EXHIBIT 2
CONVERTIBLE NOTE PURCHASE AGREEMENT
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TABLE OF CONTENTS
Page
I. BASIC TERMS OF PURCHASE AND SALE
1.1 Purchase and Sale of Convertible Notes............ 2
1.2 Closing........................................... 2
1.3 Payment and Delivery.............................. 2
1.4 Use of Proceeds................................... 2
1.5 Subsequent Closings............................... 2
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Organization and Standing......................... 3
2.2 Capitalization.................................... 3
2.3 Subsidiaries and Affiliates....................... 3
2.4 Corporate Records................................. 3
2.5 Authorization..................................... 3
2.6 Valid Issuance.................................... 4
2.7 Financial Statements.............................. 4
2.8 Compliance with Law............................... 4
2.9 Governmental and Third Party Consents............. 4
2.10 Compliance with Other Instruments................. 4
2.11 Litigation........................................ 5
2.12 Material Contracts................................ 5
2.13 Title to Property and Assets...................... 5
2.14 Taxes............................................. 6
2.15 Patents, Trademarks, etc.......................... 7
2.16 SEC Reports....................................... 7
2.17 Misleading Statements............................. 7
2.18 Employees......................................... 7
2.19 Employee Compensation Plans....................... 8
2.20 Registration Rights............................... 8
2.21 Certain Transactions.............................. 8
2.22 Stockholder Agreements............................ 8
2.23 Brokers or Finders................................ 8
III. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
3.1 Authorization..................................... 9
3.2 Accredited Investor............................... 9
3.3 Purchase Entirely for Own Account................. 9
3.4 Disclosure of Information......................... 9
3.5 Experience........................................ 9
3.6 Restricted Securities............................. 9
3.7 Further Limitations on Disposition................ 10
CONVERTIBLE NOTE PURCHASE AGREEMENT
TABLE OF CONTENTS
(continued)
3.8 Legends..................................................... 10
3.9 Brokers or Finders.......................................... 11
IV. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING
4.1 Representations and Warranties True at Closing.............. 11
4.2 Performance................................................. 11
4.3 Proceedings and Documents................................... 11
4.4 Contribution Agreement...................................... 11
4.5 Registration Rights Agreement............................... 11
4.6 Blue Sky.................................................... 11
4.7 Opinion of Counsel.......................................... 11
4.8 Board of Directors.......................................... 11
4.9 Legal Matters............................................... 12
4.10 Voting Agreements........................................... 12
4.11 SE Maricopa Drilling Commitment............................. 12
4.12 Employment and Non-Compete Agreements....................... 12
4.13 Indemnification Agreement................................... 12
4.14 Xxxxxxx Agreement........................................... 12
V. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
5.1 Representations and Warranties True at Closing.............. 12
5.2 Legal Matters............................................... 12
VI. COVENANTS OF THE COMPANY
6.1 Financial Information....................................... 13
6.2 Additional Information...................................... 13
6.3 Confidentiality............................................. 14
6.4 Assignment of Rights to Financial Information............... 15
6.5 Taxes, Liens, Etc........................................... 15
6.6 SEC Filings................................................. 15
6.7 Board of Directors.......................................... 16
6.8 Issuance of Debt or Equity.................................. 16
6.9 Amendment of Certificate.................................... 16
6.10 D & O Insurance............................................. 16
6.11 Conversion Price Adjustment................................. 16
VII. MISCELLANEOUS PROVISIONS
7.1 Further Assurances.......................................... 16
7.2 Rights Cumulative........................................... 17
7.3 Number and Gender........................................... 17
7.4 Notices..................................................... 17
7.5 Captions.................................................... 17
7.6 Severability................................................ 17
7.7 Attorneys' Fees............................................. 17
7.8 Counterparts................................................ 18
7.9 Entire Agreement............................................ 18
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CONVERTIBLE NOTE PURCHASE AGREEMENT
TABLE OF CONTENTS
(continued)
7.10 Amendment................................................... 18
7.11 Delays or Omissions......................................... 18
7.12 Waiver and Extension of Time................................ 18
7.13 Governing Law; Jurisdiction................................. 19
7.14 Successors and Assigns...................................... 19
7.15 Survival.................................................... 19
7.16 Majority Noteholders........................................ 19
7.17 Exhibits and Schedules...................................... 19
7.18 Legal Expenses.............................................. 20
7.19 Investor Investigation...................................... 20
7.20 Nomination and Selection of Investor-Designated Directors... 20
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LIST OF EXHIBITS
Exhibit A Certificate of Designation
Exhibit B Form of Convertible Note
Exhibit C Form of Contribution Agreement
Exhibit D Form of Registration Rights Agreement
Exhibit E Form of Opinion of Company Counsel
Exhibit F Form of Voting Agreement
LIST OF SCHEDULES
Schedule 2.2 Shareholders and Optionholders
Schedule 2.3 Subsidiaries and Affiliates
Schedule 2.7 Contingent Obligations and Liabilities
Schedule 2.12 Material Contracts
Schedule 2.15 Patents, Trademarks
Schedule 2.19 Employee Compensation Plans
Schedule 2.20 Registration Rights
Schedule 2.21 Certain Transactions
CONVERTIBLE NOTE
PURCHASE AGREEMENT
This Convertible Note Purchase Agreement (this "Agreement") is made
and entered into as of October 26, 1998, by and among PYR Energy Corporation, a
Delaware corporation (the "Company"), and the investors whose names and
addresses are set forth on the signature pages to this Agreement (each
individually an "Investor" and collectively "Investors").
R E C I T A L S
- - - - - - - -
WHEREAS, the Company desires to raise additional capital to fund its
operations by the sale of a series of preferred stock to the Investors; and
WHEREAS, the Company's Certificate of Incorporation does not currently
authorize the issuance of preferred stock by the Company; and
WHEREAS, the Investors are willing to invest capital in the Company by
initially purchasing $1,500,000 of Convertible Notes (as defined below), which
Convertible Notes shall be convertible into shares of Series A Preferred Stock
having the rights, preferences, privileges and restrictions set forth in the
Certificate of Designation, a copy of which is attached hereto as Exhibit A (the
"Series A Preferred Stock"), upon the approval by the stockholders of the
Company of the issuance of the Series A Preferred Stock; and
WHEREAS, the Company desires to place with other investors up to
$1,00,000 of Convertible Notes on the same terms and conditions set forth in
this Agreement, and the Investors agree to such placement, subject to the terms
set forth herein; and
WHEREAS, the Company desires to issue and sell the Convertible Notes,
to seek stockholder approval of the Series A Preferred Stock and, subject to
obtaining stockholder approval, to convert the Convertible Notes into shares of
Series A Preferred Stock, pursuant to the terms, and subject to the conditions,
of this Agreement; and
WHEREAS, each of the Investors desires to purchase from the Company
the principal amount of Convertible Notes set forth on Schedule A hereto, and,
subject to the Company obtaining stockholder approval for the Series A Preferred
Stock to convert the Convertible Notes held into shares of Series A Preferred
Stock, pursuant to the terms, and subject to the conditions, of this Agreement.
TERMS
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NOW, THEREFORE, in consideration of the above recitals and promises
made in this Agreement, the parties hereby agree as follows:
SECTION I.
Basic Terms of Purchase and Sale
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1.1 Purchase and Sale of Convertible Notes. Upon the terms and conditions
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contained herein, each of the Investors agrees to purchase from the Company, at
the Closing as defined in Section 1.2, and the Company agrees to issue and sell
to each of the Investors, the principal amount of Convertible Notes in the form
of Exhibit B hereto ("Convertible Notes") set forth on Schedule A hereto.
1.2 Closing. The closing of the purchase and sale of the Convertible Notes
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hereunder (the "Closing") shall be held at the offices of O'Melveny & Xxxxx, 000
Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000, at 10:00
A.M., on October 26, 1998, or at such other time and place as the parties agree.
