SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 1, 1999
PEASE OIL AND GAS COMPANY
(Exact name of registrant as specified in its charter)
Nevada 0-6580 87-0285520
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
751 Horizon Court, Suite 203, Grand Junction Colorado 81506-8718
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (970) 245-5917
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Item 5. OTHER EVENTS.
On September 1, 1999, the Registrant entered into a Agreement and Plan
of Merger dated effective August 31, 1999 ("Agreement"), with Carpatsky
Petroleum, Inc., a corporation of the Province of Alberta, Canada ("Carpatsky").
Under the Agreement, which was unanimously approved by directors of Registrant
and which is subject to the approval of stockholders of both corporations and a
number of other conditions, a newly-formed subsidiary corporation of the
Registrant will be merged with and into Carpatsky and Carpatsky shall become a
wholly-owned subsidiary of the Registrant. At the effective time of the merger,
Carpatsky stockholders shall be issued approximately 34.495 million shares of
Registrant's common stock, equivalent to approximately 76.57% of the outstanding
common stock following the merger and the holders of all of Registrant's
outstanding Series B Convertible Preferred Stock shall exchange all shares of
Series B Preferred Stock for approximately 8.865 million shares of Registrant's
common stock, equivalent to approximately 19.68% of the outstanding common stock
of Registrant following the merger.
RISK FACTORS
The transaction may not close.
The proposed merger transaction with Carpatsky is subject to a number
of conditions, including obtaining approval of our stockholders. Registrant or
Carpatsky may be unable to meet the applicable conditions or the transaction
could be abandoned for other reasons. In any event, the transaction will not be
completed until late 1999 or next year.
Carpatsky shareholders would control Registrant
If the proposed merger transaction is completed, the former Carpatsky
shareholders will own approximately 76.5% of Registrant's common stock, the
former Series B Preferred holders will hold approximately 19.7% of the common
stock and the common stockholders of the Registrant would own approximately 3.8%
of the outstanding common stock. At the closing of the merger, a new board of
directors would be elected. As a result, the present holders of Registrant's
common stock would not be in a position to effect any control of the Registrant
after the transaction.
There are risks in producing and monetizing oil and gas in Ukraine.
All of the reserves of oil and natural gas owned by Carpatsky are in
the Republic of Ukraine. To date, Carpatsky has not sold its oil or natural gas
produced from its properties outside Ukraine. In addition, a substantial portion
of the natural gas sold in Ukraine by Carpatsky or its Joint Venture Partners
has not been paid for. However, Carpatsky believes that it has established
relationships which will entitle it to transport natural gas produced from its
properties into Western Europe for sale on the international market. Carpatsky
believes the exporting of gas outside Ukraine will help assure that payments for
gas are received on a more timely basis. However, as of the date of this report
no such export sales have been made. Following the merger transaction the
Registrant will continue to face the risk that it may be unable to successfully
commercialize and monetize production of the Carpatsky oil and natural gas
reserves. These risks are based on a number of factors, including the following:
1. Political, social and economic instability in Ukraine;
2. The relationships between countries in eastern Europe;
3. The political and other regulations applicable to the oil and
gas business in Ukraine and to foreign companies such as
Registrant;
4. Competitors in Ukraine;
5. The limited access to transport petroleum products outside Ukraine
for sale;
6. The possibility that oil and natural gas prices in Ukraine may
substantially differ from prevailing world prices for the
commodities;
7. Development of oil and natural gas reserves in Ukraine will
require special expertise and use of local resources; and
8. The possibility that Ukraine may require produced oil to be sold
or utilized only in Ukraine or that the assets be nationalized.
Risks of Foreign Operations
Ukraine, where Carpatsky's two operating fields are, has not yet
achieved economic, political or social stability. Most of the oil and gas
production of the combined company will be derived from operations in Ukraine.
In addition to the risks normally associated with oil and gas development and
production, the success of operations in Ukraine will depend on, among other
things, the operator's ability to maintain its relationships with its local
development partners, political stability, export and transportation tariffs,
local and national tax requirements and exercises of foreign government
sovereignty over the exploration area. Ukraine's heavy industry has not been
able to compete successfully with the technologically more advanced enterprises
in Western Europe and has floundered with the loss of government subsidies and
protected markets. Agricultural production has fallen, despite excellent natural
resources, as a result of shortages of equipment and fertilizer, among other
factors. Ukraine's political institutions have not been able to address
successfully these economic problems or other difficulties facing the nation. No
party or coalition has achieved working majority in the legislature, and as a
result it remains difficult for political leaders to agree on policy or to adopt
specific legislation. Recent trends show influence migrating from the center
towards the extremes, which will make consensus even more difficult. As a result
of the economic and political situation, the standard of living of the Ukrainian
population has been falling. Lower levels of nutrition and healthcare have led
to a reduction in life expectancy and an absolute decline in the population.
Unless these mutually reinforcing forces can be broken, Ukraine is likely to
remain, perhaps to a heightened extent, unstable, and instability represents a
threat to the successful implementation of Carpatsky's two projects and any
other projects which may be undertaken in Ukraine. No assurance can be given
that the Ukrainian operations of Carpatsky will be successful.
Risk of Political Instability
The forms of government and the economic institutions in Ukraine where
the projects of Carpatsky are located have been established relatively recently
and, accordingly, may be subject to a greater risk of political instability or
change than may be the case with respect to governments and economies that have
been in existence for longer periods of time. Generally, the government is an
important participant in the establishment of the arrangements defining each
project. These arrangements, therefore, may be subject to changes in the event
of changes in government institutions, government personnel or political power
and the development of new administrative policies and practices. There can be
no assurance that Carpatsky will be able to take measures to provide adequate
protection of their respective interests against political instability or
changes in government institutions, personnel, policies or practices or shifts
in political power.
New Market Economy
The infrastructures, labor pools, sources of supply and legal and
social institutions in Ukraine may not be equivalent to those normally found in
connection with projects in North America. Moreover, the regulatory regime
governing oil and gas operations (including environmental regulations) has been
recently promulgated and is relatively untested, so there is no enforcement
history or established practice that can aid Carpatsky in evaluating how the
regulatory regime will affect their respective operations. More permits and
approvals may be required for Ukrainian entities and projects than for North
American entities and projects. The procedures for obtaining such permits and
approvals may be more cumbersome, and officials may have more discretion in
acting on application and requests. Each of these factors may result in a lower
level of predictability and a higher risk of frustration and/or expectations.
Currency Risk
The combined company may be exposed to the risk of foreign currency
exchange losses in connection with its operations in Ukraine by holding cash and
receivables denominated in foreign currencies during periods in which a
strengthening United States dollar may be experienced or by having or incurring
liabilities denominated in foreign currencies during periods in which a
weakening United States dollar may be experienced. Generally, Carpatsky has paid
for goods and services obtained locally in the local currencies and has paid
expatriate employees and international contractors in United States dollars. The
principal Ukrainian currency in which Carpatsky has satisfied obligations is the
Ukrainian hryvna. Outside of Eastern Europe, the principal currencies other than
the United States dollar in which Carpatsky has satisfied obligations are the
Canadian dollar.
Revenue generated from Ukraine operations may be received in local
currencies in Ukraine. While such currencies are now generally freely-
convertible into United States dollars, there is no assurance that such
convertibility will continue.
Carpatsky does not speculate in foreign currencies, does not presently
maintain significant foreign currency cash balances, nor currently engages in
any currency hedging transactions. Dividends or distributions from foreign oil
and gas ventures may be received in the currencies of the host countries, and
there is no assurance that Carpatsky or the combined company will be able to
convert such currencies into United States dollars. Even where convertibility is
available, applicable exchange rates may not reflect a parity in purchasing
power. Fluctuations of exchange rates could result in a devaluation of foreign
currencies being held.
Foreign Jurisdiction
ln the event of a dispute arising in connection with its foreign
operations, the combined company may be subject to the exclusive jurisdiction of
foreign courts or may not be successful in subjecting foreign persons to the
jurisdiction of the courts of the United States or enforcing U.S. judgments in
such other jurisdictions. The combined company may also be hindered or prevented
from enforcing their rights with respect to a governmental instrumentality
because of the doctrine of sovereign immunity.
A substantial portion of the Carpatsky reserves are undeveloped.
Approximately 84.1 % of Carpatsky's proved oil reserves, 79.3 % of
proved natural gas reserves and 70.1% of discounted future net revenue at June
30, 1999 were proved undeveloped reserves. Exploitation of such reserves will
require drilling and completing new wells and related development activity. A
substantial portion of these reserves could be economically unrecoverable for
various reasons, notwithstanding the expected presence of hydrocarbons. In such
event the inherent value of Carpatsky's reserves would be substantially reduced.
The combined companies will require additional financing.
It is anticipated that Carpatsky will be a wholly-owned subsidiary
corporation of Registrant following the merger transaction. Carpatsky will
require substantial additional capital resources in order to fully develop its
reserves of oil and natural gas and to pay amounts it presently owes to the
Ukrainian joint venture through which it holds its oil and gas properties.
Registrant and Carpatsky will seek additional financing, the terms of which are
presently unknown and which may be disadvantageous to Registrant's shareholders,
including the former shareholders of Carpatsky.
Item 6. RESIGNATION OF REGISTRANT'S DIRECTOR.
(a) On September 10, 1999, William F. Warnick, a director of Registrant and
Chairman of the Board of Directors of Registrant, notified Registrant that he
was resigning as of such date as Chairman of the Board of Directors and as a
director. In his letter of resignation, Mr. Warnick stated in part ". . . I have
lost confidence in the management of the Company . . . I strongly disagree with
many of your positions. I have been unable to persuade you to cooperate with me;
I have been virtually uninformed for the past several months and believe a free
flow of information is essential to effective continuation as a Director and
Chairman of Pease. . . ."
(b) Prior to receipt of Mr. Warnick's letter of resignation, Mr.
Warnick had never stated to members of the present management of the Registrant
nor at any meeting of the directors or executive committee of the Board of
Directors that he had lost confidence in management. Further, Mr. Warnick
attended each meeting of the Board of Directors and was furnished all
information concerning the business or affairs of the Registrant which he
requested. Mr. Warnick never voiced any dissatisfaction with the amount of
information he received from Registrant to any member of management or at any
meeting of the Board of Directors or the executive committee of the Board of
Directors.
(c) A copy of Mr. Warnick's letter of resignation is attached as
Exhibit 10.3.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
Exhibit 10.1 Agreement and Plan of Merger Among Pease Oil
and Gas Company, CPI Acquisition Corp. and
Carpatsky Petroleum, Inc. dated effective
August 31, 1999.
Exhibit 10.2 News Release dated September 13, 1999.
Exhibit 10.3 Letter dated September 10, 1999 from William
F. Warnick.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: September 13, 1999
PEASE OIL AND GAS COMPANY
By /s/ Patrick J. Duncan
Patrick J. Duncan, President
AGREEMENT AND PLAN OF MERGER
among
PEASE OIL AND GAS COMPANY
CPI ACQUISITION CORP.
and
CARPATSKY PETROLEUM, INC.
