Kromer

	  	
100,000

	  	
0.3%

	  	  	  	  	  
	
All officers and directors as a group (12 persons)

	  	
4,554,532

	  	
13.2%

	
(1)  

	
Includes shares which the listed shareholder has the right to acquire from options as follows:  G. Thomas Gamble 80,000; Joseph R. Kandle 285,000; Dr. Henry Lowenstein 100,000; Paul W. Bateman 100,000; Edward M. Gabriel 100,000; James S. Mayer 100,000; James G. Bush 120,500; Maston N. Cunningham 200,000; James C. Kromer 100,000; and John E. Durbin 100,000.

 

	
(2)  

	
Based on total issued and outstanding shares of 33,256,230 as of March 22, 2010 and calculated pursuant to SEC Rule 13d-3.  The persons named herein have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable.

 

Disclosure Schedules Page 5

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