The date on which the Closing actually occurs is referred to herein as the
"Closing Date."
1.3 Payment and Delivery. At the Closing the Company shall deliver to each
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of the Investors a Convertible Note in the principal amount which each Investor
is purchasing from the Company, against delivery to the Company by each Investor
of the purchase price by check payable to the order of Company or by wire
transfer of funds to the Company's account.
1.4 Use of Proceeds. The net proceeds from the sale of the Convertible
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Notes will be used by the Company for execution of its current business plan and
other proposals approved by a majority vote of the authorized members of the
Company's Board of Directors. Pending utilization for the above purposes, the
Company shall invest the proceeds in short-term, interest-bearing government
securities, certificates of deposit or their equivalents.
1.5 Subsequent Closings. Between the Closing Date and the date that is 45
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days thereafter, the Company shall be entitled to sell up to $1,000,000 (the
"Additional Amount") of additional Convertible Notes to other "accredited
investors" (a "Subsequent Investor") as defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended; provided, that to the
extent that Investors purchase more than $1,500,000 of Convertible Notes on the
Closing Date, the Additional Amount eligible for sale to Subsequent Investors
shall be reduced on a dollar-for-dollar basis by the amount of such excess over
$1,500,000. In connection with any such sale, the Company shall obtain
appropriate assurances that the proposed investor is "accredited" and shall not
sell less than $100,000 of Convertible Notes to any such proposed investor.
Notwithstanding the foregoing, the Company shall not sell any additional
Convertible Notes if at the time of such proposed sale there has been a material
positive change in the business or prospects of the Company since the Closing
Date; provided that any sale occurring after a material negative change shall
not be made unless and until such material negative change has been disclosed
fully to the proposed purchaser. Each Subsequent Investor, if any, shall be
bound by all of the terms and conditions of this Agreement, including each of
the agreements attached as exhibits hereto, and shall execute and deliver to the
Company and to each of the other Investors counterpart signature pages
indicating the Subsequent Investor's agreement to be so bound. The Company
shall deliver to each Investor with respect to each Subsequent Investor a
revised Schedule A to this Agreement.
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SECTION II.
Representations and Warranties of the Company
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The Company hereby represents and warrants to each of the Investors, as
follows:
2.1 Organization and Standing. The Company is a corporation duly organized,
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validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to conduct its business as
now conducted and as proposed to be conducted. The Company is duly qualified to
do business in all other jurisdictions in which the failure to so qualify would
have a material adverse effect on its business or properties.
2.2 Capitalization. The authorized capital of the Company consists of:
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(a) Common Stock: 30,000,000 shares of Common Stock, $.001 par value.
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There are presently 9,154,804 issued and outstanding shares of the Company's
Common Stock. All outstanding shares of Common Stock were duly authorized, are
fully paid and nonassessable, and were validly issued in accordance with
federal and state securities laws.
Except (i) with regard to the Series A Preferred Stock to be issued
upon conversion of the Convertible Notes and (ii) as set forth in Schedule 2.2,
no options, calls, warrants, conversion privileges, preemptive rights, rights of
first refusal or other commitments or rights, of any character whatsoever, are
presently outstanding or in existence with respect to the purchase or other
acquisition of any of the authorized but unissued capital stock of the Company.
2.3 Subsidiaries and Affiliates. Except as set forth on Schedule 2.3
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hereto, the Company has no subsidiaries and has no interest, direct or indirect,
in any other corporation, joint venture, partnership, association or other
entity.
2.4 Corporate Records. The corporate minute books of the Company made
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available to the Investors are true, correct and complete in all material
respects.
2.5 Authorization. All corporate action on the part of the Company, its
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officers, directors and stockholders necessary for the authorization, execution,
delivery and performance of this Agreement, the Registration Rights Agreement
and the Contribution Agreement (as defined) and the consummation of the
transactions contemplated therein and for the authorization, issuance and
delivery of the Convertible Notes, and the issuance of shares of Series A
Preferred Stock upon conversion of the Convertible Notes (except for the
stockholder approval of the Series A Preferred Stock) has been taken, and this
Agreement, the Registration Rights Agreement and the Contribution Agreement,
when executed and delivered, shall constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except to the extent that enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, or
other similar laws of general applicability relating to or affecting the
enforcement of creditor's rights and by the effect of general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law). The Company has all requisite legal and corporate power to
enter into this Agreement, the Registration Rights Agreement and
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Contribution Agreement, to sell the Convertible Notes, to issue the Series A
Preferred Stock, upon approval of the same by the Company's stockholders, and to
carry out and perform its obligations under the terms thereof.
2.6 Valid Issuance. The Convertible Notes to be purchased by the Investors
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hereunder (and the Series A Preferred Stock issuable upon conversion of the
Convertible Notes, and the Common Stock issuable upon conversion of the
Convertible Notes or the Series A Preferred Stock, as the case may be) will,
upon issuance pursuant to the terms hereof (or upon conversion of the
Convertible Notes), be duly and validly issued, fully paid and nonassessable and
will be free from any liens or encumbrances (except for the restrictions on
transfer provided in this Agreement with respect to federal and state securities
laws). Based in part upon the representations of the Investors in Section III
of this Agreement, the Convertible Notes, the Series A Preferred Stock and the
Common Stock when issued and delivered pursuant to this Agreement, will be
issued in compliance with federal and all applicable state securities laws.
2.7 Financial Statements. The Company has provided to each of the Investors
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complete and accurate copies of annual audited consolidated financial statements
for the Company for the fiscal periods ended December 31, 1996 and August 31,
1997, and unaudited financial statements for the nine-month period ended May 31,
1998 (collectively, the Financial Statements"). The Financial Statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied throughout the periods involved and fairly present
the respective consolidated financial positions, results of operations, cash
flows and stockholders' equity for each of the periods covered. The Company has
no contingent obligations, or liability for taxes or long-term leases, which are
not reflected in the Financial Statements or the footnotes thereto, or are not
otherwise disclosed on Schedule 2.7.
2.8 Compliance with Law. The operations of the Company have not violated
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any federal, state or local laws, regulations or orders, to the extent any such
violation might have a material adverse effect upon the Company. The Company
has all licenses, permits, certificates and authority from governmental agencies
which are necessary for the conduct of its business, except for those which if
not obtained would not have a material and adverse effect on the business or
properties of the Company.
2.9 Governmental and Third Party Consents. All consents, approvals, orders,
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authorizations, registrations, qualifications, designations, declarations or
filings with or from any federal or state governmental agency or authority or
any other person or entity required on the part of the Company in connection
with the execution, delivery or performance of this Agreement and the
consummation of the transactions contemplated herein have been obtained except
that any notices of sales of securities required to be filed with the Securities
and Exchange Commission pursuant to Regulation D or the securities laws of any
state pursuant to any applicable blue sky laws may be filed within the
applicable periods for such filings.
2.10 Compliance with Other Instruments. The Company is not in violation of
---------------------------------
any provision of its charter documents or bylaws, and is not in violation in any
material respect, of any mortgage, indenture, contract, agreement, instrument,
judgment, decree or order, and is not in violation of any statute, rule or
regulation applicable to the Company the violation of which would have a
material and adverse affect on the properties or business of the Company.
4
The execution, delivery and performance of and compliance with this Agreement,
and the sale of Convertible Notes (and the issuance of the Series A Preferred
Stock upon conversion of the Convertible Notes and the issuance of Common Stock
upon conversion of the Series A Preferred Stock) pursuant to the terms hereof,
will not result in any violation or be in conflict with or constitute a default
under any such provision, or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such provision.
2.11 Litigation. There are no actions, suits, proceedings, investigations
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or claims against the Company or any of its directors or officers which are
pending, overtly threatened or reasonably to be expected nor, to the best of the
Company's knowledge, any basis for any of foregoing. Neither the Company nor
any of its directors or officers is a party or subject to the provisions of any
order, writ, injunction or decree of any court or governmental agency or
instrumentality and neither the Company nor any of its directors or officers has
any plans to initiate any legal action.
