EXHIBIT 1
EXECUTION COPY
STOCK SUBSCRIPTION AGREEMENT
This STOCK SUBSCRIPTION AGREEMENT ("AGREEMENT") is made and entered
into as of the Subscription Date by and between Far East Energy Corporation, a
Nevada corporation (the "COMPANY"), the individuals or entities whose names
appear on the last page of this Agreement (individually, a "PURCHASER" and
collectively, the "PURCHASERS") and Xxx Xxxxx, as the initial Representative of
the Purchasers.
PRELIMINARY STATEMENT
The Purchasers desire to purchase and the Company desires to offer and
sell to the Purchasers units, each consisting of two shares of the Company's
common stock, par value $0.001 per share (the "COMPANY COMMON STOCK"), and a
warrant to purchase one share of Company Common Stock (each, a "UNIT" and
collectively, the "UNITS").
AGREEMENT
The parties, intending to be legally bound, agree as follows:
ARTICLE 1
SALE OF SHARES AND WARRANT
1.1 SALE OF UNITS. Each Purchaser will purchase from the Company the
number of Units set forth opposite such Purchaser's signature on the last page
of this Agreement, each consisting of two shares of Company Common Stock (such
shares the "SHARES"), and a warrant to purchase one share of Company Common
Stock in the form of EXHIBIT A attached hereto (the "WARRANT") at a price of
U.S. $1.60 per Unit (the "PURCHASE PRICE") in cash (the total price paid for
such Units the "TOTAL PURCHASE PRICE").
ARTICLE 2
CLOSING; DELIVERY
2.1 CLOSING. The closing (the "CLOSING") of the purchase and sale of
the Units to the Purchasers hereunder shall be held at 0 Xxxxx Xxxxxxxx Xxxxxx,
Xxxxxx, xx the date upon which the Company accepts and signs this Agreement
(such date, the "SUBSCRIPTION DATE"), or at such other time and place as the
Company and the Purchasers mutually agree upon.
2.2 DELIVERY. At the Closing, the Company shall execute and deliver to
each Purchaser this Agreement, the Warrant covering the number of shares of
Company Common Stock applicable to such Purchaser and the Registration Rights
Agreement in the form attached hereto as EXHIBIT B (the "REGISTRATION RIGHTS
AGREEMENT"). On or before the date ending ten business days after the date of
the Closing, the Company shall deliver or cause the delivery to each Purchaser
of a stock certificate representing the number of Shares purchased by such
Purchaser. At the Closing, the Purchasers shall pay the Company the Total
Purchase Price in immediately available funds.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents and warrants to, and covenants with, the
Purchasers as follows:
3.1 ORGANIZATION AND STANDING. The Company and each of its
Subsidiaries, if any, is duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its organization. The Company and each of
its Subsidiaries, if any, has all requisite power and authority to own and
operate its properties and assets and to carry on its business as presently
conducted and as proposed to be conducted. The Company and each of its
Subsidiaries, if any, is qualified to do business as a foreign entity in every
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on
the business, operations, assets, or financial condition of the Company or its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements or instruments to be entered into in connection
herewith. "SUBSIDIARY" means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or
indirectly, any more than fifty percent of equity or other ownership interest.
3.2 POWER. The Company has all requisite power to execute and deliver
this Agreement, the Warrant and the Registration Rights Agreement (collectively,
the "TRANSACTION DOCUMENTS"), to sell and issue the Shares hereunder and
pursuant to the Warrant, and to carry out and perform its obligations under the
terms of the Transaction Documents.
3.3 AUTHORIZATION. The execution, delivery, and performance of this
Agreement by the Company has been duly authorized by all requisite action, and
each of the Transaction Documents constitutes the legal, valid, and binding
obligation of the Company enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, or similar laws relating to
or affecting the enforcement of creditors' rights.
3.4 CONSENTS AND APPROVALS. The Company need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by the Transaction Documents.
3.5 NON-CONTRAVENTION. The execution, delivery and performance of each
of the Transaction Documents by the Company, and the consummation by the Company
of the transactions contemplated thereby, will not (a) conflict with or result
in a violation of any provision of the Articles of Incorporation or Bylaws of
the Company, (b) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse of
time or both could become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture, patent, patent license or instrument to which the Company or any of
its Subsidiaries is a party or (c) result in a violation of any law, rule,
regulation, order, judgment or decree 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 for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is in violation of its Articles of
Incorporation, Bylaws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would 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 by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted in
violation of any law, rule, regulation, order, judgment or decree applicable to
the Company or any of its Subsidiaries or their respective properties or assets,
ordinance or
regulation of any governmental entity, except for such violations as would not,
individually or in the aggregate, have a Material Adverse Effect.
