EXHIBIT "C"
WARRANT AGREEMENT
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS PURSUANT
TO REGISTRATION UNDER THE SECURITIES ACT OR IN COMPLIANCE WITH AN EXEMPTION
THEREFROM ESTABLISHED BY AN OPINION OF COUNSEL OR OTHERWISE TO THE REASONABLE
SATISFACTION OF THE COMPANY.
Warrant. Number of Shares: AS CALCULATED BELOW
Date of Issuance: July 30, 2004
ROCKY MOUNTAIN GAS, INC.
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COMMON STOCK PURCHASE WARRANT
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THIS IS TO CERTIFY THAT, for value received, GEDDES AND COMPANY, an Arizona
company (the "Registered Holder"), or its permitted assigns, is entitled to
purchase from ROCKY MOUNTAIN GAS, INC., a Wyoming corporation (the "Company" or
"RMG"), pursuant to a Credit Agreement dated July 30, 2004 between U.S. Energy
Corp. and Geddes and Company, at the purchase price per share provided by the
following table, the following number(s) of common shares of the Company The
"Warrant Shares"):
AMOUNT OF LOAN DRAWN DOWN
$ 0 $1,000,001 $2,000,001 Terms
to to to Total and
$1,000,000 $2,000,000 $3,000,000 Warrants Exercise Price
---------- ---------- ---------- -------- ----------------------------
150,000 +75,000 +75,000 300,000 5 year warrants @3.00/share*
50,000 +25,000 +25,000 100,000 5 year warrants @3.25/share*
50,000 +25,000 +25,000 100,000 5 year warrants @3.50/share*
50,000 +25,000 +25,000 100,000 5 year warrants @3.75/share*
------- ------- ------- ------- ------------------------------
300,000 150,000 150,000 600,000 Total Warrants
* The "Exercise Price" shall mean the lesser of $3.00 per share or the lowest
purchase price per share actually paid to and received by RMG from investors
after the date hereof in RMG private placements until $20 million (of which at
least $15 million must be cash and of which up to $5 million [determined in
accordance with generally accepted accounting principles] may be in the form of
producing properties) is cumulatively received (the "Offer Completion Date").
The above listed prices of $ 3.25 to $ 3.75 shall also be adjusted accordingly.
For example, if the Exercise Price were $ 2.90 then the $ 3.25 would become $
3.14 (8% above $ 2.90), $ 3.50 would become $ 3.38 and $ 3.75 would then become
$ 3.63. The number of Warrant Shares will be determined by the aggregate
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amount of advances pursuant to the Loan as described in the table above, and
shall consist of duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock, $0.01 par value per share, of the Company. The number of
shares subject to purchase hereunder and the Exercise Price are subject to
adjustment as provided herein. The Warrants shall expire at 5:00 p.m., C.S.T.,
on the fifth anniversary of the Offer Completion Date, but no later than July
30, 2019 ("Expiration Date").
ARTICLE I
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Exercise of Warrant
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1.1 Method of Exercise. This Warrant may be exercised by the Registered
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Holder as a whole or in part from time to time until the Expiration Date, at
which time this Warrant shall expire and be of no further force or effect. The
minimum number of Warrant Shares that may be purchased on a single exercise
shall be 10,000 or the entire number of shares remaining available for exercise
hereunder, whichever is less. To exercise this Warrant, the Registered Holder or
permitted assignees of all rights of the Registered Holder shall deliver to the
Company, at the Warrant Office designated in Section 2.1(a), a written notice in
the form of the Purchase Form attached as Exhibit A hereto, stating therein the
election of the Registered Holder or such permitted assignees of the Registered
Holder to exercise this Warrant in the manner provided in the Purchase Form, (b)
payment in full of the Exercise Price for the Warrant Shares purchased, and (c)
this Warrant. Subject to compliance with Section 3.1(a)(vi), this Warrant shall
be deemed to be exercised on the date of receipt by the Company of the Purchase
Form, accompanied by payment for the Warrant Shares to be purchased and
surrender of this Warrant, and such date is referred to as the "Exercise Date."