August 31, 1999
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TABLE OF CONTENTS
ARTICLE I
THE MERGER 3
SECTION 1.01 The Merger 3
SECTION 1.02 Closing; Closing Date; Effective Time 3
SECTION 1.03 Effect of the Redomestication and Merger 3
SECTION 1.04 Certificate of Incorporation; Bylaws 4
SECTION 1.05 Directors and Officers 4
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES 4
SECTION 2.01 Merger Consideration; Conversion and
Cancellation of Securities 4
SECTION 2.02 Exchange and Surrender of Certificates 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PEASE 8
SECTION 3.01 Organization and Qualification; Subsidiaries 8
SECTION 3.02 Articles of Incorporation and Bylaws 9
SECTION 3.03 Capitalization 9
SECTION 3.04 Authority 10
SECTION 3.05 No Conflict; Required Filings and Consents 11
SECTION 3.06 Permits; Compliance 12
SECTION 3.07 Reports; Financial Statements 12
SECTION 3.08 Absence of Certain Changes or Events 13
SECTION 3.09 Absence of Litigation 14
SECTION 3.10 Employee Benefit Plans; Labor Matters 14
SECTION 3.11 Taxes 17
SECTION 3.12 Tax Matters 21
SECTION 3.13 Certain Business Practices 21
SECTION 3.14 Environmental Matters 22
SECTION 3.15 Vote Required 24
SECTION 3.16 Brokers 24
SECTION 3.17 Insurance 25
SECTION 3.18 Properties 25
SECTION 3.19 Certain Contracts and Restrictions 25
SECTION 3.20 Easements 26
SECTION 3.21 Futures Trading and Fixed Price Exposure 26
SECTION 3.22 Information Supplied 26
SECTION 3.23 Intellectual Property 26
SECTION 3.24 Year 2000 27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CARPATSKY 27
SECTION 4.01 Organization and Qualifications; Subsidiaries 27
SECTION 4.02 Charter and Bylaws 28
SECTION 4.03 Capitalization 28
SECTION 4.04 Authority 29
SECTION 4.05 No Conflict: Required Filings and Consents 29
SECTION 4.06 Permits; Compliance 30
SECTION 4.07 Financial Statements 30
SECTION 4.08 Absence of Certain Changes or Events 31
SECTION 4.09 Absence of Litigation 31
SECTION 4.10 Tax Matters 31
SECTION 4.11 Taxes 31
SECTION 4.12 Vote Required 33
SECTION 4.13 Brokers 33
SECTION 4.14 Information Supplied 33
SECTION 4.15 Employee Benefit Plans; Labor Matters 34
SECTION 4.16 Certain Business Practices 35
SECTION 4.17 Environmental Matters 35
SECTION 4.18 Insurance 36
SECTION 4.19 Certain Contracts and Restrictions 37
SECTION 4.20 Properties 37
SECTION 4.21 Easements 37
SECTION 4.22 Futures Trading and Fixed Price Exposure 38
SECTION 4.23 Intellectual Property 38
ARTICLE V
COVENANTS 39
SECTION 5.01 Affirmative Covenants of Pease 40
SECTION 5.02 Negative Covenants of Pease 40
SECTION 5.03 Affirmative and Negative Covenants of Carpatsky 43
SECTION 5.04 Access and Information 47
ARTICLE VI
ADDITIONAL AGREEMENTS 48
SECTION 6.01 Meetings of Stockholders 48
SECTION 6.02 Registration Statement 48
SECTION 6.03 Appropriate Action; Consents; Filings 49
SECTION 6.04 Tax Treatment 51
SECTION 6.05 Public Announcements 51
SECTION 6.06 AMEX Listing 51
SECTION 6.07 Amendment 51
SECTION 6.08 Stock Resale Agreement 51
SECTION 6.09 SEC Reports and Registration Statements 52
ARTICLE VII
CLOSING CONDITIONS 52
SECTION 7.01 Conditions to Obligations of Each Party
Under This Agreement 52
SECTION 7.02 Additional Conditions to Obligations of Carpatsky52
SECTION 7.03 Additional Conditions to Obligations of Pease 54
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER 57
SECTION 8.01 Termination 57
SECTION 8.02 Effect of Termination 59
SECTION 8.03 Amendment 59
SECTION 8.04 Waiver 60
SECTION 8.05 Fees, Expenses and Other Payments 60
ARTICLE IX
GENERAL PROVISIONS 62
SECTION 9.01 Effectiveness of Representations, Warranties
and Agreements 62
SECTION 9.02 Notices 62
SECTION 9.03 Certain Definitions 63
SECTION 9.04 Headings 64
SECTION 9.05 Severability 64
SECTION 9.06 Entire Agreement 64
SECTION 9.07 Assignment 65
SECTION 9.08 Parties in Interest 65
SECTION 9.09 Specific Performance 65
SECTION 9.10 Failure or Indulgence Not Waiver; Remedies
Cumulative 65
SECTION 9.11 Governing Law 65
SECTION 9.12 Counterparts 65
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SCHEDULES
Schedule 1.05 Directors of Pease
Pease Disclosure Schedule
Schedule 3.01 Subsidiaries
Schedule 3.03(a) Reservation of Pease Common Stock
Schedule 3.03(b)(i) Options, Warrants and Rights
Schedule 3.03(b)(ii) Repurchase and Redemption Obligations, etc.
Schedule 3.03(b)(iii) Investments
Schedule 3.03(b)(iv) Revenue Sharing Agreements
Schedule 3.03(c) Outstanding Stock Awards
Schedule 3.05 Conflicts
Schedule 3.06 Notifications from Governmental Authorities
Schedule 3.08 Certain Changes
Schedule 3.09 Litigation
Schedule 3.10(a) Employee Benefit Plans
Schedule 3.10(b) Exceptions to Benefit Plan Compliance
Schedule 3.10(c) Collective Bargaining Agreements
Schedule 3.10(d) Severance Agreements
Schedule 3.10(e) Retiree Benefits
Schedule 3.10(f) Multiemployer Contributions
Schedule 3.10(g) Amendments to Employee Benefit Plans
Schedule 3.11 Tax Liens
Schedule 3.11(b) Tax Proceedings
Schedule 3.11(c) Tax Elections and Consents, etc.
Schedule 3.14 Environmental Matters
Schedule 3.16 Brokers
Schedule 3.17 Insurance
Schedule 3.18 Properties
Schedule 3.19 Material Contracts
Schedule 3.23 Intellectual Property
Schedule 5.02(e) Asset Dispositions
Schedule 5.02(p) Exceptions to Negative Covenants
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Carpatsky Disclosure Schedule
Schedule 4.01 Subsidiaries
Schedule 4.03(a) Reservation of Pease Common Stock
Schedule 4.03(b)(i) Options, Warrants and Rights
Schedule 4.03(b)(ii) Repurchase and Redemption Obligations, etc.
Schedule 4.03(b)(iii) Investments
Schedule 4.03(b)(iv) Revenue Sharing Agreements
Schedule 4.03(b)(v) Voting Trusts, Proxies
Schedule 4.03(c) Outstanding Stock Awards
Schedule 4.05 Conflicts
Schedule 4.06 Notifications from Governmental Authorities
Schedule 4.07(ii) Financial Statement Exceptions
Schedule 4.08 Certain Changes
Schedule 4.09 Litigation
Schedule 4.11 Taxes
Schedule 4.13 Brokers
Schedule 4.15(a) Employee Benefit Plans
Schedule 4.15(c) Multiemployer Plans
Schedule 4.15(f) Ukraine Employee Benefits
Schedule 4.17 Environmental Matters
Schedule 4.18 Insurance
Schedule 4.19 Material Contracts
Schedule 4.23 Intellectual Property
Schedule 5.03(b)(i) Capital Structure Changes
Schedule 5.03(b)(iii) Capital Issuances, Etc.
Schedule 5.03(b)(v) Asset Dispositions
Schedule 5.03(b)(xiv) Affiliate Transactions
EXHIBITS
Exhibit A Pease Preferred Stockholder Agreement
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of August 31, 1999 (this
"Agreement"), is by and among Pease Oil and Gas Company, a Nevada corporation
("Pease"), its wholly owned Delaware subsidiary CPI Acquisition Corp.
("Acquisition Corp.") and Carpatsky Petroleum, Inc., a corporation organized
under the laws of the Province of Alberta, Canada ("Carpatsky").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement, on
the Effective Time (as hereinafter defined) and in accordance with the Business
Corporations Act (Alberta) ("ABCA") and the General Corporation Law of the State
of Delaware ("Delaware Law"), Carpatsky will effect a continuance into Delaware
by filing with the Secretary of State of Delaware a Certificate of Domestication
and a Certificate of Incorporation in accordance with Section 388 of the
Delaware Law (the "Redomestication"), subject to the right of holders of common
shares, without par value ("Old Carpatsky Common Stock") (each, a "Dissenting
Old Carpatsky Stockholder") to seek an appraisal of the fair value thereof as
provided in Section 184 of the ABCA, and each share of Old Carpatsky Common
Stock, issued and outstanding prior to the effective time of the Redomestication
not owned by Carpatsky or any subsidiary of Carpatsky, will be converted into
one share of common stock, $.01 par value ("New Carpatsky Common Stock"),of
Carpatsky Petroleum, Inc., a corporation redomesticated in the State of Delaware
("New Carpatsky") (Old Carpatsky Common Stock and New Carpatsky Common Stock are
sometimes referred to herein collectively as "Carpatsky Common Stock") and each
outstanding warrant, option or other right to acquire Old Carpatsky Common Stock
shall be converted into an equivalent right to acquire New Carpatsky Common
Stock on the same terms and conditions.
B. Concurrently with the Redomestication, Acquisition Corp., upon the
terms and subject to the conditions of this Agreement and in accordance with the
Delaware Law, will merge with and into New Carpatsky (the "Merger"), and
pursuant thereto, the shares of New Carpatsky Common Stock, issued and
outstanding immediately prior to the Effective Time (as defined herein) of the
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Merger, not owned directly or indirectly by Carpatsky or Pease or their
respective subsidiaries, will be converted at the Effective Time into the right
to receive an aggregate of 34,495,701 shares of common stock, par value $.01 per
share of Pease ("Pease Common Stock"), as adjusted pursuant to the provisions of
Section 2.01(g) hereof (the "Pease Share Amount"), subject to the right of
holders of such shares of New Carpatsky Common Stock (each, a "Dissenting New
Carpatsky Stockholder" and together with the Dissenting Old Carpatsky
Stockholders, collectively, the "Dissenting Carpatsky Stockholders") to seek an
appraisal of the fair value thereof as provided in Section 262 of Delaware Law,
and each share of common stock, $.01 per share par value, of Acquisition Corp.
("Acquisition Corp. Common Stock") issued and outstanding immediately prior the
Effective Time, not owned directly or indirectly by Pease or Carpatsky or their
respective subsidiaries, will be converted at the Effective Time into one share
of common stock, par value $.01 per share of New Carpatsky.
C. Pursuant to the provisions of those certain letter agreements by and
between Pease and the holders (the "Pease Preferred Stockholders") of all of the
issued and outstanding shares of Series B 5% PIK Cumulative Convertible
Preferred Stock, par value $.01 per share ("Pease Preferred Stock"), of even
date herewith in substantially the form of Exhibit A hereto (the "Pease
Preferred Stockholder Agreements"), at the Effective Time and subject to the
provisions of Article II hereof, each share of Pease Preferred Stock issued and
outstanding immediately prior to the Effective Time (excluding any Pease
Preferred Stock held in treasury or owned by Pease or any direct or indirect
subsidiary of Pease immediately prior to the Effective Time which shall be
canceled and extinguished) shall be exchanged (the "Exchange") into the right to
receive 8,865,664 shares of Pease Common Stock (the "Pease Preferred Stock
Exchange Ratio").
D. The Board of Directors of Pease has determined that the Exchange and
the Merger are consistent with and in furtherance of the long-term business
strategy of Pease and are fair to, and in the best interests of, Pease and its
stockholders and has approved and adopted this Agreement, including the issuance
of Pease Common Stock, and the other transactions contemplated hereby.
E. The Board of Directors of Carpatsky has determined that the
Redomestication and Merger are consistent with and in furtherance of the
long-term business strategy of Carpatsky and are fair to, and in the best
interests of, Carpatsky and its stockholders and has approved and adopted this
Agreement and the transactions contemplated hereby.
F. For federal income tax purposes, it is intended that the
Redomestication, the Exchange and the Merger qualify as a tax-free
reorganizations under the relevant provisions of the United States Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and confirmed, the parties hereto
agree as follows:
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ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Delaware Law, at the
Effective Time, Acquisition Corp. shall be merged with and into New Carpatsky
(Carpatsky, New Carpatsky and Acquisition Corp. are each referred to herein as a
"Constituent Corporation"). As a result of the Merger, the separate corporate
existence of Carpatsky and Acquisition Corp. shall cease and as a result of the
Redomestication and the Merger, New Carpatsky shall continue as the surviving
corporation of the Redomestication and the Merger (the "Surviving Corporation").
Certain terms used in this Agreement are defined in Section 9.03 hereof.
SECTION 1.02 Closing; Closing Date; Effective Time. Unless this
Agreement shall have been terminated pursuant to Section 8.01, and subject to
the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII, the consummation of the Redomestication and Merger and the closing
of the transactions contemplated by this Agreement (the "Closing") shall take
place at the offices of Satterlee Stephens Burke & Burke LLP, 230 Park Avenue,
Suite 1130, New York, New York as soon as practicable (but in any event within
two business days) after the satisfaction or, if permissible, waiver of the
conditions set forth in Article VII, or at such other date, time and place as
Carpatsky and Pease may agree. The date on which the Closing takes place is
referred to herein as the "Closing Date". As promptly as practicable on the
Closing Date, the parties hereto shall cause the Redomestication and Merger to
be consummated by filing the Certificate of Domestication, Certificate of
Incorporation of New Carpatsky and the Certificate of Merger, in the respective
forms of Exhibits B-1, B-2 and B-3 attached hereto, with the appropriate
Governmental Authorities (as hereinafter defined) of the State of Delaware (the
date and time of such filing, or such later date or time agreed upon by
Carpatsky and Pease and set forth therein, being the "Effective Time") and by
filing a notice contemplated by Section 182(6) of the ABCA with the appropriate
Governmental Authorities of the Province of Alberta. For all tax purposes, the
Closing shall be effective at the end of the day on the Closing Date.