3.6 SHARES. The Shares, when issued, sold and delivered in accordance
with the terms of this Agreement, will be (a) duly and validly issued, fully
paid and nonassessable, (b) free of restrictions on transfer other than
restrictions on transfer under the Transaction Documents and applicable
securities laws, (c) free of any liens, mortgages, claims, charges, security
interests, restrictions or encumbrances of any kind ("LIENS") other than as may
be created by a Purchaser, and (d) not subject to any rights of first refusal,
preemptive or similar rights existing prior to the issuance thereof. The shares
of Company Common Stock underlying the Warrant have been duly and validly
reserved in sufficient amount for issuance and, upon issuance, will be (i) duly
and validly issued, fully paid and nonassessable, (ii) free of restrictions on
transfer other than restrictions on transfer under the Transaction Documents and
applicable securities laws, (iii) free of Liens other than as may be created by
a Purchaser, and (iv) not subject to any rights of first refusal, preemptive or
similar rights other than as set forth in the Transaction Documents.
3.7 CAPITALIZATION. The authorized capital stock of the Company is as
described in the section entitled "Description of Capital Stock" in the
Company's Registration Statement on Form S-2, No. 333-117635, as amended through
the date hereof (the "FORM S-2"). As of December 16, 2004, 61,467,285 shares of
Company Common Stock are issued and outstanding and 18,318,472 shares of Company
Common Stock are issuable upon the exercise of outstanding options or warrants.
All of such shares of Company Common Stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. Except as contemplated
by the Transaction Documents or listed on Schedule 3.7, no shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the stockholders of the Company. Except as set forth in this Section
3.7 or listed on Schedule 3.7, there are no outstanding options, warrants,
rights (including, without limitation, rights of first refusal, anti-dilution,
conversion, preemptive or similar rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock or any
securities convertible into or ultimately exchangeable or exercisable for any
shares of its capital stock other than as provided in the Transaction Documents.
3.8 OFFERING. Subject in part to the truth and accuracy of each
Purchaser's representations set forth in Article 3 of this Agreement and in the
Warrant, the offer, sale and issuance of the Shares and the Warrant as
contemplated by the Transaction Documents, and of the shares of Company Common
Stock issuable pursuant to the Warrant are (or in the case of the shares of
Company Common Stock issuable pursuant to the Warrant, will be) exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and will not result in a violation of the qualification or
registration requirements of any applicable securities laws of any U.S. state or
any jurisdiction outside the U.S., and neither the Company nor any authorized
agent acting on its behalf will take any action hereafter that would cause the
loss of such exemption.
3.9 REPORTS AND FINANCIAL STATEMENTS; ABSENCE OF CERTAIN CHANGES. The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act and the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") as of the
Subscription Date (such documents, together with any documents otherwise filed
by the Company with the SEC, the "SEC DOCUMENTS"), and has previously furnished
or made available to each of the Purchasers true and complete copies of such SEC
Documents and shall promptly deliver or make available to each of the Purchasers
any SEC Documents filed between the date hereof and the Subscription Date. None
of such SEC Documents, as of their respective dates (and as amended through the
date hereof), contained or, with respect to SEC Documents filed after the date
hereof, will contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading,
except as disclosed on Schedule 3.9 to this Agreement. Since September 30, 2004,
there has been no event that would have a Material Adverse Effect, except as
disclosed herein and in the SEC Documents.
3.10 LITIGATION. There is no action, suit, claim, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company, or
their officers or directors in their capacity as such, that could have a
Material Adverse Effect, except as disclosed in the SEC Documents.
3.11 REGISTRATION RIGHTS. As of the date hereof, the Company has not
granted or agreed to grant any registration rights, including piggyback rights,
to any person or entity except as disclosed in the SEC Documents, as provided in
the Registration Rights Agreement or listed in Schedule 3.11 of this Agreement.
3.12 APPOINTMENT TO BOARD OF DIRECTORS. On or before the date ending
thirty days after the date of the Closing, the Company agrees to appoint Xxx
Xxxxx as a member of the Company's Board of Directors to serve until the next
meeting of the stockholders of the Company called for the purpose of electing
directors of the Company, provided that such appointment shall be subject to the
terms and conditions of clause (b) of this Section 3.12. The Company further
agrees to nominate Xxx Xxxxx or such other person designated by the
Representative to the Company's Board of Directors ("PURCHASERS' DESIGNEE") for
election by the stockholders of the Company to the Board of Directors at each
meeting of the Company's stockholders called for the purpose of electing
directors of the Company, provided that at the time of such appointment and
nomination (a) the Purchasers, in the aggregate, "beneficially own" (within the
meaning of Rule 13d-3 under the Exchange Act) at least 10% of the outstanding
shares of the Company Common Stock, and (b) such Purchasers' Designee is
satisfactory to the Nomination and Corporate Governance Committee of the
Company's Board of Directors (the "NOMINATION COMMITTEE"), acting reasonably,
after the Nomination Committee's consideration of, among other things, the
standards pertaining to the nomination of directors of the Company as set forth
in the Nomination Committee's Charter and all relevant disclosures that may be
required by reason of such appointment and nomination under Regulation S-K
promulgated under the Securities Act.
