This Letter Agreement (this "Agreement") is entered into as of April 22,
2004, by and among GulfWest Energy Inc., a Texas corporation (the "Parent"),
GulfWest Oil & Gas Company (the "Company") and the investors listed on the
signature page hereto (each an "Investor" and, collectively, the "Investors").
RECITALS
WHEREAS, the Investors acquired 8,000 shares (the "Initial Shares") of the
Company's Series A Cumulative Exchangeable Preferred Stock, par value $.01 per
share, of the Company (the "Preferred Stock");
WHEREAS, the Investors desire to be granted by the Parent, and the Parent
desires to grant to the Investors, certain rights contained in this Agreement
and the Statement of Resolution (as defined below);
NOW THEREFORE, in consideration of the representations, covenants and
agreements contained herein, and certain other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
AGREEMENT
1. Definitions.
For purposes of this Agreement, the following terms have the following
meanings:
"Securities Act, Exchange Act or Act" refers to the Securities Act of 1933,
as amended from time to time.
"Commission" refers to the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.001 per share, of the
Parent exchangeable for the Preferred Stock.
"Exercise Price" refers to the per share purchase price of the shares of
the Underlying Common Stock subject to the Penalty Warrants (as hereinafter
defined) and issuable upon exercise, in whole or in part, of the Penalty
Warrants. The Exercise Price for each share of Underlying Common Stock
shall equal $.35 per share. The Exercise Price is subject to adjustment as
provided in Section 4.8 herein.
"Final Exercise Date" refers to the last day of the Exercise Period of the
Penalty Warrants, which is the fifth anniversary of the date of issuance.
"Holders" refers to all of the holders of the Exchange Common Stock issued
by the Parent upon exchange of the Preferred Stock, the holders of the
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Penalty Warrants, the holders of the Underlying Common Stock , or the
holders of the Senior Debt, as the context denotes.
"Penalty Warrants" refers to warrants to purchase Common Stock to be issued
to the Investors if certain Registration requirements are not met.
"Register," "Registered" and "Registration" refer to a registration
effected by preparing and filing a registration statement or similar
document in compliance with the Securities Act, and the declaration or
order of effectiveness of such registration statement or document.
"Registrable Securities" means any Exchange Common Stock which has been
issued pursuant to the exchange of the Initial Shares together with any
Common Stock issuable upon the exercise of any penalty warrants.
"SEC" means the U.S. Securities and Exchange Commission.
"Statement of Resolution" refers to the Statement of Resolution
Establishing and Designating a Series of Shares of GulfWest Oil Company,
Series A Preferred Stock, par value $.01 per share, which includes the
requirement for this Agreement
"Subordination" means the Subordination of the Preferred Stock to the prior
payment in full of all amounts that may be owed from time to time under
that certain Amended and Restated Credit Agreement dated as of April ___,
2004, among the Company, each of the Lenders from time to time party
thereto, and Highbridge/Xxxxx Special Opportunities Fund L.P. as
administrative agent for the Lenders (the "Credit Agreement") and any
indebtedness that replaces or refinances the indebtedness under the Credit
Agreement (collectively, the "Senior Debt"). Such subordination is for the
benefit of the holders of the Senior Debt and may be enforced against the
Company and the holders of the Series A Preferred Stock by the holders of
the Senior Debt.
"Underlying Common Stock" refers to the shares of the Common Stock issuable
or issued under this Agreement pursuant to the exercise, in whole or in
part, of the Penalty Warrants.
2. Representations and Warranties. The Parent and the Company represents
and warrants to the Investor as follows:
2.1 Corporate and Other Action. The Parent and Company have all
requisite corporate power and authority and has taken all necessary
corporate action, to authorize, execute, deliver and perform all of its
obligations under this Agreement. This Agreement has been duly authorized,
executed and delivered by the Parent and Company, and is a legal, valid and
binding agreement of the Parent and Company enforceable against the Parent
and Company in accordance with its terms. No authorization, approval,
consent or other order of any regulatory authority (including the rules and
regulations of any trading market or quotation system applicable to the
Parent or an of its subsidiaries) is required for such authorization,
execution, delivery, performance, issue or sale.
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2.2 No Violation. The execution and delivery of this Agreement, the
consummation of the transactions herein contemplated and the compliance
with the terms and provisions of this Agreement will not conflict with, or
result in a breach of, or constitute a default or an event permitting
acceleration under (i) the Articles of Incorporation or Bylaws of the
Parent or Company or any indenture, mortgage, deed of trust, note, bank
loan, credit agreement, franchise, license, lease, permit, or any other
agreement or instrument to which the Parent or Company is a party or (ii)
any judgment, decree, order, statute, rule or regulation applicable to the
Parent or Company (including federal and state securities laws and
regulations and the rules and regulations of any trading market or
quotation system applicable to the Parent or an of its subsidiaries.
2.3 Validity. The shares of Common Stock of the Parent issued upon
exchange of the Series A Preferred Stock have been duly authorized and when
issued will be validly issued and outstanding, fully paid and nonassessable
and free of preemptive rights liens and charges.
