Execution Copy
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SECURITIES PURCHASE AGREEMENT
by and between
CARPATSKY PETROLEUM INC.
an Alberta corporation
(the "Company")
and
BELLWETHER EXPLORATION COMPANY
a Delaware corporation
("Purchaser")
Concerning the
purchase of convertible preferred shares and
warrants to purchase common shares
December 29, 1999
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TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS..................................................... 1
Section 1.1 Definitions.................................................. 1
ARTICLE II. PURCHASE AND SALE OF SECURITIES................................ 4
Section 2.1 Sale and Issuance Purchase Shares........................... 4
Section 2.2 Sale and Issuance of Warrants............................... 5
Section 2.3 Legend...................................................... 5
Section 2.4 Purchase; Purchase Price.................................... 5
ARTICLE III. CLOSING DATE; DELIVERY........................................ 5
Section 3.1 Closing Date................................................. 5
Section 3.2 Payment; Delivery............................................ 5
ARTICLE IV. REPRESENTATIONS AND WARRANTIES................................. 6
Section 4.1 Representations and Warranties of the Company............... 6
(a) Organization and Standing; Articles and By Laws.................... 6
(b) Corporate Power; Authority......................................... 6
(c) Purchase Shares and Warrants....................................... 6
(d) Capitalization..................................................... 7
(e) Subsidiaries....................................................... 7
(f) No Conflicts or Consents........................................... 7
(g) Corporate Documents................................................ 8
(h) ASC Documents; Financial Statements; Liabilities................... 8
(i) Oil and Gas Properties............................................. 9
(j) Investment Company................................................. 10
(k) Public Utility Company............................................. 10
(l) Environmental Matters.............................................. 11
(m) Tax Matters........................................................ 13
(n) Litigation......................................................... 15
(o) Broker's and Finder's Fee.......................................... 15
(p) Absence of Sensitive Payments...................................... 15
(q) Compliance with Law................................................ 15
(r) Contracts.......................................................... 16
(s) Employment Plans/Employment Agreements............................. 17
(t) Absence of Certain Changes or Events............................... 17
(u) The Company's Assets............................................... 18
(v) Registration Rights................................................ 18
Section 4.2 Representations and Warranties of Purchaser................. 18
(a) Investment Intent.................................................. 18
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(i)
(b) Accredited Investor................................................ 21
(c) Corporate Power; Authority......................................... 21
Section 4.3 Acknowledgments of the Purchaser............................. 21
ARTICLE V. CONDITIONS TO CLOSING........................................... 22
Section 5.1 Purchaser's Conditions....................................... 22
(a) Representations and Warranties Correct............................. 22
(b) Covenants.......................................................... 22
(c) Compliance Certificate............................................. 22
(d) No Material Adverse Change......................................... 23
(e) Consents........................................................... 23
(f) Registration Rights Agreement...................................... 23
(g) Opinion of Company's Counsel....................................... 23
(h) Xxxxx Merger Agreement............................................. 23
(i) Due Diligence...................................................... 23
Section 5.2 Company's Conditions........................................ 23
(a) Representations.................................................... 23
(b) Consents........................................................... 23
(c) Xxxxx Merger Agreement............................................. 23
ARTICLE VI. AFFIRMATIVE COVENANTS OF THE COMPANY........................... 24
Section 6.1 Financial Information........................................ 24
(a) ASC Reports........................................................ 24
(b) Other Reports...................................................... 24
Section 6.2 Access....................................................... 24
Section 6.3 Rule 144 Reporting........................................... 24
Section 6.4 Shareholder Approval......................................... 25
Section 6.5 Conduct of Business by the Company Pending the Closing....... 25
Section 6.6 Stock Exchange Listing....................................... 26
Section 6.7 Additional Agreements........................................ 26
Section 6.8 No Shop...................................................... 27
Section 6.9 Advice of Changes............................................ 27
Section 6.10 Xxxxx Merger................................................ 27
Section 6.11 Board Nominees.............................................. 28
Section 6.12 Use of Proceeds............................................. 28
ARTICLE VII. MISCELLANEOUS................................................. 29
Section 7.1 Governing Law............................................... 29
Section 7.2 Survival.................................................... 29
Section 7.3 Successors and Assigns...................................... 29
Section 7.4 Entire Agreement, Amendment................................. 29
Section 7.5 Notices, etc................................................ 29
Section 7.6 Delays or Omissions......................................... 29
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(ii)
Section 7.7 Counterparts................................................. 30
Section 7.8 Severability................................................. 30
Section 7.9 Titles and Subtitles......................................... 30
Section 7.10 Specific Performance........................................ 30
Articles of Amendment Exhibit A
Warrant Exhibit B
First Amendment to Registration Rights Agreement Exhibit C
Form of Legal Opinion Exhibit D
Amendment to the Xxxxx Merger Agreement Exhibit E
Company's Articles of Incorporation and By Laws Schedule 4.1(a)
Company's Capitalization Schedule 4.1(d)
Company's Subsidiaries Schedule 4.1(e)
Required Consents Schedule 4.1(f)
Material Adverse Changes Schedule 4.1(h)
Changes to Reserves Schedule 4.1(i)(ii)
Environmental and Safety Matters Schedule 4.1(l)
Taxes Schedule 4.1(m)
Litigation Schedule 4.1(n)
Sensitive Payments Schedule 4.1(p)
Contracts Schedule 4.1(r)
Registration Rights Schedule 4.1(v)
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(iii)
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made and entered
into as of December 29, 1999 by and between Carpatsky Petroleum Inc., an Alberta
corporation (the "Company"), and Bellwether Exploration Company, a Delaware
corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, Purchaser desires to purchase 95,450,000 million Preferred Shares,
and Warrants to purchase 12,500,000 Common Shares, and the Company desires to
issue and sell to Purchaser the Preferred Shares and the Warrants, for an
aggregate consideration of U.S.$4,000,000, all on the terms and conditions
described herein.
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises herein contained, as well as for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, contract and agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the following terms
when capitalized have the meanings indicated.
"Affiliate" shall have the meaning ascribed by the Business Corporations
Act (Alberta).
"Agreement" shall mean this Agreement, including the Schedules and
Exhibits hereto, all as amended or otherwise modified from time to time.
"Alternative Proposal" has the meaning set forth in Section 6.8.
"Amendment to the Xxxxx Merger Agreement" means the amendment to the Xxxxx
Merger Agreement described in Exhibit F.
"Ancillary Agreements" means, collectively, the First Amendment to
Registration Rights Agreement and the Amendment to the Xxxxx Merger Agreement.
"Articles" has the meaning set forth in Section 2.1.
"Articles of Amendment" means the articles of amendment with respect to the
Preferred Shares in the form attached as Exhibit A.
"ASC" means the Alberta Securities Commission.
"ASC Documents" has the meaning set forth in Section 4.1 (h) (i).
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"Audited Financial Statements" shall mean the audited balance sheets, and
the related statements of earnings, shareholders' equity and cash flows, and the
related notes thereto of Company as of and for the years ended December 31,
1998.
"CDNX" means the Canadian Venture Exchange.
"Closing" shall have the meaning ascribed to it in Section 3.1.
"Closing Date" has the meaning provided for in Section 3.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Shares" has the meaning set forth in Section 2.1.
"Company" has the meaning set forth in the introductory paragraph.
"Environmental Laws" has the meaning set forth in Section 4.1(1)(xi).
"Environmental Liability" has the meaning set forth in Section 4.1(1)
(xiii).
"ERISA" has the meaning provided for in Section 4.1(s).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Financial Statements" shall mean the Audited Financial Statements and
the Interim Financial Statements.
"First Amendment to Registration Rights Agreement" means the agreement set
forth in Exhibit C.
"Governmental Authority" means the government of any nation, state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing (including,
without limitation, a government controlled oil company).
"Hazardous Materials" has the meaning set forth in Section 4.1(1) (xii).
"Holder" means the Purchaser and any subsequent direct or indirect
transferee of the Purchase Shares, Warrants, Shares or Warrant Shares, other
than a transferee, (i) who has acquired the Purchase Shares, Warrants, Shares or
Warrant Shares that have been the subject of a distribution registered under the
Securities Act or (ii) in the case of Shares or Warrant Shares, who has acquired
such Common Shares after such shares have been the subject of a distribution
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to the public pursuant to Rule 144 under the Securities Act or otherwise
distributed under circumstances not requiring a legend as described in
Section 2.3.
"Interim Financial Statements" shall mean the unaudited balance sheet,
and the related unaudited statements of earnings and cash flows of the Company
as of and for the nine months ended September 30, 1999.
"Latest Balance Sheet" shall mean the balance sheet included in the
Interim Financial Statements.