SECTION 1.03 Effect of the Redomestication and Merger. At the Effective
Time, to the full extent provided under the ABCA and Delaware Law, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations; and any and all
rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
either of the Constituent Corporations on whatever account, as well as stock
subscriptions and all other things in action belonging to each of the
Constituent Corporations, shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the Constituent Corporations, and the title to any
real estate vested by deed or otherwise, in either of the Constituent
Corporations, shall not revert or be in any way impaired; but all rights of
creditors and all liens upon any property of either of the
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Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the Constituent Corporations shall thenceforth attach
to the Surviving Corporation and may be enforced against it to the same extent
as if said debts, liabilities and duties had been incurred or contracted by it.
SECTION 1.04 Certificate of Incorporation; Bylaws. At the Effective
Time, the certificate of incorporation of New Carpatsky, with such amendments
thereto as provided in the Certificate of Merger attached hereto as Exhibit B-3,
shall be the certificate of incorporation of the Surviving Corporation and
thereafter shall continue to be its certificate of incorporation until amended
as provided therein and pursuant to Delaware Law. The bylaws of New Carpatsky,
as in effect immediately prior to the Effective Time, shall be the bylaws of the
Surviving Corporation and thereafter shall continue to be its bylaws until
amended as provided therein and in the certificate of incorporation and pursuant
to Delaware Law.
SECTION 1.05 Directors and Officers. The directors of Pease and the
Surviving Corporation immediately after the Effective Time shall be the
individuals identified in Schedule 1.05, each to hold office until the year 2000
Annual Meeting of Stockholders of Pease and in accordance with the articles and
certificate of incorporation and bylaws of Pease and the Surviving Corporation,
respectively, and the officers of Pease and the Surviving Corporation
immediately after the Effective Time shall be the individuals identified in
Schedule 1.05, each to hold office in accordance with the bylaws of Pease and
the Surviving Corporation, respectively, in each case until their respective
successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01 Merger Consideration; Conversion and Cancellation of
Securities. At the Effective Time, by virtue of the Redomestication and Merger
and without any action on the part of Carpatsky, New Carpatsky, Pease,
Acquisition Corp. or their respective stockholders:
(a) Subject to the other provisions of this Article II, each
share of New Carpatsky Common Stock issued and outstanding immediately prior to
the Effective Time (excluding any Carpatsky Common Stock described in Section
2.01(c) of this Agreement and shares held by Dissenting Carpatsky Stockholders)
shall be converted into the right to receive that number of shares of Pease
Common Stock (carried out to five decimal places) as shall equal the quotient of
the Pease Share Amount divided by the total number of shares of Old Carpatsky
Common Stock issued and outstanding on a date (the "Additional Equity Placement
Cut-Off Date") not less than five Business Days prior to the date on which the
final pre-effective amendment to the Form S-4 (as defined in Section 3.05(b)
hereof) requesting acceleration of the Form S-4 is filed with the Securities and
Exchange Commission (the "Carpatsky Common Stock Exchange Ratio"); and each
share of Acquisition Corp. Common Stock issued and outstanding at the Effective
Time shall be converted into the right to receive one share of New Carpatsky
Common Stock. The Carpatsky Common Stock
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Exchange Ratio and Pease Preferred Stock Exchange Ratio are referred to herein
collectively as the "Exchange Ratios". Notwithstanding the foregoing, except as
contemplated by this Agreement, if between the date of this Agreement and the
Effective Time the outstanding shares of Old or New Carpatsky Common Stock or
Pease Common or Preferred Stock shall have been changed into a different number
of shares or a different class, by reason of any stock dividend, subdivision,
reclassification, conversion, recapitalization, split, combination or exchange
of shares, the Exchange Ratios shall be correspondingly adjusted to reflect such
stock dividend, subdivision, reclassification, conversion, recapitalization,
split, combination or exchange of shares.
(b) Subject to the other provisions of this Article II, the
rights to acquire shares of Carpatsky Common Stock previously granted and to be
granted pursuant to the Carpatsky Options (as hereinafter defined) and the
Carpatsky Warrants (as hereinafter defined) and to certain other persons and in
the amounts identified in Schedule 4.03(b)(i) of the Carpatsky Disclosure
Schedule (as hereinafter defined) shall be adjusted as of and at the Effective
Time to reflect the Carpatsky Common Stock Exchange Ratio.
(c) Notwithstanding any provision of this Agreement to the
contrary, each share of Carpatsky Common Stock held in the treasury of Carpatsky
and each share of Carpatsky Common Stock owned by Pease or Acquisition Corp.,
respectively, or any direct or indirect wholly owned subsidiary of Carpatsky or
of Pease, immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof and no payment shall be made with
respect thereto.
(d) Subject to the provisions of Section 2.01(f), all shares
of Carpatsky Common Stock, Pease Preferred Stock and Acquisition Corp. Common
Stock shall cease to be outstanding and shall automatically be canceled and
retired, and each certificate previously evidencing Old Carpatsky Common and
Pease Preferred Stock immediately prior to the Effective Time (the "Converted
Shares" or "Converted Share Certificates," as the case may be) shall thereafter
represent the right to receive, subject to Section 2.02(e) of this Agreement,
that number of shares of Pease Common Stock determined pursuant to Section
2.01(a) hereof or, if applicable, cash pursuant to Sections 2.01(f) or 2.02(f)
of this Agreement (the "Merger Consideration"). The holders of Converted Share
Certificates shall cease to have any rights with respect to such Converted
Shares except as otherwise provided herein or by law. Such Converted Share
Certificates shall be exchanged for certificates evidencing whole shares of
Pease Common Stock upon the surrender of such Converted Share Certificates in
accordance with the provisions of Section 2.02 of this Agreement, without
interest. No fractional shares of Pease Common Stock shall be issued in
connection with the Merger and, in lieu thereof, a cash payment shall be made
pursuant to Section 2.02(f) of this Agreement. Each share of Acquisition Corp.
Common Stock shall be automatically converted into one share of New Carpatsky
Common Stock.
(e) All shares of Pease Common Stock issued to the former
holders of Carpatsky Common and Pease Preferred Stock in the Merger shall be
registered under the Securities Act of 1933, as amended (the "Securities Act").
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(f) Notwithstanding anything in this Agreement to the
contrary, any issued and outstanding shares of capital stock of Carpatsky held
by a Dissenting Carpatsky Stockholder who has not voted in favor of nor
consented to the Redomestication or the Merger and who complies with all the
provisions of the ABCA or Delaware Law concerning the right of holders of such
stock to dissent from the Redomestication or the Merger and to require appraisal
of their shares, shall not be converted as described in Section 2.01(a) but
shall become, at the Effective Time, by virtue of the Merger and without any
further action, the right to receive such consideration as may be determined to
be due to such Dissenting Carpatsky Stockholder pursuant to the ABCA or Delaware
Law, as the case may be; provided, however, that shares of Carpatsky Common
Stock outstanding immediately prior to the Effective Time and held by a
Dissenting Carpatsky Stockholder who shall, after the Effective Time, withdraw
his demand for appraisal or lose his right of appraisal, in either case pursuant
to the ABCA or Delaware Law, as the case may be, shall be deemed to be converted
as of the Effective Time, into the right to receive Pease Common Stock.
(g) If the Carpatsky Equity Offering, as described in Section
7.03(k) below, is completed and Carpatsky completes an additional equity
placement (the "Additional Equity Placement") of common stock or securities
required to be converted into Carpatsky Common Stock at or before the Additional
Equity Placement Cut-Off Date, then the number of shares in the Pease Share
Amount described in Recital B, shall be increased by 183,353 shares of Pease
Common Stock for each $50,000 raised in the Additional Equity Placement after
offering, selling and related expenses and less any portion thereof utilized by
Carpatsky to pay general and administrative expenses incurred prior to the
Additional Equity Placement Cut-Off Date.
SECTION 2.02 Exchange and Surrender of Certificates.
(a) As of the Effective Time, Pease shall deposit, or shall
cause to be deposited with American Securities Transfer & Trust, Inc., 12039
West Alameda Parkway, Lakewood, CO 80228 (the "US Exchange Agent") and, if
required by regulatory authorities, CIBC Mellon Trust Company (the "Canadian
Exchange Agent"; the US Exchange and the Canadian Exchange Agent are
collectively referred to herein as the "Exchange Agents"), for the benefit of
the holders of Converted Share Certificates, for exchange in accordance with
this Article II, the Merger Consideration, together with any dividends,
distributions or payments pursuant to Section 2.02(f) with respect thereto
(hereinafter referred to as the "Exchange Fund").
(b) As soon as reasonably practicable after the Effective
Time, the Exchange Agents shall mail to each holder of record of shares of
Carpatsky Common and Pease Preferred Stock immediately prior to the Effective
Time a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Converted Share Certificates shall
pass, only upon delivery of the Converted Share Certificates to the Exchange
Agents, and which shall be in such form and have such other provisions as Pease
may reasonably specify) and instructions for use in effecting the surrender of
the Converted Share Certificates in exchange for certificates representing
shares of Pease Common Stock issuable pursuant to Section 2.01 in exchange for
such Converted Share Certificates. Upon surrender of a Converted Share
Certificate for cancellation to the Exchange Agents, together with
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such letter of transmittal, duly executed, the holder of such Converted Share
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Pease Common Stock which such holder
has the right to receive in exchange for the Converted Share Certificate
surrendered pursuant to the provisions of this Article II (after taking into
account all Converted Shares then held by such holder), and the Converted Share
Certificates so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Carpatsky Common or Pease Preferred Stock which is not
registered in the transfer records of Carpatsky or Pease as the case may be, a
certificate representing the proper number of shares of Pease Common Stock may
be issued to a transferee if the Converted Share Certificate representing such
Carpatsky Common or Pease Preferred Stock is presented to the Exchange Agents,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.02, each Converted Share
Certificate shall be deemed at any time after the Effective Time to represent
only the Pease Common Stock into which the Converted Shares represented by such
Converted Share Certificate have been converted as provided in this Article II
and the right to receive upon such surrender cash in lieu of any fractional
shares of Pease Common Stock as contemplated by Section 2.02(f).
(c) After the Effective Time, there shall be no further
registration of transfers of Carpatsky Common or Pease Preferred Stock. If,
after the Effective Time, certificates representing shares of Carpatsky Common
Stock or Pease Preferred Stock are presented to Pease or the Exchange Agents,
they shall be canceled and exchanged for the Merger Consideration provided for
in this Agreement in accordance with the procedures set forth herein.
(d) Any portion of the Merger Consideration or the Exchange
Fund made available to the Exchange Agents pursuant to Section 2.02(a) that
remains unclaimed by the holders of shares of Carpatsky Common or Pease
Preferred Stock one year after the Effective Time shall be returned to Pease
upon demand, and any such holder who has not exchanged its shares of Carpatsky
Common Stock or Pease Preferred Stock in accordance with this Section 2.02 prior
to that time shall thereafter look only to Pease for payment of the Merger
Consideration in respect of its shares of Carpatsky Common or Pease Preferred
Stock. Notwithstanding the foregoing, Pease shall not be liable to any holder of
Converted Shares for any amount paid to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(e) No dividends, interest or other distributions with respect
to shares of Pease Common Stock shall be paid to the holder of any unsurrendered
Converted Share Certificates unless and until such Converted Share Certificates
are surrendered as provided in this Section 2.02. Upon such surrender, Pease
shall pay, without interest, all dividends and other distributions payable in
respect of such shares of Pease Common Stock on a date subsequent to, and in
respect of a record date after, the Effective Time.
(f) No certificates or scrip evidencing fractional shares of
Pease Common Stock shall be issued upon the surrender for exchange of Converted
Share Certificates, and such fractional share interests shall not entitle the
owner thereof to any rights as a stockholder of Pease. In lieu of any
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such fractional interests, each holder of a Converted Share Certificate shall,
upon surrender of such certificate for exchange pursuant to this Article II, be
paid an amount in cash (without interest), rounded to the nearest cent,
determined by multiplying the last sale price of the Pease Common Stock in the
Over-the-Counter market prior to the Closing Date by the fractional share of
Pease Common Stock to which such holder would otherwise be entitled (after
taking into account all Converted Shares held of record by such holder at the
Effective Time).