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Upon such exercise, the Company shall issue and deliver to the Registered Holder
a certificate for the full number of the Warrant Shares purchasable by the
Registered Holder hereunder, against the receipt by the Company of the total
Exercise Price payable hereunder for all such Warrant Shares in cash or by
certified or cashier's check. The Person in whose name the certificate(s) for
Common Stock is to be issued shall be deemed to have become a holder of record
of the Common Stock on the Exercise Date. In case such exercise is in part only,
a new warrant or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant Shares equal to
the number of such shares called for by this Warrant minus the number of shares
of Common Stock purchased by the Registered Holder upon exercise as provided
herein.
1.2 Fractional Shares. No fractional shares of Common Stock shall be issued
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upon exercise of this Warrant.
ARTICLE II
Warrant Office; Transfer
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2.1 Warrant Office. The Company shall maintain an office for certain
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purposes specified herein (the "Warrant Office"), which office shall initially
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be the Company's office at 000 Xxxxx 0xx Xxxx, Xxxxxxxx, Xxxxxxx 00000, and may
subsequently be such other
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office of the Company or of any transfer agent of the Common Stock of which
written notice has previously been given to the Registered Holder. The Company
shall maintain, at the Warrant Office, a register for the Warrant in which the
Company shall record the name and address of the Registered Holder, as well as
the name and address of each permitted assignee of the rights of the Registered
Holder.
2.2 Ownership of Warrant. The Company may deem and treat the Registered
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Holder as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
2.3 Transfer of Warrants. The Company agrees to maintain at the Warrant
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Office books for the registration and transfer of this Warrant. This Warrant may
be transferred in whole or in part only in compliance with the applicable law.
The Company, from time to time, shall register the transfer of this Warrant in
such books upon surrender of this Warrant at the Warrant Office, properly
endorsed, together with a written assignment of this Warrant, substantially in
the form of the Assignment attached as Exhibit B hereto. Upon transfer, a new
Warrant shall be issued to the transferee, and the Company shall cancel the
surrendered Warrant. The Registered Holder shall pay all taxes and all other
expenses and charges payable in connection with the transfer of Warrants
pursuant to this Section 2.3.
2.4 No Rights as Shareholder Until Exercise. This Warrant does not entitle
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the Registered Holder to any voting rights or other rights as a shareholder of
the Company prior to exercise. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price, the Warrant Shares so purchased shall
be issued to the Registered Holder as the record owner of such shares as of the
close of business on the later of the date of such surrender or payment. Warrant
Shares shall be issued subject to no restrictions upon transfer or sale, except
applicable securities laws.
2.5 Registration Rights. The Company agrees that at the request of the
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Registered Holder (or Registered Holders, provided request is made by Registered
Holders with 60% of the Warrants Shares issuable on exercise of this Warrant),
made at any time after the Company has a class of stock registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
public resale of the Warrant Shares shall be covered by a registration statement
on an appropriate form to be filed with the Securities and Exchange Commission
under the Securities Act.
Once public, the Company shall use its commercially reasonable best efforts
to file the registration statement as soon as possible after receipt of request
from the Registered Holder, it being understood that a request for filing
received in the first quarter may result in a delay of filing until the Company
has filed its annual report with the Securities and Exchange Commission. The
Company will file the registration statement at its sole cost and expense, have
it declared effective as soon as practicable, and maintain such registration
statement in effect until the first to occur of the following: (a) the third
anniversary of effective date, (b) the date when all of the Warrant Shares have
been sold;
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or (c) the date the Registered Holder(s) is or are able to immediately sell the
Warrant Shares pursuant to Rule 144. The benefits of this section 2.5 shall
extend to each Registered Holder.
When, pursuant to this Section, the Company shall take any action to permit
a public offering or sale or other distribution of the Warrant Shares, the
Company shall:
(a) furnish, without charge, to each Registered Holder of Warrant Shares
(i) a reasonable number of copies of such registration statement
(including any exhibits thereto other than exhibits incorporated
by reference), and each amendment and supplement thereto as such
Registered Holder may request,
(ii) such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and
any other prospectus filed under Rule 424 under the Securities
Act) as such Registered Holder may request, in conformity with
the requirements of the Securities Act, and
(iii) such other documents as such Registered Holder may reasonably
request in order to facilitate the disposition of the Warrant
Shares.
(b) bear the complete cost and expense of such registrations or
qualifications.