"Liens" shall mean pledges, liens, defects, leases, licenses, equities,
conditional sales contracts, charges, claims, encumbrances, security interests,
easements, restrictions, chattel mortgages, mortgages or deeds of trust, of any
kind or nature whatsoever.
"Material Adverse Change" is a change which had or is reasonably likely
to have a Material Adverse Effect.
"Material Adverse Effect" shall mean with respect to any Person, a
material adverse effect on the financial condition, results of operations,
business or prospects of such Person and, in the case of the Company, its
consolidated subsidiaries taken as a whole.
"Other Securities" has the meaning provided for in the Articles of
Amendment or the Warrant.
"Payment" has the meaning set forth in Section 4.1(p).
"Xxxxx" means Xxxxx Oil and Gas Company, a Nevada corporation.
"Xxxxx Merger Agreement" means the Agreement and Plan of Merger between
the Company and Xxxxx, dated September 1, 1999.
"Person" shall mean an individual, firm, corporation, general or limited
partnership, limited liability company, limited liability partnership, joint
venture, trust, Governmental Authority or body, association, unincorporated
organization or other entity.
"Preferred Shares" has the meaning set forth in Section 2.1.
"Purchase Price" has the meaning set forth in Section 2.4.
"Purchase Shares" has the meaning set forth in Section 2.1.
"Purchaser" has the meaning set forth in the introductory paragraph.
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"Reserve Engineer" has the meaning set forth in Section 4.1 (i) (ii).
"Reserve Report" has the meaning set forth in Section 4.1(i) (ii).
"Returns" shall mean all returns, reports, estimates, declarations and
statements of any nature regarding Taxes for periods required to be filed by the
taxpayer relating to its income, properties or operations.
"SEC" means the U.S. Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Securities Act" means the U.S. Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, and shall include any
replacement statute and rules and regulations thereunder.
"Securities Act (Alberta)" means the Securities Act (Alberta), as
amended, and the rules, regulations, policy statements, notices and other
requirements promulgated thereunder.
"Shareholder Consent" means the consent to private placement in the form
of Exhibit E.
"Shares" has the meaning set forth in Section 2.1.
"Securities Laws" has the meaning set forth in Section 4.1(c).
"Taxes" shall mean any taxes imposed by any government or entity
empowered with taxing authority by a government, including, without limitation,
national, federal, provincial, state, regional, local or other taxes (including,
without limitation, income, value-added, alternative minimum, franchise,
property, sales, use, lease, excise, premium, payroll, wage, employment or
withholding taxes), fees, duties, assessments, withholdings or governmental
charges of any kind whatsoever (including interest, penalties and additions to
tax).
"Warrants" means the warrants in the form of Exhibit B.
"Warrant Shares" has the meaning set forth in Section 2.2.
ARTICLE II. PURCHASE AND SALE OF SECURITIES
Section 2.1 Sale and Issuance Purchase Shares. The Company shall issue and
sell to Purchaser at the Closing (as hereinafter defined) 94,450,000 shares (the
"Purchase Shares") of its convertible preferred shares ("Preferred Shares"),
initially convertible into 50,000,000 common shares ("Common Shares") of the
Company, representing, as of the date hereof, 31.66% of the Common Shares on a
fully diluted basis. The Purchase Shares have the characteristics set forth in
the Articles of Amendment. The Purchase Shares and the Shares (as hereinafter
defined)
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issuable upon conversion of the Purchase Shares shall be entitled to all of the
rights, privileges and preferences provided therein and in the Company's
Articles of Incorporation, as amended by the Articles of Amendment, included in
Schedule 4.1 (a) ("Articles"). The Common Shares or Other Securities to be
received upon conversion of the Purchase Shares are referred to herein as the
"Shares."
Section 2.2 Sale and Issuance of Warrants. The Company shall issue and sell
to Purchaser at the Closing (as hereinafter defined) Warrants to purchase
12,500,000 Common Shares, representing, as of the date hereof, 7.91 % of the
Common Shares on a fully diluted basis. All Warrant Shares (as hereinafter
defined) to be purchased pursuant to the Warrants shall have the rights,
privileges and preferences as set forth in the Articles. The Common Shares or
Other Securities for which the Warrants shall be exercisable upon payment of the
exercise price set forth in the Warrant are referred to herein as the "Warrant
Shares."
Section 2.3 Legend. The Purchase Shares, Warrants, any Shares issued upon
conversion of the Purchase Shares, and any Warrant Shares issued upon exercise
of the Warrants will not be registered under the Securities Act, and will bear a
restrictive legend as set forth in Section 4.2 (a) (vii).
Section 2.4 Purchase; Purchase Price. Subject to the terms and conditions
set forth herein, for and in consideration of the sale and issuance of the
Purchase Shares and Warrants, Purchaser hereby agrees to pay to the Company at
the Closing U.S.$4,000,000 in cash ("Purchase Price").
ARTICLE III. CLOSING DATE; DELIVERY
Section 3.1 Closing Date. The closing ("Closing") of the purchase and sale
of the Purchase Shares and Warrants hereunder shall be held at 10:00 A.M.
Houston, Texas time, on December 29, 1999 ("Closing Date"), at the offices of
Xxxxxx & Xxxxx L.L.P., 0000 Xxxxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000.
Section 3.2 Payment; Delivery. At the Closing, the Company will deliver to
Purchaser duly executed certificates representing the Purchase Shares registered
in the name of Purchaser, against payment of the Purchase Price therefor, by
wire transfer of immediately available funds per the Company's instructions,
together with delivery by the Company of such other documents, certificates and
opinions of counsel as may be required to be delivered by the Company to
Purchaser as a condition to Purchaser's consummation of this Agreement,
including, without limitation, the Ancillary Agreements.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Company. In order to
induce Purchaser to enter into this Agreement, the Company hereby represents and
warrants to Purchaser, as follows:
(a) Organization and Standing; Articles and By Laws. The Company is a
corporation legally incorporated, duly organized, validly existing and in
good standing under the laws of the province of Alberta, Canada, has full
corporate power and authority and all necessary licenses and permits to own,
lease, produce and operate the properties used in its business and to carry
on its business as now being conducted. The Company is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction where the character of the properties owned, leased or produced
by it or the nature of the businesses transacted by it requires it to be so
qualified. Schedule 4.1 (a) is a true, correct and complete copy of the
Company's Articles and By Laws, containing all amendments through the date
hereof.
(b) Corporate Power; Authority. The Company has full corporate power
and authority to enter into this Agreement and each of the Ancillary
Agreements and to perform its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement, and the Ancillary
Agreements, the issuance of the Purchase Shares and Warrants, the issuance
upon conversion of the Purchase Shares of the Shares, the issuance upon
exercise of the Warrants of the Warrant Shares, and the consummation of the
transactions contemplated hereby and thereby have been duly authorized and
approved by the Board of Directors of the Company and, subject to the
receipt of approval of the Company's shareholders as contemplated by
Section 6.4, no other corporate proceeding on the part of the Company is
necessary to authorize and approve this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and thereby. This
Agreement has been, and at the Closing each Ancillary Agreement will be,
duly executed and delivered by, and constitutes or will constitute a valid
and binding obligation of, the Company, enforceable against the Company in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or by the principles governing
the availability of equitable remedies).
(c) Purchase Shares and Warrants. The Purchase Shares and Warrants,
when issued in accordance with this Agreement, will be validly issued,
fully paid and nonassessable and will have the rights, preferences and
privileges set forth in the Articles of Amendment or Warrant (as the case
may be). The Shares and Warrant Shares have been duly and validly reserved
and, when issued in compliance with the provisions of this Agreement and
the Articles of Amendment or Warrant (as the case may be), will be validly
issued, fully paid and non-assessable and will have the rights,
preferences and privileges set forth in the Articles. Upon issuance upon
conversion of the Purchase Shares
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or upon exercise of the Warrants, the Shares or Warrant Shares (as the case
may be) will be free of any Liens created by the Company; provided,
however, that the Shares and Warrant Shares will be subject to restrictions
on transfer under the Securities Act or any applicable United States or
Canadian state and provincial securities laws and rules of the ASC
(collectively, "Securities Laws"). The Shares and Warrant Shares are not
subject to any preemptive rights or rights of first refusal.
(d) Capitalization. The authorized capital stock of the Company
consists of unlimited number of Common Shares, of which 77,778,263 shares
are issued and outstanding as of the date of the hereof. The outstanding
shares have been duly authorized and validly issued, and are fully paid and
nonassessable. All outstanding securities of the Company were issued in
compliance with applicable Securities Laws. The Company has reserved
50,000,000 and 12,500,000 Common Shares for issuance upon conversion of the
Preferred Shares and exercise of the Warrants, respectively. Other than the
Common Shares and except as specifically described on Schedule 4.1(d), the
Company does not have any outstanding capital stock or securities
convertible into or exchangeable for any shares of its capital stock, or
any outstanding rights (either preemptive or other) to subscribe for or to
purchase, or any outstanding rights or options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
outstanding calls, commitments or claims of any character relating to, any
capital stock or any stock or securities convertible into or exchangeable
for any capital stock of the Company. The Company is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any convertible securities,
rights or options of the type described in the preceding sentence. The
Company is not a party to any agreement (except as contemplated by this
Agreement) restricting the transfer of any shares of the Company's capital
stock.