2.4 Capitalization. As of the date hereof, the authorized capital
stock of the Parent consists of 40,000,000 shares of Common Stock, of which
as of the date hereof, 18,492,541 shares are issued and outstanding, none
are held as treasury shares, 5,000,585 shares are reserved for issuance
pursuant to options and warrants, 500,000 shares are reserved for issuance
upon conversion of the Parent's Series D Preferred Stock, 2,250,000 shares
are reserved for issuance upon conversion of the Parent's Series E
Preferred Stock and 1,000,000 shares are reserved for issuance upon
conversion of the Parent's Series F Preferred Stock. All of such
outstanding shares have been, or upon issuance will be, validly issued and
are fully paid and nonassessable. No shares of the Parent's capital stock
are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Parent. The Company's Common
Stock has been pledged to the holder of the Senior Debt by the Parent, who
is the sole shareholder of the Company. The Parent's outstanding options
and warrants contain customary anti-dilution and piggy-back registration
provisions and the Parent's Series E and Series F Preferred stock contain
redemption and registration provisions but none will be triggered by the
issuance of the Preferred Stock or the Common Stock described in this
Agreement. Except as described in this Section 2.4, 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, any shares of capital stock of the Parent or the
Company, or contracts, commitments, understandings or arrangements by which
the Parent or the Company is or may become bound to issue additional shares
of capital stock or options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Parent or the
Company. Except for the registration rights provided for herein, 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 Act. There are no outstanding securities or instruments of the
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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. There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance
of the Preferred Stock or the Common Stock as described in this Agreement.
2.5 Integrated Offering. Neither the Parent, the Company, nor any of
their affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would
require registration of any of the Preferred Stock or Common Stock under
the Act or cause this offering of the Preferred Stock or Common Stock to be
integrated with prior offerings by the Parent for purposes of the Act or
any applicable shareholder 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 Parent are listed or
designated, nor will the Parent or any of its subsidiaries take any action
or steps that would require registration of any of the Preferred Stock or
Common Stock under the Act or cause the offering of the Preferred Stock or
Common Stock to be integrated with other offerings.
2.6 Application of Takeover Protections. The Parent and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the
Investor as a result of the transactions contemplated by this Agreement,
including, without limitation, the Parent's issuance of the Common Stock
and the Investor's ownership of the Preferred Stock and/or the Common
Stock.
2.7 Rights Agreement. The Parent has not adopted a shareholder rights
plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Parent, except for
customary change in control arrangements in Employment Agreements.
2.8 Foreign Corrupt Practices. Neither the Parent, nor the Company,
nor any director, officer, agent, employee or other person acting on behalf
of the Parent or the Company has, in the course of its actions for, or on
behalf of, the Parent, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
2.9 SEC Documents; Financial Statements. Since January 1, 2002, the
Parent has filed all reports, schedules, forms, statements and other
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documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC (except as they may
have been correctly amended), 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 light of the
circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Parent included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the
case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in
all material respects the financial position of the Parent 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).
3. Exchange for Common Stock. The Parent hereby agrees to exchange the
Series A Preferred Stock for its Common Stock (the "Exchange Common Stock"),
under certain terms and conditions contained in Agreement, at any time by the
holder by providing written notice (the "Exchange Notice") to the Company of the
holder's election to exchange any or all of the shares of the Series A Preferred
Stock for Exchange Common Stock. The shares of Exchange Common Stock to be
issued upon exchange shall be issued by the Parent once the holder of the Series
A Preferred Stock to be exchanged tenders the certificates evidencing such
shares of Series A Preferred Stock to the Company for cancellation.
3.1 Exchange Price. Each share of Series A Preferred Stock shall be
exchangeable in accordance with this Section 3 into the number of shares of
Exchange Common Stock that results from dividing the liquidation value for
Series A Preferred Stock (including the stated liquidation preference and
accrued but unpaid dividends) by the exchange price for Series A Preferred
Stock that is in effect at the time of exchange (the "Exchange Price"). The
initial Exchange Price for the Series A Preferred Stock shall be $.35 per
share. The Exchange Price of the Series A Preferred Stock shall be subject
to adjustment from time to time as provided below.
3.2 Adjustment Upon Exchange Common Stock Event. Upon the happening of
an Exchange Common Stock Event (as hereinafter defined), the Exchange Price
of the Series A Preferred Stock shall, simultaneously with the happening of
such Exchange Common Stock Event, be adjusted by multiplying the Exchange
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Price of Series A Preferred Stock in effect immediately prior to such
Exchange Common Stock Event by a fraction, (a) the numerator of which shall
be the number of shares of Common Stock issued and outstanding immediately
prior to such Exchange Common Stock Event, and (b) the denominator of which
shall be the number of shares of Exchange Common Stock issued and
outstanding immediately after such Exchange Common Stock Event, and the
product so obtained shall thereafter be the Exchange Price for Series A
Preferred Stock. The Exchange Price for Series A Preferred Stock shall be
adjusted in the same manner upon the happening of each subsequent Exchange
Common Stock Event. As used herein, the term "Exchange Common Stock Event"
means, Subject to the Subordination, (i) the issue by the Parent of
additional shares of its Common Stock as a dividend or other distribution
on its outstanding Common Stock, (ii) a subdivision of the outstanding
shares of its Common Stock into a greater number of shares of Common Stock
or (iii) a combination of the outstanding shares of its Common Stock into a
smaller number of shares of Common Stock.