(c) indemnify and hold harmless each Registered Holder and each
underwriter, within the meaning of the Securities Act, who may
purchase from or sell for a Registered Holder, any Warrant Shares,
from and against any and all losses, claims, damages, and liabilities
(including but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing, defending or settling
any claim) arising from
(i) any untrue or alleged untrue statement of a material fact
contained in any registration statement furnished pursuant to
this Section, or any prospectus included herein or
(ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Company shall not be liable for
amounts paid in settlement of any such litigation if such
settlement was effected without the consent of the Company. The
indemnity agreement of the Company herein shall not inure to the
benefit of any such underwriter (or to the benefit of any person
who controls such underwriter) on
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account of any losses, claims, damages, liabilities (or actions
or proceedings in respect thereof) arising from the sale of any
of such Warrant Shares by such underwriter to a person if such
underwriter failed to send or give a copy of the prospectus
furnished pursuant to this Section, as the same may then be
supplemented or amended (if such supplement or amendment shall
have been furnished the Registered Holders), to such person with
or prior to the written confirmation of the sale involved.
The Registered Holder shall supply such information as the Company may
reasonably require from such Registered Holder, or any underwriter for the
Registered Holder, for inclusion in such registration statement or post
effective amendment.
2.6 Expenses of Delivery of Warrants. Except as provided in Section 2.3,
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the Company shall pay all reasonable expenses and other charges payable in
connection with the preparation, issuance and delivery of Warrants and related
Warrant Shares hereunder.
2.7 Compliance with Securities Laws. The Registered Holder (and its
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transferees and assigns), by acceptance of this Warrant, covenants and agrees
that such Registered older is acquiring the Warrants evidenced hereby, and, upon
exercise hereof, the Warrant Shares, for its own account as an investment and
not with a view to distribution thereof. Neither this Warrant nor the Warrant
Shares issuable hereunder have been registered under the Securities Act or any
state securities laws and no transfer of this Warrant or any Warrant Shares
shall be permitted unless the Company has received notice of such transfer in
the form of the assignment attached hereto as Exhibit B, accompanied by an
opinion of counsel reasonably satisfactory to the Company that an exemption from
registration of such Warrant or Warrant Shares under the Securities Act is
available for such transfer. Upon exercise of the Warrants, certificates for the
Warrant Shares shall bear a restrictive legend substantially as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of any
state (collectively, the "Acts"). Neither the shares nor any interest
therein may be offered, sold, transferred, pledged, or otherwise disposed
of in the absence of an effective registration statement with respect to
the shares under all of the applicable Acts, or an opinion of counsel
satisfactory to Rocky Mountain Gas, Inc. to the effect that such
registration is not required."
(c) Any attempted transfer of the Warrant or Warrant Shares not in
compliance with the provisions of this section shall be void.
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ARTICLE III
Anti-Dilution Provisions
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3.1 Adjustment of Exercise Price and Number of Warrant Shares. The Exercise
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Price and number of Warrant Shares shall be subject to adjustment from time to
time as hereinafter provided in this Article III.
(a) Adjustments. The Exercise Price and number of Warrant Shares shall be
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subject to adjustment from time to time as follows:
(i) Adjustment for Stock Splits and Combinations. If the Company
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shall, at any time or from time to time after the date hereof (the
"Original Issue Date") while this Warrant remains outstanding, effect a
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subdivision of the outstanding Common Stock or a dividend in Common Stock
shall be paid in respect of the Common Stock, the Exercise Price in effect
immediately before such subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately before
such combination shall be proportionately increased. When any adjustment is
required to be made in the Exercise Price, the number of Warrants Shares
purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such
adjustment, multiplied by the Exercise Price in effect immediately prior to
such adjustment, by (ii) the Exercise Price in effect immediately after
such adjustment. Any adjustment under this Section 3.1(a)(i) shall become
effective at the close of business on the date the subdivision or
combination becomes effective.
(ii) Adjustment for Reclassification, Exchange, and Substitution. If
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at any time or from time to time after the Original Issue Date while this
Warrant remains outstanding, the Common Stock is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise, the Registered Holder
shall have the right thereafter to convert such stock into the kind and
amount of stock and other securities receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares
of Common Stock into which such shares of Common Stock could have been
converted immediately prior to such recapitalization, reclassification or
change.