(e) Subsidiaries. Except as listed on Schedule 4.1(e), the Company has
no subsidiaries and does not otherwise own or control, directly or
indirectly, any equity interest in any corporation, association, business
entity or other Person. Each such subsidiary is a corporation legally
incorporated, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, has full corporate power
and authority and all necessary licenses and permits to own, lease, produce
and operate the properties used in its business and to carry on its
business as now being conducted. Each subsidiary is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction where the character of the properties owned or leased by it or
the nature of the businesses transacted by it requires it to be so
qualified except where the failure to be so qualified would not have a
Material Adverse Effect.
(f) No Conflicts or Consents.
(i) Neither the execution, delivery or performance of this
Agreement nor the Ancillary Agreements by the Company nor the
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consummation of the transactions contemplated hereby or thereby will
(1) violate, conflict with, or result in a breach of any provision of,
constitute a material default (or an event that, with notice or lapse
of time or both, would constitute a material default) under, result in
the termination of, or accelerate the performance required by, or
result in the creation of any material adverse claim against any of
the material properties or assets of the Company or its subsidiaries
under, (A) the Articles, by laws or any other organizational documents
of the Company or its subsidiaries, or (B) any material note, bond,
mortgage, indenture, deed of trust, lease, license, agreement,
production sharing contract, concession or other instrument or
obligation to which the Company or any of its subsidiaries is a party,
or by which the Company or any of its subsidiaries or any of their
respective assets are bound, or (2) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation of any
Governmental Authority to which the Company or any subsidiary is
subject or by which the Company or any of its subsidiaries or any of
their respective assets are bound in any material respect.
(ii) Except as set forth on Schedule 4.1(f), no consent,
approval, order, permit or authorization of, or registration,
declaration or filing with, any Person or of any Governmental
Authority is required for the execution, delivery and performance by
the Company of this Agreement and the Ancillary Agreements and the
covenants and transactions contemplated hereby or thereby.
(g) Corporate Documents. The minute books of the Company and its
subsidiaries contain reasonably complete and accurate required records of
all corporate actions of the equity owners of the various entities and of
the boards of directors or other governing bodies, including committees of
such boards or governing bodies. The share transfer records of the Company
are maintained by its transfer agent and registrar and, to the knowledge
of the Company, contain complete and accurate records of all issuances and
redemptions of shares by the Company.
(h) ASC Documents; Financial Statements; Liabilities.
(i) Since January 1, 1997, the Company has filed all reports,
forms, statements and other documents required under the Securities
Act (Alberta) to be filed with the ASC (the "ASC Documents") other
than annual audited financial statements for the year ended June 30,
1999 and unaudited interim financial statements for the three months
ended September 30, 1999. The ASC Documents, and any such reports,
forms and documents filed by the Company with the ASC after the date
hereof, as amended, complied, or will comply, as to form in all
material respects with
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the requirements of the Securities Act (Alberta), as the case may be,
applicable to such ASC Documents, and none of the ASC Documents
contained, any untrue statement of a material fact or omitted 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) The Financial Statements included in the ASC Documents have
been audited by Xxxxxxx Xxxxx, Chartered Accountants (in the case of
the Audited Financial Statements) in accordance with Canadian
generally accepted auditing standards, have been prepared in
accordance with Canadian generally accepted accounting principles
applied on a basis consistent with prior periods, and present fairly
the consolidated financial position of the Company at such dates and
the results of operations and cash flows for the periods then ended,
except, in the case of the Interim Financial Statements, as permitted
by the Securities Act (Alberta). The Interim Financial Statements
reflect all adjustments (consisting only of normal, recurring
adjustments) that are necessary for a fair statement of the results
for the interim periods presented therein. Except as set forth on
Schedule 4.1(h), or in the Latest Balance Sheet and the notes thereto,
there has not been any Material Adverse Change in the consolidated
financial condition of the Company since December 31, 1998.
(iii) The Latest Balance Sheet includes appropriate reserves for
all Taxes and other liabilities incurred as of such date but not yet
payable.
(iv) Since the date of the Latest Balance Sheet, there has been
no change that has had or is likely to have a Material Adverse Effect
on the Company.
(i) Oil and Gas Properties.
(i) Except for Liens arising in the ordinary course of business
after the date of the Latest Balance Sheet and assets disposed of in
the ordinary course of business after the date of the Latest Balance
Sheet, each of the Company and its subsidiaries has good and
marketable title, free and clear of all Liens which would have a
Material Adverse Effect on the Company and its subsidiaries on a
consolidated basis, to the all their material properties and assets,
whether tangible or intangible, real, personal or mixed, reflected in
the Latest Balance Sheet as being owned by the Company and its
subsidiaries as of the date thereof or purported to be owned on the
date thereof, including without limitation, the oil and gas interests
reported upon in the Reserve Report. All buildings, and all fixtures,
equipment and other property and assets which are material to its
business on a
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consolidated basis, held under leases by the Company and its
subsidiaries are held under valid instruments enforceable by each of
them in accordance with their respective terms. Substantially all of
the Company's and its subsidiaries' equipment in regular use has been
reasonably well maintained and is generally in good and serviceable
condition, reasonable wear and tear excepted.
(ii) The Company has delivered to the Purchaser a copy of the
reserve report ("Reserve Report") dated as of December 31, 1998,
prepared by Xxxxx Xxxxx Company Petroleum Engineers, independent
reserve engineers ("Reserve Engineers") relating to the oil and gas
reserves of the Company. The factual information underlying the
estimates of the reserves of the Company, which was supplied by the
Company to the Reserve Engineers for the purpose of preparing the
Reserve Report, including, without limitation, production, volumes,
sales prices for production, contractual pricing provisions under oil
or gas sales or marketing contracts under hedging arrangements, costs
of operations and development, and working interest and net revenue
information relating to the Company's ownership interests in
properties, was true and correct in all material respects on the date
of such Reserve Report; the estimates of future capital expenditures
and other future exploration and development costs supplied to the
Reserve Engineers were prepared in good faith and with a reasonable
basis; the information provided to the Reserve Engineers for purposes
of preparing the Reserve Reports were prepared in accordance with
customary industry practices; each of the Reserve Engineers were, as
of the date of any Reserve Report prepared by it, and are, as of the
date hereof, independent petroleum engineers with respect to the
Company; other than normal production of the reserves and intervening
oil and gas price fluctuations set forth in Schedule 4.1(i) (ii), the
Company is not, as of the date hereof, aware of any facts or
circumstances that would result in a materially adverse change in the
reserves in the aggregate, or the aggregate present value of future
net cash flows therefrom, as described in the Reserve Reports;
estimates of such reserves and the present value of the future net
cash flows therefrom in the Reserve Report comply in all material
respects to the applicable requirements of Regulation S-X under the
Securities Act;
(j) Investment Company. Neither the Company nor any of its
subsidiaries is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(k) Public Utility Company. Neither the Company nor any of its
subsidiaries is a "public utility," a "holding company" or a subsidiary or
"affiliate" of a public utility within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
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(L) Environmental Matters. Except as set forth on Schedule 4.1(1), and
except for matters that would not result individually in liability to the
Company or any of its subsidiaries in excess of (a) $10,000 in the case of
matters known to the Company or, in the aggregate with all other such
matters, in liability to the Company or any of its subsidiaries in excess
of $25,000, or (b) $25,000 in the case of matters not known to the Company
or, in the aggregate with all other such matters, in liability to the
Company or any of its subsidiaries in excess of $50,000, to the best
knowledge of the Company:
(i) the properties, operations and activities of the Company or
any of its subsidiaries are in compliance in all material respects
with all applicable Environmental Laws and there are no circumstances
which could reasonably be expected to prevent or interfere with their
continued compliance with applicable Environmental Laws;
(ii) each of the Company and its subsidiaries and the properties
and operations of the Company and its subsidiaries (including, without
limitation, properties located in the Ukraine) are not subject to any
existing, pending, or, to the Company's knowledge, threatened civil,
criminal or administrative action, suit, claim, notice of violation,
investigation, notice of potential liability, request for information,
inquiry, demand or proceeding under applicable Environmental Laws;
(iii) neither the Company nor any of its subsidiaries has
agreed, whether by contract or by consent agreement with Governmental
Authorities or private persons, to undertake any environmental
investigation, clean up, or remedial activities;
(iv) all notices, permits, licenses, or similar authorizations
required to be obtained or filed by the Company or its subsidiaries
under any Environmental Law in connection with any aspect of the
business of the Company or its subsidiaries, including without
limitation those relating to the treatment, storage, disposal or
discharge of Hazardous Materials, have been duly obtained or filed,
and the Company and its subsidiaries are in compliance with the terms
and conditions of all such notices, permits, licenses and similar
authorizations.
