Exhibit 10.2
SECURITIES PURCHASE
AGREEMENT
This Securities Purchase Agreement
(this “ Agreement ”), dated March 13, 2009,
between Far East Energy Corporation, a Nevada corporation (“
Parent ”), Far East Energy (Bermuda), Ltd., a Bermuda
company (the “ Company ”), and Arrow Energy
International Pte Ltd, a company organized under the laws of the
Republic of Singapore (“ Purchaser ” and,
together with the Company and Parent, the “ Parties
”).
RECITALS
WHEREAS, simultaneously with the
execution of this Agreement, the Company and Purchaser are
executing a Farmout Agreement (the “ Farmout Agreement
”), whereby, subject to the terms and conditions thereof, the
Company is assigning and transferring a 75.25% undivided interest
in its rights and obligations under that certain Production Sharing
Contract for the Exploitation of Coalbed Methane Resources for the
Qinnan Area in Shanxi Province, Qinshui Basin, the People’s
Republic of China dated April 16, 2002 between China United
Coalbed Methane Corporation Ltd. and the Phillips China Inc. (the
“ Qinnan PSC ”); and
WHEREAS, subject to the terms and
conditions set forth in this Agreement and in accordance with
Section 4(2) of the United States Securities Act of 1933, as
amended (the “ Securities Act ”), and Rule 506
promulgated thereunder, (i) the Company desires to sell and
Purchaser desires to purchase and accept an Exchangeable Note,
US$10,000,000 principal amount, in the form attached hereto as
Exhibit A (the “ Note ”) and
(ii) Parent desires to sell and Purchaser desires to purchase
and accept a Warrant to purchase 7,420,000 shares of Parent’s
common stock, par value $0.001 per share (“ Common
Stock ”), in the form attached hereto as Exhibit B
(the “ Warrant ”), along with certain additional
rights (collectively, the “Transaction” );
and
WHEREAS, the Purchaser expects to
receive substantial direct and indirect benefits from the
Company’s performance of its obligations under the Farmout
Agreement; and
WHEREAS, the Purchaser is entering
into the Transaction to facilitate the Company’s performance
of its obligations under the Farmout Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of
the mutual representations, warranties and covenants contained in
this Agreement, the Note and the Warrant, and for other good and
valuable consideration the receipt and adequacy of which are hereby
acknowledged, Parent, the Company and Purchaser agree as
follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions . For all
purposes of this Agreement, the following terms shall have the
meanings indicated in this Section 1.1:
“ Action ” means
any action, claim, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or
investigation pending or threatened in writing against or affecting
a Person or his, her or its properties before or by any court,
arbitrator, governmental or administrative agency, regulatory
authority (federal, state, county, local or foreign) (including,
without limitation, the Commission), stock market, stock exchange
or trading facility.
“ Affiliate ”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed
under Rule 144.
“ Agreement ” has
the meaning set forth in the Preamble.
“ Bankruptcy Code
” has the meaning set forth in
Section 3.3(e).
“ Business Day ”
means any day except Saturday, Sunday and any day which shall be a
federal legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other
governmental action to close.
“ Closing ” means
the completion of the transactions set forth in the second
paragraph of the Recitals.
“ Commission ”
means the United States Securities and Exchange
Commission.
“ Common Stock ”
has the meaning set forth in the Recitals.
“ Company ” has
the meaning set forth in the Preamble.
“ Company’s Secretary
Certificate ” has the meaning set forth in
Section 2.2(a).
“ conservator ”
has the meaning set forth in Section 3.3(e).
“ Exchange Act ”
means the United States Securities Exchange Act of 1934, as
amended.
“ Exchange Shares
” means the shares of Common Stock issuable upon exchange of
the Note.
“ Farmor Representations
and Warranties ” means the representations and warranties
given by the Company as the Farmor under section 6.1 of the Farmout
Agreement.
“ Farm-In Deadline
” has the meaning set forth in the Farmout
Agreement.
“ Farmout Agreement
” has the meaning set forth in the Recitals.
“ Lien ” means
any security interest, pledge, hypothecation, mortgage, lien or
encumbrance.
“ Material Adverse
Effect ” has the meaning set forth in
Section 3.1(a).
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“ New York Courts
” has the meaning set forth in Section 5.8.
“ Note ” has the
meaning set forth in the Recitals.