(iii) Other Dilutive Events. In case any material event shall occur as
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to which the provisions of Section 3.1(a) are not strictly applicable but
the failure to make an adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent
and principles of such section, then, in such case, at the Registered
Holder's request, the Company shall appoint a firm of independent certified
public accountants of recognized standing and reasonably acceptable to the
Registered Holder ("Firm"). Such Firm shall give their opinion
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upon the adjustment in the Exercise Price and/or Warrants, if any, on a
basis necessary to preserve, without dilution, the purchase rights
represented by this Warrant. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Registered Holder and shall make the
adjustments described therein; if such adjustments result in a change in
exercise price of less than 5%, then the Registered Holder shall pay the
cost of the Firm's review.
(iv) No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its charter or through any consolidation, merger, reorganization, transfer
of assets, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of the Warrants, but will at all times in good faith carry out all
such terms and take all such action as may be necessary or appropriate in
order to protect the rights of the holders of the Warrants against dilution
or other impairment. Without limiting the generality of the foregoing, the
Company a) will not permit the par value of any shares of stock receivable
upon the exercise of the Warrants to exceed the amount payable therefore
upon such exercise, b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue, free
from preemptive rights, fully paid and non-assessable shares of stock upon
the exercise of all Warrants from time to time outstanding, and c) will not
take any action which results in any adjustment of the Warrant Price if the
total number of shares of Common Stock issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock then authorized by the Company's charter and available for the
purpose of issue upon such exercise.
(v) Determinations. All determinations by the Company under the
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provisions of this Warrant shall be made in good faith with due regard to
the interests of the Registered Holder, and in accordance with good
financial practice.
(vi) Reorganizations, Reclassifications, Mergers, Consolidations, or
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Sales of Assets. If at any time or from time to time after the Original
-----------------
Issue Date while this Warrant remains outstanding, there is a capital
reorganization or reclassification of the Common Stock or a merger, or
consolidation of the Company with or into another corporation or transfer
or sales of substantially all of the assets of the Company, provision shall
be made so that the Registered Holder shall thereafter be entitled to
receive upon exercise hereof the number of shares of stock or other
securities or property of the Company to which a holder of the number of
shares of Common Stock deliverable upon exercise immediately prior to such
event would have been entitled as a result of such Company reorganization,
reclassification, merger, consolidation or sale of substantially all of the
Company assets.
(vii) Rounding of Calculations; Minimum Adjustment. All calculations
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under this Section 3.1(a) shall be made to the nearest cent. Any provision
of this Section
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3.1 to the contrary notwithstanding, no adjustment in the Exercise Price
shall be made if the amount of such adjustment would be less than one cent.
(viii) Timing of Issuance of Additional Common Stock Upon Certain
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Adjustments. In any case in which the provisions of this Section 3.1(a)
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shall require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of
such event issuing to the Registered Holder after such record date and
before the occurrence of such event the additional shares of Common Stock
or other property issuable or deliverable upon exercise by reason of the
adjustment required by such event over and above the shares of Common Stock
or other property issuable or deliverable upon such exercise before giving
effect to such adjustment; provided, however, that the Company upon request
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shall deliver to such Registered Holder a due xxxx or other appropriate
instrument evidencing such Registered Holder's right to receive such
additional shares or other property, and such cash, upon the occurrence of
the event requiring such adjustment.
(b) Statement Regarding Adjustments. Whenever the Exercise Price shall be
--------------------------------
adjusted as provided in Section 3.1(a), and upon each change in the number of
shares of the Common Stock issuable upon exercise of this Warrant, the Company
shall thereafter give notice thereof to the Registered Holder, with a statement
showing in detail the facts requiring such adjustment and the Exercise Price and
new number of shares issuable that shall be in effect after such adjustment.
3.2 Costs. The Registered Holder shall pay all direct documentary, stamp,
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transfer or other transactional taxes attributable to the issuance or delivery
of the Warrant Shares upon exercise of this Warrant, or in respect of any
transfer of the Warrant Shares.
3.3 Reservation of Shares. The Company shall reserve at all times so long
----------------------
as this Warrant remains outstanding, free from preemptive rights, out of its
treasury Common Stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the exercise of this Warrant,
sufficient shares of Common Stock to provide for the exercise hereof.