(v) the Company and each of its subsidiaries has satisfied and is
currently in compliance with all financial responsibility requirements
applicable to their operations and imposed by any Governmental
Authority under Environmental Laws, and the Company has not received
any notice of noncompliance with respect to any such financial
responsibility requirements;
(vi) there are no physical or environmental conditions existing
on any property of the Company or any of its subsidiaries or resulting
from the Company's or any of its subsidiaries' operations or
activities, past or present, at any location,
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including, without limitation, releases and disposal of Hazardous
Materials, that would give rise to any on-site or off site
investigation, reporting, or remedial obligations or other
Environmental Liability;
(vii) to the extent required by applicable Environmental Laws,
all Hazardous Materials generated by the Company and its subsidiaries
have been transported only by persons authorized under applicable
Environmental Laws to transport such materials, and disposed of only
at treatment, storage and disposal facilities authorized under
applicable Environmental Laws to treat, store or dispose of such
Hazardous materials;
(viii) there has been no exposure of any person or property to
Hazardous Materials or any release of Hazardous Materials into the
environment by the Company and its subsidiaries or in connection with
their present or prior properties or operations that could reasonably
by expected to give rise to any Environmental Liability;
(ix) no release or clean up of Hazardous Materials has occurred
at the Company's and its subsidiaries' properties which could
reasonably be expected to result in the assertion or creation of any
Lien on the properties by any Governmental Authority with respect
thereto, nor has any such lien been asserted or made by any
Governmental Authority with respect thereto; and
(x) the operations of each third party operator of any of the
Company's and its subsidiaries' properties are in compliance with the
terms of this Section.
The Company has made available to the Purchaser all material internal and
external environmental audits, studies, documents and correspondence on
environmental matters in the possession of the Company relating to any of
the present or prior properties or operations of the Company and its
subsidiaries.
In this Section,
(xi) "Environmental Laws" shall mean any and all laws, statutes,
ordinances, rules, regulations or orders of any Governmental Authority
pertaining to pollution, health, safety, or the environment,
including, without limitation, the laws of the Ukraine on
Environmental Protection (VVR (Visnyk Verkhovnoi Rady (Herald of the
Supreme Rada]) 1991, #41. p. 5546), the Clean Air Act, the
Comprehensive Environmental, Response, Compensation, and Liability
Act, the Clean Water Act, the Occupational Safety and Health Act, the
Resource Conservation and Recovery Act, the Solid Waste Disposal Act,
the Emergency Planning and Community Right-To-Know Act, the Safe
Drinking Water Act, the Toxic Substances Control Act, the Hazardous
Materials Transportation Act, the Oil
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Pollution Act, all as amended, any state laws implementing the
foregoing federal laws, any state laws pertaining to, health, safety
and waste management including, without limitation, the handling of
asbestos, medical waste or disposable products, hydrocarbon products,
PCBs or other Hazardous Materials or processing or disposing of wastes
or the use, maintenance and closure of pits and impoundments, all
other federal, provincial, state or local environmental conservation
or protection and health and safety laws, domestic and foreign, and
any common law creating liability for environmental conditions.
Environmental Laws shall include, without limitation, all
restrictions, conditions, standards, limitations, prohibitions,
requirements, guidelines, obligations, schedules and timetables
contained in Environmental Laws or contained in any regulation, plan,
code, order, decree, judgment, injunction, notice or demand letter
issued, entered, promulgated or approved thereunder.
(xii) "Hazardous Materials" shall mean any materials that are
regulated by or form the basis or liability under Environmental Laws,
and include, without limitation, asbestos, wastes, including, without
limitation, medical wastes or disposable products, hazardous
substances, pollutants or contaminants, hazardous or solid wastes,
hazardous constituents, hazardous materials, toxic substances,
petroleum, including crude oil or any fraction thereof, natural gas,
natural gas liquids, liquefied natural gas or synthetic gas usable for
fuel (or mixtures of natural gas and such synthetic gas).
(xiii) "Environmental Liability" shall mean liabilities, fines,
penalties, obligations, consequential damages, responsibilities,
response costs, natural resource damages, corrective action costs,
reclamation costs, and costs and expenses, known or unknown, absolute
or contingent, past, present or future, resulting from any
requirement, claim or demand under Environmental Laws or contract.
(m) Tax Matters.
(i) Each of the following is true with respect to each of the
Company and its subsidiaries to the extent applicable to such member:
(1) all Returns that are or were required to be filed by or
with respect to the Company and its subsidiaries have been or
will be timely filed by each of the Company and its subsidiaries
when due in accordance with all applicable laws; all Taxes shown
on the Returns have been or will be timely paid when due; the
Returns have been properly completed in compliance with all
applicable laws and regulations and completely and accurately
reflect the facts regarding the income, expenses, properties,
business and operations
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required to be shown thereon; the Returns are not subject to
penalties under Section 6662 of the Code (or any corresponding
provision of state, local or foreign tax law);
(2) except as set forth on Schedule 4.1(m), each member of
the Company and its subsidiaries has paid all Taxes required to
be paid by it (whether or not shown on a Return) or for which it
could be liable (provided that it shall not be considered a
breach of this representation if it is ultimately determined that
additional tax payments are due but such assessment is based on
an adjustment to a Return or position, if such member has a
reasonable basis for the position taken with respect to such
Taxes), whether to taxing authorities or to other Persons under
tax allocation agreements or otherwise, and the charges,
accruals, and reserves for Taxes due, or accrued but not yet due,
relating to its income, properties, transactions or operations
for any period as reflected on its books (including, without
limitation, the Latest Balance Sheet) are adequate to cover such
Taxes;
(3) there are no ongoing or scheduled audits, agreements or
consents currently in effect for the extension or waiver of the
time (A) to file any Return or (B) for assessment or collection
of any Taxes relating to the income, properties or operations of
any of the Company and its subsidiaries for any period, and
neither the Company nor any subsidiary has been requested to
enter into any such agreement or consent;
(4) there are no Liens for Taxes (other than for current
Taxes not yet due and payable and Taxes set forth on Schedule 4.1
(m) upon the assets of any of the Company nor its subsidiaries;
(5) the Company and its subsidiaries have not received
notice of any Tax deficiency outstanding, proposed or assessed
against or allocable to the Company or its subsidiaries or their
assets (other than for Taxes set forth on Schedule 4.1 (m);
(6) to the knowledge of the Company, each of the Company and
its subsidiaries has complied in all material respects with all
applicable tax laws (other than for Taxes set forth on Schedule
4.1(m); and
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(7) all Taxes that the Company and its subsidiaries are or
were required by applicable law to withhold or collect have been
duly withheld, collected and paid.
(n) Litigation. Except as disclosed on Schedule 4.1(n), there are no
actions, suits, proceedings, arbitrations or investigations pending or, to
the knowledge of the Company, threatened before any court, any Governmental
Authority, governmental instrumentality or any arbitration panel, against
or affecting any of the Company or its subsidiaries. To the knowledge of
the Company, no facts or circumstances exist that would be reasonably
likely to result in the filing of any such action that would have a
Material Adverse Effect on the Company. Except as disclosed on Schedule
4.1(n), neither the Company nor its subsidiaries is subject to any
currently pending judgment, order or decree entered in any lawsuit or
proceeding.
(o) Broker's and Finder's Fee. No agent, broker, Person or firm acting
on behalf of the Company is or will be entitled to any commission or
broker's or finder's fee from the Company or its subsidiaries in connection
with any of the transactions contemplated herein.
(p) Absence of Sensitive Payments. Except as disclosed to Purchaser,
neither the Company, any subsidiary nor any Affiliate thereof nor any
officer or director of any of them acting alone or together, has performed
any of the following acts: (i) the making of any contribution, payment,
remuneration, gift or other form of economic benefit (a "Payment") to or
for the private use of any governmental official, employee or agent where
the Payment or the purpose of the Payment was illegal under the laws of the
United States, Canada or the Ukraine or the jurisdiction in which such
payment was made, (ii) the establishment or maintenance of any unrecorded
fund, asset or liability for any purpose or the making of any false or
artificial entries on its books, (iii) the making of any Payment or the
receipt of any Payment with the intention or understanding that any part of
the Payment was to be used for any purpose other than that described in the
documents supporting the Payment, or (iv) the giving of any Payment to, or
the receipt of any Payment from, any person who was or could have been in a
position to help or hinder the business of the Company and its subsidiaries
(or assist any of the Company or its subsidiaries in connection with any
actual or proposed transaction) which (A) would reasonably have been
expected to subject any of the Company or its subsidiaries to any damage or
penalty in any civil, criminal or governmental litigation or proceeding,
(B) if not given in the past, would have had a Material Adverse Effect on
the Company or (C) if not continued in the future, would have a Material
Adverse Effect on the Company.
