FIRST AMENDMENT AND WAIVER AGREEMENT
Exhibit
4.1
This
First Amendment and Waiver Agreement (this “Agreement”),
is
made and entered into as of February 15, 2007, by and among Fellows Energy
Ltd.,
a Nevada corporation (along with its subsidiaries signatory hereto, the
“Company”)
and
Palisades Master Fund (the “Holder”).
WHEREAS,
the Company and the Holder are parties to that certain Securities Purchase
Agreement, dated June 17, 2005, by and among the Company and the signatories
thereto (collectively, the “June
Purchase Agreements”),
pursuant to which the Company issued to the Holder a Convertible Debenture,
due
September 7, 2007, with an aggregate principal amount of $4,01,200, of which
$1,046,438.23 currently remains outstanding (the “June
Debenture”);
and
WHEREAS,
the Company and the Holder are parties to that certain Securities Purchase
Agreement, September 21, 2005, by and among the Company and the signatories
thereto (collectively, the “September
Purchase Agreement”
and
together with the June Purchase Agreement, the “Purchase
Agreements”),
pursuant to which the Company issued to the Holder a Convertible Debenture,
due
September 7, 2007, with an aggregate principal amount of $2,858,000, of which
$1,536,238.51 currently remains outstanding (the “September
Debenture”
and
together with the June Debenture, the “Debentures”);
and
WHEREAS,
on account of dilutive issuances of equity by the Company, the conversion price
of the Debentures and the exercise prices of the common stock purchase warrants
(collectively, the “Warrants”)
issued
pursuant to the Purchase Agreements have been reduced to equal $0.1357, subject
to adjustment therein, with proportional increases in the number of shares
of
common stock issuable upon exercise of such Warrants, as set forth therein;
and
WHEREAS,
certain events of default have occurred pursuant to the Debentures and are
continuing to occur related to the Debentures and as a result of such defaults
(“Existing
Defaults”),
Palisades is entitled, among other things, to enforce its rights and remedies
against the Company, including without limitation, acceleration and immediately
demand payment in full of all obligations under the Debentures; and
WHEREAS,
the parties have reached an agreement with respect to the modification and
amendment of certain terms of the Debentures relating to the conversion and
terms of the Debentures and the waiver of the Existing Defaults;
and
WHEREAS,
capitalized terms used herein, but not otherwise defined, shall have the
meanings ascribed to such terms as set forth in the September Purchase
Agreement; and
NOW
THEREFORE, in consideration of the terms and conditions contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound hereby, agree as follows:
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1. Incorporation
of Preliminary Statements and Acknowledgement.
The
preliminary statements set forth above by this reference hereto are hereby
incorporated into this Agreement. Without limiting the foregoing, the Company
hereby acknowledges that the Existing Events have occurred and are continuing
under the terms of the Purchase Agreement and Debentures and, notwithstanding
anything to the contrary in this Agreement, the Purchase Agreements, Debentures
or any of the other Transaction Documents, the Company acknowledges and agrees
that upon a breach of this Agreement by the Company, such breach shall be an
Event of Default under the Debentures.
2. Consent
to JGB/Crescent Transaction.
Simultaneously with the execution of this Agreement, the following transactions
are also taking place: a) the Company and JGB Capital L.P. (“JGB”)
are
entering into a settlement agreement; b) JGB is entering into an assignment
agreement with Crescent International Ltd. (“Crescent”)
for
the assignment of the Debenture (the “JGB
Assignment Agreement”);
c)
the Company is entering into an amendment agreement (the “Debenture
Amendments”
and
together with this Agreement and the JGB Assignment Agreement, the “Assignment
Documents”)
with
Crescent for the amendment of the convertible debentures issued pursuant to
the
Purchase Agreements; and d) the Company and Holder are entering into a
securities purchase agreement for the purchase of $714,500 in secured
convertible debentures. The Holder hereby consents to the above-described
transactions.
3. Waiver
of Existing Defaults.
The
Holder agrees to forever waive its rights and remedies against the Company,
including without limitation, acceleration of the Debentures, solely in
connection with, and as they relate to, the prior occurrence of the Existing
Defaults. Notwithstanding anything herein to the contrary, this waiver is
limited only to the Existing Defaults and any future Events of Default,
including a breach of this Agreement, shall not be deemed waived
hereunder.
4. Release
of all Claims.
