EXECUTION VERSION
NOTE AND WARRANT PURCHASE AGREEMENT
This
NOTE AND WARRANT PURCHASE AGREEMENT, dated as of February 1,
2007
(this "Agreement") is
entered into by and among Petrosearch Energy Corporation,
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a Nevada corporation (the "Company"), and RCH Petro
Investors, LP, a Delaware
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limited partnership
(the "Purchaser").
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WHEREAS, the
Company desires to
raise an aggregate of $10 million through
the sale of an 8% Senior Secured Convertible
Promissory Note and a Warrant to
purchase 5,000,000
shares of Common Stock; and
WHEREAS, it
is a condition to the Purchaser's purchase of the
Note and
Warrant that
the Purchaser be provided with certain
registration rights with
respect to the shares of Common Stock into which the Note is
convertible and the
shares of Common Stock underlying the Warrant.
NOW
THEREFORE, in
consideration of the mutual covenants and agreements set
forth herein
and for good and valuable consideration, the receipt and
sufficiency of
which are hereby acknowledged, the Company and the
Purchaser
hereby agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.01
Definitions. As
used in this Agreement, and unless
the
-----------
context requires
a different meaning, the following terms have the
meanings
indicated:
"
"Action" against
a Person means any lawsuit, action, proceeding
------
or complaint before
any Governmental Authority, mediator or arbitrator.
"Acts" means
the Securities Act and the Exchange Act.
----
"Affiliate" means,
with respect to a specified Person, any
other Person,
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whether now
in existence or hereafter created, directly or indirectly
controlling,
controlled by or under direct or indirect common control with
such
specified Person.
For purposes of this definition,
"control" (including, with
correlative meanings,
"controlling," "controlled by," and "under common control
with") means
the power to direct or cause the
direction of the management and
policies of
such Person, directly
or indirectly, whether through the ownership
of voting securities, by contract or otherwise.
"Agreement" shall have the meaning specified in the introductory
paragraph.
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"Business Day"
means any day other than a Saturday, Sunday, or
a legal
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holiday for
commercial
banks in New York, New York.
"Closing" shall
have the meaning specified in Section 2.03.
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"Closing Date"
shall have the meaning specified in Section 2.03.
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<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Commission" means
the United States Securities and
Exchange Commission.
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"Common Stock"
means the Company's common stock, par value $0.001.
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"Company Material Adverse Effect" means a material and adverse
effect on
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(i) the assets,
liabilities,
financial condition,
business, or affairs of the
Company or (ii) the
ability of the Company to consummate the transactions under
any Transaction
Document.
"Company Related Parties" shall have the meaning specified in
Section 7.02.
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"Company SEC
Documents" shall have
the meaning specified in Section 3.06.
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"Conversion Price"
shall have the meaning specified in the Note.
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"Exchange Act"
means the Securities
Exchange Act of 1934, as amended from
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time to time, and the rules and regulations of the Commission
promulgated
there under.
"GAAP" means generally
accepted accounting principles in the United States
----
of America
in effect from time to time.
"Governmental Authority" shall include the country, state, county,
city and
----------------------
political subdivisions
in which any Person or such Person's Property is located
or which exercises valid jurisdiction over any such Person or such
Person's
Property, and
any court, agency, department, commission, board, bureau or
instrumentality of any
of them and any monetary authorities that exercise valid
jurisdiction over
any such Person or such Person's
Property. Unless otherwise
specified, all
references
to Governmental Authority herein shall mean a
Governmental Authority
having jurisdiction
over, where applicable, the Company
or any of its Property or the Purchaser.
"Holder" means
the record holder of the Note, Warrant, Note Shares
or
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Warrant Shares.
"Indemnified Party"
shall have the meaning specified in Section 7.03.
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"Indemnifying Party"
shall have the meaning specified in Section
7.03.
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"Law" means
any federal, state,
local or foreign order, writ, injunction,
---
judgment, settlement,
award, decree, statute, law, rule or regulation.
"Lien" means any
interest in Property securing an obligation owed to, or a
----
claim by, a Person other than the owner of
the Property, whether such interest
is based on the common
law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to the
lien or
security interest
arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease,
consignment or bailment
for security
purposes. For the purpose of this Agreement, a
Person shall be
deemed to be the owner
of any Property that it has acquired or holds subject to
a conditional
sale agreement, or leases under a financing lease or other
arrangement pursuant
to which title to the Property has been retained
by or
vested in some other Person in a transaction intended
to create a financing.
2
<PAGE>
"Note" shall
have the meaning specified in Section 2.01.