3.4 Valid Issuance. All shares of Common Stock which may be issued upon
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exercise of this Warrant will upon issuance by the Company be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof attributable to any act or omission by the
Company, and the Company shall take no action which will cause a contrary result
(including without limitation, any action which would cause the Exercise Price
to be less than the par value, if any, of the Common Stock).
3.5 Reporting. So long as this Warrant remains outstanding, the Company
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shall furnish to the Registered Holder, the Company's quarterly financial
statements, including balance sheets and statements of income, which statements
shall be annually audited, as soon as practicable after they are prepared for
internal use.
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ARTICLE IV
Covenant of the Company
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The Company covenants and agrees that this Warrant shall be binding upon
any corporation succeeding to the Company by merger or consolidation.
ARTICLE V
Miscellaneous
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5.1 Governing Law. This Warrant shall be governed by and construed in
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accordance with the internal laws of the State of Wyoming, without regard to its
conflict of law provisions. Any litigation shall be conducted in the courts of
the State of Wyoming, or the United States District Court for Wyoming.
5.2 Waiver and Amendment. Any term or provision of this Warrant may be
----------------------
waived at any time by the party which is entitled to the benefits thereof, and
any term or provision of this Warrant may be amended or supplemented at any time
by the written consent of the parties (it being agreed that an amendment to or
waiver under any of the provisions of Article III of this Warrant shall not be
considered an amendment of the number of Warrant Shares or the Exercise Price).
No waiver by any party of any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising because of any prior
or subsequent such occurrence.
5.4 Illegality. In the event that any one or more of the provisions
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contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
5.5 Notice. Any notice or other document required or permitted to be given
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or delivered to the Registered Holder shall be delivered at, or sent by
certified or registered mail to such Registered Holder at, the last address
shown on the books of the Company maintained at the Warrant Office for the
registration of this Warrant or at any more recent address of which the
Registered Holder shall have notified the Company in writing. Any notice or
other document required or permitted to be given or delivered to the Company,
other than such notice or documents required to be delivered to the Warrant
Office, shall be delivered at, or sent by certified or registered mail to, the
office of the Company at 000 Xxxxx 0xx Xxxx, Xxxxxxxx, Xxxxxxx 00000 or any
other address as shall have been designated in writing by the Company delivered
to the Registered Holder.
5.6 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of evidence
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satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory
9
evidence) of the loss, theft, mutilation or destruction of this Warrant, and, in
the case of any such loss, theft or destruction, upon delivery of a bond of
indemnity in such form and amount as shall be reasonably satisfactory to the
Company, or, in the event of such mutilation upon surrender and cancellation of
this Warrant, the Company will make and deliver a new Warrant of like tenor, in
lieu of such lost, stolen, destroyed or mutilated Warrant; provided, however,
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that the original Registered Holder of this Warrant shall not be required to
provide any such bond of indemnity and may in lieu thereof provide his agreement
of indemnity. Any Warrant issued under the provisions of this Section 6.8 in
lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any
mutilated Warrant, shall constitute an original contractual obligation on the
part of the Company. This Warrant shall be promptly canceled by the Company upon
the surrender hereof in connection with any exchange or replacement. The
Registered Holder of this Warrant shall pay all taxes (including securities
transfer taxes) and all other reasonable expenses and charges payable in
connection with the preparation, execution and delivery of replacement
Warrant(s).
5.7 Headings. The Article and Section and other headings herein are for
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convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
5.8 Successors and Assigns. Subject to applicable securities laws, this
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Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Registered Holder. The provisions of this Warrant are
intended to be for the benefit of all Registered Holders from time to time of
this Warrant and shall be enforceable by any such Registered Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its
name.
Dated: July 30, 2004
ROCKY MOUNTAIN GAS, INC.
By: /s/ Xxxx X. Xxxxxx
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Xxxx X. Xxxxxx
President
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Exhibit A
PURCHASE FORM
To: Rocky Mountain Gas, Inc.
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby irrevocably elects to purchase shares of Common Stock covered by
such Warrant, and pays $ for the Exercise Price.
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Date: , 2004
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Name:
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Title:
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Exhibit B
ASSIGNMENT
For value received,, hereby sells, assigns and transfers unto the within
Warrant, together with all right, title and interest therein and does hereby
irrevocably constitute and appoint as attorney, to transfer
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said Warrant on the books of the Company, with full power of substitution.
Dated: , 2004
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