2.12 Material Contracts. Attached hereto as Schedule 2.12 is a list of all
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debt agreements or instruments pending or existing; agreements permitting
security interests in or liens on assets (except for statutory purchase money
security interests or liens); agent agreements; license agreements; agreements
with officers, directors or employees; leases; contracts for the purchase of
equipment with an aggregate purchase price in excess of $50,000; contracts or
agreements or any other arrangements or understandings limiting the Company's or
any of its officers' ability to compete in a business or geographic area;
contracts or agreements which may materially and adversely affect the Company's
business or assets or restrict any of its key employees in performing their
responsibilities to the Company and its stockholders; and all other written or
oral agreements, contracts, mortgages, indentures, leases, rental agreements and
instruments, other than contracts for the purchase of equipment, with aggregate
payment obligations of the Company in excess of $50,000 to which the Company is
a party or by which it is bound. The Company has in all respects performed all
obligations required to be performed by it to date under all of its contracts
and, to the best of the Company's knowledge, no party to any such contract is in
default. Copies of all such agreements listed on Schedule 2.12 have been and
will continue to be made available to the Investors and their counsel.
2.13 Title to Property and Assets.
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(a) Title to all the Company's oil and gas leases has been determined
in a manner consistent with normal practices in the oil and gas industry
including the following: (i) conducting a perfunctory title review at the time
undeveloped properties are acquired, and (ii) obtaining a full title
examination of the drill site prior to the commencement of drilling operations
and curing any significant title defects before the undertaking of any
drilling activities.
(b) Except as set forth in Schedule 2.13, the Company has or will have
(i) legal or equitable title to each producing oil and gas property that is
adequate to assure the right to receive the portion of the revenues from the
sale of production from such property equal to its net revenue or overriding
royalty interest, or both, in each such
5
property, and (ii) a currently effective division order title opinion with
respect to each producing property in form and substance satisfactory to the
Company.
(c) Except as set forth in Schedule 2.13, each oil and gas property
upon which drilling has commenced is free of any mortgage, pledge, lien,
security interest, encumbrance, restriction, option or charge of any kind or
any property interest of any person or entity, except for (i) those liens or
other interests disclosed in the Company's balance sheet as of May 31, 1998,
(ii) those imperfections of title, if any, that considered individually or in
the aggregate do not materially reduce the value of such property, or impair
the present or future exploitation or development of such property for the
production of oil, gas and other hydrocarbons, whether undertaken by the
Company or some third party on behalf of the Company, (iii) liens for current
taxes not yet due and payable, (iv) any right to take production in kind, and
(v) any other right or restriction pursuant to standard provisions considered
as general industry practice and set forth in standard oil and gas A.A.P.L.
Form 610-1989.
(d) Based on the Company's perfunctory review of title for undeveloped
oil and gas properties as described in Section 2.13(a) above, the Company is
not aware of any mortgage, pledge, lien, security interest, encumbrance,
restriction, option or charge of any kind or any property interest of any
person or entity concerning the Company's undeveloped oil and gas properties,
except for (i) those set forth in Schedule 2.13, (ii) those liens or other
interests disclosed in the Company's balance sheet as of May 31, 1998, (iii)
those imperfections of title, if any, that considered individually or in the
aggregate do not materially reduce the value of such property, or impair the
present or future exploitation or development of such property for the
production of oil, gas and other hydrocarbons, whether undertaken by the
Company or some third party on behalf of the Company, (iv) liens for current
taxes not yet due and payable, (v) any right to take production in kind, and
(vi) any other right or restriction pursuant to standard provisions considered
as general industry practice and set forth in standard oil and gas A.A.P.L.
Form 610-1989.
(e) The Company has good and marketable title, free and clear of all
liens and encumbrances, to all of its assets other than oil and gas
properties, except: (i) the lien of current taxes not yet due and payable; and
(ii) minor liens and encumbrances which do not in any case materially detract
from the value of the property subject thereto or materially impair the
operations of the Company taken as a whole, and which have not arisen
otherwise than in the ordinary course of business. All leases pursuant to
which the Company leases real or personal property, other than oil and gas
properties, are valid and effective in accordance with their respective terms
and, to the best of the Company's knowledge, there exists no default or other
occurrence or condition which could result in a default or termination of any
such lease.
2.14 Taxes. The Company has timely filed, or caused to be timely
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filed, all federal, state and local tax returns for income taxes, franchise
taxes, sales taxes, withholding taxes, property taxes and, to the best of the
Company's knowledge, all other taxes of every kind whatsoever required by law to
be filed, and all such tax returns are complete and accurate and in accordance
with all legal requirements applicable thereto. The tax returns of the Company
have
6
never been audited by appropriate governmental authorities and the Company does
not know of any additional tax liabilities, deficiencies or proposed adjustments
for any period for which any such returns have been filed.
2.15 Patents, Trademarks, etc. Except as set forth on Schedule 2.15, the
-------------------------
Company owns or has the right to use, free and clear of all liens, charges,
claims and restrictions, all patent rights, trademarks, service marks, trade
names, copyrights, proprietary information, know-how, licenses and rights
necessary to its business as now conducted or as proposed to be conducted, and
will not, to the Company's knowledge, when so acting, infringe upon or otherwise
act adversely to the right or claimed right of any person under or with respect
to any of the foregoing. The Company is not a party to any agreement concerning
the foregoing. The Company has not received any communications alleging that
the Company has violated or, by conducting its business as proposed, would
violate, the proprietary or intellectual property rights of any other person or
entity. The Company is not aware of any violation or infringement by a third
party of any of the Company's licenses, trademarks, service marks, trade names,
copyrights, trade secrets, patent rights or other proprietary rights.
2.16 SEC Reports. The Company has filed all reports required to be filed by
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it with the Securities and Exchange Commission (the "SEC") pursuant to the
Securities Exchange Act of 1934, as amended, since August 6, 1997, including,
without limitation, an Annual Report on Form 10-K for the year ended August 31,
1997 (collectively, the "SEC Documents"), and has previously furnished or made
available to the Investors true and complete copies of all such SEC Documents.
None of the SEC Documents, as of their respective dates (as amended through the
date hereof), contained any untrue statement of a material fact or omitted to
state a material fact required to be stated herein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.17 Misleading Statements. No representation, warranty or statement by the
---------------------
Company in this Agreement nor in any statement or certificate furnished or to be
furnished to any Investor pursuant hereto or in connection with the transactions
contemplated hereby, when taken together, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading. There is, to the best of the
Company's knowledge, no fact, other than general oil and gas industry
information or other information which is in the public domain and not specific
to the Company or its business, which materially and adversely affects the
business, prospects, condition, affairs or operations of the Company or any of
its properties or assets which has not been disclosed to the Investors in this
Agreement, the Schedules hereto or in the SEC Documents.
2.18 Employees. To the Company's knowledge, no employee of the Company is
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in violation of any term of any employment contract, patent disclosure agreement
or any other contract or agreement with any third party, the terms of which
would restrict the right of any such employee to be employed by the Company
because of the nature of the business conducted or to be conducted by the
Company or for any other reason, and the continued employment by the Company of
its present employees will not result in any such violations. The Company has no
oral employment agreements, other than at-will employment agreements, and no
written employment agreements with any of its employees except as described in
the Schedules attached
7
hereto, and there are no strikes or other labor disputes against the Company
pending or, to the best of the Company's knowledge, threatened. The Company is
not a party to or bound by any collective bargaining agreement or other labor
agreement with any bargaining agent (exclusive or otherwise) of any of its
employees.
2.19 Employee Compensation Plans. Except as set forth on Schedule 2.19, the
---------------------------
Company is not a party to or bound by any currently effective deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, stock option or incentive plan or other employee
compensation agreement, nor has the Company contracted or agreed to establish
any such plan. Copies of any such plans and any agreements arising therefrom to
which the Company is a party have been provided to the Investors and their
respective counsel. The Company has complied with all applicable state and
federal laws and regulations, including without limitation ERISA, with respect
to each such plan.
