ITEM
1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On
September 18, 2007 we and our newly formed, wholly-owned subsidiary, ICF Energy
Corporation (“ICF”) entered into a Securities Purchase Agreement (the
“Securities Purchase Agreement”) with Valens U.S. SPV I, LLC (“Valens US”), a
Delaware limited liability company in its capacity as Agent and with Valens
US
and Valens Offshore SPV II, Corp. in their capacities as purchasers (the
“Purchasers”). Pursuant to the Securities Purchase Agreement, we and ICF sold
secured term notes (the “Secured Notes”) to the Purchasers in the aggregate
principal amount of $3,750,000, following which the Purchasers became our and
ICF's senior secured lenders. At closing, on September 19, 2007, we utilized
approximately $2,260,000
of
the
Secured Notes proceeds to pay Prime Natural Resources, Inc. (“Prime”) the
balance of the cash component of the purchase price due to Prime under the
Purchase and Sale Agreement between ICF and Prime (the “Prime Purchase
Agreement”) entered into on August 31, 2007. On September 19, 2007, we also
issued 1,928,375 shares of our common stock to Prime representing payment of
the
stock component of the purchase due to Prime under the Prime Purchase Agreement.
In connection with this issuance, we granted Prime piggyback registration
rights.
The
cash
and stock payments allowed us to complete ICF’s acquisition of certain oil and
gas assets of Prime including two producing wells with an estimated two BCF
of
recoverable gas. The producing properties are currently producing
approximately one million standard cubic feet per day of gas and ten barrels
of
oil per day, net to the asset owner. All revenues from these producing assets
and all other assets owned by ICF are required to flow through a controlled
lockbox account to insure that part of such revenues will be used to repay
the
obligations under the Secured Notes. In the event of a default by us or ICF
under the Securities Purchase Agreement, the Secured Notes or any related
agreements, the Purchasers will have the right to block the account until the
default is remedied. Repayment of the Secured Notes and satisfaction of our
and
ICF’s other obligations under the Securities Purchase Agreement and related
agreements has been secured by the grant of liens and other security interests
on all of our and ICF’s principal assets. To further secure the debt, we have
pledged our ICF shares to the Purchasers.
In
addition to the foregoing, pursuant to the Securities Purchase Agreement and
related agreements:
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we
issued common stock purchase warrants to the Purchasers to purchase
up to
an aggregate of 1,953,126 shares of our common stock (the “Company
Warrants”);
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ICF
issued common stock purchase warrants to the Purchasers to purchase
up to
an aggregate of 1,000 shares of common stock of ICF (the “ICF
Warrants”);
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ICF
issued to the Purchasers an aggregate 5% overriding royalty interest
in
the oil and gas properties of ICF which reduces to an aggregate 3%
overriding royalty interest upon the payment in full of the Secured
Notes;
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we
and ICF paid to the Purchasers and/or Valens Capital Management,
LLC, the
investment manager for the Purchasers an aggregate of approximately
$336,000
consisting
of transaction fees, advance prepayment discount deposits, due diligence
fees and the reimbursement of expenses (including legal fees and
expenses)
incurred by the Purchasers in connection with the entering into of
the
Securities Purchase Agreement and related
agreements;
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we
and ICF agreed to negative covenants customary for transactions of
this
type;
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we
and ICF granted registration rights to the Purchasers with respect
to the
shares underlying the Company and ICF
warrants;
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we
and ICF granted the Purchasers a right of first refusal to provide
additional financing sought by us, ICF, or our respective subsidiaries,
if
any, until such time as all obligations of ours and ICF to the Purchasers
have been paid in full excluding financing for the contemplated Powder
River Transaction, as hereinafter
defined;
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we
and ICF entered into an agreement with the Purchasers to negotiate
the
terms of a shareholders agreement between the Purchasers and the
then
shareholders of ICF at such time, if ever, that the Purchasers exercise
the ICF warrants, such shareholders agreement to require ICF to seek
the
written approval of the Purchasers before taking certain
actions;
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EH&P
Investments AG (“EH&P”), the holder of an aggregate of $500,000 of our
promissory notes entered into a subordination agreement with Valens
US, in
its capacity as agent for the Purchasers in which EH&P agreed to take
a junior position to that of the
Purchasers;
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we
utilized approximately $252,384 of the net proceeds from the Secured
Notes
to pay off our August 23, 2007 secured promissory notes in the aggregate
principal amount $250,000;
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we
and ICF entered into a Collateral Assignment with Valens US, in its
capacity as agent for the Purchasers, whereby we and ICF assigned
to
Valens US for the ratable benefit of Valens US and the Purchasers
all of
our rights, but not the obligations, under the Prime Purchase Agreement
and related agreements;
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we
and ICF entered into a Master Security Agreement, dated September
18, 2007
whereby we assigned and granted to Valens US, as Agent, for the ratable
benefit of the Purchasers, a security interest in certain property
now
owned or at any time thereafter acquired by us or ICF, or in which
we or
ICF have or at any time in the future may acquire any right, title,
or
interest;
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we
paid $192,000, agreed to issue 300,000 common stock purchase warrants
with
an exercise price of $0.48 per share and granted piggyback registration
rights with respect to the shares underlying the warrants to a financial
advisor as a finder’s fee; and
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we
and ICF executed a post closing letter dated as of September 18,
2007
withValens US, in its capacity as Agent for the Purchasers, in which
Valens US agreed to allow us to satisfy certain requirements under
the
Securities Purchase Agreement on a post closing basis, the failure
of
which to achieve within the applicable time limits contained therein
constitutes an event of default under the Securities Purchase Agreement
and related agreements.