3.13 SUBSEQUENT OFFERINGS.
(a) For a period of eighteen months following the Subscription Date, if
the Company's Board of Directors determines to pursue an offering of debt or
equity securities of the Company in a capital raising transaction (a "PROPOSED
OFFERING"), then prior to its commencement, the Company will notify the
Representative of such Proposed Offering (a "CAPITAL RAISING NOTICE"). The
Capital Raising Notice shall include the type of debt or equity securities to be
offered, the aggregate amount intended to be raised in the Proposed Offering or
a range thereof and such other terms as the Board of Directors may reasonably
determine to be necessary or appropriate taking into account prevailing market
conditions (the "OFFERED SECURITIES"). The Representative shall have the
exclusive right during the forty-five (45) day period following the date of the
Company's issuance of the Capital Raising Notice (the "EXCLUSIVITY PERIOD") to
consummate the purchase of all or a part of the Offered Securities by one or
more of the Purchasers or a syndicate of investors arranged by the
Representative, in each case, subject to the terms and conditions set forth in
the Capital Raising Notice. Notwithstanding anything contained herein to the
contrary, during the Exclusivity Period, the Company shall have the right to
discuss the terms of the Proposed Offering with placement agents, financial
advisors, underwriters and finders ("FUNDRAISERS"); provided that in no event
may the Company enter into an agreement binding upon the Company with respect to
the Proposed Offering (other than confidentiality agreements) with such
Fundraisers during the Exclusivity Period.
(b) During the Exclusivity Period, if the Representative shall provide
the Company with a proposal to purchase all or a portion of the Offered
Securities upon similar terms as contained in the Capital Raising Notice, then
the Representative shall notify the Company, which notice shall describe the
terms of such proposal in reasonable detail, including any and all fees required
to be incurred in connection with the issuance and sale of the Offered
Securities (the "PURCHASER PROPOSAL"). As soon as reasonably practical following
the Company's notice of such Purchaser Proposal, the Company's Board of
Directors shall review and consider in good faith the Purchaser Proposal and
make a determination as to whether to approve the Purchaser Proposal, which
determination shall consider whether the terms of, and all fees that may be
incurred by the Company in connection with, the issuance and sale of the Offered
Securities are customary for a transaction of this nature. Any such
determination by the Company's Board of Directors shall also be subject to the
fiduciary duties and obligations of the Company's Board of Directors. If the
Representative fails to submit, fails to close or the Company's Board of
Directors fails to approve the Purchaser Proposal on or before the expiration of
the Exclusivity Period in accordance with the terms and conditions of this
Section 3.9, then the Company may offer and sell the Offered Securities to one
or more third parties upon similar terms specified in the Capital Raising Notice
without any obligation to submit another Capital Raising Notice to the
Representative.
(c) The Company agrees that if the Company receives a bona fide offer
for the issuance and sale of Company's debt or equity securities in a capital
raising transaction during the period commencing on the Subscription Date and
ending on June 30, 2005 (a "THIRD PARTY OFFER"), and such Third Party Offer,
when aggregated with all other sales of the Company's debt or equity securities
in a capital raising transaction during such period, exceeds $1,000,000, then
the Representative shall have the right, but not the obligation, to submit a
proposal to purchase the Company's debt or equity securities by the
Representative or syndicate of investors arranged by the Representative on terms
and conditions more favorable to the Company than contained in the Third Party
Offer. Any such proposal by the Representative shall be submitted to the Company
within a reasonable period of time after the Company notifies the Representative
of the Third Party Offer. The Company's Board of Directors shall review and
consider in good faith any such proposal submitted by the Representative and
make a determination as to whether to approve such proposal.
(d) The Purchasers' and the Representative's rights and the Company's
obligations under this Section 3.13 shall be subject to, and may be exercised
only to the extent not in conflict with or violation of, the rights of
Westminster Securities Corp. pursuant to the Company's agreement with
Westminster Securities Corp. in effect as of the Subscription Date. The
Purchasers and the Representative understand and agree that this Section 3.13
shall in no event apply to (i) the private placement of securities with proceeds
to the Company of up to $10,000,000 pursuant to which Bathgate Capital Partners
LLC acts a placement agent, (ii) any determination to seek, negotiate or enter
into a loan or credit facility (with no associated rights to receive, upon
conversion of outstanding balances or otherwise, any securities of the Company)
with a commercial bank or lender or (iii) the exercise or conversion of any
securities of the Company outstanding as of the Subscription Date.
3.14 LISTING. The Company will use its commercially reasonable efforts
to list or include the Company Common Stock on a recognized exchange, such as,
The Nasdaq National Market, the Hong Kong Stock Exchange or AIM on or before
June 30, 2005. During the period between the Subscription Date and February 28,
2005, the Company shall consult with the Representative regarding an appropriate
choice of exchange and the Company shall consider in good faith its consultation
with the Representative in its determination of the appropriate exchange for any
listing or inclusion of the Company Common Stock. The Company shall not be
required to apply on more than one exchange at any time and during any period in
which an application on another exchange is under review by that exchange.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS
Each Purchaser represents and warrants to, and covenants with, the
Company with respect to this purchase as follows:
4.1 ORGANIZATION AND STANDING. Such Purchaser is duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
organization.