3.3 Adjustment for Other Dividends and Distributions. Subject to the
Subordination, if at any time or from time to time after the Original Issue
Date the Parent pays a dividend or makes any other distribution to the
holders of its Common Stock payable in its securities other than shares of
Exchange Common Stock, then in each such event provision shall be made so
that the holders of the Series A Preferred Stock shall receive upon
exchange thereof, in addition to the number of shares of Exchange Common
Stock receivable upon exchange thereof, the amount of securities of the
Company that they would have received had their Series A Preferred Stock
been exchanged into Exchange Common Stock on the date of such event (or
such record date, as applicable) and had they thereafter, during the period
from the date of such event (or such record date, as applicable) to and
including the exchange date, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for
during such period under this Section 3 with respect to the rights of the
holders of the Series A Preferred Stock or with respect to such other
securities by their terms.
3.4 Adjustment for Reclassification, Exchange and Substitution. If at
any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the exchange of the Series A Preferred Stock is changed
into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other
than by an Exchange Common Stock Event or a stock dividend, reorganization,
merger, consolidation or sale of assets provided for elsewhere in this
Section 3), then in any such event each holder of Series A Preferred Stock
shall have the right thereafter to exchange such Series A Preferred Stock
into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the number of shares of Exchange Common Stock into which such
shares of Series A Preferred could have been exchanged immediately prior to
such recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.
3.5 Certificate of Adjustment. In case of an adjustment or
readjustment of the Exchange Price for Series A Preferred Stock, the
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Company, at its expense, shall cause its Chief Financial Officer to compute
such adjustment or readjustment in accordance with the provisions hereof
and prepare a certificate showing such adjustment or readjustment, and
shall mail such certificate, by first class mail, postage prepaid, to each
registered holder of the Series A Preferred Stock at the holder's address
as shown in the Company's books.
3.6 Dilution or Impairments. Subject to the Subordination, the Company
and the Parent will not, by amendment of the certificate or articles of
incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, intentionally avoid or seek to avoid the observance
or performance of any of the terms hereunder, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate hereunder. Without limiting
the generality of the foregoing, the Parent:
(a) shall at all times reserve and keep available, solely for
issuance and delivery upon the exchange of the Series A Preferred
Stock, all shares of the Common Stock from time to time issuable upon
such exchange; and
(b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassesable shares of Common Stock upon the exchange of the Series A
Preferred Stock from time to time outstanding.
3.7 Fractional Shares. No fractional shares of Exchange Common Stock
shall be issued upon any exchange of Series A Preferred Stock. Any
resulting fractional shares shall be rounded up to the next whole share.
4. Registration of Registrable Securities. The Investor acknowledges that
the Exchange Common Stock, the Penalty Warrants (if any) and the Underlying
Common Stock (if any) have not been registered under the Act or under any state
securities laws and agrees not to make any sale or other disposition of the
Registrable Securities except pursuant to a registration statement that has
become effective under the Act, unless such sale or disposition is exempt from
registration under the Act.
4.1 Required Registration. The Parent agrees to file with the
Commission a shelf registration statement on Form S-1 for a public offering
under the Act (the "Required Registration Statement") to cover public
resales of the Registrable Securities held by the Investors in each case
who satisfy certain conditions relating to the providing of information in
connection with the Required Registration Statement. The Required
Registration Statement shall be a so-called "shelf" registration under Rule
415 of the Act. The Parent shall file the Required Registration Statement
with the Commission as soon as reasonably practicable following the date
hereof and shall be obligated to use its best efforts, including the filing
of any amendments or supplements thereto, to have any such Required
Registration Statement declared effective under the Act and the rules and
regulations promulgated thereunder as soon as practicable after the filing
date thereof. The failure to file the Required Registration Statement with
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the Commission and to have the Required Registration Statement declared
effective under the Act within certain time periods shall result in Penalty
Warrants being issued by the Parent as provided in Section 4.5 hereof. The
Parent shall also take such action as may be necessary to keep any such
Required Registration Statement and accompanying prospectus effective and
current under the Act at its expense for a period of 24 months after the
effective date of the Required Registration Statement. The Parent's
obligation under this paragraph shall be limited to one registration
statement and such amendments, supplements and other filings thereafter as
may be necessary to keep such registration statement current thereafter as
provided herein for a period of 24 months after the effective date of such
registration statement.