2.20 Registration Rights. Except as contemplated by Section 4.5 of this
-------------------
Agreement or as otherwise described on Schedule 2.20, the Company is not under
any obligation to "register" any of its presently outstanding securities or any
of its securities which may hereafter be issued. For the purposes of this
Agreement, the term "register" refers to a registration effected by filing a
registration statement in compliance with the Securities Act of 1933, as amended
or the securities laws of any state.
2.21 Certain Transactions. Except as set forth in Schedule 2.21, the
--------------------
Company is not indebted, either directly or indirectly, to any present or former
stockholder, officer or director, or to any of their respective spouses or
children, in any amount whatsoever, including, without limitation, any amounts
due under any deferred compensation plan, other than for payment of salaries
(but not deferred salaries) for services rendered, employee benefits and
reasonable expenses incurred on the Company's behalf. No present or former
officer, director or stockholder of the Company (nor any person in the immediate
family of any such officer, director or stockholder) is indebted to the Company
or has any material direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship with the Company or which competes with the Company. No
officer, director or holder of any of its capital stock or any member of their
immediate families, is, directly or indirectly, interested in any contract with
the Company. The Company is not a guarantor or indemnitor of any indebtedness
of any person, firm or corporation.
2.22 Stockholder Agreements. Except as required by this Agreement, there
----------------------
are no agreements or arrangements between the Company and any of the Company's
stockholders, or to the best of the Company's knowledge, between or among any of
the Company's stockholders, which grant special rights with respect to any
shares of the Company's capital stock or which in any way affect any
stockholder's ability or right freely to alienate or vote such shares.
2.23 Brokers or Finders. Except for amounts payable by the Company to
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Xxxxxxx X. Xxxxxxx, the Company has not incurred, and will not incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
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SECTION III.
Representations and Warranties of the Investors
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Each of the Investors hereby severally, but not jointly, represents and
warrants to the Company as follows:
3.1 Authorization. When executed and delivered by the Investor, this
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Agreement will constitute the valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of
general application relating to or affecting the enforcement of creditors'
rights.
3.2 Accredited Investor. The Investor is an "Accredited Investor" within
-------------------
the meaning of Rule 501 of Regulation D promulgated under the Securities Act of
1933, as amended (the "1933 Act").
3.3 Purchase Entirely for Own Account. The Investor is acquiring the
---------------------------------
Convertible Note, the Series A Preferred Stock and the Common Stock hereunder
for its own account for investment purposes only and not with a view to, or for
resale in connection with, any "distribution" of all or any portion thereof
within the meaning of the 1933 Act, subject, nevertheless, to any requirement of
law that the disposition of its property shall at all times be within its
control.
3.4 Disclosure of Information. The Investor has received and reviewed the
-------------------------
Company's SEC Documents, press releases and corporate minutes and is familiar
with the operations and prospects of the Company. In addition (but without
limiting the effect of the Company's representations and warranties contained in
this Agreement), the Investor has received all additional information it
considers necessary or appropriate for deciding whether to purchase the
Convertible Notes hereunder. Each Investor has been provided, to its
satisfaction, the opportunity to ask questions of the Company's officers and
directors concerning the business, plans, operations, management and financial
condition of the Company and to obtain any additional information necessary to
verify the accuracy of the information given to it.
3.5 Experience. The Investor is experienced in evaluating and investing in
----------
companies such as the Company. The Investor has no need for liquidity in this
investment, has the ability to bear the economic risk of this investment, and
can afford a complete loss of the purchase price.
3.6 Restricted Securities. Subject to the rights of the Investors under the
---------------------
Registration Rights Agreement, the Investor understands that the Convertible
Notes are (and the Series A Preferred Stock to be issued upon conversion thereof
and any Common Stock issued upon conversion of the Series A Preferred Stock will
be) characterized as "restricted securities" under the federal securities laws
inasmuch as they are being, or will be, acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. In this connection, the
Investor represents that it is familiar with Rule
9
144 promulgated by the Securities and Exchange Commission, as presently in
effect, and understands the resale limitations imposed thereby and by the 1933
Act.
3.7 Further Limitations on Disposition. Without in any way limiting the
----------------------------------
representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Convertible Notes (or of the Series A
Preferred Stock issued upon conversion thereof or of Common Stock issuable upon
conversion of the Series A Preferred Stock) except in compliance with applicable
state securities laws and unless and until:
(a) there is then in effect a registration statement under the 1933 Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement;
(b) such disposition is made in accordance with Rule 144 under the 1933
Act; or
(c) the Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and, if requested by the
Company, the Investor shall have furnished the Company with an opinion of
counsel acceptable to Company counsel, that such disposition will not require
registration under the 1933 Act and will be in compliance with applicable
state securities laws.
3.8 Legends. Subject to the rights of the Investors under the Registration
-------
Rights Agreement, it is understood that each certificate evidencing Convertible
Notes purchased by the Investors hereunder or Series A Preferred Stock or Common
Stock acquired upon conversion of the Convertible Notes or the Series A
Preferred Stock (or evidencing any other securities issued with respect thereto
pursuant to any stock split, stock dividend, merger or other form of
reorganization or recapitalization) shall bear, in addition to any other legends
which may be required by this Agreement or applicable state securities laws the
following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("ACT"), NOR HAVE THEY BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. NO TRANSFER OF SUCH
SECURITIES WILL BE PERMITTED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS
IN EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH RULE
144 OR RULE 144A UNDER THE ACT, THE HOLDER DELIVERS TO THE COMPANY AN OPINION
OF COUNSEL, WHICH COUNSEL AND OPINION SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY, THAT REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH
TRANSFER TO COMPLY WITH THE ACT AND WITH APPLICABLE STATE SECURITIES LAWS, OR
THE COMPANY AND THE HOLDER OTHERWISE AGREE THAT THE TRANSFER MAY BE MADE
WITHOUT VIOLATION OF THE ACT OR THE APPLICABLE STATE SECURITIES LAWS.
10
3.9 Brokers or Finders. Each Investor has not incurred, and will not
------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
SECTION IV.
Conditions of Investors' Obligations at Closing
-----------------------------------------------
The obligations of each of the Investors under Section 1.1 of this
Agreement are subject to the fulfillment at or before the Closing of each of the
following conditions:
4.1 Representations and Warranties True at Closing. The
----------------------------------------------
representations and warranties of the Company contained in Section II hereof
shall be true when made and shall be true on and as of the Closing Date with the
same effect as though such representations had been made on and as of the
Closing Date.
4.2 Performance. The Company shall have performed and complied with
-----------
all agreements and conditions contained herein required to be performed and
complied with by it on or before the Closing Date, and, without limiting the
generality of the foregoing, shall have obtained all consents, approvals,
authorizations, registrations and qualifications referred to in Sections 2.9 and
4.6 on or before the Closing Date.
4.3 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be satisfactory in form and substance to each
Investor.
4.4 Contribution Agreement. The Company shall enter into a
----------------------
Contribution Agreement in the form of Exhibit C hereto with each of the
Investors identified as signatories to that agreement.
4.5 Registration Rights Agreement. The Investors and the Company
-----------------------------
shall enter into a Registration Rights Agreement in the form of Exhibit D
hereto.
4.6 Blue Sky. The Company shall have obtained all necessary Blue Sky
--------
law permits and qualifications, or secured an exemption therefrom, required by
any state for the offer and sale of the Convertible Notes and the issuance of
the Series A Preferred Stock upon conversion of the Convertible Notes, and the
Common Stock issuable upon conversion of the Series A Preferred Stock.
4.7 Opinion of Counsel. There shall have been delivered to each of
------------------
the Investors the opinion of Bearman Xxxxxxxxx & Xxxxxxx dated the Closing Date,
in the form attached hereto as Exhibit E.