4.2 POWER. Such Purchaser has all requisite power to execute and
deliver this Agreement and the other Transaction Documents and to carry out and
perform its obligations under the terms of this Agreement and the other
Transaction Documents.
4.3 AUTHORIZATION. The execution, delivery, and performance of each of
the Transaction Documents by such Purchaser has been duly authorized by all
requisite action, and each of the Transaction Documents constitutes the legal,
valid, and binding obligation of such Purchaser enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization, or
similar laws relating to or affecting the enforcement of creditors' rights.
4.4 CONSENTS AND APPROVALS. Such Purchaser need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by the Transaction Documents, except as contemplated by the
Transaction Documents or in order to comply with applicable security laws.
4.5 NON-CONTRAVENTION. Neither the execution and the delivery of the
Transaction Documents, nor the consummation of the transactions contemplated
thereby, will violate in any material respect any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which such
Purchaser is subject. No approval, waiver, or consent by such Purchaser under
any instrument, contract, or agreement to which such Purchaser or any of its
affiliates is a party is necessary to consummate the transactions contemplated
by the Transaction Documents.
4.6 RECEIPT OF INFORMATION. Such Purchaser has had an opportunity to
review the SEC Documents. Such Purchaser has been advised that on November 9,
2004, the Company filed with the SEC Amendment No. 1 to the Form S-2 and
amendments to its periodic filings under the Securities Exchange Act of 1934, as
amended, including its Form 10-KSB for the year ended December 31, 2003 and its
Form 10-Q for the period ended September 30, 2004. Such Purchaser further
understands that the SEC is currently reviewing the Form S-2 and the Company's
periodic filings. Such Purchaser acknowledges that it can obtain and has had the
opportunity to review the Company's SEC filings over the Internet at the SEC's
website at xxxx://xxx.xxx.xxx. Such Purchaser has received all such information
that such Purchaser deems necessary and appropriate to enable such Purchaser to
evaluate the financial risk inherent in making an investment in the Shares. Such
Purchaser has received all information requested by such Purchaser concerning
the business and financial condition of the Company in response to such
Purchaser's inquiries.
4.7 RISK OF INVESTMENT; ACCREDITED INVESTOR. Such Purchaser realizes
that the purchase of the Units and the underlying securities subject thereto
will be a highly speculative investment. Such Purchaser is able, without
impairing such Purchaser's financial condition, to hold such securities for an
indefinite period of time and to suffer a complete loss of such Purchaser's
investment. Such Purchaser understands all of the risks related to the purchase
of the Units. By virtue of such Purchaser's experience in evaluating and
investing in private placement transactions of securities in companies similar
to the
Company, such Purchaser is capable of evaluating the merits and risks of such
Purchaser's investment in the Company and has the capacity to protect such
Purchaser's own interests. Furthermore, such Purchaser qualifies as an
"accredited investor" as defined in Rule 501(a) of Regulation D under the
Securities Act.
4.8 ADVISORS. Such Purchaser has reviewed with its own tax advisors the
federal, state, and local tax consequences of this investment and the
transactions contemplated by this Agreement. Such Purchaser acknowledges that it
has had the opportunity to review the Transaction Documents and the transactions
contemplated thereby with such Purchaser's own legal counsel. Such Purchaser is
relying solely on its legal counsel and tax advisors and not on any statements
or representations of the Company or any of the Company's agents for legal or
tax advice with respect to this investment or the transactions contemplated by
this Agreement.
4.9 FINDER. Such Purchaser is not obligated and will not be obligated
to pay any broker commission, finders' fee, success fee, or commission in
connection with the transactions contemplated by the Transaction Documents.
4.10 RESTRICTED SHARES. Such Purchaser understands that the Shares and
the shares of Company Common Stock subject to the Warrant must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, such Purchaser
understands that except as set forth in the Registration Rights Agreement, the
Company is under no obligation to register the Shares or the shares of Company
Common Stock subject to the Warrant. Such Purchaser is aware of Rule 144
promulgated under the Securities Act that permits limited resales of securities
purchased in a private placement subject to the satisfaction of certain
conditions.
4.11 LEGEND. It is understood by such Purchaser that any certificate
representing any Units and each certificate representing the Shares shall be
endorsed with the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE. THESE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR
FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED"
AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS
(AS SUCH TERM IS DEFINED IN REGULATION S PROMULGATED UNDER THE ACT)
UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO
REGULATION S OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND THE PURCHASER WILL BE PROVIDED
WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH EXEMPTION IS AVAILABLE. FURTHER HEDGING
TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN
COMPLIANCE WITH THE ACT."
The Company need not register a transfer of Shares unless the conditions
specified in the foregoing legend are satisfied. The Company may also instruct
its transfer agent not to register the transfer of any of the Shares unless the
conditions specified in the foregoing legend are satisfied.