4.2 Parent's Obligations in Registration. In connection with the
Required Registration Statement, the Parent shall:
(a) notify the Investor as to the filing thereof and of all
amendments or supplements thereto filed prior to the effective date of
such registration statement;
(b) comply with all applicable rules and regulations of the
Commission;
(c) notify the Investor immediately, and confirm the notice in
writing, (1) when the registration statement becomes effective, (2) of
the issuance by the Commission of any stop order or of the initiation,
or the threatening, of any proceedings for that purpose, (3) of the
receipt by the Parent of any notification with respect to the
suspension of qualification of the Common Stock for sale in any
jurisdiction or of the initiation, or the threatening, of any
proceedings for that purpose, and (4) of the receipt of any comments,
or requests for additional information, from the Commission or any
state regulatory authority; and if the Commission or any state
regulatory authority shall enter such a stop order or order suspending
qualification at any time, the Parent will promptly use its best
efforts to obtain the lifting of such order;
(d) during any time when a prospectus is required to be delivered
under the Act during the period required for the distribution of
Common Stock, use its best efforts to comply with all requirements
imposed upon it by the Act, as hereafter amended, and by the rules and
regulations promulgated thereunder, so far as necessary to permit the
continuance of sales of the Common Stock pursuant to a prospectus
complying with Section 10(a)(3) of the Act; and if at any time when a
prospectus relating to the Common Stock is required to be delivered
under the Act and any event shall have occurred as a result of which,
in the opinion of counsel for the Parent or the Investor's counsel,
the prospectus relating to the Common Stock as then amended or
supplemented includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at
any time to amend such prospectus to comply with the Act and the rules
and regulations of the Commission, promulgated thereunder, the Parent
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will promptly prepare and file with the Commission an appropriate
amendment or supplement in form satisfactory to the Investor and the
Investor's counsel;
(e) use its best efforts, in cooperation with the Investor, at or
prior to the time the registration statement becomes effective, to
register or qualify the Registrable Securities for offering and sale
under the securities laws relating to the offering or sale of the
Common Stock in such jurisdictions as the Investor may reasonably
designate and to continue the qualifications in effect so long as
required for purposes of the sale of the Common Stock; provided,
however, that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Parent would be subject
to service of process for all purposes; in each jurisdiction where
such qualification shall be effected, the Parent will, unless the
Investor agree that such action is not at the time necessary or
advisable, file and make such statements or reports at such times as
are or may reasonably be required by the laws of such jurisdiction;
for the purposes of this paragraph, "best efforts" includes, but is
not limited to, the same standard of care and degree of effort as the
Parent will use to qualify its securities other than the Common Stock;
(f) use its best efforts to cause the independent certified
public accountants of the Parent to deliver to the Investor on the
date that the registration statement becomes effective letters stating
that they are independent certified public accountants within the
meaning of the Act and the rules and regulations of the Commission
thereunder, and that, in their opinion, the financial statements and
other financial data of the Parent included in the registration
statement or prospectus, or any amendment or supplement thereto,
comply as to form in all material respects with the applicable
accounting requirements of the Act, and such other financial matters
as the underwriter, if any, or the Investor may reasonably request;
(g) after the effective date of such registration statement,
prepare, and promptly notify the Investor of the proposed filing of,
and promptly file with the Commission, each and every amendment or
supplement thereto or to any prospectus forming a part thereof as may
be necessary to make any statements therein not misleading in any
material respect; provided, however, that no such amendment or
supplement shall be filed if the Investor shall object thereto in
writing promptly after being furnished a copy thereof;
(h) furnish to the Investor, as soon as available, copies of any
such registration statement and each preliminary or final prospectus,
or supplement or amendment prepared pursuant thereto, all in such
quantities as the Investor may from time to time reasonably request in
order to facilitate the public sale or other disposition of the Common
Stock;
(i) pay all costs and expenses incident to the performance of the
Parent's obligations under this Section 4, including without
limitation the fees and disbursements of the Parent's auditors and
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legal counsel, and of legal counsel responsible for qualifying the
Registrable Securities under state securities or blue sky laws, all
filing fees and printing expenses, all expenses in connection with the
transfer and delivery of the Registrable Securities, and all fees and
expenses in connection with the qualification of the Registrable
Securities under state securities or blue sky laws; provided, however,
that the Parent shall not be responsible for compensation and
reimbursement of expenses to underwriters or selling agents for the
included Registrable Securities.
4.3 Agreements by Investors. In connection with the filing of a
registration statement pursuant to this Section 4, if the Investor
participates in the offering of the Registrable Securities, the Investor
shall:
(a) furnish the Parent all material information requested by the
Parent concerning the Investor and his affiliates and his affiliates'
holdings of securities of the Parent and the proposed method of sale
or other disposition of the Registrable Securities and such other
information and undertakings as shall be reasonably required in
connection with the preparation and filing of any such registration
statement covering all or part of the Registrable Securities and in
order to ensure full compliance with the Act and the rules and
regulations of the Commission thereunder;
(b) if the Parent is at the time entering into an underwriting
agreement covering its Common Stock, enter into an underwriting
agreement in customary form with the same underwriter or underwriters
who are parties to such underwriting agreement with the Parent,
provided that the sales of Exchange Common Stock by the Investor and
the Parent thereunder are at the same price and upon the same terms
and conditions; and
(c) cooperate in good faith with the Parent and its underwriters,
if any, in connection with such registration, including placing shares
of Exchange Common Stock to be included in such registration statement
in escrow or custody to facilitate the sale and distribution thereof.