THE
COMPANY (FOR ITSELF AND ITS AFFILIATES) HEREBY UNCONDITIONALLY RELEASES AND
FOREVER DISCHARGES THE HOLDER AND ITS RESPECTIVE SUCCESSORS, ASSIGNS, AGENTS,
DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES, ACCOUNTANTS, CONSULTANTS,
CONTRACTORS, ADVISORS AND ATTORNEYS (COLLECTIVELY, THE "BENEFITED
PARTIES")
FROM
ALL CLAIMS (AS DEFINED BELOW) AND AGREES TO INDEMNIFY THE BENEFITED PARTIES,
AND
HOLD THEM HARMLESS FROM ANY AND ALL CLAIMS, LOSSES, CAUSES OF ACTION, COSTS
AND
EXPENSES OF EVERY KIND OR CHARACTER IN CONNECTION WITH THE CLAIMS. AS USED
IN
THIS AMENDMENT, THE TERM "CLAIMS" MEANS ANY AND ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTIONS, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, KNOWN
OR
UNKNOWN, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART, WHICH THE
COMPANY, OR ANY OF ITS AGENTS, EMPLOYEES OR AFFILIATES MAY NOW OR HEREAFTER
HAVE
OR CLAIM AGAINST ANY OF THE BENEFITED PARTIES AND IRRESPECTIVE OF WHETHER ANY
SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR OTHERWISE IN
CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS, INCLUDING ANY CONTRACTING
FOR,
CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF
THE
MAXIMUM RATE ON INTEREST CHARGEABLE UNDER APPLICABLE LAW AND ANY LOSS, COST
OR
DAMAGE, OF ANY KIND OR CHARACTER, ARISING OUT OF OR IN ANY WAY CONNECTED WITH
OR
IN ANY WAY RESULTING FROM THE ACTIONS OR OMISSIONS OF THE BENEFITED PARTIES,
INCLUDING ANY BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF GOOD FAITH OR
FAIR
DEALING, UNDUE INFLUENCE, DURESS, ECONOMIC COERCION, CONFLICT OF INTEREST,
NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS OF THE RACKETEER INFLUENCED
AND
CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR NEGLIGENT INFLICTION OF MENTAL
DISTRESS, TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS, TORTIOUS
INTERFERENCE WITH CORPORATE GOVERNANCE OR PROSPECTIVE BUSINESS ADVANTAGE, BREACH
OF CONTRACT, DECEPTIVE TRADE PRACTICES, LIBEL, SLANDER, CONSPIRACY OR ANY CLAIM
FOR WRONGFULLY ACCELERATING ANY OBLIGATIONS OR WRONGFULLY ATTEMPTING TO
FORECLOSE ON ANY COLLATERAL. THE COMPANY (FOR ITSELF AND ITS AFFILIATES) AGREES
THAT NONE OF THE BENEFITED PARTIES HAS FIDUCIARY OR SIMILAR OBLIGATIONS TO
THE
COMPANY OR ANY AGENTS, EMPLOYEES OR AFFILIATES OF THE COMPANY AND THAT THEIR
RELATIONSHIPS ARE STRICTLY THAT OF CREDITOR AND DEBTOR. THIS RELEASE IS ACCEPTED
BY HOLDER PURSUANT TO THIS AMENDMENT AND SHALL NOT BE CONSTRUED AS AN ADMISSION
OF LIABILITY BY HOLDER OR ANY OTHER BENEFITED PARTY.
2
5. Cashless
Exchange of Warrant.
In
consideration for the Holder immediately exercising the Warrants pursuant to
the
cashless exercise provisions thereof, the Company agrees to reduce the exercise
price of the warrants (“Exercise
Price Adjustment”)
to
$0.0866 in connection with such exercise such that the Holder shall receive
2,970,758 shares of Common Stock (the “Exercised
Shares”).
Within 3 Trading Days of the date hereof, the Company shall have delivered
the
Exercised Shares to the Depository Trust Account of the Holder pursuant to
the
instructions set forth on the Holder’s signature page hereto. The Exercised
Shares shall be registered for resale pursuant to the Registration Statements,
File No. 333-127413 and 333-129627 (the “Registration
Statements”)
free
of any legends or restrictions on resale by the Holder. The Holder waives any
anti-dilution adjustments that would otherwise occur to securities held by
Holder solely as a result of the Exercise Price Adjustment; provided,
however,
that
such waiver does not extend to any adjustment to a third party holder of the
Company’s securities that received an adjustment to their securities to less
than $0.0866, subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common
Stock
that occur after the date of this Agreement, as a result of the Exercise Price
Adjustment.
6. Conversion
of Debentures.