----
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"Note Shares"
means the shares of
Common Stock (i) to which the Holder is
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entitled upon
conversion
of the Note and (ii)
that are issued in lieu of cash
interest payments
under the Note.
"Offering Notice"
shall have the meaning specified in Section 5.04.
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"OTC
BB" shall mean the OTC Bulletin Board,
on which the Company's Common
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Stock is traded.
"Party" or
"Parties" means the Company and the Purchaser party to
this
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Agreement,
individually or
collectively,
as the case may be.
"Person" means any individual, corporation, company, voluntary
association,
------
partnership, joint
venture, trust, limited liability company,
unincorporated
organization or
government
or any agency, instrumentality or political
subdivision thereof,
or any other form of entity.
"Pledge and
Security Agreement" means the pledge and security
agreement
--------------------------------
between the Company
and the Purchaser in substantially the form attached hereto
as Exhibit C
pursuant to which the Company agrees to pledge as collateral
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securing the
Note 25% of its 100% interest in
Exploration Holding Co., L.L.C.
"Preferred Stock"
means, collectively, the Series A 8% convertible
----------------
preferred stock
and the Series B convertible preferred
stock of the Company.
"Property" means
any interest in any kind of property or asset,
whether
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real, personal
or mixed, or tangible or intangible.
"Proposed Financing"
shall have the meaning specified in Section
5.04.
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"Purchase Price"
means $10 million.
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"Purchased Securities"
means, collectively, the Note and the Warrant.
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"Purchaser" shall have the meaning specified in the introductory
paragraph.
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"Purchaser Material
Adverse Effect" means
any material and adverse effect
-----------------------------------
on (i) the ability of
a Purchaser to meet its obligations under the Transaction
Documents on a timely basis or (ii) the ability of a Purchaser to
consummate the
transactions under
any Transaction Document.
"Purchaser Related
Parties" shall have the meaning specified in
Section
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7.01.
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"Registration Rights
Agreement"
means the Registration
Rights Agreement,
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substantially in the form attached to this Agreement as Exhibit D,
to be entered
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into at the Closing, between the Company and the Purchaser.
3
<PAGE>
"Representatives" of
any Person means the Affiliates, control
persons,
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officers, directors,
employees,
agents, counsel,
investment bankers and other
representatives of
such Person.
"Securities Act" means
the Securities Act of 1933, as amended from time to
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time, and the rules and regulations of the
Commission promulgated thereunder.
"Terminating Breach"
shall have the meaning specified in Section
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8.09(a)(ii).
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"Transaction Documents" means, collectively, this Agreement, the
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Registration Rights
Agreement, the Pledge
and Security Agreement, the Note and
the Warrant
and any and all other agreements or instruments executed and
delivered by the Parties on even date herewith or at Closing, or
any amendments,
supplements,
continuations or
modifications
thereto.
"Transfer" shall
have the meaning specified in Section 5.08(b).
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"Warrant" shall
have the meaning specified in Section 2.02.
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"Warrant Shares"
means the shares of
Common Stock underlying the Warrant.
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Section 1.02
Accounting Procedures
and Interpretation. Unless
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otherwise specified in this Agreement, all accounting terms used
herein shall be
interpreted, all
determinations
with respect to
accounting matters under this
Agreement shall
be made, and all financial statements and
certificates and
reports as to
financial matters required to be furnished to the Purchaser
under
this Agreement
shall be prepared, in accordance with GAAP applied on a
consistent basis
during the periods
involved (except, in the case of unaudited
statements, as
permitted by Form 10-QSB promulgated by the
Commission) and in
compliance as
to form in all material respects with applicable
accounting
requirements and with the published rules and regulations of the
Commission with
respect thereto.
ARTICLE II
SALE AND PURCHASE
Section 2.01
Sale
and Issuance of the
Note. Subject to the
terms and
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conditions of
this Agreement, the
Purchaser agrees to purchase and the Company
agrees to sell the 8% Senior Secured Convertible Promissory Note in
substantially the
form attached hereto as Exhibit A (the "Note") for the
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Purchase Price.
Section 2.02 Issuance of
Warrants. As
additional consideration for the
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Purchaser's agreement
to the terms and conditions of this
Agreement and other
valuable
consideration, the
Company shall issue to
the Purchaser a warrant to
purchase5,000,000
shares of Common Stock, with the exercise price and
other
additional terms and conditions set forth in the form of Warrant
attached hereto
as Exhibit
B (the "Warrant").