4.4 Indemnification.
(a) The Parent shall indemnify and hold the Investor harmless,
and each person, if any, who controls the Investor, against any loss,
liability, claim, damage and expense whatsoever (including but not
limited to reasonable attorneys' fees and any and all expense
whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any
claim or litigation), joint or several, to which any of the Investor
or such underwriter or such controlling person becomes subject, under
the Act or otherwise, insofar as such loss, liability, claim, damage
and expense (or actions in respect thereof) arise out of or are based
upon any untrue statement of any material fact contained in (1) a
registration statement covering the Common Stock, in the prospectus
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contained therein, or in an amendment or supplement thereto or (2) in
any application or other document or communication executed by or on
behalf of the Parent or based upon written information furnished by or
on behalf of the Parent filed in any jurisdiction in order to qualify
the Common Stock under the state securities or blue sky laws thereof
or filed with the Commission, or arise out of or are based upon the
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
provided, however, that the Parent shall not be obligated to indemnify
the Investor in any such case to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon any untrue
statement or omission made in reliance upon, and in conformity with,
written information duly executed and furnished by the Investor or
such underwriter or such controlling person specifically for use in
the registration statement, or any amendment or supplement thereto, or
any application, as the case may be.
If any action is brought against a person in respect of which
indemnity may be sought against the Parent pursuant to the foregoing
paragraph, such person shall promptly notify the Parent in writing of
the institution of such action and the Parent shall assume the defense
of the action, including the employment of counsel (satisfactory to
the indemnified person in its or his reasonable judgment) and payment
of expenses. The indemnified person shall have the right to employ its
or his own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified person unless the
employment of such counsel shall have been authorized in writing by
the Parent in connection with the defense of the action, or unless the
Parent shall not have promptly employed counsel to have charge of the
defense of the action or unless the indemnified person shall have
reasonably concluded that there may be defenses available to it or
them which are different from or additional to those available to the
Parent (in which case the Parent shall not have the right to direct
the defense of the action on behalf of the indemnified person), in any
of which events these fees and expenses shall be borne by the Parent.
Anything in this paragraph to the contrary notwithstanding, the Parent
shall not be liable for any settlement of any claim or action effected
without its written consent, which shall not be unreasonably withheld.
The Parent's indemnity agreements contained in this Subsection
shall remain in full force and effect regardless of any investigation
made by or on behalf of any indemnified person and shall survive any
termination of this Agreement. The Parent agrees promptly to notify
each holder of the commencement of any litigation or proceedings
against the Parent or any of its officers or directors in connection
with any registration statement pursuant to this Section 4.
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The Parent further agrees that, if the indemnity provisions of
the foregoing paragraphs are held to be unenforceable, any holder or
controlling person of such holder may recover contribution from the
Parent in an amount which, when added to contributions such holder or
controlling person has theretofore received or concurrently receives
from officers and directors of the Parent or controlling persons of
the Parent, will reimburse such holder or controlling person for all
losses, claims, damages or liabilities and legal or other expenses;
provided, however, that if the full amount of the contribution
specified in this Subsection 3(a) is not permitted by law, then such
holder or controlling person shall be entitled to contribution from
the Parent to the full extent permitted by law.
(b) If the Investor chooses to include all or a part of the
Common Stock the Investor holds in a public offering, then the
Investor agree to indemnify and hold harmless the Parent and each of
its directors and officers who have signed any such registration
statement and each person, if any, who controls the Parent, to the
same extent as the indemnity by the Parent in this Subsection 4(a),
but only with respect to untrue statements or omissions, if any, made
in such registration statement, prospectus contained therein, or
amendment or supplement thereto, or in any application, in reliance
upon, and in conformity with, written information duly executed and
furnished by the Investor to the Parent specifically for use in the
registration statement, in the prospectus contained therein, or any
amendment or supplement thereto, or any application, as the case may
be. In case any action shall be brought in respect of which indemnity
may be sought against the Investor, the Investor shall have the rights
and duties given to the Parent, and the persons so indemnified shall
have the rights and duties given to the Investor, by the provisions of
the first paragraph of Subsection 4(a).
4.5 Penalty Warrants. The Parent shall issue to the Investor warrants
to purchase shares of Common Stock to be evidenced by a Warrant Certificate
("Penalty Warrants") in accordance with the following provisions:
(a) If the Required Registration Statement is not filed with the
Commission by June 4, 2004, then the Parent shall promptly issue to
the Investor Penalty Warrants to purchase an aggregate of 250,000
shares of Common Stock.
(b) If the Required Registration Statement is not declared
effective under the Act by July 15, 2004, then the Parent shall
promptly issue to the Investor Penalty Warrants to purchase an
aggregate of 350,000 shares of Common Stock.
(c) At the end of each month following July 31, 2004, (i) if the
Required Registration Statement is not declared effective under the
Act during such month, then the Parent shall promptly issue to the
Investor Penalty Warrants to purchase an aggregate of 350,000 shares
of Common Stock, or (b) if the Required Registration Statement is
declared effective under the Act during such month, then the Parent
shall promptly issue to the Investor Penalty Warrants to purchase an
aggregate number of shares of Common Stock calculated by multiplying
350,000 by a fraction the numerator of which is the numerical date in
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such month that the Required Registration Statement is declared
effective under the Act and the denominator of which is the total
number of days in such month.
(d) Notwithstanding anything else herein to the contrary, the
maximum number of Penalty Warrants issuable hereunder shall be limited
to Penalty Warrants to purchase an aggregate of 1,500,000 shares of
Common Stock.