“ Parent ” has
the meaning set forth in the Preamble.
“Parent’s Secretary
Certificate” has
the meaning set forth in Section 2.2(b).
“ Parties ” has
the meaning set forth in the Preamble.
“ Permits ” has
the meaning set forth in Section 3.3(f).
“ Person ” means
an individual or corporation, partnership, company, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
“ Preferred Stock
” has the meaning set forth in
Section 3.2(e).
“ Purchaser ” has
the meaning set forth in the Preamble.
“ Qinnan PSC ”
has the meaning set forth in the Recitals.
“ Registration Rights
Agreement ” means the Registration Rights Agreement dated
the date hereof between Parent and Purchaser in the form attached
hereto as Exhibit C .
“ Rule 144 ”
means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or
any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
“ SEC Reports ”
has the meaning set forth in Section 3.2(f).
“ Securities ”
means the Note, the Exchange Shares, the Warrant and the Warrant
Shares.
“ Securities Act
” has the meaning set forth in the Recitals.
“ Subsidiary ”
means any corporation, partnership, company, trust, incorporated or
unincorporated association, joint venture, limited liability
company, joint stock company or other entity of any kind controlled
by Parent directly or indirectly through one or more
intermediaries.
“ Transaction Documents
” means this Agreement, the Note, the Warrant and the
Registration Rights Agreement.
“ Transactions ”
means the transactions contemplated by the Transaction
Documents.
“ Warrant ” has
the meaning set forth in the Recitals.
“ Warrant Shares
” means the shares of Common Stock issuable upon exercise of
the Warrant.
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ARTICLE II.
PURCHASE AND SALE
2.1 Closing . Concurrently
with the execution of this Agreement, Purchaser is purchasing from
the Company, and the Company is issuing, selling and delivering to
Purchaser, for the consideration specified herein, the Note and, as
further inducement to Purchaser, Parent is issuing and delivering
the Warrant and giving the guarantee set forth in the
Note.
2.2 Closing Deliveries
.
(a) Concurrently with the execution
of this Agreement, the Company is delivering or causing to be
delivered to Purchaser the following:
(i) the Note, duly executed by the
Company; and
(ii) a certificate, executed by the
Secretary of the Company (the “Company’s Secretary
Certificate” ) and dated as of the date hereof,
certifying (A) as to the incumbency of the individuals
executing this Agreement on the Company’s behalf,
(B) that attached to such certificate is a true and complete
copy of resolutions that have been duly and validly adopted by the
Board of Directors of the Company evidencing the authorization of
the execution and delivery of the Transaction Documents to which it
is a party and the consummation of the Transactions in which it is
participating, (C) that attached to such certificate is a copy
of the Company’s Memorandum of Association and Bye-Laws and
(D) that attached to such certificate is a true and complete
copy of the Company’s Register of Noteholders reflecting
Purchaser’s ownership of the Note.
(b) Concurrently with the execution
of this Agreement, Parent is delivering or causing to be delivered
to Purchaser the following:
(i) the Warrant, duly executed by
Parent;
(ii) the Note, duly executed by
Parent solely for the purposes stated therein;
(iii) the Registration Rights
Agreement, duly executed by Parent; and
(iv) a certificate, executed by the
Secretary of Parent (the “Parent’s Secretary
Certificate” ) and dated as of the date hereof,
certifying (A) as to the incumbency of the individuals
executing this Agreement on Parent’s behalf, (B) that
attached to such certificate is a true and complete copy of
resolutions that have been duly and validly adopted by the Board of
Directors of Parent evidencing the authorization of the execution
and delivery of the Transaction Documents to which it is a party
and the consummation of the Transactions in which it is
participating and (C) that attached to such certificate is a
copy of Parent’s Articles of Incorporation and Amended and
Restated Bylaws.
(c) Concurrently with the execution
of this Agreement, Purchaser is delivering to the Company the
following:
(i) US$10,000,000 by wire transfer
in immediately available funds to an account previously designated
by the Company;
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(ii) the Note, duly executed by
Purchaser;
(iii) the Registration Rights
Agreement, duly executed by Purchaser; and
(iv) a certificate, executed by the
Secretary of Purchaser and dated as of the date hereof, certifying
(A) as to the incumbency of the individuals executing this
Agreement on Purchaser’s behalf and (B) that attached to
such certificate is a true and complete copy of resolutions that
have been duly and validly adopted by the Board of Directors of
Purchaser (or similar governing body) evidencing the authorization
of the execution and delivery of this Agreement and the
consummation of the Transactions.