(g) Pease shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any former holder
of Carpatsky Common or Pease Preferred Stock such amounts as Pease (or any
affiliate thereof) is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Pease, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
former holder of the Carpatsky Common or Pease Preferred Stock in respect of
which such deduction and withholding was made. In the event the amount withheld
is insufficient so to satisfy the withholding obligations of Pease, (or any
affiliate thereof), such former stockholder shall reimburse Pease (or such
affiliate), at its request, the amount of any such insufficiency.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PEASE
Pease and Acquisition Corp. hereby jointly and severally represent and
warrant to Carpatsky that:
SECTION 3.01 Organization and Qualification; Subsidiaries. Each of
Pease, Acquisition Corp. and their respective subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of the business conducted by
it or the ownership or leasing of its properties makes such qualification
necessary, other than where the failure to be so duly qualified and in good
standing would not have a Pease Material Adverse Effect. The term "Pease
Material Adverse Effect" as used in this Agreement shall mean any change or
effect that, individually or when taken together with all other such changes or
effects, would be reasonably likely to be materially adverse to the assets,
liabilities, financial condition, results of operations or current or future
business of Pease and its subsidiaries, taken as a whole. Schedule 3.01 of the
disclosure schedule delivered to Carpatsky by Pease and attached hereto and made
a part hereof (the "Pease Disclosure Schedule") sets forth, as of the date
hereof, a true and complete list of all Pease's directly or indirectly owned
subsidiaries, together with (A) the jurisdiction of incorporation or
organization of each subsidiary and the percentage of each subsidiary's
outstanding capital stock or other equity interests owned by Pease or another
subsidiary of Pease, and (B) an indication of whether each such subsidiary is a
"Significant Subsidiary" as defined in Section 9.03(g) of this Agreement. Except
as set forth in Schedule 3.01 to the Pease Disclosure
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Schedule, neither Pease nor any of its subsidiaries owns an equity interest in
any other partnership or joint venture arrangement or other business entity that
is material to the assets, liabilities, financial condition, results of
operations or current or future business of Pease and its subsidiaries, taken as
a whole.
SECTION 3.02 Articles of Incorporation and Bylaws.
Pease has heretofore furnished to Carpatsky complete and correct copies of
the articles of incorporation and the bylaws or the equivalent organizational
documents as presently in effect of Pease and Acquisition Corp. and each of
their subsidiaries. Neither Pease, Acquisition Corp. nor any of their
subsidiaries are in violation of any of the provisions of its articles or any
material provision of its bylaws (or equivalent organizational documents).
SECTION 3.03 Capitalization.
(a) The authorized capital stock of Pease consists of
4,000,000 shares of Pease Common Stock, of which 1,688,698 shares are issued and
outstanding, no shares are held in treasury by Pease and 11,806,834 shares are
reserved for future issuance pursuant to outstanding stock options or other
contractual arrangements and which will be reserved for issuance as at the
Effective Time; 830,000 shares of authorized preferred stock, par value $.01 per
share of which 145,300 shares are designated as Series B 5% PIK cumulative
convertible preferred stock, par value $.01 per share, of which 105,828 shares
are issued and outstanding, no shares are held in treasury and 39,472 shares are
reserved for future issuance pursuant to outstanding stock options or other
contractual arrangements and 684,700 shares remain undesignated. The authorized
capital stock of Acquisition Corp. consists of 100 shares of common stock, par
value $.01 per share of which 100 shares are issued and outstanding. Except as
described in this Section 3.03 or in Schedule 3.03(a) to the Pease Disclosure
Schedule, no shares of capital stock of Pease are reserved for any purpose. Each
of the outstanding shares of capital stock of, or other equity interests in,
each of Pease and its subsidiaries, including Acquisition Corp., is duly
authorized, validly issued, and, in the case of shares of capital stock, fully
paid and nonassessable, and has not been issued in violation of (nor are any of
the authorized shares of capital stock of, or other equity interests in, such
entities subject to) any preemptive or similar rights created by statute, the
charter or bylaws (or the equivalent organizational documents) of Pease or any
of its subsidiaries, including Acquisition Corp., or any agreement to which
Pease or any of its subsidiaries, including Acquisition Corp., is a party or
bound, and such outstanding shares or other equity interests owned by Pease or a
subsidiary, including Acquisition Corp., of Pease are owned free and clear of
all security interests, liens, claims, pledges, agreements, limitations on
Pease's or such subsidiaries' voting rights, charges or other encumbrances of
any nature whatsoever.
(b) Except as set forth in Schedule 3.03(b)(i) to the Pease
Disclosure Schedule, there are no options, warrants or other rights (including
registration rights), agreements, arrangements or commitments of any character
to which Pease or any of its subsidiaries is a party relating to the issued or
unissued capital stock of Pease or any of its subsidiaries or obligating Pease
or any of its subsidiaries to grant, issue or sell any shares of the capital
stock of Pease or any of its subsidiaries, by sale, lease, license or otherwise.
Except as set forth in Schedule 3.03(b)(ii) to the Pease Disclosure
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Schedule, there are no obligations, contingent or otherwise, of Pease or any of
its subsidiaries to repurchase, redeem or otherwise acquire any shares of Pease
Common or Preferred Stock or other capital stock of Pease, or the capital stock
or other equity interests of any subsidiary of Pease; or provide material funds
to, or make any material investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any subsidiary of Pease or any other person. Except as described
in Schedule 3.03(b)(iii) to the Pease Disclosure Schedule, neither Pease nor any
of its subsidiaries (x) directly or indirectly owns, (y) has agreed to purchase
or otherwise acquire or (z) holds any interest convertible into or exchangeable
or exercisable for, 5% or more of the capital stock of any corporation,
partnership, joint venture or other business association or entity (other than
the subsidiaries of Pease set forth in Schedule 3.01 to the Pease Disclosure
Schedule). Except as set forth in Schedule 3.03(b)(iv) to the Pease Disclosure
Schedule, there are no agreements, arrangements or commitments of any character
(contingent or otherwise) pursuant to which any person is or may be entitled to
receive any payment based on the revenues or earnings, or calculated in
accordance therewith, of Pease or any of its subsidiaries. Except as
contemplated hereby, there are no voting trusts, proxies or other agreements or
understandings to which Pease or any of its subsidiaries is or will be a party
or by which Pease or any of its subsidiaries is or will be bound with respect to
the voting of any shares of capital stock of Pease or any of its subsidiaries.
(c) Pease has made available to Carpatsky complete and correct
copies of its existing (i) stock option plans (collectively, the "Pease Option
Plans") and the forms of options issued pursuant to the Pease Option Plans,
including all amendments thereto, and (ii) all options and warrants that are not
in the form specified under clause (i) above. Schedule 3.03(c) to the Pease
Disclosure Schedule sets forth a complete and correct list of all outstanding
warrants and options, restricted stock or any other stock awards (the "Pease
Stock Awards") granted under the Pease Option Plans or otherwise, setting forth
as of the date hereof (i) the number and type of Pease Stock Awards, (ii) the
exercise price of each outstanding stock option or warrant, (iii) the number of
stock options and warrants presently exercisable, and (iv) any other material
terms and conditions thereof.
(d) The shares of Pease Common Stock to be issued pursuant to
the Merger (i) will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, Pease's
articles of incorporation or bylaws or any agreement to which Pease is a party
or by which it is bound, (ii) will be registered under the Securities Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (iii)
will be registered or exempt from registration under applicable Canadian federal
and provincial and United States state securities or blue sky laws ("Blue Sky
Laws").
SECTION 3.04 Authority. Each of Pease and Acquisition Corp. has all
requisite corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby (subject to, with respect to the Merger, the Exchange and
the issuance of the Pease Common Stock pursuant to the Merger and Exchange, the
approval of an amendment to and restatement of the articles of incorporation by
the stockholders of Pease as described in Section 3.15 hereof). The execution
and delivery of this
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Agreement by Pease and Acquisition Corp. and the consummation by Pease and
Acquisition Corp. of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no other corporate proceedings
on the part of Pease are necessary to authorize this Agreement or to issue the
Pease Common Stock, with the exception of the appraisal and adoption of this
Agreement by the stockholders of Pease as described in Section 3.15 hereof. This
Agreement has been duly executed and delivered by Pease and Acquisition Corp.
and, assuming the due authorization, execution and delivery thereof by
Carpatsky, constitutes the legal, valid and binding obligation of Pease and
Acquisition Corp. enforceable against Pease and Acquisition Corp. in accordance
with its terms, except that such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
SECTION 3.05 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Pease and
Acquisition Corp. does not, and the consummation of the transactions
contemplated hereby in accordance with its terms will not (i) conflict with or
violate the articles of incorporation or bylaws, or the equivalent
organizational documents, in each case as amended or restated, of Pease or any
of its subsidiaries, including Acquisition Corp., (ii) conflict with or violate
any federal, provincial, state, or local law, statute, ordinance, rule,
regulation, order, judgment or decree, domestic or foreign, (collectively,
"Laws") applicable to Pease or any of its subsidiaries, including Acquisition
Corp., or by or to which any of their respective properties is bound or subject
or (iii) except as described in Schedule 3.05 to the Pease Disclosure Schedule,
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or require
payment under, or result in the creation of a lien or encumbrance on any of the
properties or assets of Pease or any of its subsidiaries, including Acquisition
Corp., pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Pease or any of its subsidiaries, including Acquisition Corp., is a party or by
or to which Pease or any of its subsidiaries, including Acquisition Corp., or
any of their respective properties is bound or subject, except for any such
conflicts or violations described in clause (ii) or breaches, defaults, events,
rights of termination, amendment, acceleration or cancellation, payment
obligations or liens or encumbrances described in clause (iii) that would not
have a Pease Material Adverse Effect.
(b) The execution and delivery of this Agreement by each of
Pease and Acquisition Corp. does not, and consummation of the transactions
contemplated hereby will not, require Pease or Acquisition Corp. to obtain any
consent, license, permit, approval, waiver, authorization or order of, or to
make any filing with or notification to, any court or governmental or regulatory
authority, domestic or foreign (collectively, "Governmental Authorities"),
except (i) for filing (A) a registration statement on Form S-4 (the "Form S-4")
under the Securities Act, (B) preliminary and definitive proxy materials under
the Exchange Act, (C) registrations, qualifications and claims for exemptions
under Blue Sky Laws, and (D) appropriate merger documents as required by
Delaware Law and the General
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Corporations Law of the State of Nevada ("Nevada Law"), and (ii) where the
failure to obtain such consents, licenses, permits, approvals, waivers,
authorizations or orders, or to make such filings or notifications, would not,
either individually or in the aggregate, materially interfere with Pease's and
Acquisition Corp.'s performance of their obligations under this Agreement and
would not have a Pease Material Adverse Effect.
SECTION 3.06 Permits; Compliance. Each of Pease and its subsidiaries,
including Acquisition Corp., and, to Pease's knowledge, each third party
operator of any of Pease's properties, is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances, exemptions,
consents, certificates, approvals and orders necessary to own, lease and operate
its properties and to carry on its business as it is now being conducted
(collectively, the "Pease Permits"), and there is no action, proceeding or
investigation pending or, to the knowledge of Pease, threatened regarding
suspension or cancellation of any of the Pease Permits, except where the failure
to possess, or the suspension or cancellation of, such Pease Permits would not
have a Pease Material Adverse Effect. Neither Pease nor any of its subsidiaries,
including Acquisition Corp., is in conflict with, or in default or violation of
any Law applicable to Pease or any of its subsidiaries, including Acquisition
Corp., or by or to which any of their respective properties is bound or subject
or any of the Pease Permits, except for any such conflicts, defaults or
violations that would not have a Pease Material Adverse Effect. During the
period commencing on December 31, 1998 and ending on the date hereof, neither
Pease nor any of its subsidiaries, including Acquisition Corp., has received
from any Governmental Authority any written notification with respect to
possible conflicts, defaults or violations of Laws, except as set forth in
Schedule 3.06 of the Pease Disclosure Schedule and except for written notices
relating to possible conflicts, defaults or violations that would not have a
Pease Material Adverse Effect.
SECTION 3.07 Reports; Financial Statements.
(a) Since December 31, 1997, Pease and its subsidiaries have
filed all forms, reports, statements and other documents required to be filed
with (A) the Securities and Exchange Commission (the "SEC") including, without
limitation, (1) all Registration Statements filed under the Securities Act, (2)
all Annual Reports on Form 10-K or 10-KSB, (3) all Quarterly Reports on Form
10-Q or 10-QSB, (4) all proxy statements relating to meetings of stockholders
(whether annual or special), (5) all Current Reports on Form 8-K and (6) all
other reports, schedules, registration statements or other documents
(collectively referred to as the "Pease SEC Reports") and (B) any applicable
state securities authorities and all forms, reports, statements and other
documents required to be filed with any other applicable federal or state
regulatory authorities, except where the failure to file any such forms,
reports, statements or other documents would not have a Pease Material Adverse
Effect (all such forms, reports, statements and other documents in clauses (i)
and (ii) of this Section 3.07(a) being referred to herein, collectively, as the
"Pease Reports"). The Pease Reports, including all Pease Reports filed after the
date of this Agreement and prior to the Effective Time, including, without
limitation, the Form S-4 relating to the Merger, (x) were or will be prepared in
accordance with the requirements of applicable Law (including, with respect to
Pease SEC Reports, the Securities Act and the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder
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applicable to such Pease SEC Reports) and (y) did not at the time they were
filed, or will not at the time they are filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in Pease SEC Reports filed
prior to the Effective Time, including, without limitation, the Form S-4 (as
regards Pease), have been or will be prepared in accordance with the published
rules and regulations of the SEC and generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except (a) to the
extent required by changes in generally accepted accounting principles; (b) with
respect to Pease SEC Reports filed prior to the date of this Agreement, as may
be indicated in the notes thereto; and (c) with respect to interim financial
statements as may be permitted by Article 10 of Regulation S-X) and fairly
present or will fairly present the consolidated financial position of Pease and
its subsidiaries as of the respective dates thereof and the consolidated results
of operations and cash flows for the periods indicated (including reasonable
estimates of normal and recurring year-end adjustments), except that (x) any
unaudited interim financial statements were or will be subject to normal and
recurring year-end adjustments and (y) any pro forma financial statements
contained in such consolidated financial statements are not necessarily
indicative of the consolidated financial position of Pease and its subsidiaries
as of the respective dates thereof and the consolidated results of operations
and cash flows for the periods indicated.