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The
Secured Notes which mature on September 18, 2010 (the “Maturity Date”) provide
for interest payments on the outstanding principal amount at the rate of 13%
per
annum payable monthly in arrears. Amortizing payments of principal are also
due
monthly. Commencing October 1, 2007 and on the first business day of such
succeeding month thereafter through and including the Maturity Date (each an
“Amortization Date”) we and ICF are required, jointly and severally, to make
monthly payments to the Purchasers in an amount equal to the monthly
Amortization Amount (which includes any accrued and unpaid interest on such
portion of the principal amount) plus any and all other unpaid amount which
are
then owing under the Notes, the Purchase Agreement and/or any related
agreements. For each Amortization Date during the period ending on September
18,
2008, Amortization Amount means an amount equal to the greater of (i) $100,000
and (ii) sixty percent (60%) of the net revenue (the “Net Revenue Amount”)
relating to all oil and gas properties of ICF (collectively, the Oil and Gas
Properties”) for the calendar month immediately preceding the applicable
Amortization Date and (b) for each Amortization Date thereafter, an amount
equal
to the greater of (i) $100,000 and (ii) eighty percent (80%) of the Net Revenue
Amount relating to the Oil and Gas Properties for the calendar month immediately
preceding the applicable Amortization Date, provided, however, such percentage
will increase to one hundred percent (100%) upon the occurrence and during
the
continuance of an event of default.
The
Company Warrants are exercisable at any time during the five year period ending
September 18, 2012 at an exercise price equal to the lesser of (i) $0.48 per
share or, (ii) if the transactions contemplated by a purchase and sale agreement
involving oil and gas assets and properties in Wyoming’s Powder River Basin (the
“Powder River Transaction”) being negotiated between us and Angel LLC, CN Energy
LLC, Swanson Energy Company, LLC, Fuel Exploration, LLC, MHBR Energy LLC, and
Rocky Mountain Rig LLC (collectively the “Sellers”) are consummated, a price
equal to the then fully diluted price per share of the Company common stock
issued by us to the Sellers in connection with such purchase and sale agreement.
The Company Warrants contain customary adjustment provisions for events
affecting the Company and its common stock. The Purchasers have been granted
registration rights with respect to the Company Warrants.
The
ICF
Warrants are only exercisable in the event the Powder River Transaction is
not
consummated on or before January 18, 2008. The exercise price of the ICF
Warrants is $0.01 per share. The ICF Warrants contain a cashless exercise
provision and customary adjustment provisions for events affecting ICF and
its
common stock. The Purchasers have been granted registration rights with respect
to the ICF Warrants.
The
Company Registration Rights Agreements provide for the registration of the
shares underlying the Company Warrants. They require us to file a registration
statement by the earlier of (i) January 18, 2008 and (ii) if we and/or ICF
have
been notified or become aware that consummation for the Powder River Transaction
will not occur prior to January 18, 2008 the date that is the later of (A)
30
days from the date of such notification or awareness and (B) November 17, 2007.
We are further required to have the registration statement declared effective
(i) on or before 200 days following September 18, 2007 if the Powder River
transaction is consummated on or before January 18, 2008 and (ii) on or before
180 days following September 18, 2007 if the Powder River Transaction is not
consummated on or before January 18, 2008. The Company Registration Rights
Agreements require us to pay liquidated damages if we do not satisfy our
obligations under such agreements, including our obligations to file, obtain,
or
maintain the effectiveness of registration statements as required under the
Company Registration Rights Agreements.
The
ICF
Registration Rights Agreements provide for the registration of the ICF shares
underlying the ICF Warrants and apply only in the event that (i) the Powder
River Transaction is not consummated on or prior to January 18, 2008 and (ii)
ICF becomes a public reporting company. If applicable, ICF is required to file
a
registration statement 60 days after the later of (i) the date on which ICF
becomes a public reporting company and (ii) the earlier of (A) January 18,
2008
and (B) the date on which we or ICF receive notice that the Powder River
Transaction is not going to occur prior to January 18, 2008 (the “Filing Date”).
ICF is further required to have the registration statements declared effective
(the “Effective Date”) no later than 120 days following the Filing Date. The ICF
Registration Rights Agreements require us to pay liquidated damages if we do
not
satisfy our obligations under such agreements, including our obligation to
file,
obtain or maintain the effectiveness of registration statements as required
under the ICF Registration Rights Agreements.