4.12 REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS. It is understood by
such Purchaser that the legend relating to the Securities Act endorsed on a
stock certificate pursuant to Section 4.11 of this Agreement and the stop
transfer instructions with respect to the Shares represented by such certificate
shall not be removed until such Shares are sold pursuant to an effective
registration statement, or the holder of such Shares provides to the Company an
opinion of counsel for such holder of the Shares
reasonably satisfactory to the Company or a no-action letter or interpretive
opinion of the staff of the SEC to the effect that a public sale, transfer, or
assignment of such Shares may be made in compliance with, and without
registration under, the Securities Act. Any legend imposed by state securities
laws will be removed if the state agency imposing such legend has consented to
its removal. Each Purchaser acknowledges that the Company reserves the right
prior to any offer, sale or other transfer of the Shares prior to the end of the
Restricted Period (as defined below) to require the delivery of a letter from
the transferee satisfactory to the Company, which shall provide, as applicable,
among other things, that the transferee is an institution that, at the time the
buy order was originated, was outside the United States and was not a U.S.
person (whenever such term is used herein, it shall have the meaning given in
Regulation S) within the meaning of Regulation S under the Securities Act.
4.13 OFFSHORE TRANSACTION.
(a) Such Purchaser is not a U.S. person and Rules 901 through 903 of
Regulation S govern this transaction.
(b) At the time such Purchaser executed and delivered this Agreement,
such Purchaser was outside the United States and is outside of the United States
as of the date of the execution and delivery of this Agreement.
(c) Each distributor participating in the offering of the Units, if
any, has agreed in writing that all offers and sales of the Units and the Shares
and Warrants underlying the Units prior to the expiration of a period commencing
on the date of the Closing and ending one year thereafter, unless adjusted as
hereinafter provided (the "RESTRICTED PERIOD"), shall only be made in compliance
with the safe harbor contained in Regulation S, pursuant to registration of the
Units under the Securities Act or pursuant to an exemption from registration
under the Securities Act.
(d) All offers and sales of the Units and the Shares and Warrants
underlying the Units by such Purchaser prior to the expiration of the Restricted
Period shall only be made in compliance with the safe harbor contained in
Regulation S, pursuant to registration under the Securities Act or pursuant to
an exemption from registration under the Securities Act, and all offers and
sales after the Restricted Period shall be made only pursuant to such a
registration or to such exemption from registration.
(e) Such Purchaser acknowledges and agrees that all agreements,
certificates, documents and instruments received by such Purchaser shall include
statements to the effect that the Units and the Shares and Warrants underlying
the Units have not been registered under the Securities Act and may not be
offered or sold in the United States or to or for the account or benefit of a
U.S. person (other than distributors as defined in Regulation S) during the
Restricted Period unless the Units and the Shares and Warrants underlying the
Units are registered under the Securities Act or an exemption from the
registration requirements is available.
(f) Such Purchaser will not engage in any hedging transactions as
precluded by Regulation S under the Securities Act.
4.14 PURCHASE FOR INVESTMENT ONLY. Such Purchaser acknowledges that, in
the view of the SEC, the statutory exemption claimed for this transaction would
not be present if the offering of the Units and the Shares and Warrants
underlying the Units, although in technical compliance with Regulation S, is
part of a plan or scheme to evade the registration provisions of the Act. Such
Purchaser is purchasing the Units for its own account for investment purposes
only and not on behalf of any U.S. person. Such Purchaser has no present
intention to sell the stock in the United States or to a U.S. person or for the
account or benefit of a U.S. person either now or promptly after the expiration
of the Restricted Period.
By executing this Agreement, such Purchaser further represents that it does not
have any contract, undertaking, agreement, or arrangement with any person to
sell, transfer, or grant participation to such person or to any third person,
with respect to any of the Units or any of the underlying securities subject
thereto. Such Purchaser understands that neither the Units nor the underlying
securities subject thereto have not been registered under the Act or any
applicable state securities laws by reason of a specific exemption therefrom
that depends upon, among other things, the bona fide nature of the investment
intent as expressed herein.
4.15 RELIANCE UPON REPRESENTATIONS. Such Purchaser understands that the
Units and the Shares and Warrants underlying the Units are being offered and
sold to it in reliance on an exemption from the registration requirements of
federal and state securities laws and that the Company is relying upon the truth
and accuracy of the representations, warranties, agreements, acknowledgments and
undertakings of such Purchaser set forth herein in order to determine the
applicability of such exemption and the suitability of such Purchaser to acquire
the Units.