SECTION 3.08 Absence of Certain Changes or Events. Except as disclosed
in Pease SEC Reports filed prior to the date of this Agreement or as
contemplated by this Agreement or as set forth in Schedule 3.08 to the Pease
Disclosure Schedule, since December 31, 1998 Pease and its subsidiaries have
conducted their respective businesses only in the ordinary course and in a
manner consistent with past practice and there has not been: (i) any material
damage, destruction or loss (whether or not covered by insurance) with respect
to any material assets of Pease or any of its subsidiaries; (ii) any material
change by Pease or any of its subsidiaries in their accounting methods,
principles or practices; (iii) any declaration, setting aside or payment of any
dividends or distributions in respect of shares of Pease Common or Preferred
Stock or the shares of stock of, or other equity interests in, any subsidiary of
Pease, or any redemption, purchase or other acquisition by Pease or any of its
subsidiaries, including Acquisition Corp., of any of Pease's securities or any
of the securities of any subsidiary of Pease, including Acquisition Corp.; (iv)
any increase in the benefits under, or the establishment or amendment of, any
bonus, insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards, or restricted stock
awards), stock purchase or other employee benefit plan, or any increase in the
compensation payable or to become payable to directors, officers or employees of
Pease or its subsidiaries; (v) any revaluation by Pease or any of its
subsidiaries of any of their assets, including the writing down of the value of
inventory or the writing down or off of any proven services notes or accounts
receivable, other than in the ordinary course of business and consistent with
past practices; any entry by Pease or any of its subsidiaries into any
commitment or transaction material to Pease and its subsidiaries, taken as a
whole (other than this Agreement and the
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transactions contemplated hereby); any material increase in indebtedness for
borrowed money; or a Pease Material Adverse Effect.
SECTION 3.09 Absence of Litigation. Except as disclosed in the Pease
SEC Reports filed prior to the date of this Agreement or as set forth in
Schedule 3.09 to the Pease Disclosure Schedule, there is no claim, action, suit,
litigation, proceeding, arbitration or, to the knowledge of Pease, investigation
of any kind, at law or in equity (including actions or proceedings seeking
injunctive relief), pending or, to the knowledge of Pease, threatened against
Pease or any of its subsidiaries or any properties or rights of Pease or any of
its subsidiaries (except for claims, actions, suits, litigation, proceedings,
arbitrations or investigations which if adversely determined would not have a
Pease Material Adverse Effect), and neither Pease nor any of its subsidiaries is
subject to any continuing order of, consent decree, settlement agreement or
other similar written agreement with, or, to the knowledge of Pease, continuing
investigation by, any Governmental Authority, or any judgment, order, writ,
injunction, decree or award of any Government Entity or arbitrator, including,
without limitation, cease-and-desist or other orders, except for matters that
would not have a Pease Material Adverse Effect.
SECTION 3.10 Employee Benefit Plans; Labor Matters.
(a) Schedule 3.10(a) to the Pease Disclosure Schedule sets
forth each employee benefit plan (as such term is defined in ERISA section 3(3))
maintained or contributed to during the past five years by Pease or any member
of its ERISA Group or with respect to which Pease or any member of its ERISA
Group could incur liability under Sections 4063, 4069, 4212(c) or 4204 of ERISA,
and any other retirement, pension, stock option, stock appreciation rights,
profit sharing, incentive compensation, deferred compensation, savings, thrift,
vacation pay, severance pay, or other employee compensation or benefit plan,
agreement, practice, or arrangement, whether written or unwritten, whether or
not legally binding (collectively, the "Pease Benefit Plans"). For purposes of
this Agreement, "ERISA Group" means a controlled or affiliated group within the
meaning of Code section 414(b), (c), (m), or (o) of which Pease is a member.
Pease has made available to Carpatsky correct and complete copies of all Pease
Benefit Plans (including a detailed written description of any Pease Benefit
Plan that is unwritten, including a description of eligibility criteria,
participation, vesting, benefits, funding arrangements and assets and any other
provisions relating to Pease) and, with respect to each Pease Benefit Plan, a
copy of each of the following, to the extent each is applicable to each Pease
Benefit Plan: the most recent favorable determination letter, materials
submitted to the Internal Revenue Service in support of a pending determination
letter request, the most recent letter issued by the Internal Revenue Service
recognizing tax exemption, each insurance contract, trust agreement, or other
funding vehicle, the three most recently filed Forms 5500 plus all schedules and
attachments, the three most recent actuarial valuations, and each summary plan
description or other general explanation or communication distributed or
otherwise provided to employees with respect to each Pease Benefit Plan that
describes the terms of the Pease Benefit Plan.
(b) With respect to the Pease Benefit Plans, no event has occurred and,
to the
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knowledge of Pease, there exists no condition or set of circumstances, in
connection with which Pease or any member of its ERISA Group could be subject to
any liability under the terms of such Pease Benefit Plans, ERISA, the Code or
any other applicable Law which would have a Pease Material Adverse Effect.
Except as otherwise set forth on Schedule 3.10(b) to the Pease Disclosure
Schedule:
(i) As to any Pease Benefit Plan intended to be qualified under
Section 401 of the Code, such Pease Benefit Plan satisfies the requirements
of such Section and there has been no termination or partial termination of
such Pease Benefit Plan within the meaning of Section 411(d)(3) of the Code
and Pease has administered all such Plans in accordance with all applicable
Laws;
(ii) There are no actions, suits or claims pending (other than routine
claims for benefits) or, to the knowledge of Pease, threatened against, or
with respect to, any of the Pease Benefit Plans or their assets, any plan
sponsor, or any fiduciary (as such term is defined in Section 3(21) of
ERISA), and Pease has no knowledge of any facts that could give rise to any
actions, suits or claims;
(iii) All contributions required to be made to the Pease Benefit Plans
pursuant to their terms and provisions have been made timely;
(iv) As to any Pease Benefit Plan subject to Title IV of ERISA, there
has been no event or condition which presents the material risk of plan
termination, no accumulated funding deficiency, whether or not waived,
within the meaning of Section 302 of ERISA or Section 412 of the Code has
been incurred, no reportable event within the meaning of Section 4043 of
ERISA has occurred, no notice of intent to terminate the Pease Benefit Plan
has been given under Section 4041 of ERISA, no proceeding has been
instituted under Section 4042 of ERISA to terminate the Pease Benefit Plan,
and no liability to the Pension Benefit Guaranty Corporation or to the Plan
has been incurred;
(v) Neither Pease nor any party in interest (as such term is defined
in ERISA section 3(14)) nor any disqualified person has engaged in any
prohibited transaction within the meaning of ERISA section 406 or Code
section 4975 that would subject Pease to any liability; and
(vi) The consummation of the transactions contemplated by this
Agreement will not give rise to any acceleration of vesting of payments or
options, the acceleration of the time of making any payments, or the making
of any payments, which in the aggregate would result in an "excess
parachute payment" within the meaning of Section 280G of the Code and the
imposition of the excise under Section 4999 of the Code.
(c) Except as set forth in Schedule 3.10(c) to the Pease Disclosure
Schedule, neither Pease nor any member of its ERISA Group, including, without
limitation, any of its subsidiaries, is or has ever been a party to any
collective bargaining or other labor union contracts. No collective bargaining
agreement is being negotiated by Pease or any of its subsidiaries. There is no
pending or threatened labor dispute, strike or work stoppage against Pease or
any of its subsidiaries
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which may interfere with the respective business activities of Pease or any of
its subsidiaries. None of Pease, any of its subsidiaries or any of their
respective representatives or employees has committed any unfair labor practices
in connection with the operation of the respective businesses of Pease or its
subsidiaries, and there is no pending or threatened charge or complaint against
Pease or any of its subsidiaries by the National Labor Relations Board or any
comparable state agency.
(d) Except as disclosed in Schedule 3.10(d) to the Pease
Disclosure Schedule and as contemplated by this Agreement, neither Pease nor any
of its subsidiaries is a party to or is bound by any severance agreements,
programs or policies. Schedule 3.10(d) to the Pease Disclosure Schedule sets
forth, and Pease has made available to Carpatsky true and correct copies of, all
employment agreements with officers or Pease or its subsidiaries; all agreements
with consultants of Pease or its subsidiaries obligating Pease or any subsidiary
to make annual cash payments in an amount exceeding $25,000; all non-competition
agreements with Pease or a subsidiary executed by officers of Pease; and all
plans, programs, agreements and other arrangements of Pease or its subsidiaries
with or relating to its directors.
(e) Except as provided in Schedule 3.10(e) to the Pease
Disclosure Schedule, (x) no Pease Benefit Plan provides retiree medical or
retiree life insurance benefits to any person and (y) neither Pease nor any of
its subsidiaries is contractually or otherwise obligated (whether or not in
writing) to provide any person with life insurance or medical benefits upon
retirement or termination of employment, other than as required by the
provisions of Sections 601 through 608 of ERISA and Section 4980B of the Code
and each such Pease Benefit Plan or arrangement may be amended or terminated by
Pease or its subsidiaries at any time without liability.
(f) Except as set forth in Schedule 3.10(f) to the Pease
Disclosure Schedule, neither Pease nor any member of its ERISA Group including,
without limitation, any of its subsidiaries, contributes to or has an obligation
to contribute to, and has not within six years prior to the date of this
Agreement contributed to or had an obligation to contribute to or has any
secondary liability under ERISA Section 4204 to, a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(g) Except as contemplated by this Agreement or as set forth
in Schedule 3.10(g), Pease has not amended, or taken any actions with respect
to, any of the Pease Benefit Plans or any of the plans, programs, agreements,
policies or other arrangements described in Section 3.10(d) of this Agreement
since December 31, 1998.
(h) With respect to each Pease Benefit Plan that is a "group
health plan" within the meaning of Section 5000(b) of the Code, each such Pease
Benefit Plan complies and has complied with the requirements of Part 6 of Title
I of ERISA and Sections 4980B and 5000 of the Code, except where the failure to
so comply would not have a Pease Material Adverse Effect.
SECTION 3.11 Taxes. Except when a failure of any
representation made in this
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Section 3.11 to be true and correct would not result in a liability to Pease in
excess of $10,000 in the case of a representation known to Pease to be untrue or
incorrect or $25,000 in the case of a representation not known to Pease to be
untrue or incorrect:
(a) (i) Except to the extent that the applicable statute of
limitations has expired, all Returns required to be filed by or on behalf
of Pease have been duly filed on a timely basis with the appropriate
Governmental Authorities and such Returns (including all attached
statements and schedules) are true, correct and complete. Except to the
extent that the applicable statute of limitations with respect thereto has
expired, all Taxes (as defined in (f) below) have been paid in full on a
timely basis, and no other Taxes are payable by Pease with respect thereto
for items or periods covered by such Returns (whether or not shown on or
reportable on such Returns) or with respect to any period prior to the
Effective Time;
(ii) Pease has complied in all respects with all applicable Laws
relating to the payment and withholding of Taxes (including any estimated
Taxes and withholding of Taxes pursuant to Sections 1441 and 1442 of the
Code or similar provisions under foreign laws) and has, within the time and
in the manner prescribed by Law, withheld from employee wages and paid over
all amounts withheld under applicable Laws;
(iii) Pease has disclosed on its income tax returns all positions
taken therein that could give rise to a substantial understatement penalty
within the meaning of Code Section 6662;
(iv) There are no liens on any of the assets of Pease with respect to
Taxes, other than liens for Taxes not yet due and payable or as set forth
in Schedule 3.11 of the Pease Disclosure Schedule for Taxes that are being
contested in good faith through appropriate proceedings and for which
appropriate reserves have been established;
(v) Pease does not have any liability under Treasury Regulation ss.