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES
3.1 Representations and
Warranties of the Company . The Company hereby makes the
following representations and warranties to Purchaser:
(a) Organization and
Qualification . The Company is a company duly formed, validly
existing and in good standing under the laws of Bermuda, with the
requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. The
Company is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the
case may be, could not, individually or in the aggregate, have or
reasonably be expected to result in (i) an adverse effect on
the legality, validity or enforceability of the Transaction
Documents, (ii) a material and adverse effect on the business,
owner’s equity, results of operations or position, financial
or otherwise, of Parent and the Subsidiaries, taken as a whole, or
(iii) an adverse impairment to the Company’s or
Parent’s ability to perform on a timely basis its obligations
under the Transaction Documents (any of (i), (ii) or (iii), a
“ Material Adverse Effect ”).
(b) Authorization;
Enforcement . The Company has the requisite power and authority
to enter into and to consummate the Transactions in which it is
participating. The execution and delivery of, and performance of
its obligations under, each of the Transaction Documents to which
it is a party by the Company and the consummation by it of the
Transactions have been duly authorized by all necessary corporate
action on the part of the Company. Each of the Transaction
Documents to which it is a party has been duly executed by the
Company and, when delivered in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
except as rights to indemnity may be limited by federal or state
securities laws or the public policy underlying such laws, as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors’ and contracting parties’ rights generally
and as enforceability may be subject to general principles of
equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
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(c) No Conflicts . The
execution and delivery of, and performance of its obligations
under, the Transaction Documents to which it is a party by the
Company and the consummation by the Company of the Transactions do
not and will not (i) conflict with or violate any provision of
the Company’s Memorandum of Association, or
(ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other
instrument or other understanding to which the Company is a party
or by which any property or asset of the Company is bound or
affected, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company is
bound or affected; except in the case of each of clauses
(ii) and (iii), such as would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse
Effect.
(d) Issuance of the Note .
After giving effect to the payment of funds provided for in
Section 2.2(c)(i), the Note has been duly authorized and
issued and is free and clear of all Liens.
(e) Farmor Representations and
Warranties . The Company agrees that the Farmor Representations
and Warranties shall form part of this Agreement as though the
Farmor Representations and Warranties are restated in full in this
Agreement and shall be treated for the purposes of this Agreement
as representations and warranties given by the Company under this
Agreement.
3.2 Representations and
Warranties of Parent . Parent hereby represents and warrants to
Purchaser as follows:
(a) Organization and
Qualification . Parent is a corporation duly formed, validly
existing and in good standing under the laws of the State of
Nevada, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Parent is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the
case may be, could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse
Effect.
(b) Authorization;
Enforcement . Parent has the requisite corporate power and
authority to enter into and to consummate the Transactions in which
it is participating. The execution and delivery of, and performance
of its obligations under, each of the Transaction Documents to
which it is a party by Parent and the consummation by it of the
Transactions have been duly authorized by all necessary corporate
action on the part of Parent and its stockholders. Each of the
Transaction Documents to which it is a party has been duly executed
by Parent and, when delivered in accordance with the terms hereof,
will constitute the valid and binding obligation of Parent
enforceable against Parent in accordance with its terms, except as
rights to indemnity may be limited by federal or state securities
laws or the public policy underlying such laws, as enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors’ and contracting parties’ rights generally
and as enforceability may be subject to general principles of
equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
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(c) No Conflicts . The
execution and delivery of, and performance of its obligations
under, the Transaction Documents to which it is a party by Parent
and the consummation by Parent of the Transactions do not and will
not (i) conflict with or violate any provision of
Parent’s Articles of Incorporation, or (ii) conflict
with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument or other
understanding to which Parent or any Subsidiary is a party or by
which any property or asset of Parent or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which Parent
or a Subsidiary is subject (including United States federal and
state securities laws and regulations), or by which any property or
asset of Parent or a Subsidiary is bound or affected; except in the
case of each of clauses (ii) and (iii), such as would not,
individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
(d) Issuance of the Securities;
Reservation of Shares . After giving effect to the payment of
funds provided for in Section 2.2(c)(i), the Warrant has been
duly authorized and issued and is free and clear of all Liens. Upon
issuance or conversion in accordance with the Note and Warrant, the
Exchange Shares and the Warrant Shares, as applicable, will be duly
authorized and validly issued in accordance with all applicable
laws, fully paid and nonassessable and free and clear of all Liens.