ARTICLE 5
PARTICIPATION RIGHT
5.1 GRANT OF RIGHT. Subject to the terms and conditions of this Article
5, the Company hereby grants to each Purchaser the right to purchase a PRO RATA
share of New Securities (as defined below), which the Company may, from time to
time, sell and issue. Each Purchaser's PRO RATA share, for purposes of this
Article 5, is the ratio of the number of shares of Company Common Stock owned by
such Purchaser immediately prior to the issuance of New Securities, assuming
full exercise and conversion of all outstanding rights, options and warrants to
acquire shares of Company Common Stock held by such Purchaser, to the total
number of shares of Company Common Stock outstanding immediately prior to the
issuance of New Securities, assuming full exercise and conversion of all
outstanding rights, options and warrants to acquire shares of Company Common
Stock. In the event a Purchaser exercises its rights under and pursuant to the
terms and conditions of this Article 5, then the Company, in its discretion,
shall have the right to either permit such Purchaser to purchase such New
Securities from the Company in the transaction involving the issuance of such
New Securities or purchase such New Securities from the Company separate and
apart from such transaction. The right to acquire New Securities granted under
this Article 5 shall expire upon the eighteen-month anniversary of the
Subscription Date. For the avoidance of doubt, the rights and obligations of the
Purchasers and the Company, respectively, set forth in this Article 5 are
separate and distinct from any other rights and obligations in respect of the
issuance of securities of the Company, including without limitation the
provisions of Section 3.13 hereof. Any right of a Purchaser to exercise its
right to purchase any New Securities under this Article 5 shall be subject to
the compliance thereof with the Securities Act and any other applicable
securities laws and the receipt by the Company of such representations and
agreements relating thereto from such Purchaser as given by the other purchasers
of New Securities or as otherwise customary for a transaction involving the New
Securities and reasonably requested by the Company.
5.2 NOTICE; EXERCISE. In the event the Company proposes to undertake an
issuance of New Securities, it shall give each Purchaser written notice of its
intention, describing the type of New Securities, and their price and the
general terms upon which the Company proposes to issue the same. Such Purchaser
shall have fifteen days after any such notice is received to agree to purchase
such Purchaser's PRO RATA share of such New Securities for the price (or
anticipated price or price range, if applicable) and upon the terms specified in
the notice by giving written notice to the Company and stating therein the
quantity of New Securities to be purchased. A Purchaser's failure to respond
within the fifteen day period shall be deemed a waiver of its right to acquire
New Securities.
5.3 NEW SECURITIES. For purposes of this Article 5, the term "NEW
SECURITIES" shall mean any capital stock of the Company at the time entitled to
vote in the election of the Company's Board of Directors (including Company
Common Stock and/or preferred stock) whether now authorized or not, and rights,
options or warrants to purchase such capital stock, and securities of any type
whatsoever that are, or may become, convertible into or exchangeable for capital
stock, in each case sold by the Company in a capital raising transaction;
provided that the term "New Securities" shall not include (a) securities issued
pursuant to the acquisition of another business entity or business segment of
any such entity by the Company by merger, consolidation, conversion, purchase of
substantially all the assets or other reorganization, (b) securities issued upon
conversion of convertible notes or securities, upon exercise of warrants,
options or other rights to acquire securities or as dividends, stock splits or
distributions and (c) securities issued pursuant to a private placement with
proceeds to the Company of up to $10,000,000 pursuant to which Bathgate Capital
Partners LLC acts a placement agent.
ARTICLE 6
RIG CONSTRUCTION RIGHT
6.1 GRANT OF RIGHT. The Company agrees to consult with the
Representative and consider, in good faith, a proposal, if any, from a
Contractor (as defined below) relating to a joint venture, partnership or other
arrangement or undertaking providing for the manufacture, production or
construction of drilling rigs for the drilling of coalbed methane gas with
respect to the Company's acreage holdings and rights in the People's Republic of
China (the "SUBJECT ACREAGE"). The Purchasers' and Representative's rights and
the Company's obligations under this Article 6 shall be subject to (a) the
receipt by the Company, the Contractor and each other person party to such
agreement, arrangement or undertaking receiving all permits, concessions and
licenses required or necessary to participate in the construction of such rigs,
(b) the approval of such agreement, arrangement or undertaking and the
Contractor by all partners and venturers of the Company in the exploration and
production of coalbed methane gas with respect to the Subject Acreage,
including, without limitation, ConocoPhillips and China United Coalbed Methane
Company and (c) the approval of such agreement, arrangement or undertaking by
the Company's Board of Directors. Any proposal submitted by the Representative
under this Section 6.1 shall be subject to a confidentiality agreement with the
venture formed in respect of such joint venture, partnership or other
arrangement or undertaking, which confidentiality agreement shall be reasonably
satisfactory to such venture, the Company and the Representative. For purposes
of this Agreement, the "CONTRACTOR" shall mean a person in which the
Representative has a relationship that is qualified and experienced in the
construction of oil and gas drilling rigs in the People's Republic of China.
6.2 RIG CONSTRUCTION. The Company and its subsidiaries agree not to
enter into any venture relating to the manufacture, production or construction
of any drilling rigs for the use of third parties for the drilling of coalbed
methane gas in China. The Purchasers and its subsidiaries agree not to enter
into commercial joint venture relating to the construction of any drilling rigs
for the use of third parties for the drilling of coalbed methane gas in China.