4.8 Board of Directors. As of the Closing Date, the Board of
------------------
Directors shall consist of no more than six members, including X. X. Xxxxxxxxx
and Xxxxx Xxxxxx.
4.9 Legal Matters. All matters of a legal nature which pertain to
-------------
this Agreement and the transactions contemplated hereby shall have been approved
by counsel to the Investors.
11
4.10 Voting Agreements. The Investors shall have received Voting
-----------------
Agreements in the form of attached hereto as Exhibit F from each of D. Xxxxx
Xxxxxxxxxxx and Xxxxxx X. Xxxxxx.
4.11 SE Maricopa Drilling Commitment. The Company shall have
-------------------------------
obtained the approval of Chevron USA to extend the commencement date for
drilling of the initial test well on the SE Maricopa prospect, under the "School
Road/Southeast Maricopa Project Areas Farmout" Agreement, between the Company
and Chevron USA, to no earlier than June 30, 1999.
4.12 Employment and Non-Compete Agreements. Identified key employees
-------------------------------------
and officers of the Company shall have entered into, confidentiality and non-
compete agreements, in forms approved by the Investors.
4.13 Indemnification Agreement. The Company shall have entered into
-------------------------
indemnification agreements with each of the Investor-designated board
representatives, such agreements to be in a form approved by the Investors and
their respective counsel, as well as the Company.
4.14 Xxxxxxx Agreement. The Company shall reach an agreement with
-----------------
Xxxxxxx X. Xxxxxxx with respect to a finder's fee payable to Xx. Xxxxxxx in
connection with the transactions contemplated by this Agreement, and such
agreement shall provide for the payment of not more than $45,000, and the
issuance of warrants to purchase not more than 175,000 shares of Common Stock of
the Company, at an exercise price of $0.75 per share or greater. The agreement
with Xx. Xxxxxxx shall be subject to the reasonable approval of the Investors.
SECTION V.
Conditions of the Company's Obligations at Closing
--------------------------------------------------
The obligations of the Company under Section 1.1 of this Agreement are
subject, at the option of the Company, to the fulfillment at or before the
Closing of each of the following conditions:
5.1 Representations and Warranties True at Closing. The
----------------------------------------------
representations and warranties of each of the Investors contained in Section III
hereof shall be true when made and shall be true on and as of the Closing Date
with the same effect as though said representations and warranties had been made
on and as of the Closing Date.
5.2 Legal Matters. All matters of a legal nature which pertain to
-------------
this Agreement and the transactions contemplated hereby shall have been approved
by the Company based on advice from its legal counsel.
SECTION VI.
Covenants of the Company
------------------------
Until all the Series A Preferred Stock has been redeemed or converted
into Common Stock, the Company hereby covenants and agrees as follows:
12
6.1 Financial Information. The Company will furnish the following
---------------------
reports to each Investor for so long as such Investor is a holder of any Series
A Preferred Stock (or Common Stock issued upon conversion of the Series A
Preferred Stock):
(a) As soon as practicable after the end of each fiscal year,
and in any event within one business day after such reports have been filed
with the SEC (but in no event later than 106 days after the end of the
Company's fiscal year), consolidated balance sheets of the Company and its
subsidiaries, as of the end of such fiscal year, and consolidated
statements of income and consolidated statements of changes in financial
position of the Company and its subsidiaries, for such year, prepared in
accordance with generally accepted accounting principles and setting forth
in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and certified by Xxxxxxx, Wasoff and Company, the
Company's current independent public accountants, or by other independent
public accountants of reputable and recognized national standing selected
by the Company;
(b) As soon as practicable after the end of each of the first
three fiscal quarters of the Company's fiscal year and in any event within
one business day after such reports have been filed with the SEC (but in no
event later than 51 days after the end of a quarter), consolidated and
consolidating financial statements of the Company and its subsidiaries, as
at the end of such quarter, for the period commencing at the beginning of
the applicable fiscal year and ending with the end of such quarter
(including a balance sheet, statements of income and retained earnings and
a cash flow statement, in form reasonably satisfactory to the Investors),
prepared in accordance with generally accepted accounting principles
(except for the absence of accompanying notes and subject to normal year-
end adjustments) and certified by the Chief Financial Officer or Chief
Accounting Officer of the Company and the President of the Company.
(c) Within one business day after such reports have been filed
with the SEC, such other reports as the Company files with the SEC.
6.2 Additional Information.
----------------------
(a) So long as any Investor holds not less than $500,000
principal amount of Convertible Notes or 5,000 shares of the Series A
Preferred Stock (or an equivalent number of shares consisting of Series A
Preferred Stock or Common Stock issued upon conversion of the Series A
Preferred Stock, which in the aggregate represent an initial investment of
$500,000), as adjusted for recapitalizations, stock splits, stock dividends
and the like, the Company will deliver to each such Investor the following:
(i) Prompt notice of all material threatened or commenced
litigation or administrative proceedings, and of all labor controversies
and material disputes with any employees or other third parties.
(ii) With reasonable promptness, such other information and
data with respect to the Company and its subsidiaries as any such Investor
may from time to time reasonably request.
13
(b) For so long as an Investor is eligible to receive materials
under this Section 6.2, it shall also have the right, at its expense, to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss their affairs, finances and accounts with
their officers, all at such reasonable times and as often as may be
reasonably requested.
6.3 Confidentiality.
---------------
(a) Information Confidential and Not For Competitive or Other
---------------------------------------------------------
Use. Each Investor acknowledges that the information provided to the
---
Investor pursuant to Sections 6.1 and 6.2 (except to the extent such
information is filed with the SEC or otherwise publicly made available) and
otherwise (collectively, the "Information") may include proprietary
information and data, interpretations, innovative processes, trade secrets,
marketing plans, and confidential or specialized data and/or other
information relative to the business and proposed business of the Company.
"Information" shall not include any information which is publicly
available. Each Investor agrees and covenants with and unto the Company
that that Investor will use the Information solely to evaluate that
Investor's investment in the Company. Without limiting the foregoing,
except as specifically authorized in writing by the Company or as required
by law (including court order), in which latter event the respective
Investor will immediately notify the Company of the requirement and
reasonably assist the Company in contesting that requirement if requested
by the Company, each respective Investor will not use any Information for
that Investor's or any other person's or entity's benefit, including in any
manner or for any purpose competitive with the business of the Company, and
each respective Investor will not, at any time, disclose any of the
Information to any other person, firm, corporation or other entity without
the written consent of the Company, except for reasonable disclosure made
by an Investor to its employees, consultants, limited partners, accountants
or banks and only after such recipient agrees to be bound by the terms of
this Section 6.3. Notwithstanding the provisions of this Section 6.3(a) to
the contrary, if, and to the extent that any Leases are reassigned to one
or more of the Investors pursuant to Section 1.3 of the Contribution
Agreement, then those Investors shall be entitled to use Information
related to such Leases.
(b) Inside Information. Certain of the Information described in
------------------
Subsection 6.2(a) that the Company may furnish to the Investors and certain
of the Investors' representatives may be material information concerning
the Company and its operations that has not been included in publicly filed
documents or otherwise been publicly disclosed (the "Non-Public
Information"). Each Investor acknowledges that the Company is a corporation
that is subject to the reporting requirements of the U.S. Securities
Exchange Act of 1934 (the "Exchange Act") and whose common stock is traded
publicly. In this regard, each Investor recognizes that applicable U.S.
federal securities laws impose restrictions concerning the use or
disclosure of the Non-Public Information in connection with buying or
selling, or discussing with others the possibility of buying or selling,
the Company's securities. Each Investor agrees that it will not, and that
it will ensure that any person having such Non-Public Information through
it will not, buy or sell the Company securities, or discuss with others any
Non-Public Information concerning the Company or the possibility or
advisability of buying or
14
selling the Company's securities, at any time that the respective Investor
possesses Non-Public Information concerning the Company.