1.1502-6 or any analogous state, local or foreign law by reason of having
been a member of any consolidated, combined or unitary group, other than in
the current affiliated group of which Pease is the common parent
corporation;
(vi) Except to the extent that the applicable statute of limitations
has expired, Pease has made available to Carpatsky complete copies of: (i)
all federal, state and local, as well as any other taxing authority, income
tax, sales and use tax, employment tax and franchise tax returns of Pease
for all periods since December 31, 1996 (or any predecessor in interest),
and (ii) all tax audit reports, work papers statements of deficiencies,
closing or other agreements received by Pease or on its behalf or relating
to Taxes; and
(vii) Pease does not do business in or derive income from any state,
local, territorial or foreign taxing jurisdiction so as to be subject to
Return filing requirements of such jurisdiction, other than those for which
Returns have been furnished to Carpatsky.
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(b) Except as disclosed in Schedule 3.11(b) of the Pease Disclosure
Schedule:
(i) There is no audit of any Returns of Pease by a governmental or
taxing authority in process, pending or, to the knowledge of Pease,
threatened (formally or informally);
(ii) Except to the extent that the applicable statute of limitations
has expired and except as to matters that have been resolved, no
deficiencies exist or have been asserted (either formally or informally) or
are expected to be asserted with respect to Taxes of Pease, and no notice
(either formally or informally) has been received by Pease that it has not
filed a Return or paid Taxes required to be filed or paid by it;
(iii) Pease is not a party to any pending action or proceeding for
assessment or collection of Taxes, nor has such action or proceeding been
asserted or threatened (either formally or informally) against it or any of
its assets, except to the extent that the applicable statute of limitations
has expired and except as to matters that have been resolved;
(iv) No waiver or extension of any statute of limitations is in effect
with respect to Taxes or Returns of Pease;
(v) No action has been taken that would have the effect of deferring
any liability for Taxes for Pease from any period prior to the Effective
Time to any period after the Effective Time;
(vi) There are no requests for rulings, subpoenas or requests for
information pending with respect to the Taxes of Pease;
(vii) No power of attorney has been granted by Pease, with respect to
any matter relating to Taxes;
(viii) Pease has never been included in an affiliated group of
corporations, within the meaning of Section 1504 of the Code, other than in
the current affiliated group of which Pease is the common parent
corporation;
(ix) Pease is not (nor has it ever been) a party to any tax sharing
agreement between affiliated corporations; and
(x) The amount of liability for unpaid Taxes of Pease for all periods
ending on or before the Effective Time will not, in the aggregate,
materially exceed the amount of the liability accruals for Taxes reflected
on the consolidated balance sheet of Pease as of the Closing Date.
(c) Except as disclosed on Schedule 3.11(c) of the Pease Disclosure
Schedule:
(i) Pease is not required to treat any of its assets as owned by
another
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person for federal income tax purposes or as tax-exempt bond financed
property or tax-exempt use property within the meaning of Section 168 of
the Code;
(ii) Pease has not issued or assumed any corporate acquisition
indebtedness that is subject to Sections 279(a) and (b) of the Code;
(iii) Pease has not entered into any compensatory agreements with
respect to the performance of services under which payment would result in
a nondeductible expense pursuant Section 280G of the Code or an excise tax
to the recipient of such payment pursuant to Section 4999 of the Code;
(iv) No election has been made under Section 338 of the Code with
respect to Pease and no action has been taken that would result in any
income tax liability to Pease as a result of a deemed election within the
meaning of Section 338 of the Code;
(v) No consent under Section 341(f) of the Code has been filed with
respect to Pease;
(vi) Pease has not agreed, nor is it required to make, any adjustment
under Code Section 481(a) by reason of a change in accounting method or
otherwise;
(vii) Pease has not disposed of any property that is presently being
accounted for under the installment method;
(viii) Pease is not a party to any interest rate swap or currency
swap;
(ix) Pease has not participated in any international boycott as
defined in Code Section 999;
(x) There are no outstanding balances of deferred gain or loss
accounts related to deferred intercompany transactions with respect to
Pease under Treasury Regulations ss.ss. 1.1502-13 or 1.1502-13T;
(xi) Pease has not made and will not make any election under Treasury
Regulations ss. 1.1502-20(g)(1) (or any similar provision) with respect to
the reattribution of net operating losses of Pease;
(xii) There is no excess loss account under Treasury Regulation
ss.1.1502-19 with respect to the stock of Pease or any subsidiary;
(xiii) Pease is not subject to any joint venture, partnership or other
arrangement or contract that is treated as a partnership for federal income
tax purposes;
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(xiv) Pease has not made any of the foregoing elections and is not
required to apply any of the foregoing rules under any comparable state,
local or foreign income tax provisions;
(xv) Except as required with respect to cash paid for fractional
shares and to dissenting stockholders or otherwise contemplated by this
Agreement, Pease does not intend to withhold any amount from the Merger
Consideration pursuant to the tax withholding provisions of Section 3406 of
the Code, or of Subchapter A of Chapter 3 of the Code, or of any other
provision of law.
(d) The books and records of Pease, including the Returns of Pease made
available to Carpatsky, contain accurate and complete information with respect
to:
(i) All material tax elections in effect with respect to Pease;
(ii) The current tax basis of the assets of Pease;
(iii) The current and accumulated earnings and profits of Pease;
(iv) The net operating losses of Pease by taxable year;
(v) The net capital losses of Pease;
(vi) The tax credit carry overs of Pease; and
(vii) The overall foreign losses of Pease under Section 904(f) of the
Code that are subject to recapture.
(e) The Returns provided by Pease to Carpatsky contain accurate and
complete information with respect to the net operating losses, net operating
loss carry forwards and other tax attributes of Pease, and the extent to which
they are subject to any limitation under Code Sections 381, 382, 383, or 384, or
any other provision of the Code or the federal consolidated return regulations
(or any predecessor provision of any Code section or the regulations) and, apart
from any such limitations and apart from any limitation that would be imposed as
a result of the Merger, there is nothing that would prevent Pease from utilizing
these net operating losses, net operating loss carry forwards or other tax
attributes as so limited if it has sufficient income.
(f) (i) For purposes of this Agreement the term "Taxes" shall mean all
taxes, however, denominated, including any interest, penalties or other
additions to tax that may become payable in respect thereof, imposed by any
federal, territorial, provincial, state, local government or any agency or
political subdivision of any such government, domestic or foreign, which taxes
shall include, without limiting the generality of the foregoing, all income or
profit taxes, payroll and employee withholding taxes, unemployment insurance,
social security taxes, sales and use taxes, ad valorem taxes, excise taxes,
franchise taxes, gross receipts taxes, business license taxes, occupation
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taxes, real and personal property taxes, stamp taxes, environmental taxes,
transfer taxes, workers' compensation, Pension Benefit Guaranty Corporation
premiums and other governmental charges, and other obligations of the same
or of a similar nature to any of the foregoing, required to be paid,
withheld or collected.
(ii) For the purposes of this Agreement, the term "Returns" shall mean
all reports, estimates, declarations of estimated tax, information
statements and returns relating to, or required to be filed in connection
with, any Taxes, including information returns or reports with respect to
backup withholding and other payments to third parties.
(iii) All references to "Pease" in this Section 3.11 shall include all
subsidiaries of Pease and where appropriate in this Section 3.11, the
singular shall include the plural.
SECTION 3.12 Tax Matters.
(a) Neither Pease nor, to the knowledge of Pease, any of its
affiliates has taken or agreed to take any action that would prevent the
Exchange or the Merger from constituting a tax-free reorganization qualifying
under relevant provisions of the Code.
(b) Pease has no present plan or intention to reacquire the
Pease Common Stock issued in the Merger or the Exchange.
(c) Pease and the holders of Pease Common and Preferred Stock
will each pay their respective expenses, if any, incurred in connection with the
Merger and the Exchange.
(d) There is no intercorporate indebtedness existing between
Pease and Carpatsky that was issued, acquired or will be settled at a discount.
(e) Pease is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
(f) Except as contemplated by this Agreement or previously
announced on Pease's SEC Reports, Pease will take no action prior to the
Effective Time to cease operations or dispose of any of the stock or, except in
the ordinary course of business, any assets of any of its subsidiaries or
current lines of business.
SECTION 3.13 Certain Business Practices. None of Pease, any of its
subsidiaries, including Acquisition Corp., or any directors, officers, agents or
employees of Pease or any of its subsidiaries has used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or campaigns
or violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended, or made any other unlawful payment.
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SECTION 3.14 Environmental Matters.
(a) Except for matters disclosed in Schedule 3.14 to the Pease
Disclosure Schedule and except for matters that would not result individually in
liability to Pease or any of its subsidiaries in excess of (i) $10,000 in the
case of matters known to Pease or in the aggregate with all other such matters,
in liability to Pease or any of its subsidiaries in excess of $25,000, or (ii)
$25,000 in the case of matters not known to Pease or in the aggregate with all
other such matters, in liability to Pease or any of its subsidiaries in excess
of $50,000, to the best knowledge of Pease:
(i) The properties, operations and activities of Pease and its
subsidiaries are in compliance 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) Pease and its subsidiaries and the properties and operations of
Pease and its subsidiaries are not subject to any existing, pending, or, to
Pease'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, and to Pease's knowledge no basis exists
therefor;
(iii) Pease and its subsidiaries have not agreed, whether by contract
or by consent agreement with Governmental Authorities or private persons,
to undertake investigation, clean up, or remedial activities;
(iv) All notices, permits, licenses, or similar authorizations
required to be obtained or filed by Pease or any of its subsidiaries under
any Environmental Laws in connection with any aspect of the business of
Pease or any of its subsidiaries, including without limitation those
relating to the treatment, storage, disposal or discharge of Hazardous
Materials, have been duly obtained or filed and will remain valid and in
effect after the Merger, and Pease and its subsidiaries are in compliance
with the terms and conditions of all such notices, permits, licenses and
similar authorizations;
(v) Pease and its subsidiaries have satisfied and are currently in
compliance with all financial responsibility requirements applicable to
their operations and imposed by any Governmental Authority under
Environmental Laws, and Pease and its subsidiaries have 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 Pease or its subsidiaries or resulting from Pease's or such
subsidiaries' operations or activities, past or present, at any location,
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;
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(vii) To the extent required by applicable Environmental Laws, all
Hazardous Materials generated by Pease 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 Pease or its present or prior subsidiaries or in connection
with their present or prior properties or operations that could reasonably
be expected to give rise to any Environmental Liability. All employees of
Pease and its subsidiaries with exposure to asbestos in connection with
Pease's or such subsidiaries' operations or activities, past or present,
have received annual physicals with pulmonary and respiratory examinations
and chest x- rays without the manifestation of asbestos-related conditions
and Pease is not aware of any pulmonary or respiratory illnesses suffered
or incurred by any such employee related to exposure to asbestos caused by
such employee's employment with Pease or any of its subsidiaries;
(ix) No release or clean up of Hazardous Materials has occurred at
Pease 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 body or agency or other Governmental Authority with respect
thereto, nor has any such lien been asserted or made by any governmental
body, agency or entity with respect thereto;
(x) To Pease's knowledge, the operations of each third party operator
of any of Pease or its subsidiaries' properties are in compliance with the
terms of this Section 3.14; and
(xi) Pease and its subsidiaries have complied with all Environmental
Protection Agency guidelines relating to the removal of asbestos and all
such asbestos removal activities were scheduled with Pease's or its
subsidiaries' insurers and were (and continue to be) insured under
insurance policies maintained with reputable insurers (which are current,
in full force and effect and which name Pease as an insured).
(b) Pease and its subsidiaries have made available to
Carpatsky all internal and external environmental audits, studies, documents and
correspondence on environmental matters in the possession of Pease or its
subsidiaries relating to any of the present or prior properties or operations of
Pease and its subsidiaries.
(c) For purposes of this Agreement, the following terms shall
be defined as follows:
(i) "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 Clean Air Act, the Comprehensive Environmental,
Response, Compensation, and Liability Act ("CERCLA"), the Clean Water Act,
the
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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 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
(ii) "Hazardous Materials" shall mean any materials that are regulated
by or form the basis of 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)
(iii) "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.
SECTION 3.15 Vote Required. The only vote of the holders of any class
or series of Pease capital stock necessary to approve the Exchange, the Merger
and adopt this Agreement and to authorize restatement and amendment to Pease's
articles of incorporation in the form of Exhibit B-4 (the "Amended and Restated
Articles of Pease") is the affirmative vote of the holders of at least a
majority of the outstanding shares of Pease Common Stock and the affirmative
vote of all the holders of each class of outstanding Pease Preferred Stock.