(q) Compliance with Law. Neither the Company nor any subsidiary is in
violation of any statute, law, ordinance, regulation, rule or order of any
foreign, United States, Canadian or Ukranian federal, state, provincial or
local Governmental Authority or any judgment, decree or order of any court,
except where any such violation would not,
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individually or in the aggregate, have a Material Adverse Effect on the
Company. Each of the Company and its subsidiaries has all permits, approvals,
licenses and franchises from Governmental Authorities required to conduct its
business as now being conducted, except for such permits, approvals, licenses
and franchises the absence of which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(r) Contracts.
(i) Schedule 4.1 (r) sets forth, as of the date hereof, a list of
all of the following material contracts and other agreements to which the
Company or its subsidiaries is a party or by which any of them or any
material portion of their properties or assets are bound or subject
(other than those set forth on any other Schedule): (1) contracts,
severance agreements and other agreements with any current or former
officer, director, employee, consultant, agent or other representative;
(2) contracts and other agreements with any labor union or association
representing any employee of the Company and its subsidiaries; (3)
contracts, agreements or other agreements relating to the Company and its
subsidiaries between the Company and its subsidiaries, on the one hand,
and any shareholder or any of his, her or its Affiliates on the other
hand; (4) joint venture agreements, concessions, licenses or production
sharing contracts; (5) contracts and other agreements under which the
Company or any of its subsidiaries agrees to indemnify any party; (6)
contracts and other agreements relating to the borrowing of money; or (7)
any other material contract or other agreement whether or not made in the
ordinary course of business. There have been delivered or made available
to the Purchaser true and complete copies of all such contracts and other
agreements set forth on Schedule 4.1(r).
(ii) All contracts, agreements and understandings set forth on
Schedule 4.1 (r) are valid and binding and are in full force and effect
and enforceable in accordance with their respective terms other than
contracts, agreements or understandings which are by their terms no
longer in force or effect. Except as set forth on Schedule 4.1 (r) (or on
another Schedule), (1) no approval or consent of, or notice to, any
Person is needed in order that such contract, agreement or understanding
shall continue in full force and effect in accordance with its terms
without penalty, acceleration or rights of early termination following
the consummation of the transactions contemplated by this Agreement, and
(2) neither the Company nor any of its subsidiaries is in violation or
breach of or default under any such contract, agreement or understanding
nor to the knowledge of the Company is any other party to any such
contract, agreement or understanding.
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(s) Employment Plans/Employment Agreements
(i) Neither the Company nor its subsidiaries has sponsored,
maintained or contributed to or for the benefit of the current or
former employees, officers or directors of the Company or its
subsidiaries or has been so sponsored, maintained or contributed to
within six years prior to the Closing Date:
(1) any "employee benefit plan," as such term is defined in
Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (including, but not limited to,
employee benefit plans, such as foreign plans, which are not
subject to the provisions of ERISA); and
(2) any personnel policy, option plan, collective bargaining
agreement, bonus plan or arrangement, incentive award plan or
arrangement, vacation policy, severance pay plan, policy or
agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement,
consulting agreement, employment agreement and each other
employee benefit plan, agreement, arrangement, program, practice
or understanding.
(ii) Neither the Company nor its subsidiaries contributes to or
has an obligation to contribute to, and has not at any time within six
years prior to the Closing Date contributed to or had an obligation to
contribute to or any liability with respect to (a) a multiemployer
plan within the meaning of Section 3(37) of ERISA or (b) a plan
subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of
the Code. No Plan is funded through a trust that is intended to be
exempt from federal income taxation pursuant to Section 501 (c) (9) of
the Code.
(iii) the Company does not have a 401 (k) Plan or any health
benefit plans.
(t) Absence of Certain Changes or Events. Since the date of the Latest
Balance Sheet, each of the Company and its subsidiaries has conducted its
business only in the ordinary course, and has not:
(i) amended its articles of incorporation, bylaws or similar
organizational documents;
(ii) merged or consolidated with another entity (other than a
subsidiary) or acquired or agreed to acquire any business or any
corporation, partnership or other business organization, or sold,
leased,
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transferred or otherwise disposed of any material portion of its
assets except for fair value in the ordinary course of business;
(iii) suffered any damage, destruction or loss (whether or not
covered by insurance) which has had or could have a Material Adverse
Effect on the Company;
(iv) suffered the termination, suspension or revocation of any
license or permit necessary for the operation of its business;
(v) entered into any transaction other than on an arm's-length
basis;
(vi) declared or paid any dividend or made any distribution with
respect to any of its equity interests, or redeemed, purchased or
otherwise acquired any of its equity interests, or issued, sold or
granted any option, warrant or other right to purchase or acquire any
equity interest; or
(vii) agreed, whether or not in writing, to do any of the
foregoing (other than as contemplated by the Xxxxx Merger Agreement).
(u) The Company's Assets. The assets of the Company and of its
subsidiaries consist solely of (i) reserves of oil, rights to reserves of
oil and associated exploration and production assets with a fair market
value not exceeding $500 million and (ii) other assets with a fair market
value not exceeding $15 million. For purposes of this Section 4.1(u), the
term "associated exploration and production assets" shall have the meaning
ascribed thereto in Section 802.3 of the Rules promulgated pursuant to the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 ("HSR Act").
(v) Registration Rights. The Company is not under any obligation to
register (as defined in the First Amendment to Registration Rights
Agreement) any of its presently outstanding securities or any of its
securities which may hereafter be issued, except as described on Schedule
4.1(v).
Section 4.2 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to the Company as follows:
(a) Investment Intent. Purchaser:
(i) is acquiring the Purchase Shares, the Warrants, the Shares
and the Warrant Shares for investment for its own account, not as a
nominee or agent, and not with the view to, or for resale in
connection with, any distribution thereof except pursuant to the First
Amendment to Registration Rights Agreement;
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(ii) understands and acknowledges that the Purchase Shares, the
Warrants, the Shares and the Warrant Shares have not been and will not
be registered under any applicable Securities Laws, and that the
issuance contemplated hereby is being made in reliance on a private
placement exemption to "accredited investors" as defined in Regulation
D under the Securities Act and similar exemptions under state law and
applicable exemptions under the Securities Act (Alberta);
(iii) has had access to such information concerning the Company
as it has considered necessary in connection with its investment
decision to invest in the Purchase Shares, the Warrants, the Shares
and the Warrant Shares, including an opportunity to meet with members
of management of the Company and to ask and receive answers to
questions regarding the Company, its business, financial condition,
prospects and the terms of this offering;
(iv) has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of its
investment in the Purchase Shares, Warrants, Shares and Warrant Shares
and is able to bear the economic risks of such investment;
(v) acknowledges that it has not purchased the Purchase Shares,
the Warrants, the Shares and the Warrant Shares as a result of any
general solicitation or general advertising, including advertisements,
articles, notices or other communications published in any newspaper,
magazine or similar media or broadcast over the internet, radio or
television, or any seminar or meeting whose attendees have been
invited by general solicitation or general advertising;
(vi) agrees that if it decides to offer, sell or otherwise
transfer any of the Purchase Shares, the Warrants, the Shares or the
Warrant Shares, it will not offer, sell or otherwise transfer any of
such Purchase Shares, Warrants, Shares or Warrant Shares, directly or
indirectly, unless:
A. the sale is to the Company or registered under applicable
Securities Laws; or
B. the sale is made outside the United States in a transaction
meeting the requirements of Rule 904 of Regulation S (or such
successor rule or regulation as then in effect);
C. the sale is made pursuant to the exemption from the registration
requirements under the Securities Act provided by Rule 144
thereunder, if available, and in accordance with any applicable
state securities laws; or
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D. the sale is made in a transaction that otherwise does not
require registration under applicable Securities Laws governing
the offer and sale of the Purchase Shares, Warrants, Shares and
Warrant Shares;
(vii) understands and acknowledges that upon issuance thereof
and until such time as is no longer required under requirements of the
applicable Securities Laws, all certificates representing the Purchase
Shares, the Warrants, the Shares and the Warrant Shares (and all
certificates issued in exchange therefor or in substitution thereof),
shall bear, in addition to any legend (s) required by applicable
Securities Laws and policies, the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES,
AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S
UNDER THE 1933 ACT, IF APPLICABLE (OR SUCH SUCCESSOR RULE OR
REGULATION AS THEN IN EFFECT), (C) INSIDE THE UNITED STATES (1)
PURSUANT TO REGISTRATION UNDER THE 1933 ACT AND APPLICABLE STATE LAWS,
OR (2) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT
PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS, OR (3) IN A TRANSACTION THAT DOES
NOT REQUIRE REGISTRATION UNDER THE 1933 ACT OR ANY APPLICABLE STATE
SECURITIES LAWS, AND THE HOLDER HAS PRIOR TO SUCH SALE FURNISHED TO
THE COMPANY AN OPINION OF COUNSEL OF RECOGNIZED STANDING, REASONABLY
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT NO SUCH REGISTRATION
IS REQUIRED. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD
DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.