(e) The Penalty Warrants shall be issued on the terms and
conditions in Section 4.6 below. -
4.6 Exercise of Warrants.
(a) Exercise in Full. The Penalty Warrants (if any) may be
exercised in full by the Warrantholder from the date hereof until the
fifth anniversary of the date hereof (the "Final Exercise Date") by
surrender of Penalty Warrant, with the Notice of Exercise Form at the
end thereof duly completed and executed by such Warrantholder,
accompanied by payment (if so elected), in cash or by certified or
bank cashiers check payable to the order of the Parent, in the
respective amount obtained by multiplying the number of shares of the
Underlying Common Stock designated by the Warrantholder in the Notice
of Exercise Form by the Exercise Price per share (after giving effect
to any adjustments as provided in Section4.8 (below) to the Parent at
its principal office at480 N. Xxx Xxxxxxx Xxxxxxx X., Xxxxx 000,
Xxxxxxx, Xxxxx 00000.
(b) Partial Exercise. The Penalty Warrants (if any) may be
exercised in part by the Warrantholder from the date hereof until the
Final Exercise Date by surrender of the Warrants, with the Notice of
Exercise Form at the end thereof duly executed by such Warrantholder,
accompanied by payment (if so elected), in cash or by certified or
bank cashiers check payable to the order of the Parent, in the
respective amount obtained by multiplying the number of shares of the
Underlying Common Stock designated by the Warrantholder in the Notice
of Exercise Form by the Exercise Price per share (after giving effect
to any adjustments as provided in Section 4.8 below). Upon any such
partial exercise, the Parent at its expense will forthwith issue and
deliver to or upon the order of the Warrantholder a new Warrant
Certificate of like tenor, in the name of the Warrantholder thereof or
as the Warrantholder (upon payment by such Warrantholder of any
applicable transfer taxes) may request, calling in the aggregate for
the purchase of the number of shares of the Underlying Common Stock
equal to the number of such shares called for on the face of the
respective Warrant Certificate (after giving effect to any adjustment
herein as provided in Section 4.8 (below) minus the number of such
shares designated ----------- by the Warrantholder in the
aforementioned Notice of Exercise.
(c) Required Exercise. The Warrantholder and the Parent hereby
mutually agree that, if at anytime following the date hereof and until
the fifth anniversary of the date of issuance (the "Final Exercise
Date"), the average of the daily high bid and low asked prices of the
Common 13
Stock is $1.25 or higher for each of 20 consecutive trading days as
reported on the Over-the-Counter (OTC) trading system, all remaining
unexercised Penalty Warrants (if any) shall be exercised and payment
will be made as outlined above within forty-five (45) days after the
Parent delivers notice of the foregoing to the Warrantholder. In the
event that a Warrantholder fails to exercise any of the Warrants as
required under this Section 4.6(c), the Parent may (but is not
obligated to), upon written notice to such Warrantholder (a) cancel on
its books the Warrant Certificates subject to the Penalty Warrants,
(b) effect the exercise of any such unexercised Penalty Warrants (if
any) in accordance with the Cashless Exercise procedures set forth
below and (c) deliver any proceeds from the Cashless Exercise to the
Warrantholder(s) at the address specified by the Warrantholder(s).
(d) Payment of Exercise Price. The Exercise Price shall be paid
either by (i) delivering to the Parent, by check or by wire transfer,
an amount equal to the Exercise Price per share of Underlying Common
Stock multiplied by the number of shares of Underlying Common Stock
then being purchased or (ii) through a special sale and remittance
procedure (a "Cashless Exercise") pursuant to which the holder of the
Penalty Warrant shall concurrently provide irrevocable instructions
(A) to a Parent-designated brokerage firm to effect the immediate sale
of the shares of Underlying Common Stock and remit to the Parent, out
of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate Exercise Price payable for such shares
plus all applicable Federal, state and local income and employment
taxes required to be withheld by the Parent by reason of such exercise
and (B) to the Parent to deliver the certificates for the shares of
Underlying Common Stock directly to such brokerage firm to complete
the sale.
(e) Parent to Reaffirm Obligations. The Parent will, at the time
of any exercise of any Penalty Warrants, upon the request of the
Warrantholder, acknowledge in writing its continuing obligation to
afford to such Warrantholder any rights to which such Warrantholder
shall continue to be entitled after such exercise in accordance with
the provisions of this Agreement; provided, however, that if the
Warrantholder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Parent to afford to such
Warrantholder any such rights.
4.7 Delivery of Stock Certificates, etc., on Exercise.
(a) Any exercise of the Penalty Warrants shall be deemed to have
been effected immediately prior to the close of business on the date
on which the Penalty Warrants with the Notice of Exercise Form and the
payment (if elected) for the aggregate Exercise Price shall have been
received by the Parent. At such time, the person or persons in whose
name or names any certificate or certificates for shares of Underlying
Common Stock shall be issuable upon such exercise shall be deemed to
have become the holder or holders of record of the shares of
Underlying Common Stock so purchased. As soon as practicable after the
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exercise of any Penalty Warrants in full or in part, and in any event
within ten days thereafter, the Parent at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued
in the name of, and delivered to the purchasing Warrantholder, a
certificate or certificates for the number of fully paid and
nonassessable shares of the Underlying Common Stock to which such
Warrantholder shall be entitled upon such exercise.
(b) Unless the Underlying Common Stock has been registered under
the Act, such securities, when issued, shall have the appropriate
legend.