SECTION 3.16 Brokers. Except as set forth in Schedule 3.16 to the Pease
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Pease. Prior to the date of this Agreement, Pease has made
available to Carpatsky a complete and correct copy of all agreements referenced
in Schedule 3.16 to the Pease Disclosure Schedule pursuant to which such firm
will be entitled to any payment relating to the transactions contemplated by
this Agreement.
SECTION 3.17 Insurance. Schedule 3.17 to the Pease Disclosure
Schedule sets forth
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a true and complete listing of all material policies currently in force, and all
other policies under which a claim could be made as of the date hereof (i.e.,
all incurrence-based policies), for fire, products and environmental or
pollution control liability, general liability, vehicle, workers' compensation,
directors and officers' liability, title and other insurance owned or held by or
covering Pease or any of its property, assets, or activities, past or present.
As of the date hereof, all of such policies are in full force and effect, and
Pease has not received any outstanding notice of cancellation or termination
with respect to any policy of fire, products or environmental or pollution
control liability, general liability, vehicle, workers' compensation, directors'
and officers' liability, title and other insurance owned or held by or covering
Pease or any of its property, assets, or activities, past or present. Neither
the Merger nor any of the transactions contemplated hereby shall cause the
termination or may form the basis for terminating any such insurance policies or
insurance coverages presently maintained by Pease.
SECTION 3.18 Properties. Except as set forth in Schedule 3.18 to the
Pease Disclosure Schedule, with respect to Pease and its subsidiaries'
properties, except for liens arising in the ordinary course of business after
the date hereof and properties and assets disposed of in the ordinary course of
business after the date of the most recent balance sheet contained in the Form
10- QSB referred to below, each of Pease and its subsidiaries has good and
marketable title free and clear of all liens, the existence of which would have
a Pease Material Adverse Effect, to all their material properties and assets,
whether tangible or intangible, real personal or mixed, reflected in Pease's
most recent consolidated balance sheet contained in Pease's most recent Pease
SEC Report on Form 10-QSB filed prior to the date hereof as being owned by Pease
and its subsidiaries as of the date thereof or purported to be owned on the date
hereof, including, without limitation, the oil and gas interests reported upon
by Netherland, Sewell & Associates, Inc. in its most recent reserve report dated
January 1, 1999 which was prepared in accordance with the requirements of
Regulation S-X promulgated by the SEC ("Reg. S-X") under the Securities Act (the
"Pease Reserve Report") and which has been furnished to Carpatsky. All
buildings, and all fixtures, equipment and other property and assets which are
material to its business on a consolidated basis, are held under valid
instruments enforceable by Pease or its subsidiaries in accordance with their
respective terms. Substantially all of Pease's and its subsidiaries' equipment
in regular use has been well maintained and is in good and serviceable
condition, reasonable wear and tear excepted.
SECTION 3.19 Certain Contracts and Restrictions. Other than agreements,
contracts or commitments listed elsewhere in the Pease Disclosure Schedule,
Schedule 3.19 to the Pease Disclosure Schedule lists, as of the date hereof,
each agreement, contract or commitment (including any amendments thereto) to
which Pease or any of its subsidiaries is a party or by which Pease or any of
its subsidiaries is bound (i) involving consideration during the next twelve
months in excess of $10,000 or (ii) which is otherwise material to the assets,
liabilities, financial condition, results of operations or current or future
business of Pease and its subsidiaries, taken as a whole. As of the date of this
Agreement and except as indicated on the Pease Disclosure Schedule, (i) Pease
has fully complied with all material terms and conditions of all agreements,
contracts and commitments listed in the Pease Disclosure Schedule and all such
agreements, contracts and commitments are in full force and effect, (ii) Pease
has no knowledge of any defaults thereunder or any cancellations or
modifications
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thereof, and (iii) such agreements, contracts and commitments are not subject to
any memorandum or other written document or understanding permitting
cancellation.
SECTION 3.20 Easements. Except when a failure of any representation
made in this Section 3.20 to be true and correct would not result in a liability
to Pease in excess of (i) $10,000 in the case of a representation known to Pease
to be untrue or incorrect or (ii) $25,000 in the case of a representation not
known to Pease to be untrue or incorrect, the business of Pease and its
subsidiaries has been operated in a manner that does not violate the material
terms of any easements, rights of way, permits, servitudes, licenses or any
other agreements and rights relating to the exploration, development,
production, marketing, sale and transportation of hydrocarbons attributable to
or produced, marketed and sold from their oil and gas leases, interests and real
property used by Pease and its subsidiaries in its business (collectively,
"Pease Easements"), and all material Pease Easements are valid and enforceable
and grant the rights purported to be granted thereby and all rights necessary
thereunder for the current operation of such business.
SECTION 3.21 Futures Trading and Fixed Price Exposure. None of Pease or
any of its subsidiaries is presently engaged in any futures or options trading
or is a party to any price, interest rate or currency swaps, hedges, futures or
other derivative instruments.
SECTION 3.22 Information Supplied. Without limiting any of the
representations and warranties contained herein, the representations and
warranties of Pease contained in this Agreement and the information set forth in
the Pease Disclosure Schedule is complete and accurate and does not contain any
untrue statement of material fact, or omit a material fact necessary in order to
make the statements contained therein, in light of the circumstances under which
such statements are or were made, not misleading.
SECTION 3.23 Intellectual Property. Schedule 3.23 lists all the
registered patents, trademarks, service marks, copyrights, trade names and
applications for any of the foregoing owned by Pease or any of its subsidiaries
as of the date of this Agreement (the "Registered Intellectual Property"). Pease
has good and marketable title to the Registered Intellectual Property and has
good and marketable title to, or valid licenses or rights to use, all patents,
copyrights, trademarks, trade names, brand names, proprietary and other
technical information, technology and software (collectively, "Intellectual
Property") which are used in the operation of its business as presently
conducted, free from any liens and free from any requirement of any past,
present or future royalty payments, license fees, charges or other payments or
conditions or restrictions, whatsoever, except as set forth on Schedule 3.23.
Immediately after the Effective Time, Pease will continue to own or will have
the right to use all Intellectual Property free from liens and on the same terms
and conditions as in effect prior to the Effective Time. There are no claims or
proceedings pending or, to the Pease's knowledge, threatened, against Pease
asserting that Pease or any of its subsidiaries is infringing or engaging in the
unauthorized use of any Intellectual Property of any other person or entity.
Schedule 3.23 sets forth all agreements and arrangements (i) pursuant to which
Pease or any of its subsidiaries has licensed Intellectual Property to, or the
use of Intellectual Property in other areas permitted (through non-assertion,
settlement or similar agreements or otherwise) by, any other person and (ii)
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pursuant to which Pease or any of its subsidiaries has had Intellectual Property
licensed to it, or has otherwise been permitted to use Intellectual Property
(through non-assertion, settlement or similar agreements or otherwise). All of
the agreements or arrangements to the extent set forth on Schedule 3.23 (w) are
in full force and effect in accordance with their terms and Pease is not aware
that any default exists thereunder by Pease or any of its subsidiaries or by any
other party thereto; (x) are free and clear of liens; and (y) do not contain any
change of control or other terms or conditions that will become applicable or
inapplicable as a result of the consummation of the Merger and the transactions
contemplated by this Agreement. Pease has delivered to Carpatsky true and
complete copies of all agreements and arrangements set forth on Schedule 3.23.
There are no royalties, license fees, charges or other amounts payable by, or on
behalf of Pease or any of its subsidiaries in respect of any Intellectual
Property other than as set forth on Schedule 3.23.
SECTION 3.24 Year 2000. Pease has conducted a review and assessment of
all computer applications and programs ("Software") owned licensed or used by
any of Pease and its subsidiaries and all of such Software is fully able to
perform date-sensitive or other functions, after December 31, 1999, except for
licensed Software where the failure to perform such functions could not have a
Pease Material Adverse Effect.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF CARPATSKY
Carpatsky hereby represents and warrants to Pease that:
SECTION 4.01 Organization and Qualifications; Subsidiaries. Each of
Carpatsky and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
Carpatsky's Representative Office in the Republic of Ukraine ("Representative
Office") is duly organized, validly existing and in good standing under the
current laws of the Republic of Ukraine ("Ukraine") and each has all requisite
legal power and authority to own, lease and operate its properties and to carry
on its business as it is now being conducted and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of its properties makes such
qualification necessary, other than where the failure to be so duly qualified
and in good standing would not have a Carpatsky Material Adverse Effect. The
term "Carpatsky Material Adverse Effect" as used in this Agreement shall mean
any change or effect that, individually or when taken together with all such
other changes or effects, would be reasonably likely to be materially adverse to
the assets, liabilities, financial condition, results of operations or current
or future business of Carpatsky and its subsidiaries taken as a whole. Except as
set forth in Schedule 4.01 to the disclosure schedule delivered to Pease by
Carpatsky and which is attached hereto and is made a part hereof (the "Carpatsky
Disclosure Schedule"), Carpatsky does not own, directly or indirectly, any
subsidiaries and Carpatsky does not own an equity interest in any other
partnership or joint venture arrangement or other business entity that is
material to the assets, liabilities, financial condition, results of operations
or current or future business of Carpatsky and its subsidiaries, taken as a
whole.
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SECTION 4.02 Charter and Bylaws. Carpatsky has heretofore furnished to
Pease a complete and correct copy of the certificate of incorporation and bylaws
or the equivalent organizational documents as presently in effect of Carpatsky
and each of its subsidiaries and for the Representative Office. Carpatsky and
its subsidiaries are not in violation of any of the provisions of their
respective charters or any material provision of their respective bylaws.
SECTION 4.03 Capitalization.
(a) The authorized capital stock of Carpatsky consists of an
unlimited number of shares of Old Carpatsky Common Stock, of which 40,796,246
shares are issued and outstanding and, except as set forth in Schedule 4.03(a),
there are no shares liable for future issuance pursuant to outstanding stock
options (the "Carpatsky Options") and warrants ("Carpatsky Warrants") or any
other purpose. Each of the outstanding shares of capital stock of, or other
equity interests in, Carpatsky and its subsidiaries is duly authorized, validly
issued, and, in the case of shares of capital stock, fully paid and
nonassessable, and has not been issued in violation of (nor are any of the
authorized shares of capital stock of, or other equity interests in, such
entities subject to) any preemptive or similar rights created by statue, the
charter or bylaws (or the equivalent organizational documents) of Carpatsky and
its subsidiaries, or any agreement to which Carpatsky and its subsidiaries is a
party or bound, and such outstanding shares or other equity interests owned by
Carpatsky and its subsidiaries are owned free and clear of all security
interests, liens, claims, pledges, agreements, limitations on Carpatsky's or its
subsidiaries' voting rights, charges or other encumbrances of any nature
whatsoever.
(b) Except as set forth in Schedule 4.03(b)(i) to the
Carpatsky Disclosure Schedule, there are no options, warrants or other rights
(including registration rights), agreements, arrangements or commitments of any
character to which Carpatsky is a party relating to the issued or unissued
capital stock of Carpatsky or obligating Carpatsky to grant, issue or sell any
shares of the capital stock of Carpatsky, by sale, leases, license or otherwise.
Except as set forth in Schedule 4.03(b)(ii) to the Carpatsky Disclosure
Schedule, there are no obligations, contingent or otherwise, of Carpatsky to (i)
repurchase, redeem or otherwise acquire any shares of Old or New Carpatsky
Common Stock or other capital stock of Carpatsky; or (ii) provide material funds
to, or make any material investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of any other person. Except as described in Schedule 4.03(b)(iii) to
the Carpatsky Disclosure Schedule, Carpatsky (x) does not directly or indirectly
own, (y) has not agreed to purchase or otherwise acquire or (z) does not holds
any interest convertible into or exchangeable or exercisable for, 5% or more of
the capital stock of any corporation, partnership, joint venture or other
business association or entity. Except as set forth in Schedule 4.03(b)(iv) to
the Carpatsky Disclosure Schedule, there are no agreements, arrangements or
commitments of any character (contingent or otherwise) pursuant to which any
person is or may be entitled to receive any payment based on the revenues or
earnings or calculated in accordance therewith, of Carpatsky or any of its
subsidiaries. Except as set forth in Schedule 4.03(b)(v), there are no voting
trusts, proxies or other agreements or understanding to which Carpatsky is a
party or by which Carpatsky is bound with respect to the voting of any shares of
capital stock of Carpatsky.
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(c) Carpatsky has made available to Pease complete and correct
copies of (i) the forms of its stock options (the "Carpatsky Options") including
all amendments thereto and (ii) all warrants that are not in the form specified
under clause (i) above. Schedule 4.03(c) to the Carpatsky Disclosure Schedule
sets forth a complete and correct list of all outstanding warrants and options,
restricted stock or any other stock awards and shares of stock reserved for
issuance under such stock options, the form thereof provided under clause (i)
above. Schedule 4.03(c) to the Carpatsky Disclosure Schedule sets forth a
complete and correct list of all outstanding warrants and options, restricted
stock or any other stock awards (the "Carpatsky Stock Awards") setting forth as
of the date hereof (i) the number of type of Carpatsky Stock Awards, (ii) the
exercise price of each outstanding stock option or warrants, and (iii) the
number of stock options and warrants presently exercisable.