Nothing contained in this Article 6 shall be deemed to prohibit or restrict the
Company from negotiating, discussing or entering into a lease, rental or service
arrangement or similar undertaking with any third party relating provision and
operation of any rig for the drilling of coalbed methane gas with respect to the
Subject Acreage.
6.3 DURATION. All rights and obligations under this Article 6 shall
commence upon the six month anniversary of the Subscription Date and shall
expire upon the second anniversary of the Subscription Date.
ARTICLE 7
REPRESENTATIVE
7.01. REPRESENTATIVE OF THE PURCHASERS; POWER OF ATTORNEY. With respect
to Section 3.12, Section 3.13, Section 3.14 and Article 6, as of the
Subscription Date, and without further act of any party, Xxx Xxxxx shall be
appointed as agent and attorney-in-fact (the "REPRESENTATIVE") for each
Purchaser, for and on behalf of the Purchasers, to give and receive notices and
communications, to agree to, and consult and negotiate with, the Company and
such third parties deemed to be appropriate by the Representative with respect
to any action or undertaking required or deemed necessary by the Representative
to perform its rights and obligation under Section 3.12, Section 3.13, Section
3.14 and Article 6, and to take all actions necessary or appropriate in the
judgment of the Representative for the accomplishment of the foregoing. Such
agency may be changed by the Purchasers from time to time upon not less than
thirty (30) days prior written notice to the Company; provided that the
Representative may not be removed unless holders of at least a
majority-in-interest of the outstanding Shares and shares of the Company Common
Stock then held by the Purchasers (the "SECURITIES") agree to such removal and
to the identity of the substituted agent. Any vacancy in the position of the
Representative may be filled by approval of the holders of a
majority-in-interest of the Securities. No bond shall be required of the
Representative, and the Representative shall not receive compensation for his or
her services. Notices or communications to or from the Representative relating
to Section 3.12, Section 3.13, Section 3.14 and Article 6 shall constitute
notice to or from each of the Purchasers.
7.2. ACTIONS OF THE REPRESENTATIVE. A decision, act, consent or
instruction of the Representative relating to the Section 3.12, Section 3.13,
Section 3.14 and Article 6 shall constitute a decision of all Purchasers, and
shall be final, binding and conclusive upon each of such Purchasers and the
Company may rely upon any such decision, act, consent or instruction of the
Representative as being the decision, act, consent or instruction of each such
Purchaser. The Company is hereby relieved from any liability to any person for
any acts done by them in accordance with such decision, act, consent or
instruction of the Representative.
ARTICLE 8
MISCELLANEOUS
8.1 SURVIVAL. The representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the sale of the Units.
8.2 ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement may not be
assigned by either party without the prior written consent of the other party.
This Agreement and all provisions thereof shall be binding upon, inure to the
benefit of, and are enforceable by the parties hereto and their respective
successors and permitted assigns.
8.3 NOTICES. All notices, requests, and other communications hereunder
shall be in writing and will be deemed to have been duly given and received (a)
when personally delivered, (b) when sent by facsimile upon confirmation of
receipt, (c) two business days after the day on which the same has been
delivered prepaid to a nationally recognized courier service, or (d) five
business days after the deposit in the United States mail, registered or
certified, return receipt requested, postage prepaid, in each case addressed to
the Company at 000 X. Xxx Xxxxxxx Xxxxxxx X., Xxxxx 000, Xxxxxxx, Xxxxx 00000,
Attn: Chief Executive Officer, facsimile number, (000) 000-0000 with a copy to
Xxxx Xxxxxxxx, Esq., Xxxxx & XxXxxxxx, LLP, 2300 Xxxxxxxx Xxxx Center, 0000 Xxxx
Xxxxxx, Xxxxxx, Xxxxx 00000, facsimile number, (000) 000-0000, as to a Purchaser
at the address and facsimile number set forth below such Purchaser's signature
on the last page of this Agreement and as to a Representative at the address and
facsimile number set forth below the Representative's signature on the last page
of this Agreement.
Any party hereto from time to time may change its address, facsimile number, or
other information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.
8.4 GOVERNING LAW; JURISDICTION.
(a) This Agreement, and the provisions, rights, obligations, and
conditions set forth herein, and the legal relations between the parties hereto,
including all disputes and claims, whether arising in contract, tort, or under
statute, shall be governed by and construed in accordance with the laws of the
State of New York without giving effect to its conflict of law provisions.
(b) Any and all disputes arising out of, or in connection with, the
interpretation, performance, or nonperformance of this Agreement or any and all
disputes arising out of, or in connection with, transactions in any way related
to this Agreement and/or the relationship between the parties shall be litigated
solely and exclusively before the United States District Court for the Southern
District of New York. The parties consent to the in personam jurisdiction of
said court for the purposes of any such litigation, and waive, fully and
completely, any right to dismiss and/or transfer any action pursuant to 28
U.S.C. ss.1404 or 1406 (or any successor statute). In the event the United
States District Court for the Southern District of New York does not have
subject matter jurisdiction of said matter, then such matter shall be litigated
solely and exclusively before the appropriate state court of competent
jurisdiction located in New York, New York.