4.8 Anti-dilution Provisions. Subject to Subordination, the Penalty
Warrants are subject to the following terms and conditions during the term
thereof:
(a) Adjustments. In case (i) the outstanding shares of the Common
Stock shall be subdivided into a greater number of shares, (ii) a
dividend in Common Stock shall be paid in respect of Common Stock, or
(iii) the outstanding shares of Common Stock shall be combined into a
smaller number of shares thereof, the Exercise Price per share in
effect immediately prior to such subdivision or combination or at the
record date of such dividend or distribution shall simultaneously with
the effectiveness of such subdivision or combination or immediately
after the record date of such dividend or distribution be
proportionately adjusted to equal the product obtained by multiplying
the Exercise Price by a fraction, the numerator of which is the number
of outstanding shares of Common Stock prior to such combination,
subdivision or dividend, and the denominator of which is that number
of outstanding shares of Common Stock after giving effect to such
combination, subdivision or dividend. Any dividend paid or distributed
on the Common Stock in stock or any other securities convertible into
shares of Common Stock shall be treated as a dividend paid in Common
Stock to the extent that shares of Common Stock are issuable upon the
conversion thereof.
Whenever the Exercise Price per share is adjusted as provided in
the immediately preceding paragraph, the number of shares of the
Underlying Common Stock purchasable upon exercise of the Penalty
Warrant (if any) immediately prior to such Exercise Price adjustment
shall be adjusted, effective simultaneously with such Exercise Price
adjustment, to equal the product obtained (calculated to the nearest
full share) by multiplying such number of shares of the Underlying
Common Stock by a fraction, the numerator of which is the Exercise
Price per share in effect immediately prior to such Exercise Price
adjustment and the denominator of which is the Exercise Price per
share in effect upon such Exercise Price adjustment, which adjusted
number of shares of the Underlying Common Stock shall thereupon be the
number of shares of the Underlying Common Stock purchasable upon
exercise of the Warrant or the Penalty Warrant (if any) until further
adjusted as provided herein.
15
(b) No Adjustment for Small Amounts. Anything in this Section 4
to the contrary notwithstanding, the Parent shall not be required to
give effect to any adjustment in the Exercise Price unless and until
the net effect of one or more adjustments, determined as above
provided, shall have required a change of the Exercise Price by at
least ten cents, but when the cumulative net effect of more than one
adjustment so determined shall be to change the actual Exercise Price
by at least ten cents, such change in the Exercise Price shall
thereupon be given effect.
4.9 Further Covenants of the Parent.
(a) Dilution or Impairments. The Parent will not, by amendment of
its certificate or articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of
the terms of the Penalty Warrants or of this Agreement, but will at
all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Warrantholder
against dilution or other impairment. Without limiting the generality
of the foregoing, the Parent:
(i) shall at all times reserve and keep available, solely
for issuance and delivery upon the exercise of the Penalty
Warrants, all shares of the Underlying Common Stock from time to
time issuable upon the exercise of the Warrants and shall take
all necessary actions to ensure that the par value per share, if
any, of the Underlying Common Stock is at all times equal to or
less than the Exercise Price per share; and
(ii) will take all such action as may be necessary or
appropriate in order that the Parent may validly and legally
issue fully paid and nonassessable shares of Common Stock upon
the exercise of the Penalty Warrants (if any) from time to time
outstanding.
4.10 Transfer to Comply with the Securities Act of 1933. None of the
Penalty Warrants (if any) or the Underlying Common Stock issued or issuable upon
exercise of the Penalty Warrants may be sold, transferred or otherwise disposed
of except to a person who, in the opinion of counsel for the Parent, is a person
to whom such Penalty Warrants or Underlying Common Stock may legally be
transferred without registration and without the delivery of a current
prospectus under the Act with respect thereto and then only against receipt of
an agreement of such person to comply with the provisions of this Section 4 with
respect to any resale or other disposition of such securities. ---------
4.11 Warrant Certificate Legend. The Parent may cause the following legend
to be set forth on each certificate representing the Penalty Warrants or the
Underlying Common Stock issued or issuable upon exercise of the Penalty Warrants
16
not theretofore distributed to the public or sold to underwriters for
distribution to the public pursuant to Section 4 hereof, unless counsel for the
Parent is of the opinion as to any such certificate that such legend is
unnecessary:
"The securities evidenced hereby have not been registered under the
Securities Act of 1933, as amended or qualified under applicable state
securities laws. Such warrant and other securities may not be sold or
otherwise transferred except in a transaction which in the opinion of
securities counsel reasonably satisfactory to the Parent is exempt from
registration under applicable federal or state securities laws or pursuant
to an effective registration statement thereunder."
4.12 Indemnification. To the extent permitted by law, an Investor will
indemnify and hold harmless the Parent and its officers, directors, agents and
employees, and each underwriter of the Parent selling securities in such
registration statement, and any person who controls any of the foregoing within
the meaning of the Securities Act or the Exchange Act, against any actual
expenses (including legal fees and costs), losses, claims, damages (including
settlement amounts) or liabilities (collectively, "Losses") to which the Parent
or such officer, director, agent, employee, or underwriter or controlling person
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such Losses arise out of or are based solely upon any
Violation that occurs in reliance upon and in conformity with written
information furnished by, or on behalf of, such Investor expressly for use in
connection with such registration; and such Investor will reimburse (as
incurred) any Losses reasonably incurred by the Parent or its officers,
directors, agents, employees, or underwriters or controlling persons in
connection with investigating or defending any Violations; provided, however,
that the indemnity agreement contained in this paragraph (a) shall not apply to
amounts paid in settlement of any claims for Violations if such settlement is
made without the consent of such Investor, which consent shall not be
unreasonably withheld. As used herein the term "Violation" refers to any of the
following statements, omissions or violations: (i) any untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein, or any amendments
or supplements thereto, or (ii) the omission to state therein 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.