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Section 2.03
Closing. The
execution and delivery
of the Transaction
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Documents (other
than this Agreement) and execution and
delivery of all other
instruments,
agreements, and
other documents required by this
Agreement (the
"Closing") shall
take place on or before February 9, 2007 (the "Closing
-------
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Date");provided,
however, the
Parties agree to use commercially reasonable
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4
<PAGE>
efforts to
close the transaction
on February 7, 2007. The Closing shall take
place at the offices
of Baker Botts L.L.P., 98 San Jacinto, Suite 1500, Austin,
TX 78701.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to the Purchaser, on and as of the
date
of this Agreement and on and as of the Closing Date, as follows:
Section 3.01
Valid Existence.
Each of the Company and its
----------------
subsidiaries is duly
organized, validly existing and in good standing under the
laws of its state of incorporation or formation, and
is duly qualified to do
business in
all jurisdictions in which the failure to be so
qualified would
result in a Company Material Adverse Effect. Each of the Company and its
subsidiaries has
all requisite power and authority (i) to own and lease
the
properties and
assets it currently owns and leases and
it contemplates owning
and leasing and (ii)
to conduct its activities as such activities are currently
conducted and
as currently contemplated to be conducted.
Section 3.02
Ownership of
Exploration Holding
Co. L.L.C. The Company
---------------------------------------------
owns 100% of the issued and outstanding membership
interests in Exploration
Holding Co.
L.L.C., a Texas
limited liability company ("Exploration Holding");
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such membership
interests are duly
authorized and validly issued in accordance
with the Company Agreement of Exploration
Holding (the Exploration Holding LLC
Agreement) and fully
paid (to the extent required under the Exploration Holding
LLC Agreement)
and non-assessable (except as such nonassessability may be
affected by the Texas Business Organizations Code (the "TBOC"));
and the Company
----
owns such membership interests free and clear of all Liens.
Section 3.03
Ownership of
Barnett Petrosearch, L.L.C. Exploration
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Holding owns 100% of
the issued and outstanding membership interests in Barnett
Petrosearch, L.L.C.,
a Texas limited liability company ("Barnett"); such
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membership interests
are duly authorized
and validly issued in accordance with
Barnett's limited
liability company agreement (the "Barnett LLC Agreement") and
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fully paid
(to the extent required under the Barnett LLC Agreement) and
non-assessable (except
as such nonassessability may be
affected by the TBOC);
and Exploration
Holding owns such membership interests free and
clear of all
Liens.
Section 3.04
Ownership of
DDJET. Barnett owns a 5.54455% limited
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partnership interest
in DDJET Limited, LLP, a Texas
limited liability limited
partnership ("DDJET");
such partnership interest is duly authorized and validly
issued in accordance
with DDJET's partnership agreement (the "DDJET Partnership
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Agreement") and
fully paid (to the
extent required under the DDJET Partnership
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Agreement) and
non-assessable (except
as such nonassessability may be affected
By the TBOC); and Barnet towns such
partnership interest free and clear of all
Liens.
Section 3.05
Capitalization and
Valid Issuance.
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5
<PAGE>
(a)
As
of the date of this Agreement, the issued and outstanding
equity
of the Company consists of37,952,070shares of
Common Stock, 483,416 shares of
Series A 8% convertible preferred stock and 43,000 shares of Series B
convertible preferred
stock. All of the
outstanding Common Stock and Preferred
Stock have
been duly authorized and validly issued and are fully paid and
nonassessable. The rights, privileges and preferences of the
Preferred Stock are
as stated in the Company's Articles of Incorporation (the "Articles").
(b)
Except for
(i) the conversion privileges of the
Preferred Stock,
(ii) the conversion privileges of the Note to be
issued under this Agreement,
(iii) the warrant
being issued in connection with this Agreement, (iv) warrants
issued in February 2006 to certain investors, (v) the
shares of Common Stock
issuable upon
exercise of warrants
granted pursuant to the Company's incentive
plan, and (vi) all
warrants disclosed in the Company's SEC Documents, there are
no outstanding
options, warrants, rights (including conversion, preemptive
rights or similar rights) or agreements for the purchase or
acquisition from the
Company of
any shares of its capital stock. The Company is not a party or
subject to
any agreement or understanding, and, to the
Company's knowledge,
there is no agreement or understanding between any persons
and/or entities,
which affects
or relates to the voting or giving of written consents
with
respect to any
security or by a director of the Company, except as provided
for
in the Articles.
(c)
The
issuance, offer and sale of the Note and the
issuance of the
Warrant have been duly
authorized by the Company and, when issued and delivered
to the Purchaser against payment therefor
in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable and
will be free
of any and all Liens and restrictions on
transfer, other than under applicable
state and federal securities Laws and other than
such Liens as are created by
the Purchaser.