and understands that the certificate representing the Purchase Shares,
Warrants, Shares and Warrant Shares will bear the following additional
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD UNLESS (A) A PERIOD OF AT LEAST 12 MONTHS HAS ELAPSED
FROM THE DATE OF ORIGINAL ISSUE, (B) NO UNUSUAL EFFORT IS
MADE TO PREPARE THE MARKET OR TO CREATE A DEMAND FOR THE
SECURITIES MAKING UP THE DISTRIBUTION, (C) NO EXTRAORDINARY
COMMISSION OR CONSIDERATION IS PAID TO A PERSON OR
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COMPANY OTHER THAN THE VENDOR OF THE SECURITIES IN RESPECT OF THE
TRADE, AND (D) THE FIRST TRADE IS NOT FROM THE HOLDINGS OF A CONTROL
PERSON. ("UNUSUAL EFFORT," "EXTRAORDINARY COMMISSION" AND "CONTROL
PERSON" HAVE THE MEANINGS SET OUT IN THE SECURITIES ACT (ALBERTA) AND
THE RULES THEREUNDER.)
(viii) consents to the Company making a notation on its records
or giving instructions to any transfer agent of the Purchase Shares,
the Warrants, the Shares and the Warrant Shares in order to implement
the restrictions on transfer set forth and described herein; and
(ix) will not sell all or any of the Purchase Shares, the
Warrants, the Shares and the Warrant Shares except in compliance with
applicable Securities Laws.
(b) Accredited Investor. The Purchaser is an "accredited investor" as
such term is defined in Regulation D under the Securities Act.
(c) Corporate Power; Authority. The Purchaser has full corporate
power and authority to enter into this Agreement and the Ancillary
Agreements and to perform its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement, and the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly authorized and approved by the Board of Directors of
the Purchaser and no other corporate proceeding on the part of the
Purchaser is necessary to authorize and approve this Agreement and the
Ancillary Agreements and the transactions contemplated hereby and thereby.
This Agreement has been, and at the Closing, each Ancillary Agreement will
be, duly executed and delivered by, and constitutes or will constitute a
valid and binding obligation of the Purchaser enforceable against the
Purchaser in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies).
Section 4.3 Acknowledgments of the Purchaser. In connection with the
issuance of the Purchase Shares and the Warrants, Purchaser certifies that it is
not a resident of Alberta and hereby acknowledges to the Company as follows:
(a) Purchaser understands that no securities commission or similar
regulatory authority has reviewed or passed on the merits of the Purchase
Shares or the Warrants,
(b) there is no government or other insurance covering the Purchase
Shares or the Warrants,
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(c) there are risks associated with the purchase of the Purchase
Shares and the Warrants,
(d) there are restrictions on the Purchaser's ability to resell the
Purchase Shares and the Warrants (and the Shares and Warrant Shares) and it
is the responsibility of the Purchaser to find out what those restrictions
are and to comply with them before selling the Purchase Shares Warrants
(and the Shares and Warrant Shares), and
(e) the Company has advised the Purchaser that the Company is relying
on an exemption from the requirements to provide the Purchaser with a
prospectus and to sell the Purchase Shares and Warrants through a person or
company registered to sell securities under the Securities Act (Alberta)
and, as a consequence of acquiring the Purchase Shares and the Warrants
pursuant to this exemption, certain protections, rights and remedies
provided by the Securities Act (Alberta), including statutory rights of
rescission or damages, will not be available to the Purchaser.
ARTICLE V. CONDITIONS TO CLOSING
Section 5.1 Purchaser's Conditions. Purchaser's obligations to purchase the
Purchase Shares and the Warrants at the Closing are subject to the fulfillment
of the following conditions, the waiver of which shall not be effective against
Purchaser unless specifically consented to in writing:
(a) Representations and Warranties Correct. The representations and
warranties made by the Company in Section 4.1 hereof shall be true and
correct when made, and shall be true and correct on the Closing Date except
to the extent such representations and warranties specifically relate to an
earlier date, in which case such representations and warranties shall be
true and correct as of such earlier date.
(b) Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing
Date shall have been performed or complied with in all respects.
(c) Compliance Certificate. The Company shall have delivered to
Purchaser a certificate of the Company, executed by the President and
Secretary of the Company, dated the Closing Date, and certifying, that all
representations and warranties of the Company contained in the Agreement
are true and correct on the Closing Date as if made on such date, that all
conditions to the obligations of Purchaser to close the transactions
contemplated by this Agreement have been satisfied or waived in writing by
Purchaser and that the Company has complied with all covenants or
obligations set forth in this Agreement.
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(d) No Material Adverse Change. There shall have been no Material
Adverse Change with respect to the Company since the date of the Interim
Financial Statements.
(e) Consents. The shareholders of the Company shall have approved the
issuance of the Purchase Shares and Warrants as contemplated by Section
6.4. Any consent, approval, authorization or order of any court,
Governmental Authority or administrative body required for the consummation
of the transactions contemplated by this Agreement, shall have been
obtained and shall be in effect on the Closing Date.
(f) Registration Rights Agreement. The Company shall have executed
the First Amendment to Registration Rights Agreement.
(g) Opinion of Company's Counsel. Purchaser shall have received from
XxXxxxx Xxxxxxxx a favorable opinion dated the Closing Date, in form and
substance satisfactory to Purchaser, in the form of Exhibit D.
(h) Xxxxx Merger Agreement. The Xxxxx Merger Agreement shall have
been amended as contemplated by Section 6.10 and the form and substance of
such amendment shall be satisfactory to the Purchaser, acting reasonably.
(i) Due Diligence. The Purchaser shall have completed its due
diligence investigation of the Company, its subsidiaries and their
respective assets, operations and prospects, and the Company shall be
satisfied in its sole and absolute discretion with the results of that
investigation. Such due diligence shall include, without limitation,
receipt of such opinions and certificates regarding the operations,
properties and prospects of the Company from Ukranian counsel to Purchaser
as purchaser shall request.
Section 5.2 Company's Conditions. The Company's obligation to sell and
issue the Purchase Shares and Warrants at the Closing is, at the option of the
Company, subject to the fulfillment as of the Closing Date of the following
conditions:
(a) Representations. The representations made by Purchaser in
Sections 4.2 and 4.3 hereof shall be true and correct when made, and shall
be true and correct on the Closing Date.
(b) Consents. The shareholders of the Company shall have approved the
issuance of the Purchase Shares and Warrants as contemplated by Section
6.4. Any other consent, approval, authorization or order of any court,
Governmental Authority or administrative body required for the consummation
of the transactions contemplated by this Agreement, shall have been
obtained and shall be in effect on the Closing Date.
(c) Xxxxx Merger Agreement. The Xxxxx Merger Agreement shall have
been amended as contemplated by Section 6.10.
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ARTICLE VI. AFFIRMATIVE COVENANTS OF THE COMPANY
Section 6.1 Financial Information. The Company will mail to each Holder of
any of the Purchase Shares, Warrants, Shares or Warrant Shares the following:
(a) ASC Reports. The Company shall promptly mail copies of all
quarterly and annual reports and of the information, documents and other
reports which the Company is required to file with the ASC or the SEC,
exclusive of any exhibits to such reports and exclusive of registration
statements on Form S-8.
(b) Other Reports. If the Company is not required to file reports
with the ASC or the SEC, the Company shall mail within five days after it
would have been required to file with the SEC, financial statements,
including notes thereto (and with respect to annual financial statements,
an auditor's report by a firm of established national reputation), and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" both comparable to that which the Company would have been
required to include in such annual or quarterly reports, information,
documents or other reports if the Company were subject to the requirements
of Section 13 or 15(d) of the Exchange Act.
Section 6.2 Access. The Company will allow, and will cause its subsidiaries
to allow, any Holder of Purchase Shares, Warrants, Shares or Warrant Shares or
proposed assignee of Purchase Shares, Warrants, Shares or Warrant Shares
designated by such Holder, and their respective representatives, upon two
Business Days prior telephonic notice, to visit and inspect any of its property,
to examine its books of record and account, and to discuss its affairs, finances
and accounts with its officers, provided, (i) the Holder of Purchase Shares,
Warrants, Shares or Warrant Shares, proposed assignee or representative signs a
customary confidentiality agreement if requested by the Company and (ii) the
examination will not unreasonably disrupt, in any material manner, the
operations of the Company.