The
Company shall issue shares of common stock (the “Converted
Shares”)
to the
Holder pursuant to overdue monthly redemptions owed as of December 1, 2006,
January 1, 2007 and February 1, 2007, to the extent such Converted Shares are
registered for resale pursuant to the Registration Statements. The Company
shall
issue 7,025,789 Converted Shares upon the monthly liquidation of, in the
aggregate, $608,433.15 in principal amount of the Debentures, as set forth
on
Exhibit
A
hereto.
Within 3 Trading Days of the date hereof, the Company shall have delivered
the
Converted Shares to the Depository Trust Account of the Holder pursuant to
the
instructions set forth on the Holder’s signature page hereto. The Converted
Shares shall be registered for resale pursuant to the Registration Statements
and free of any legends or restrictions on resale by the Holder. The Holder
waives any anti-dilution adjustments that would otherwise occur to securities
held by Holder as a result of the issuance of the Converted Shares; provided,
however,
that
such waiver does not extend to any adjustment to a third party holder of the
Company’s securities that received an adjustment to their securities to less
than $0.0866, subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common
Stock
that occur after the date of this Agreement, as a result of the issuance of
the
Converted Shares. The Company shall keep the Registration Statements effective
until the earlier of the date that the Holder no longer holds any Exercised
Shares or Converted Shares or such shares may be sold pursuant to Rule 144(k).
Upon the conversion of debentures, the remaining principal amount due of the
Debentures is as set forth on Exhibit
A
hereto.
3
7. Forbearance
Fee and Issuance of Common Stock.
The
Company shall pay the Holder a Forbearance Fee of $150,000 a month, for six
months, to be paid in shares of Common Stock of the Company at a price of
$0.1375 per share, for a total of 5,454,546 shares which shares shall bear
the
restrictive legend set for in the Purchase Agreements (the “Forbearance
Shares”).
In
addition, on the date hereof, the Company shall issue to the Holder 1,449,825
shares of Common Stock to the Holder which shares shall bear the restrictive
legend set for in the Purchase Agreements (“Commitment
Shares”).
The
rights and obligations of the Company with respect to the Forbearance Shares
and
Commitment Shares shall be identical in all respects to the rights and
obligations of the Company with respect to the Underlying Shares issued and
issuable pursuant to the Agreements. The September Agreement is hereby amended
so that the term the term “Underlying Shares” includes the Forbearance Shares
and Commitment Shares. The Forbearance Shares and Commitment Shares shall be
delivered to the Holder within 5 Trading Days of the date hereof. The
Forbearance Shares and Commitment Shares shall be registered pursuant to the
terms of that certain Registration Rights Agreement, dated February 15, 2007,
by
and among the Company, the Holder and the other holders thereto.
8. Amendment
to Debentures.
The
Debentures are amended as follows:
(a) All
definitions and references in the Debentures to “Forced Conversion”, “Forced
Conversion Notice”, “Forced Conversion Notice Date”, “Monthly Conversion
Period”, “Monthly Conversion Price”, Monthly Redemption”, “Monthly Redemption
Amount”, “Monthly Redemption Date”, “Monthly Redemption Notice”, “Monthly
Redemption Notice Date”, “Monthly Redemption Notice Period”, “Monthly Redemption
Share Amount”, “Optional Redemption”, Optional Redemption Amount”, Optional
Redemption Notice”, “Optional Redemption Notice Date”, “Pre-Redemption
Conversion Shares” and “Threshold Period” are hereby deleted and of no further
force or effect in the Debentures.
(b) Section
6(a) of the Debentures is hereby deleted in its entirely and replaced as
follows: “Section
6.RESERVED.”
(c) Section
4(b) of the Debentures is hereby amended and restated as follows:
“Conversion
Price.
The
conversion price in effect on any Conversion Date shall be equal to $0.1375
(subject
to adjustment herein)(the “Conversion
Price”).”
4
9. Security
Interest.
As
security for the payment in full of principal, interest and performance under
this Agreement and the Debentures and of all other liabilities and obligations
of the Company to the Holder, the Company and its subsidiaries, grant the Holder
a general security interest in all assets of the Company and its subsidiaries
and all proceeds arising therefrom and any and all products of such assets
and
in certain real estate holdings as described below. In furtherance thereof,
the
Company shall:
a.
On the
date hereof enter into a Security Agreement simultaneously herewith evidencing
the above-referenced security interest in all of the assets of the Company
and
its subsidiaries; and
b. Within
30
days of the date hereof, have granted the Holder a first lien on real property
(except for the real property in Carbon county, which Holder shall take a second
lien), in the form of a mortgage or deed of trust, in real property owned by
the
Company and its subsidiaries and located in ▇▇▇▇ and Broomfield counties,
Colorado, and Rich, Carbon and ▇▇▇▇▇ counties, Utah. The Company shall use
best
efforts to secure such liens in favor of the Holder, including but not limited
to, paying reasonable attorneys’ fees in connection therewith and securing title
insurance reports.