(c) Responsibility For Recipients Of Information. Each Investor
--------------------------------------------
shall be responsible and liable to the Company for the failure of that
Investor or any other Person receiving the Information from that Investor
to comply with any of the provisions of this Section 6.3.
(d) Each Investor and the Company hereby confirm that any
Information disclosed to the Investors, or any discussions held between the
respective Investors and the Company, prior to the date of this Agreement
shall be subject to the terms of this Section 6.3.
6.4 Assignment of Rights to Financial Information. The right granted
---------------------------------------------
pursuant to Section 6.1 and 6.2 may be assigned or otherwise conveyed, as part
of an assignment or conveyance of Convertible Notes or Series A Preferred Stock,
by an Investor or by a subsequent transferee of any such rights, subject to the
satisfaction of the requirements prescribed herein for the holding of the
requisite number of shares and subject to the obligations set forth in Section
6.3.
6.5 Taxes, Liens, Etc. The Company and its subsidiaries will
-----------------
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company or any
subsidiary; provided, however, that any such tax, assessment, charge, or levy
need not be paid if the validity thereof is currently being contested in good
faith by appropriate proceedings and if the Company has set aside on its books
adequate reserves with respect thereto, and provided further, that the Company
will pay all such taxes, assessments, charges, or levies promptly upon the
commencement of proceedings to foreclose any lien that may have attached as
security therefor. The Company will promptly pay or cause to be paid when due,
or in conformance with customary trade terms, all other indebtedness incident to
the operations of the Company.
6.6 SEC Filings. Promptly after the Closing Date, but in no event
-----------
later than December 18, 1998, the Company agrees to (a) file a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission to register the resale of the maximum number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock, plus the number
of shares issuable assuming the Company elects to pay interest on the
Convertible Notes and dividends on the Series A Preferred Stock by delivery of
Common Stock for the three years after the Closing Date, plus the number of
shares of Common Stock to be issued under the Contribution Agreement; and (b)
file a proxy statement (or information statement) relating to the approval of
the Series A Preferred Stock and an amendment to the Company's Certificate of
Incorporation to limit the liability of directors for monetary damages. The
Company agrees to amend and supplement the Registration Statement from time to
time to keep it effective and to increase, as necessary, the number of shares
registered thereunder to reflect any additional shares issuable as a result of
conversion price adjustments or similar events, all in accordance with the terms
of the Registration Rights Agreement.
15
6.7 Board of Directors. For so long as any of the Convertible Notes
------------------
remain outstanding, the Company shall not permit the number of members of the
Board of Directors to exceed six members, except with the prior written approval
of the holders of a majority in principal amount of the then outstanding
Convertible Notes.
6.8 Issuance of Debt or Equity. For so long as any of the
--------------------------
Convertible Notes remain outstanding, the Company shall not issue or incur any
additional debt or issue equity securities, or options therefor, after the
Closing Date, except with the prior written approval of the holders of a
majority in principal amount of the then outstanding Convertible Notes.
6.9 Amendment of Certificate. As soon as practicable after the
------------------------
Closing Date, the Company agrees to present to, and seek approval of, the
stockholders of the Company of a proposal to amend the Company's Certificate of
Incorporation to limit the liability of directors for monetary damages, such
Amendment to be in a form approved by the Investors and their counsel.
6.10 D & O Insurance. Promptly after the Closing date, the Company
---------------
agrees to use its reasonable best efforts to obtain and thereafter to maintain a
directors' and officers' insurance policy covering any errors or omissions of
the Company's directors and officers acting in such capacities, in a coverage
amount of not less than $2.0 million, except that if the cost of such policy
exceeds $40,000 per year, the coverage amount shall be reduced so that the cost
of the policy does not exceed $40,000 per year. All board members shall be named
as insureds under such policy.
6.11 Conversion Price Adjustment. If at any time during the 12-month
---------------------------
period after conversion of all of the Series A Preferred Stock into shares of
Common Stock, the Company shall issue or sell Additional Shares of Common Stock
(as defined in the Certificate of Designation for the Series A Preferred Stock)
at a price below the Conversion Price for the Series A Preferred Stock in effect
on the conversion date (the "Conversion Date"), then the Company agrees to issue
additional shares of Common Stock to each of the Investors so that each Investor
shall have received the number of shares of Common Stock which such Investor
would have received had the Series A Preferred Stock remained outstanding, and
an anti-dilution adjustment in the Conversion Price been made with respect to
such issuance. All calculations under this Section 6.11 shall be made in
accordance with the provisions of Section 4.4 of the Certificate of Designation,
and all terms used in this Section 6.11 shall have the meanings given those
terms in the Certificate of Designation as in effect on the Conversion Date
notwithstanding the conversion of the Series A Preferred Stock.
SECTION VII.
Miscellaneous Provisions
------------------------
7.1 Further Assurances. Each party agrees to cooperate fully with
------------------
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby, and to carry into effect the intents and
purposes of this Agreement.
16
7.2 Rights Cumulative. Each and all of the various rights, powers
-----------------
and remedies of the parties hereto shall be considered to be cumulative with and
in addition to any other rights, powers and remedies which such parties may have
at law or in equity in the event of the breach of any of the terms of this
Agreement. The exercise or partial exercise of any right, power or remedy shall
neither constitute the exclusive election thereof nor the waiver of any other
right, power or remedy available to such party.
7.3 Number and Gender. All words and any variations thereof shall be
-----------------
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require or as otherwise
appropriate in view of their context.
7.4 Notices. All notices, demands and requests required by this
-------
Agreement shall be in writing and shall be deemed to have been given for all
purposes (i) upon personal delivery, (ii) one day after being sent, when sent by
professional overnight courier service from and to locations within the
continental United States, (iii) five days after posting when sent by registered
or certified mail, or (iv) on the date of transmission when sent by telecopier,
addressed (a) if to the Company, at its address set forth on the signature page
hereof; or (b) if to an Investor, at their addresses as set forth on Schedule A
hereto. Any party hereto may from time to time by notice in writing served upon
the others as provided herein, designate a different mailing address or a
different person to which such notices or demands are thereafter to be addressed
or delivered.
7.5 Captions. Captions are provided herein for convenience only and
--------
they are not to serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
7.6 Severability. The provisions of this Agreement are severable.
------------
The invalidity, in whole or in part, of any provision of this Agreement shall
not affect the validity or enforceability of any other of its provisions. If one
or more provisions hereof shall be declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable provisions of this
Agreement with valid and enforceable provisions which will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provisions.
7.7 Attorneys' Fees. In any action at law or in equity to enforce
---------------
any of the provisions or rights under this Agreement, the unsuccessful party to
such litigation, as determined by the court in a final judgment or decree, shall
pay the successful party all costs, expenses and reasonable attorney's fees, as
set by the court and not by a jury, incurred by the successful party (including,
without limitation, costs, expenses and fees on any appeal).
7.8 Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which shall be deemed as an original; when executed,
separately or together, all of such counterparts shall constitute a single
original instrument, effective in the same manner as if all parties hereto had
executed one and the same instrument.
17
7.9 Entire Agreement. This agreement (together with its Exhibits
----------------
and other documents referred to herein) is intended by the parties hereto to be
the final expression of their agreement and constitutes and embodies the entire
agreement and understanding between the parties hereto with regard to the
subject matter hereof and is a complete and exclusive statement of the terms and
conditions thereof, and shall supersede any and all prior oral and written
correspondence, conversations, negotiations, agreements and understandings
relating to the same subject matter.
7.10 Amendment. This Agreement may be amended upon the written
---------
consent of the Company and the Investors (or their permitted assignees to whom
Investors have expressly assigned their rights under this Agreement) holding at
least a majority of the principal amount of the Convertible Notes (or, the
Series A Preferred Stock upon conversion) voting as a single group (including,
for such purposes, any shares of Common Stock issued upon conversion thereof)
sold pursuant to this Agreement and then held by such Investors and such
permitted assignees. All Investors and their permitted assignees shall be bound
by any amendment effected pursuant to this Section 7.10, whether or not any such
Investor or assignee consents to any such amendment.