Section 6.3 Rule 144 Reporting. The Company agrees that from and after the
date it registers any class of its securities under Section 12 (b) or 12 (g) of
the Exchange Act, it shall:
(a) Make and keep "adequate public information" available, as those
terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after the date hereof;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) So long as Purchaser owns any Purchase Shares or Common Shares,
furnish to Purchaser promptly upon request a written statement by the
Company as
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to its compliance with the reporting requirements (i) necessary to cause
"adequate public information" to be available under Rule 144, and (ii) of
the Securities Act and Exchange Act.
Section 6.4 Shareholder Approval. The Company will take all action
necessary to obtain the approval of the shareholders of the Company in
accordance with the requirements of the CDNX by obtaining Shareholder Consents
from holders of a majority of its Common Shares, excluding the Purchaser and
Torch Energy Advisors Incorporated, with respect to the transactions
contemplated hereby. The Board of Directors of the Company shall recommend such
approval and shall each take all lawful action to solicit such approval;
provided, however, that such recommendation is subject to any action required by
the fiduciary duties of the Board of Directors of the Company under applicable
law.
Section 6.5 Conduct of Business by the Company Pending the Closing. Prior
to the Closing, unless Purchaser shall otherwise agree in writing or except as
otherwise required by this Agreement:
(i) the Company shall, and shall cause its subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and shall, and shall
cause its subsidiaries to, use their reasonable efforts to preserve intact
their present business organizations and preserve their relationships with
customers, suppliers and others having business dealings with them to the
end that their goodwill and on-going businesses shall be unimpaired at the
Closing. The Company shall, and shall cause its subsidiaries to, (a)
maintain insurance coverages and its books, accounts and records in the
usual manner consistent with past practice; (b) comply in all material
respects with all laws, ordinances and regulations of Governmental
Authorities applicable to the Company and its subsidiaries; (c) maintain
and keep its material properties and equipment in good repair, working
order and condition, ordinary wear and tear excepted; (d) maintain its
material concessions in full force and effect and not take any action or
fail to take any action which would constitute a material breach or default
thereunder; and (e) perform in all material respects its obligations under
all material contracts and commitments to which it is a party or by which
it is bound;
(ii) the Company shall not, and shall not propose or agree to, nor
shall it permit any of its subsidiaries to, or propose or agree to, (a)
sell or pledge or agree to sell or pledge any capital stock owned by it in
any of their respective subsidiaries, (b) amend their respective articles
or by-laws, (c) split, combine or reclassify their outstanding stock or
issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for such shares of stock, or
declare, set aside, authorize or pay any dividend or other distribution
payable in cash, stock or property, or (d) directly or indirectly redeem,
purchase or otherwise acquire or agree to redeem, purchase or otherwise
acquire any shares of stock;
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(iii) the Company shall not, nor shall it permit any of its
subsidiaries to, (A) issue, deliver or sell or agree to issue, deliver or
sell any additional shares of, or rights of any kind to acquire any shares
of, its respective stock of any class, any indebtedness having the right
to vote on any matter on which the Company's shareholders may vote or any
option, rights or warrants to acquire, or securities convertible into,
exercisable for or exchangeable for, shares of stock other than issuances,
deliveries or sales of securities pursuant to obligations outstanding as
of the date of this Agreement; (B) acquire, lease or dispose or agree to
acquire, lease or dispose of any capital assets or any other assets other
than in the ordinary course of business; (C) incur additional indebtedness
or encumber or grant a security interest in any asset or enter into any
other material transaction other than in each case in the ordinary course
of business; (D) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof; or (E) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(iv) the Company shall not, nor shall it permit any of its
subsidiaries to, except as required to comply with applicable law, enter
into any new (or amend any existing) employment, severance or consulting
agreement, grant any general increase in the compensation of current or
former directors, officers or employees (including any such increase
pursuant to any bonus, pension, profit-sharing or other plan or
commitment) or grant any increase in the compensation payable or to become
payable to any director, officer or employee, except in any of the
foregoing cases in accordance with pre-existing contractual provisions or
in the ordinary course of business consistent with past practice; and
(v) the Company shall not, nor shall it permit any of its
subsidiaries to, amend, modify, terminate, waive or permit to lapse any
material right of first refusal, preferential right, right of first offer,
or any other material right of the Company or any of its subsidiaries.
Section 6.6 Stock Exchange Listing. The Company shall use its best efforts
to list on the CDNX, the Shares and Warrant Shares, to be issued pursuant to the
Purchase Shares and Warrants.
Section 6.7 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using all commercially reasonable
efforts to obtain all necessary waivers, consents and approvals, to effect all
necessary registrations and filings and to lift any injunction to the
transactions contemplated hereby (and, in such case, to proceed with such
transactions as expeditiously as possible).
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Section 6.8 No Shop. The Company agrees (a) that neither it nor any of its
subsidiaries shall, and it shall direct and use its best efforts to cause its
officers, directors, employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of its subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its shareholders)
with respect to a merger, stock or asset acquisition, consolidation or similar
transaction, involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Company or its subsidiaries, taken as a
whole (any such proposal or offer being hereinafter referred to as an
"Alternative Proposal"), or engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
Person relating to an Alternative Proposal, or release any third party from any
obligations under any existing standstill agreement or arrangement, or enter
into any agreement with respect to an Alternative Proposal, or otherwise
facilitate any effort or attempt to, make or implement an Alternative Proposal;
(b) that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing, and it will take the necessary steps to
inform the individuals or entities referred to above of the obligations
undertaken in this Section 6.8; and (c) that it will notify the Purchaser
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it. Notwithstanding the foregoing, the
Company may, directly or indirectly, furnish information and access to, and may
participate in discussions and negotiate with, any Person, if such Person has
submitted a written proposal to its Board of Directors relating to an
Alternative Proposal which the Board of Directors believes is superior from a
financial point of view to the transactions contemplated hereby and is
reasonably likely to be consummated and the Company's Board of Directors, having
received a written opinion of legal counsel relating thereto, determines in its
good faith judgment that failing to take such action would constitute a breach
of the Board of Directors' fiduciary duty to its shareholders imposed by law.
The Board of Directors shall provide a copy of any such written proposal to the
Purchaser immediately after receipt thereof and thereafter keep the other party
promptly advised of any development with respect thereto and any revision of the
terms of such Alternative Proposal.
Section 6.9 Advice of Changes. The Company shall confer on a regular basis
with Purchaser on operational matters. The Company shall promptly advise the
Purchaser orally and in writing of any change or event that has had, or could
reasonably be expected to have, a Material Adverse Effect. The Company shall
promptly provide the Purchaser (or their respective counsel) copies of all
filings made by such party with the CDNX or any other Governmental Authority in
connection with this Agreement and the transactions contemplated hereby.
Section 6.10 Xxxxx Merger. The Company is currently party to the Xxxxx
Merger Agreement. Contemporaneously with the execution of this Agreement, Xxxxx
and the Company have amended the Xxxxx Merger Agreement as contemplated by
Exhibit E. Purchaser agrees to vote all Common Shares which it owns or controls
and all of the Preferred Shares in favor of the Xxxxx Merger Agreement (as
amended as contemplated by Exhibit E), including the approval and
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adoption of the Redomestication (as defined in the Xxxxx Merger Agreement) and
the Merger (as defined in the Xxxxx Merger Agreement); provided however,
Purchaser shall not be required to vote or cause the voting of Common Shares or
Preferred Shares unless:
(i) The conditions to consummation of the Redomestication and the Merger
set forth in Section 7.01 (a) and (c) of the Xxxxx Merger Agreement shall have
been satisfied as of the date of the vote of shareholders or waived by
Purchaser.
(ii) The conditions to the consummation of the Redomestication and Merger
set forth in Section 7.02 (a) through 7.02 (j) of the Xxxxx Merger Agreement
shall have been satisfied as of the date of the vote of shareholders or waived
by Purchaser, except that
(A) the certificates of the President and Chief Financial Officer of
Xxxxx described in Section 7.02 (a), 7.02 (b) and 7.02 (c) of the Xxxxx
Merger Agreement shall be delivered and addressed to Purchaser and shall be
dated the date of the shareholder vote;
(B) the "reasonable business judgement of Carpatsky" set forth in
Section 7.02 (d) of the Xxxxx Merger Agreement shall be the "reasonable
business judgement of Bellwether Exploration Company";
(C) Purchaser shall have been advised orally that the requirements of
the second sentence of clause (iii) below are anticipated to be satisfied
at the closing.