10. Representations
and Warranties of the Company.
The
Company hereby makes to the Holder the following representations and
warranties:
i. Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by this Agreement and otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement by the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company, its board
of directors or its stockholders in connection therewith other than in
connection with the Required Approvals. This Agreement 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 (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be
limited by applicable law.
ii. No
Conflicts.
The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby do not
and
will not: (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, 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, result in the creation of any Lien (except as contemplated
by
the Security Documents) upon any of the properties or assets of the Company
or
any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of,
any material agreement, credit facility, debt or other material instrument
(evidencing a Company or Subsidiary debt or otherwise) or other material
understanding to which the Company or any Subsidiary is a party or by which
any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or 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 or
a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii),
such
as could not have or reasonably be expected to result in a Material Adverse
Effect.
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iii. Issuance
of the Commitment Shares.
The
Commitment Shares are duly authorized and, upon the execution of this Agreement
by a Holder, will be duly and validly issued, fully paid and nonassessable,
free
and clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents.
11. Representations
and Warranties of the Holder.
The
Holder represents and warrants as of the date hereof to the Company as
follows:
i. Authority.
The
execution, delivery and performance by such Holder of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of such Holder. This Agreement has
been
duly executed by such Holder, and when delivered by such Holder in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of such Holder, enforceable against it in accordance with its terms, except
(i)
as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.
ii. Own
Account.
Such
Holder understands that the Commitment Shares are “restricted securities” and
have not been registered under the Securities Act or any applicable state
securities law and is acquiring the Commitment Share as principal for its own
account and not with a view to or for distributing or reselling the Commitment
Shares or any part thereof in violation of the Securities Act or any applicable
state securities law, has no present intention of distributing any of such
Securities in violation of the Securities Act or any applicable state securities
law and has no arrangement or understanding with any other persons regarding
the
distribution of the Commitment Shares (this representation and warranty not
limiting such Holder’s right to sell the Commitment Shares pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable
state securities law. Such Holder is acquiring the Commitment Shares hereunder
in the ordinary course of its business. Such Holder does not have any agreement
or understanding, directly or indirectly, with any Person to distribute any
of
the Commitment Shares.
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iii. Holder
Status.
Such
Holder is an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act. Such Holder is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.
12. Effect
on Transaction Documents. Except
as
expressly set forth above, all of the terms and conditions of the Transaction
Documents shall continue in full force and effect after the execution of this
Agreement and shall not be in any way changed, modified or superseded by the
terms set forth herein, including but not limited to, any other obligations
the
Company may have to the Holder under the Transaction Documents.
13. Amendments
and Waivers.
The
provisions of this Agreement, including the provisions of this sentence, may
not
be amended, modified or supplemented, and waivers or consents to departures
from
the provisions hereof may not be given, unless the same shall be in writing
and
signed by the Company and the Holder.
14. Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be delivered as set forth in the applicable Transaction
Document.
15. Successors
and Assigns.
This
Agreement shall inure to the benefit of and be binding upon the successors
and
permitted assigns of each of the parties and shall inure to the benefit of
the
Holder. The Company may not assign (except by merger) its rights or obligations
hereunder without the prior written consent of the Holder. The Holder may assign
their respective rights hereunder in the manner and to the Persons as permitted
under the applicable Transaction Document.
16. Execution
and Counterparts.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.
17. Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be determined in accordance with the provisions of
the
September Purchase Agreement.
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18. Severability.
If any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be
hereafter declared invalid, illegal, void or unenforceable.
19. Headings.
The
headings in this Agreement are for convenience only, do not constitute a part
of
the Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
[SIGNATURE
PAGE FOLLOWS]
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IN
WITNESS WHEREOF, and intending to be legally bound hereby, the parties have
executed this Agreement as of the date first set forth above.
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| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ | |
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ |
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Title:
Chief Executive Officer
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[SIGNATURE
PAGE OF HOLDER TO FLWE AMENDMENT AND WAIVER]
Name
of
Holder: PALISADES MASTER FUND, L.P.
| /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ | /s/ ▇▇▇▇▇ ▇▇▇▇▇▇ | ||
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ |
▇▇▇▇▇ ▇▇▇▇▇▇ |
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| Authorized Signatory | Authorized Signatory |
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