8.5 SEVERABILITY. In the event that any provision of this Agreement or
the application of any provision hereof is declared to be illegal, invalid, or
otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Agreement shall not be affected except to the extent necessary to delete
such illegal, invalid, or unenforceable provision unless that provision held
invalid shall substantially impair the benefits of the remaining portions of
this Agreement.
8.6 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction, or effect.
8.7 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.
8.8 ENTIRE AGREEMENT. This Agreement, including the Registration Rights
Agreement and the Warrant attached as Exhibits hereto, embodies the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to the subject matter hereof.
8.9 AMENDMENT; WAIVER. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to or departures from the provisions hereof may not be
given, without the written consent of the Company, the Purchasers beneficially
owning (within the meaning of Rule 13d-3 under the Exchange Act of 1934, as
amended) not less than seventy-five percent (75%) of the then outstanding
Securities and, in the case of Section 3.8, Section 3.9, Article 6 and this
Article 8, the Representative. Notwithstanding the foregoing, a waiver or
consent to or departure from the provisions hereof with respect to a matter that
relates exclusively to the rights of a Purchaser and that does not directly or
indirectly affect, impair, limit or compromise the rights of other Purchasers
may be given by such Purchaser; provided that the provisions of this sentence
may not be amended, modified or supplemented except in accordance with the
provisions of the immediately preceding sentence.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Purchasers and the Representative have caused
this Agreement to be signed by the undersigned, thereto duly authorized, as of
the Subscription Date.
PURCHASERS:
U.S. $3,000,000 SOFAER CAPITAL GLOBAL FUND
--------------------
Amount of Investment By: Caledonian Bank and Trust Ltd.,
(U.S. $1.60 per Unit) as Trustee
By: /s/ Xxxxxxx Xxxxxx
-----------------------------------------
1,875,000 Name:
----------------- ---------------------------------------
(Number of Units)
Title:
--------------------------------------
Address: Caledonian Bank and Trust, Ltd.
Caledonian House
Xxxxxx Town
Grand Cayman
Cayman Islands
Facsimile No:
-------------------------------
U.S. $1,000,000 SOFAER CAPITAL ASIAN FUND
--------------------
Amount of Investment By: Caledonian Bank and Trust Ltd.,
(U.S. $1.60 per Unit) as Trustee
By: /s/ Xxxxxxx Xxxxxx
-----------------------------------------
625,000 Name:
----------------- ---------------------------------------
(Number of Units)
Title:
--------------------------------------
Address: Caledonian Bank and Trust, Ltd.
Caledonian House
Xxxxxx Town
Grand Cayman
Cayman Islands
Facsimile No:
-------------------------------
U.S. $ 2,000,000 RESTRUCTURING INVESTORS LIMITED
---------------
Amount of Investment By: /s/ Xxxxxxx X'Xxxxx
(U.S. $1.60 per Unit) -----------------------------------------
1,250,000 Name: Xxxxxxx X'Xxxxx
----------------- ---------------------------------------
(Number of Units)
Title: Sole Director
--------------------------------------
Address: Restructuring Investors Limited
Xxx Xxxxxxx 0
XX0000
Xxxxxx, Xxxxxxxxxxx
Attention: Xxxxx Xxxxxxx
Facsimile No: 00 41 22 908 1191
U.S. $4,000,000 PERSISTENCY
--------------------
Amount of Investment By: /s/ L. Padulli
(U.S. $1.60 per Unit) ------------------------------------------
2,500,000 Name: L. Padulli
----------------- ---------------------------------------
(Number of Units)
Title: Director
--------------------------------------
Address: Persistency
Xxxxxx House
PO Box 309
Xxxxxx Town
Cayman Islands
British West Indies
Facsimile No:
-------------------------------
U.S. $250,000 PASSLAKE LIMITED
--------------------
Amount of Investment By: /s/ X.X. Xxxxxxxxxxxxx
(U.S. $1.60 per Unit) -----------------------------------------
156,250 Name: X.X. Xxxxxxxxxxxxx
----------------- ---------------------------------------
(Number of Units)
Title: Director
-------------------------------------
Address: Passlake Limited
XX Xxx 000
Xxxxxx Xxxx
Xxxxx Xxxxxx
Xxxxxx Xxxxxxx
BWI
Facsimile No: 00-000-000-0000
with a copy to: Cavamont Services SA
00 xxx xx Xxxxx
0000 Xxxxxx
Xxxxx Xxxxxx
Xxxxxxxxxxx
Attention: Xxxxxxxxxx Xxxxxxxxxxxxx
Facsimile No:
----------------------
This Agreement is hereby confirmed and accepted by the Representative as of
December 20, 2004.
REPRESENTATIVE:
By: /s/ Xxx Xxxxx
---------------------------
Xxx Xxxxx