(iii) Purchaser shall have received drafts of the opinions set forth in
Section 7.02(e) and (f) of the Xxxxx Merger Agreement, and such opinion shall be
in form and substance acceptable to Purchaser, acting reasonably. Each of the
opinions described in Section 7.02 (e) and (f) of the Xxxxx Merger Agreement
shall be addressed and delivered to Purchaser at the Closing.
(iv) The Company will not waive the conditions in Section 7.02(i) or (j) of
the Xxxxx Merger Agreement without the prior written consent of Purchaser.
Section 6.11 Board Nominees. At or prior to the Closing, the company shall
cause X.X. Xxxxx to be appointed as Chief Executive Officer of the Company, and
shall cause [ ], [ ], [ ] and [ ] to resign as directors, and Xx. Xxxxx, Xx.
Xxxx Xxxxx and Mr. Xxxxxx Xxxxxx to be appointed as directors of the Company.
Section 6.12 Use of Proceeds. The Company shall pay $1.0 million of the net
proceeds of the issuance of the Preferred Shares and Warrants to the joint
activity account created pursuant to the Joint Activity Agreement, dated
September 14, 1995, between Poltavanaftogaz and the Company, as amended.
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ARTICLE VII. MISCELLANEOUS
Section 7.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS BY THE INTERNAL LAWS OF THE STATE OF TEXAS.
Section 7.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Purchaser and the
closing of the transactions contemplated hereby.
Section 7.3 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
Section 7.4 Entire Agreement, Amendment. This Agreement and the other
documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
Section 7.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to Purchaser, at: Bellwether Exploration Company, 0000 Xxxxx,
Xxxxx 0000, Xxxxxxx, Xxxxx 00000, Attn: Xxxxxx X. Xxxxxx, Esq. with a copy to
Xxxxxx and Xxxxx, LLP, 0000 Xxxxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000,
Attention: Xxx Xxxxx, or at such other address as Purchaser shall have furnished
to the Company in writing, or (b) if to any other Holder of any Purchase Shares,
Warrants, Shares or Warrant Shares, at such address as such Holder shall have
furnished the Company in writing, or, until any such Holder so furnishes an
address to the Company, then to and at the address of the last Holder of such
Purchase Shares, Warrants, Shares or Warrant Shares who has so furnished an
address to the Company, or (c) if to the Company, to its address set forth on
the signature page of this Agreement and addressed to the attention of the
Corporate Secretary, or at such other address as the Company shall have
furnished to Purchaser, with a copy to XxXxxxx Xxxxxxx, 0000, 0000xx Xxxxxx
X.X., Xxxxxxx, Xxxxxxx X0X 0X0, Attention: Xxxxx X. Xxxxxxx.
Section 7.6 Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any Holder
of any Purchase Shares, Warrants, Warrant Shares or Shares, upon any breach or
default of the Company under this Agreement, shall impair any such right, power
or remedy of such Holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be
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deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement, or any
waiver on the part of any Holder of any provisions or conditions of this
agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any Holder, shall be cumulative and
not alternative.
Section 7.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which together
shall constitute one agreement.
Section 7.8 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
Section 7.9 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
Section 7.10 Specific Performance. The Company acknowledges that any
breaches of the agreements and covenants contained in of this Agreement would
cause irreparable injury to Purchaser for which Purchaser would have no adequate
remedy at law. In addition to any other remedy that Purchaser may be entitled
to, the parties agree that Purchaser shall be entitled to the remedy of specific
performance.
[SIGNATURES ON THE FOLLOWING PAGE]
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The foregoing Agreement is hereby executed as of the date first above
written.
"COMPANY"
Address: 0000 Xxxxxxxxx Xxxxxxx, Xxxxx 000 CARPATSKY PETROLEUM INC.
Xxxxxxx, Xxxxx 00000
Fax: (000) 000-0000
By ________________________________________
Xxxxx X. Xxxxxx, Chief Corporate Officer
"PURCHASER"
BELLWETHER EXPLORATION COMPANY
By ________________________________________
X.X. Xxxxx, Chief Executive Officer
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Schedule 4.1 (d) to Securities Purchase Agreement
dated December 29, 1999
Common Stock Outstanding 77,778,263(1)
Stock Options Outstanding -0-
Stock Purchase Warrants 17,665,4042(2)
Offers Outstanding to Convert:
Xxxxxxx Debt - approximately $275,000 @ 12.5(Cents) per share
RLF Debt - approximately $365,000 @ 12.5(Cents) per share
No other securities with equity component.
---------------------
(1) Inclusive of stock option repurchases.
(2) All at $.20 US expiring December 31, 2000.
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Schedule 4.1(f) to Securities Purchase Agreement
dated December 29, 1999
Consent of the CDNX.
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Schedule 4.1(i) (i) (1) to Securities Purchase Agreement
dated December 29, 1999
Common to the oil and gas industry in foreign countries, Carpatsky does not
own an interest in real property; its rights and obligations are governed by
joint agreements with its Ukrainian partners. Carpatsky's oil and gas assets
consist of interests in the following two fields in the Republic of Ukraine: (1)
Rudovsko-Chervonozavodskoye natural gas and gas condensate field (the "RC"
field) located in the Poltava District of Eastern Ukraine; and (2) the Bitkov-
Babchensky oil field (the "Bitkov field") located in the Ivano-Frankovsk
District of southwest Ukraine. The RC field is governed by the Joint Activity
Agreement No. 410/95 dated September 15, 1995, revised on October 15, 1996 and
amended on December 25, 1997 and again on August 26, 1998. This Joint Activity
Agreement was established for the purpose of investment, exploration and
operation of the RC field. All of Carpatsky's rights and obligations are subject
to all terms and conditions of the Joint Activity Agreement as amended.
The Bitkov field is governed by a Joint Venture Agreement dated April 18,
1995, which establishes Carpatsky's rights and obligations in UkrCarpatoil,
Ltd., a Ukrainian joint venture. UkrCarpatoil was created for the purpose of
production, exploitation and exploration of the Bitkov field. As outlined in the
License Agreement dated July 25, 1995, Carpatsky's rights are limited to the
incremental hydrocarbon production above the "baseline" production as defined in
the License Agreement. The "organizational period" as defined in the license
agreement dated April 18, 1995 has been extended through August 13, 2000 by
amendments executed on August 13, 1999. Carpatsky's rights and obligations are
subject to all of the terms and conditions of the Joint Venture Agreement and
License Agreement as amended.
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Schedule 4.1(i) (ii) to Securities Purchase Agreement
dated December 29, 1999
a) The Reserve Report dated June 30, 1999, prepared by Xxxxx Xxxxx
Company Petroleum Engineers and entitled, "Carpatsky Petroleum Estimated Future
Reserves and Income Attributable to Certain Leasehold Interests in Ukraine, SEC
Perimeters Full Contractual Interest Case", is subject to all the limitations,
contingencies, uncertainties and estimates that are described in the Discussion
Letter dated June 23, 1999 included in the aforementioned Reserve Report. This
Discussion Letter is incorporated in this document by reference in its entirety.
b) The Development Schedule (or Drilling Plan) that was contemplated in
the aforementioned Reserve Report has not been adhered to principally because
the capital necessary to fund the drilling activity has not been available.
c) The aforementioned Reserve Report contemplated that all of the
natural gas in the RC field would be sold to Unocal beginning October 1, 1999 on
an exported basis. That event did not occur and the natural gas from the RC
field is currently being sold domestically in Ukraine. Historically, Carpatsky
has not received payment for the majority of its natural gas sales in Ukraine
and there can be assurance payment will be received in the future.
d) The sales price used in the Reserve Report for natural gas is $1.50
per Mcf and is held constant throughout the life of the reserves. The actual
selling price for 1999 (through September 30th) has averaged $0.87 per Mcf.
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Schedule 4.1 (m) to Securities Purchase Agreement
dated December 29, 1999
As of September 30, 1999, the Carpatsky Poltavanaftagas, Joint Activity in
the RC field has incurred a corporate profits liability in UAH of 2,899,558
(U.S. equivalent is $648,714 using September 30, 1999 exchange rate). This
liability is past due and incurring interest and penalties at an annual rate of
45% (the discount rate in UAH of the National Bank of Ukraine). Carpatsky's
properties are subject to a lien to the extent of unpaid taxes.
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Schedule 4.1 (r) to Securities Purchase Agreement
dated December 29, 1999
The terms of the Stock Subscription Agreement for the 1999 Private
Placement stated Xxxxx X. Xxxxxx will be appointed as a member of Senior
Management and a member of the Company's Board of Directors.
The following debts are past due as of September 30, 1999:
1) Series 1 Debenture dated August 15, 1998 in favor of Xxxxx X. Xxxxxxx,
principal amount $220,000 plus accrued interest of $55,973.
2) Promissory Note in favor of RLG International, Inc.; principal amount
of $328,914 plus accrued interest of $30,277.
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