7.11 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy of or by any holder of any Convertible Notes or Series A
Preferred Stock, upon any breach or default of the Company under this Agreement,
shall impair any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
holder of Convertible Notes or Series A Preferred Stock of any breach or default
under this Agreement, or any waiver on the part of any such holder of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing.
No delay or omission to exercise any right, power or remedy of or by
the Company upon any breach or default of an Investor under this Agreement,
shall impair any such right, power or remedy of the Company nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of the
Company of any breach or default under this Agreement, or any waiver on the part
of the Company of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing.
7.12 Waiver and Extension of Time. Any party hereto may by a writing
----------------------------
signed by an authorized representative of such party: (i) extend the time for
the performance of any of the obligations of another party; (ii) waive any
inaccuracies in representations and warranties made by another party contained
in this Agreement or in any documents delivered pursuant hereto; (iii) waive
compliance by another party with any of the covenants contained in this
Agreement or the performance of any obligations of such other party; or (iv)
waive the fulfillment of any condition that is precedent to the performance by
such party of any of its obligations under this Agreement; provided that no
extension or waiver by any Investor shall be binding on any other Investor which
has not also executed a similar extension or waiver and further provided that no
Investor may extend the time for performance, or undertake a waiver of
18
any nature, on behalf of another Investor, with respect to that other Investor's
relationship, obligations, or other commitments or responsibilities to the
Company. No waiver of any term, provision or condition of this Agreement, in any
one or more instances, shall be deemed to be, or be construed as, a further or
continuing waiver of any such term, provision or condition or as a waiver of any
other term, provision or condition of this Agreement.
7.13 Governing Law; Jurisdiction. This Agreement shall be governed
---------------------------
by and construed in accordance with, the laws of the State of California. All
disputes among the Company and the Investors, whether sounding in contract,
tort, equity or otherwise, shall be resolved only by state and federal courts
located in Los Angeles, California, and the courts to which an appeal therefrom
may be taken. The Company waives any objection that it may have to the location
of the court in which an Investor has commended proceeding, including, without
limitation, any objection to the laying of venue or based on forum non
conveniens.
7.14 Successors and Assigns. Except as otherwise provided herein,
----------------------
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
7.15 Survival. The respective representations and warranties given
--------
by the Company and the Investors, as contained herein and in any certificates to
be delivered at the Closing, shall survive the Closing Date and the issuance of
the Convertible Notes, the Series A Preferred Stock and the Common Stock
issuable upon conversion of the Convertible Notes or the Series A Preferred
Stock without regard to any investigation made by any party. All statements as
to factual matters contained in any certificates, exhibits or other instruments
delivered by or on behalf of any party pursuant to the terms hereof or in
connection with the transactions contemplated hereby shall be deemed, for all
purposes, to constitute representations and warranties by such party under the
terms of this Agreement given as of the date of such certificate or instrument.
7.16 Majority Noteholders. Whenever any action, waiver or consent
--------------------
hereunder (collectively "Action") is required to be done, made or given by a
majority of the holders of the Convertible Notes, such Action shall have been
duly approved in accordance with the terms of this Agreement, if the holders of
a majority in principal amount of the outstanding Convertible Notes consent to
or approve such Action. No meeting of holders of Convertible Notes shall be
required in connection with any consent or approval hereunder and any or all
such Actions may be taken by written consent.
7.17 Exhibits and Schedules. All Exhibits and Schedules to this
----------------------
Agreement are incorporated herein by this reference as if fully set forth
herein.
7.18 Legal Expenses. Each of the parties agrees to bear all of its
--------------
own expenses, for legal counsel and otherwise, in connection with the
negotiations, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereunder.
7.19 Investor Investigation. Each Investor acknowledges that it is
----------------------
not relying upon any person, firm or corporation (other than the Company and its
officers and directors) in making its investment or decision to invest in the
Company. Each of the Investors represents to
19
each of the other Investors that it has been solely responsible for its own "due
diligence" investigation of the Company and its management and business, and for
its own analysis of the merits and risks of this investment. Each Investor
agrees that no Investor nor the respective controlling persons, officers,
directors, partners, agents or employees of any such Investor shall be liable to
any other Investor for any actions taken in connection with the purchase of
Convertible Notes in accordance with the terms of this Agreement.
7.20 Nomination and Selection of Investor-Designated Directors. Each
---------------------------------------------------------
of the Investors hereunder (including any Subsequent Investor) agrees with each
of the other Investors hereunder that the rights of the Investors to nominate
board members as set forth herein, in the Certificate of Designation after the
issuance of the Series A Preferred Stock or otherwise after conversion of Series
A Preferred Stock into Common Stock, and the selection of the board members so
nominated shall be governed by the provisions of this Section. Each of the
Investors agrees that Investor-designated nominees to the Company's Board of
Directors shall be selected by a majority in interest of the then outstanding
securities acquired by the Investors under this Agreement and the Contribution
Agreement. For purposes of determining a "majority in interest" of the then
outstanding securities, all then outstanding securities of the Company acquired
under this Agreement or the Contribution Agreement, if not already converted
into Common Stock of the Company, shall be converted into common stock
equivalents based on the then applicable conversion ratio for such security
("Common Stock Equivalents"). The holders of a majority in interest of Common
Stock and Common Stock Equivalents acquired under this Agreement and the
Contribution Agreement shall be entitled to designate the board nominees
described in Section 4.8 of this Agreement, Section 4.7 of the Certificate of
Designation and in Section 1.1 of the Voting Agreement. Each of the Investors
agrees to vote all of the Company's outstanding voting securities owned by him,
her or it or which he, she or it has a right to vote in favor of the nominees
selected in accordance with the provisions of this Section. Each of the
Investors agrees that the provisions of this Section shall continue after the
issuance of the Series A Preferred Stock, and shall control over provisions to
the contrary, if any, then set forth in the Certificate of Designation. Any
Investor transferring Series A Preferred Stock shall cause any transferee to
acknowledge and agree to the provisions of this Section. The obligations set
forth in this Section shall terminate and expire on October 15, 2008 or, if
earlier, on the date that any such Investor has publicly sold shares of Common
Stock acquired upon conversion of the Convertible Note or Series A Preferred
Stock or issued under the Contribution Agreement, then on the date of such sale
with respect to those shares.
20
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
with the intent and agreement that the same shall be effective as of the day and
year first above written.