Parent has reserved from its duly authorized capital stock the
maximum number of shares of Common Stock issuable pursuant to the
Transaction Documents.
(e) Capitalization . The
authorized capital stock of Parent consists solely of 500,000,000
shares of Common Stock and 500,000,000 shares of preferred stock,
$0.001 par value per share (“ Preferred Stock
”). As of the date hereof: (i) 161,292,282 shares of
Common Stock are issued and outstanding, (ii) 23,938,722
shares of Common Stock are reserved for future issuance pursuant to
outstanding stock options and warrants and (iii) no shares of
Preferred Stock are issued and outstanding.
(f) SEC Reports; Financial
Statements . Parent has filed all reports required to be filed
by it under the Exchange Act during the twelve months prior to the
date hereof, including pursuant to Section 13(a) or 15(d)
thereof (the foregoing materials including all exhibits and
schedules thereto, being collectively referred to herein as the
“ SEC Reports ”). As of their respective dates,
the SEC Reports complied as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations
of the Commission promulgated thereunder. The consolidated
financial statements of Parent and the Subsidiaries and the related
notes thereto included in the SEC Reports present fairly, in all
material respects, the financial position of Parent and the
Subsidiaries (on a consolidated basis) as of the dates indicated
and the results of its operations and cash flows for the periods
therein specified subject, in the case of unaudited statements, to
normal year-end adjustments. Such financial statements have been
prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis throughout the
periods therein specified, except as may be otherwise specified in
such financial statements or the notes thereto or, in the case of
unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements.
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(g) Litigation . There is no
Action, whether pending or, to the best of Parent’s knowledge
after due inquiry of such employees of Parent or the Company as are
reasonably likely to possess such information, threatened, to which
Parent or any Subsidiary is a party which (i) adversely
affects or challenges the legality, validity or enforceability of
the Transaction Documents or (ii) could, if there were an
unfavorable decision, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse
Effect.
(h) Indebtedness . Except for
intercompany indebtedness among Parent and the Subsidiaries, none
of Parent and the Subsidiaries has any indebtedness for borrowed
money. No indebtedness for borrowed money or equity securities of
Parent or any Subsidiary are senior to or rank pari passu with the
Note in right of payment from the Company, whether in respect of
payment of redemptions, interest, damages or upon liquidation or
dissolution or otherwise.
(i) Dividends . Parent has
not paid or set aside for payment any dividends or other
distributions in respect of its shares or other securities except
as disclosed in the SEC Reports.
3.3 Representations, Warranties
and Agreements of the Company and Parent . The Company and
Parent hereby jointly and severally represent and warrant to, and
agree with, the Purchaser:
(a) Private Sale . None of
the Company, Parent or any of their Affiliates, nor any Person
acting on its or their behalf, has offered or will offer to sell
the Securities by means of any form of general solicitation or
general advertising within the meaning of Rule 502(c) under
the Securities Act. Assuming the accuracy of Purchaser’s
representations and warranties set forth in this Agreement, the
offer, sale and issuance of the Securities as contemplated by this
Agreement are exempt from the registration requirements of any
applicable state and federal securities laws (including, without
limitation, the registration requirements of Section 5 of the
Securities Act), and none of the Company, Parent or any of their
Affiliates, nor any Person acting on its or their behalf, will take
any action hereafter that would cause the loss of such exemption.
Any notices required to be filed under federal and state securities
and blue sky laws prior to or subsequent to the Closing have been
or shall be filed on a timely basis prior to or as so
required.
(b) Disclosure . None of the
representations or warranties of the Company or Parent contained
herein or in the Farmout Agreement, none of the information
contained in the Company’s Secretary Certificate or the
Parent’s Secretary Certificate, and, to the actual knowledge
of the Company and Parent, none of the other documents furnished to
Purchaser or any of its representatives by the Company or Parent or
their representatives pursuant to this Agreement or for the purpose
of the Purchaser’s assessment of the merits and risks of its
purchase of the Securities, contains any untrue statement of a
material fact. The SEC Reports did not, at the time they were
filed, or, if amended, as of the date of such amendment, contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in o