4.13 Notice. Promptly after receipt of notice of the commencement of any
action (including any governmental action), an indemnified party will, if a
claim is to be made against any indemnifying party under this Section 4, deliver
to the indemnifying party a written notice of the commencement, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
17
similarly notified to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if, in the opinion of counsel for the indemnifying
party, representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in the proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable period of time after notice of the
commencement of any such action shall relieve such indemnifying party of any
liability to the indemnified party under this Section 4 to the extent such
failure is prejudicial to its ability to defend such action, but the omission to
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 4. 4.14 Indemnification Unavailable. If the indemnification
provided for in this Section 4 is held by a court of competent jurisdiction
to be unavailable to an indemnified party with respect to any Losses, then
the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as
a result of such Losses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violations that
resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the Violation resulting in such Losses relates to information
supplied by the indemnifying party or by the indemnifying party and the
parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such Violation. 4.15 Investors' Obligations. The
obligations of the Investors under this Section 4 shall survive the
completion of any offering of Registrable Securities and the termination of
registration rights pursuant to Section 7.5. No Assignment of Rights.
Neither of this Agreement nor the rights to cause the Parent to register
Registrable Securities pursuant to this Agreement may be assigned in any
manner by the Investors.
6. Delivery of Stock Certificates on Exchange. Any exchange of the Initial
Shares shall be deemed to have been effected immediately prior to the close of
business on the date on which the Parent issues the Common Stock. At such time,
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issued upon such exchange shall be deemed to
have become the holder or holders of record of the shares of Common Stock. As
soon as practicable after the Parent receives a notice from the holder of
Preferred Stock to exchange it Initial Shares in full or in part for Common
Stock, and in any event within ten days thereafter, the Parent at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of, and delivered to the exchanging holder, a certificate or
certificates for the number of fully paid and nonassessable shares of the Common
Stock to which such holder shall be entitled upon such exchange. Unless the
Common Stock has been registered under the Act, such securities, when issued,
shall have the appropriate legend.
18
7. Termination of Registration Rights. The registration rights granted
hereunder this Agreement shall terminate as to each Investor on the earlier of
(i) the time at which the Investor no longer holds any of the Initial Shares or
Registrable Securities and (ii) the fifth (5th) anniversary of this Agreement.
8. Notices. Any notice, consent or other communication to be given under
this Agreement by any party to any other party shall be in writing and shall be
either (a) personally delivered, (b) mailed by registered or certified mail,
postage prepaid with return receipt requested, (c) delivered by overnight
express delivery service or same-day local courier service, or (d) delivered by
telex or facsimile transmission, as follows:
If to the Parent or Company GulfWest Energy Inc. or
GulfWest Oil & Gas Company
000 X. Xxx Xxxxxxx Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: President
Fax: (000) 000-0000
If to the Investors: To their respective addresses set
forth on the signature page hereto,
or at such other address as may be designated by the parties from time to time
in accordance with this Section 8. Notices delivered personally, by overnight
express delivery service or by local courier service shall be deemed given as of
actual receipt. Mailed notices shall be deemed given five business days after
mailing. Notices delivered by telex or facsimile transmission shall be deemed
given upon receipt by the sender of the answerback (in the case of a telex) or
transmission confirmation (in the case of a facsimile transmission).
9. Amendments and Waivers. This Agreement may be amended and the observance
of any term may be waived (either generally or in a particular instance and
either retroactively or prospectively) only by written agreement of the Parent,
the Company and the Investors.
10. Governing Law; Jurisdiction; Venue.This Agreement shall be governed by
and construed under the laws of the State of Texas without regard to principles
of conflict of laws. The parties irrevocably consent to the jurisdiction and
venue of the state and federal courts located in Houston, Texas in connection
with any action relating to this Agreement.
11. Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement, and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms. 19
12. Entire Agreement; Counterparts. This Agreement constitutes the entire
agreement between the parties about its subject and supersedes all prior
agreements. This Agreement may be executed in two or more counterparts, which
together shall constitute one instrument.
13. Captions; References. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof. Wherever the context shall so require, all words
herein in the male gender shall be deemed to include the female or neuter
gender, all singular words shall include the plural, and all plural words shall
include the singular.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PARENT:
GULFWEST ENERGY INC.
By: /s/ Xxxxxx X. Xxxxxxx
Name: Xxxxxx X. Xxxxxxx
Title: President and Chief Executive Officer
COMPANY:
GULFWEST OIL & GAS COMPANY
By: /s/ Xxxxxx X. Xxxxxxx
Name: Xxxxxx X. Xxxxxxx
Title: President
INVESTORS:
By: /s/ By Each Investo