(d)
The
Company's currently outstanding Common Stock
is quoted on the
OTC BB.
(e)
The
Company has reserved the Note Shares and the Warrant Shares for
issuance and
has adequate authorized capital under
its Articles to issue such
shares when
the Note is converted or the Warrant is exercised.
Section 3.06
Company SEC Documents.
The Company has timely filed with
---------------------
the Commission all
reports, schedules and statements required to be filed by it
under the Exchange Act since the filing of its Form
8-A12G on August 10, 2005
(all such documents filed on or prior to the date of this Agreement,
collectively, the
"the Company SEC Documents"). The Company SEC Documents,
-----------------------
including any audited or unaudited financial statements and any
notes thereto or
schedules included
therein, at the time
filed (except to the
extent corrected
by a subsequently filed the Company SEC Document filed prior to the
date of this
Agreement) (i)
did not contain any
untrue statement of a material fact or omit
to state a material
fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under
which they were
made, not misleading, (ii) complied in all material respects with
the applicable
requirements of
the Exchange Act, (iii) complied as to form in all
material
respects with
applicable
accounting
requirements and with the published rules
and regulations
of the
6
<PAGE>
Commission with
respect thereto, (iv) were prepared in accordance with
GAAP
applied on
a consistent basis during the periods involved
(except as may be
indicated in
the notes thereto or, in the case of unaudited
statements, as
permitted by
Form 10-QSBof the Commission) and (v)
fairly present (subject in
the case of unaudited statements to normal, recurring and year-end audit
adjustments) in
all material respects the consolidated
financial position and
the consolidated
results of its
operations and cash flows for the periods then
ended. Ham,
Langston & Brezina, L.L.P. is an independent registered
public
accounting firm
with respect to the Company and has not resigned or been
dismissed as
independent
registered
public accountants of the Company as a
result of or in
connection with any disagreement with the Company on any matter
of accounting
principles
or practices, financial statement disclosure or
auditing scope
or procedures.
Section 3.07
No
Material Adverse Change. Except as set forth in or
-----------------------------
contemplated by the Company SEC Documents, since September 30,
2006, the Company
has conducted
its business in the ordinary course, consistent with past
practice, and
there has been no (i)
change that has had or would reasonably be
expected to
have a Company Material Adverse Effect, (ii) acquisition or
disposition of any
material asset by the Company or any contract or arrangement
therefor, otherwise
than for fair value in the ordinary course of
business,
(iii) material
change in the Company's accounting principles, practices
or
methods or
(iv) incurrence of material indebtedness.
Section 3.08
Litigation. Except
as set forth in the Company SEC
----------
Documents, there
is no Action pending or, to the knowledge of the
Company,
contemplated or
threatened against the Company or any of its officers (in their
capacity as
such), directors (in their capacity as such),
Properties, which
(individually or
in the aggregate) reasonably would be expected to have a
Company Material
Adverse Effect or which challenges the validity of this
Agreement or which
would reasonably be expected to adversely affect or restrict
the Company's
ability to consummate the transactions contemplated by the
Transaction
Documents.
Section 3.09
No
Conflict. The execution, delivery and
performance by
------------
the Company
of the Transaction Documents to which
it is a party and all other
agreements and
instruments to be executed and delivered by the Company
pursuant
hereto or thereto or in connection herewith and therewith, and
compliance by the
Company with
the terms and provisions hereof and
thereof, do not and will not
(a) violate
any provision of any Law, governmental permit,
determination or
award having applicability to the Company or any of its Properties,
(b) conflict
with or result in a
violation of any provision of the articles of incorporation
or bylaws of the Company (c) require any
consent, approval or notice under or
result in a violation
or breach of or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any
right of termination,
cancellation or
acceleration)
under (i) any note,
bond, mortgage, license, or
loan or credit agreement to which the Company is a party or by
which the Company
or any of its Properties may be bound or (ii) any other agreement,
instrument or
obligation, or
(d) result in or
require the creation or imposition of any Lien
upon or with respect to any of the Properties now owned or
hereafter acquired by
the Company,
except in the cases of clauses (a), (c) and (d) where such
violation, default,
breach, termination, cancellation, failure to receive
consent or approval, or acceleration with respect to the foregoing
provisions of
this Section 3.09
would not, individually or in the aggregate,
reasonably be
expected to
have a Company Material Adverse Effect.