THE COMPANY:
PYR ENERGY CORPORATION,
a Delaware corporation
By: ______________________________
D. Xxxxx Xxxxxxxxxxx, President and CEO
THE INVESTORS:
Victory Oil Company
By: _________________________
Name:
Title:
21
Whittier Trust Company, as trustee,
of the below listed trusts
By: ________________________
Name:
Title:
Xxxxx-Xxx Xxxxxxxx Xxxxx UDT 12/30/82
Xxxxxx Xxxxxxxx Xxxxx UDT 12/30/82
Laure Xxxxxx Xxxxx UDT 9/30/66
Laure Xxxxxx Xxxxx UDT 12/30/82
Xxxxxxxx Xxx Xxxxx UDT 12/30/82
Xxxxxx Xxxxxxx Xxxxxx UDT 2/15/66
Xxxxx Xxxxxx Xxxxxx UDT 12/30/82
Xxxxxx Xxxxxxxx Xxxxxx UDT 12/30/82
Xxxxxxxx Xxxxxxxx Xxxxxx UDT 2/15/66
Xxxxx Xxxxxx UDT 12/30/82
Xxxxxx X. Xxxxxxx UDT 2/15/66
Xxxxxx X. Xxxxxxx UDT 12/22/66
Johan Xxxxxxxxx Xxxxxxx UDT 12/30/82
Xxxxxxx Xxx Xxxxxxx UDT 12/30/82
Xxxx Xxxxx Xxxxxxx UDT 12/30/82
Xxxxx X. Xxxxxxx UDT 12/30/82
Xxxx X. Xxxxxx UDT 2/16/66
Xxxx X. Xxxxxx UDT 12/22/66
Xxxx X. Xxxx UDT 2/15/66
Xxxx X. Xxxx UDT 12/22/66
22
Whittier Trust Company of Nevada, as trustee,
of the below listed trusts
By: ________________________
Name:
Title:
Xxxx Xxxxxxxx UDT 12/30/82
Xxxxx Xxxx Xxxxxxxx UDT 2/15/66
Xxxxx Xxxx Xxxxxxxx UDT 12/30/82
Xxxxxxxx Xxxx Xxxxxxxx UDT 12/30/82
Xxxxxx X. Xxxx UDT 12/30/82
Xxxx Xxxxxxxx Xxxx UDT 12/30/82
Xxxxx X. Xxxxxx Trust 82
Xxxxx Xxxxxx Xxxxxx 12/30/82
Xxxxx Xxxx Xxxxxx UDT 12/30/82
Xxxx Xxxx Xxxxxx UDT 12/30/82
Xxxxxxxxx Xxxxxxx UDT 12/30/82
Xxxxx Xxxxx Solaini UDT 12/30/82
Xxxxxx Xxxxxxx Whittier UDT 12/30/82
Xxxxx Xxxxx Xxxxxxxx UDT 12/30/82
Xxxx Xxxxxxx Whittier UDT 12/30/82
Xxxxx Xxxxxxx UDT 12/30/82
23
Whittier Trust Company, as agent,
of the below listed entities
By: ________________________
Name:
Title:
MHW Corp. Xxxxx Xxxxxx
MHW Corp. Xxxx Xxxxxx
MHW Corp. Xxxxx Xxxxxx
MHW Corp. Xxxxxx Xxxxxxxx
Whittier Trust Company of Nevada, as agent,
of the below listed entities
By: ________________________
Name:
Title:
MHW Corp. Xxxxx Xxxxxx
MHW Corp. Xxxxx Xxxxxx
MHW Corp. Xxxxx Xxxxxx
[SIGNATURES CONTINUED ON NEXT PAGE]
24
____________________________________
Xxx X. Xxxxxx
[SIGNATURES CONTINUED ON NEXT PAGE]
Crown Hill Trust
By: ________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
Rubar Colorado, Inc.
By: ________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
____________________________________
Xxxxxx Xxxxxxxx
[SIGNATURES CONTINUED ON NEXT PAGE]
____________________________________
X. X. Xxxxxxxxx
[SIGNATURES CONTINUED ON NEXT PAGE]
Adventure Seekers Travel, Inc.
By: ________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
SCHEDULE A
Number of
Principal Shares of
Aggregate Amount of Series A
Purchase Convertible Preferred
Investor Price Note Stock
-------- ----------- ---------- -------------
Victory Oil Company $1,000,000 $1,000,000 10,000 shares
000 Xxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
Facsimile No. (000) 000-0000
Attn: Xxxx X. Xxxxxxxx
Adventure Seekers Travel, Inc. $ 40,000 $ 40,000 400
000 Xxxxxxx Xxxxxx
Xxxxx 000
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx
X.X. Xxxxxxxxx $ 60,000 $ 60,000 600
000 Xxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
Facsimile No. (000) 000-0000
Xxx X. Xxxxxx $ 250,000 $ 250,000 2,500
0000 Xxxxxxx Xxxxxx Xxxx
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile No.
Crown Hill Trust $ 250,000 $ 250,000 2,500
0000 Xxxx Xxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxx 00000
Facsimile No. (000) 000-0000
Attention: Xxx X. Xxxxxxxxx
Rubar Colorado, Inc. $ 100,000 $ 100,000 1,000
000 Xxxxxxxxxx Xxxxxxxx
Xxxxxxxx
Xxxxxxxx X0XXX0
Xxxxxx
Facsimile No.
A-1
Attention: Xxxx Xxxxxx
Xxxxxx Xxxxxxxx $ 100,000 $ 100,000 1,000
c/x Xxxxx & Xxxxx
Xxx Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Facsimile No.:
Whittier Trust Company see attached list
Whittier Trust Company of Nevada
0000 Xxxxxxxxxx Xxxxx
Xxxxx Xxxxxxxx, Xxxxxxxxxx 00000
Facsimile No. (000) 000-0000
Attn: Xxxxxx Xxxxxxxx
A-2
SCHEDULE 2.2
Options, Warrants, Etc.
-----------------------
The following are options, calls, warrants, conversion privileges, preemptive
rights, rights of first refusal or other commitments or rights, of any character
whatsoever, presently outstanding or in existence with respect to the purchase
or other acquisition of any of the authorized but unissued capital stock of the
Company.
. Mar Ventures Inc. - 1997 Stock Option Plan
SCHEDULE 2.3
SCHEDULE 2.3
Subsidiaries and Affiliates
---------------------------
None.
SCHEDULE 2.4
SCHEDULE 2.7
Contingent Obligations and Liabilities
--------------------------------------
In addition to the outstanding accounts payable incurred in the ordinary course
of business, the following matters will be reflected on the PYR Energy
Corporation Balance Sheet at fiscal year-end August 31, 1998:
. Payable to Western Geophysical Company in the approximate amount of
$1,406,000, which represents the unpaid balance for costs related to 3-D
seismic data acquired on the Company's Southeast Maricopa acreage.
. Payable to Interactive Earth Sciences Corporation in the approximate amount
of $30,000, which represents consulting fees performed in relation to the
Company's School Road project.
. Payable to Coherence Technology Company in the approximate amount of $42,000
for seismic data reprocessing charges related to the Company's School Road
project.
SCHEDULE 2.7
SCHEDULE 2.12
Material Contracts
------------------
. General Agreement for Acquisition of Geophysical Data between Western
Geophysical, a division of Western Atlas International, Inc. and PYR Energy
Corporation dated November 18, 1997.
. Participation Agreement Between Seneca Resources Corporation and PYR Energy
Corporation dated May 22, 1998.
. Exploration Agreement between Xxxxxxxxx Resources, LLC, PYR Energy
Corporation, Berkley Petroleum Corp., Paramount Resources Inc., Westminster
Resources Ltd., Bellevue Resources Inc., Richland Petroleum Corporation, STB
Energy Inc., Ceniarth, Inc., and Prima Energy Corp. dated January 30, 1998.
. School Road/Southeast Maricopa Prospect Areas Farmout Agreement between
Chevron U.S.A. Production Company, a division of Chevron U.S.A. Inc. and PYR
Energy, LLC dated March 15, 1997.
SCHEDULE 2.12
SCHEDULE 2.15
Patents, Trademarks
-------------------
None.
SCHEDULE 2.15
SCHEDULE 2.19
Employee Compensation Plans
---------------------------
The following is a listing of any currently effective deferred compensation
agreements, bonus plans, incentive plans, profit sharing plans, retirement
agreements, stock option or incentive plans or other employee compensation
agreements:
. Mar Ventures Inc. - 1997 Stock Option Plan.
SCHEDULE 2.19
SCHEDULE 2.20
Registration Rights
-------------------
Pursuant to Subscription Agreements entered into in connection with a private
placement of securities in July 1997, the Company granted registration rights to
the purchasers of 4,095,000 shares of Common Stock and Common Stock Purchase
Warrants (the "Warrants") to purchase up to an additional 4,095,000 shares of
Common Stock. The registration rights provisions required the Company to file a
registration statement within 60 days after the closing of the offering covering
the sale or other transfer of the Common Stock acquired in the private placement
and upon the exercise of the Warrants. In accordance with these obligations,
the Company filed a registration statement with the Securities and Exchange
Commission (Registration Number 333-38665), which registration statement was
declared effective on November 28, 1997. The Warrants have now expired, with
none having been exercised.
SCHEDULE 2.20
SCHEDULE 2.21
Certain Transactions
--------------------
None.
SCHEDULE 2.21