7
<PAGE>
Section 3.10
Authority. The
execution and delivery of, and the
---------
performance by
the Company of its obligations under
the Transaction Documents
have been duly and validly authorized by the Company, and the
Transaction
Documents have
been duly executed and delivered by the
Company and constitute
the valid and legally binding agreements of the Company,
enforceable against the
Company in
accordance
with their terms, except as rights to indemnity and
contribution hereunder
and there under may be limited by federal or state
securities laws or
principles of public policy and subject to the qualification
that the enforceability of the Company's
obligations hereunder and there under
may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization,
moratorium and
other laws relating to
or affecting creditors' rights generally
and by general equitable principles, regardless whether enforcement is
considered in
a proceeding in equity or at law.
Section 3.11
Compliance with Laws.
The Company is not in violation of
--------------------
any judgment,
decree or order or any Law applicable to
the Company, except as
would not,
individually
or in the aggregate, have a Company
Material Adverse
Effect. The Company
possess all certificates, authorizations and permits issued
by the appropriate regulatory authorities necessary to conduct
its business,
except where the failure to possess such certificates,
authorizations or permits
would not have, individually or in the aggregate, a Company
Material Adverse
Effect, and
the Company has not
received any notice of proceedings relating to
the revocation or modification of any such certificate,
authorization or permit,
except where
such potential revocation or modification would not have,
individually in
the aggregate, a Company Material Adverse Effect.
Section 3.12
Preemptive Rights or
Registration Rights.
Except for as
-----------------------------------------
set forth on Exhibit 3.12, there are no preemptive
rights or other rights to
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subscribe for
or to purchase, nor any restriction
upon the voting or transfer
of, any capital stock
of the Company pursuant to any agreement or instrument to
which the Company is a party and is bound. Neither the execution of
this
Agreement nor
the issuance of the Note and Warrant as contemplated
by this
Agreement gives
rise to any rights for or relating to
the registration of any
Common Stock,
other than as set forth on Exhibit 3.12.
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Section 3.13
Approvals. Except
as required by the Commission in
---------
connection with
the Company's obligations under the Registration Rights
Agreement, no
authorization,
consent, approval, waiver, license, qualification
or written
exemption from, nor any filing, declaration, qualification or
registration with, any Governmental Authority or any other Person
is required in
connection with the
execution, delivery or performance by the Company of any of
the Transaction
Documents to which it is a party, except (i) as may be required
under the state securities or "Blue Sky" Laws, (or (ii) where
the failure to
receive such authorization, consent, approval, waiver, license,
qualification or
written exemption
or to make such filing, declaration, qualification or
registration would not, individually or in the aggregate,
reasonably be expected
to have a Company Material Adverse Effect.
Section 3.14
Offering. Assuming
the accuracy of the
representations
--------
and warranties
of the Purchaser contained in this Agreement, the sale and
issuance of
the Purchased
Securities pursuant to this Agreement is exempt from
the registration
requirements
of the Securities Act, and neither
the Company
nor, to the Company's knowledge, any authorized Representative
8
<PAGE>
acting on its behalf has taken or will take any action
hereafter that would
cause the loss of such exemption.
Section 3.15
Certain Fees.
Except for fees payable to Scarsdale
-------------
Equities, LLC in its capacity as placement agent, no fees or
commissions will be
payable by
the Company to
brokers, finders, or investment bankers with respect
to the sale of any of the Purchased Securities or the
consummation of the
transactions
contemplated by
this Agreement.
The Company agrees
that it will
indemnify and
hold harmless the
Purchaser from and against any and all claims,
demands, or liabilities for broker's, finder's, placement, or other
similar fees
or commissions
incurred by the
Company or alleged to have been incurred by the
Company in connection
with the sale of Purchased Securities or the consummation
of the transactions contemplated by this Agreement.
Section 3.16
No Side Agreements. There are no other agreements by,
--------------------
among or between the Company or its Affiliates, on the one hand, and the
Purchaser, on
the other hand, with respect to the transactions
contemplated
hereby nor promises or
inducements for future transactions between or among any
of such parties.
Section 3.17
Investment Company
Status. U.S. Shipping is not an
---------------------------
"investment company"
within the meaning of
the Investment Company Act of 1940,
as amended.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The
Purchaser represents and warrants to the Company, on and as of the
date
of this Agreement and on and as of the Closing Date, as follows:
Section 4.01
Valid Existence.
The Purchaser (i) is duly organized,
----------------
validly existing
and in good standing under the Laws of its
jurisdiction of
organization and (ii) has all requisite power, and has all material
governmental
licenses, authorizations, consents and approvals necessary to own
its Properties
and car