SECTION 4.04 Authority. Carpatsky has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby (subject to,
with respect to the Redomestication and Merger, the adoption of this Agreement
by the stockholders of Carpatsky as described in Section 4.12 hereof). The
execution and delivery of this Agreement by Carpatsky and the consummation by
Carpatsky and, upon consummation of the Redomestication, New Carpatsky, of the
transactions contemplated hereby had been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of Carpatsky and
New Carpatsky are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (subject to, with respect to the approval and
adoption of this Agreement, the Redomestication, the Merger, the approval
thereof by the holders of Carpatsky Common Stock as described in Section 4.12).
This Agreement has been duly executed and delivered by Carpatsky and, assuming
the due authorization, execution and delivery thereof by Pease, constitutes the
legal, valid and binding obligation of Carpatsky enforceable against Carpatsky
in accordance with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 4.05 No Conflict: Required Filings and Consents.
(a) Except as set forth in Schedule 4.05 to the Carpatsky
Disclosure Schedule, the execution and delivery of this Agreement by Carpatsky
does not, and the consummation of the transaction contemplated hereby will not
(i) conflict with or violate the certificate of incorporation or bylaws, or the
equivalent organizational documents, in each case as amended or restated, of
Carpatsky and New Carpatsky, (ii) conflict with or violate any Laws applicable
to Carpatsky and New Carpatsky or by which any of their properties are bound or
subject, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or encumbrance on any of the properties or
assets of Carpatsky or New Carpatsky pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Carpatsky or New Carpatsky is, or upon
consummation of the Redomestication, will be a party or by or to which Carpatsky
or New Carpatsky or any of its respective
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properties is, or upon consummation of the Redomestication, will be bound or
subject, except for any such conflicts or violations described in clause (ii) or
breaches, defaults, events, rights of termination, amendment, acceleration or
cancellation, payments obligations or liens or encumbrances described in clause
(iii) that would not have a Carpatsky Material Adverse Effect.
(b) The execution and delivery of this Agreement by Carpatsky
does not, and consummation of the transactions contemplated hereby will not,
require Carpatsky or New Carpatsky to obtain any consent, re-registration,
license, permit, approval, waiver, authorization or order of, or to make any
filing with or notification to, any Governmental Authority, except for filing
(A) preliminary and definitive proxy materials and a registration statement on
Form S-4 under applicable Canadian Laws and the Securities Act, (B) appropriate
documents as required under Delaware Law and Canadian Law in connection with the
Redomestication in Delaware, (C) appropriate merger documents as required by
Delaware Law and (D) appropriate documents as required under the laws of
Ukraine; and where the failure to obtain such consents, licenses, permits,
approvals, waivers, authorizations or orders, or to make such filings or
notifications, would not, either individually or in the aggregate, materially
interfere with Carpatsky's and New Carpatsky's performance of its obligations
under this Agreement and would not have a Carpatsky Material Adverse Effect.
SECTION 4.06 Permits; Compliance. Each of Carpatsky and its
subsidiaries and to Carpatsky's knowledge each third party operator of any of
Carpatsky and its subsidiaries' properties, is in possession of all franchises,
grants, authorizations, leases, agreements, licenses, permits, easements,
variances, exemptions, consents, registrations, certificates, approvals and
orders necessary to own, lease and operate its properties and to carry on its
business as it is now being conducted (collectively, the "Carpatsky Permits"),
and there is no action, proceeding or investigation pending or, to the knowledge
of Carpatsky, threatened regarding suspension or cancellation of any of the
Carpatsky Permits, except where the failure to possess, or the suspension or
cancellation of, such Carpatsky Permits would not have a Carpatsky Material
Adverse Effect. Except as set forth in Schedule 4.06 to the Carpatsky Disclosure
Schedule, Carpatsky has not received from any Governmental Authority any written
notification with respect to possible conflicts, defaults or violations of Laws,
except for written notices relating to possible conflicts, defaults or
violations that would not have a Carpatsky Material Adverse Effect.
SECTION 4.07 Financial Statements. Carpatsky's audited consolidated
financial statements (including the related notes thereto) for the year ended
June 30, 1998 and for the nine month period ended March 31, 1999 (i) have been
prepared in accordance with generally accepted Canadian accounting principles
applied on a consistent basis throughout the periods involved (except (A) to the
extent required by changes in generally accepted Canadian accounting principles
and (B) as may be indicated in the notes thereto) and (ii) except as set forth
in Schedule 4.07(ii), fairly present the consolidated financial position of
Carpatsky as of the respective dates thereof and the result of operations and
cash flows for the periods indicated (including reasonable estimates of normal
and recurring year-end adjustments), except that (x) any unaudited interim
financial statements were or will be subject to normal and recurring year-end
adjustments and (y) any pro forma financial information contained in such
financial statements is not necessarily indicative of the consolidated financial
position
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of Carpatsky as of the respective dates thereof and the results of operations
and cash flows for the periods indicated.
SECTION 4.08 Absence of Certain Changes or Events. Except as disclosed
in the Carpatsky Disclosure Schedule or as contemplated by this Agreement or as
set forth in Schedule 4.08 to the Carpatsky Disclosure Schedule, since June 30,
1998, each of Carpatsky and its subsidiaries, including the Representative
Office, has conducted its business in the ordinary course of business consistent
with past practice. Except as disclosed in Schedule 4.08 to the Carpatsky
Disclosure Schedule, since June 30, 1998, there has not been (i) any event,
change, or effect (including the occurrence of any liabilities of any nature,
whether or not accrued, contingent or otherwise) having or, which would be
reasonably likely to have, individually or in the aggregate, a Carpatsky
Material Adverse Effect; (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to the equity interests of Carpatsky or, or upon consummation of the
Redomestication, New Carpatsky or any redemption, purchase or other acquisition
by Carpatsky or, or upon consummation of the Redomestication, New Carpatsky of
any of Carpatsky's or, or upon consummation of the Redomestication, New
Carpatsky's securities; (iii) any revaluation by Carpatsky of its assets,
including the writing down of the value of inventory or the writing down or off
of its proven reserves or notes or accounts receivable, other than in the
ordinary course of business and consistent with past practices; (iv) any change
by Carpatsky in accounting principles or methods, except insofar as may be
required by a change in generally accepted Canadian accounting principles;
except that in connection with the Merger Carpatsky shall change its fiscal year
to end on December 31 of each year; (v) a fundamental change in the nature of
Carpatsky's business; or (vi) a Carpatsky Material Adverse Effect.
SECTION 4.09 Absence of Litigation. Except as set forth in Schedule
4.09 to the Carpatsky Disclosure Schedule, there is no claim, suit, litigation,
proceeding, arbitration or, to the knowledge of Carpatsky, investigation of any
kind, at law or in equity (including actions or proceedings against Carpatsky,
its subsidiaries or any of their respective properties (except for claims,
actions, suits, litigation, proceedings, arbitrations or investigations which
would not have a Carpatsky Material Adverse Effect), and neither Carpatsky nor
any of its subsidiaries are subject to any continuing order of, consent decree,
settlement agreement or other similar written agreement with, or, to the
knowledge of Carpatsky, continuing investigation by, any Governmental Authority,
or any judgment, order, writ, injunction, decree or award of any Government
Authority or arbitrator, including, without limitation, cease-and-desist or
other orders, except for matters that would not have a Carpatsky Material
Adverse Effect.
SECTION 4.10 Tax Matters. Neither Carpatsky nor, to the knowledge of
Carpatsky, any of its affiliates has taken or agreed to take any action that
would prevent the Redomestication and the Merger from constituting tax-free
reorganizations qualifying under relevant provisions of the Code.
SECTION 4.11 Taxes. Except as set forth in Schedule 4.11 of the
Carpatsky Disclosure Schedule and except as such failure of any representation
or warranty made in this Section 4.11 to be true and correct would not result in
a liability to Carpatsky in excess of $10,000 in the case
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of a representation known to Carpatsky to be untrue or incorrect or $25,000 in
the case of a representation not known to Carpatsky to be untrue or incorrect:
(a) Except to the extent that the applicable statute of
limitations has expired, all Returns required to be filed by or on behalf of
Carpatsky have been (i) duly filed on a timely basis with the appropriate
Governmental Authorities and such Returns are true, correct and complete, and
(ii) duly paid in full or made a provision in accordance with generally accepted
accounting principles for the payment of all Taxes for all periods covered by
such Returns or with respect to any period prior to the Effective Time.
(b) Carpatsky has complied in all respect with all applicable
laws, rules and regulations relating to the payment and withholding of Taxes
(including any estimated Taxes and the withholding of Taxes) and have, within
the time and the manner prescribed by law, withheld from employee wages and paid
over all amounts withheld under applicable laws.
(c) There is no plan or intention by an stockholder of
Carpatsky who owns one percent or more of Old Carpatsky Common Stock, and to the
knowledge of Carpatsky there is no plan or intention on the part of any of the
remaining stockholders of Carpatsky, to sell, exchange or otherwise dispose of a
number of shares of Pease Common Stock to be received in the Merger that would
reduce the Carpatsky stockholders' ownership of Pease Common Stock to a number
of shares having a value, as of the Effective Time, of less than 50 percent of
the value of all of the Old Carpatsky Common Stock (including shares of
Carpatsky Common Stock exchanged for cash in lieu of fractional shares of Common
Stock) outstanding immediately prior to the Effective Time.
(d) Carpatsky (A) has not been a member of an affiliated group
filing a consolidated income tax return other than a group the common parent of
which was Carpatsky, (B) does not have any liability under Treas. Reg. ss.
1.1502-6 or any analogous federal, provincial, state or local, domestic or
foreign, law by reason of having been a member of any consolidated, combined or
unitary group, other than in the current affiliated group of which Carpatsky is
the common parent corporation, and (C) is not a party to any tax sharing
agreement with any person other than current members of the consolidated group
of which Carpatsky is the common parent corporation.
(e) There is no material dispute or claim concerning any
liabilities for Taxes of Carpatsky either raised or reasonably expected to be
raised by any taxing authority.
(f) Carpatsky has made available to Pease complete copies of
(i) all income tax returns of Carpatsky for all periods since June 30, 1996 for
all periods open under the statute of limitations for assessments and (ii)
examination reports, and statements of deficiencies assessed by Carpatsky.
(g) No consent under Section 341(f) of the Code (or any
analogous federal or provincial law of Canada) has been filed with respect to
Carpatsky.
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(h) Carpatsky has not entered into any compensatory agreements
with respect to the performance of services under which payment would result in
a nondeductible expense pursuant to Section 280G of the Code (or any analogous
federal or provincial law of Canada).
(i) Carpatsky has not agreed, nor is it required to make,
prior to the Effective Time, any adjustment under Code Section 481(a), (or any
analogous federal or provincial law of Canada), by reason of a change in
accounting method or otherwise.
(j) Carpatsky has not issued or assumed any corporate
acquisition indebtedness that is subject to Sections 279(a) and (b) of the Code
(or any analogous federal or provincial law of Canada).
(k) The amount of liability for unpaid Taxes of Carpatsky for
all periods ending on or before the Effective Time will not, in the aggregate,
materially exceed the amount of the liability accruals for Taxes reflected on
the balance sheet of Carpatsky as of the Closing Date.
(l) Carpatsky is not disposed of any property in a transaction
that is presently accounted for under the installment method.
(m) Carpatsky is not required to treat any of their assets as
owned by another person for income tax purposes or as tax-exempt bond property
or as tax-exempt use property within the meaning of Section 168 of the Code (or
any analogous federal or provincial law of Canada).
SECTION 4.12 Vote Required. The affirmative vote of the holders
(present in person or by proxy at the special meeting of stockholders to be
called for the purpose of approving the transactions contemplated herein) of at
least (i) two-thirds of the issued and outstanding shares of Old Carpatsky
Common Stock is required to approve the Redomestication and (ii) a majority of
the issued and outstanding shares of New Carpatsky Common Stock is required to
approve the Merger.
SECTION 4.13 Brokers. Except as set forth in Schedule 4.13 of the Carpatsky
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Carpatsky. Prior to the date of this Agreement, Carpatsky has made
available to Pease a complete and correct copy of all agreements referenced in
Schedule 4.13 pursuant to which any such firm will be entitled to any payment
related to the transactions contemplated by this Agreement.
SECTION 4.14 Information Supplied. Without limiting any of the
representations and warranties contained herein, no representation or warranty
of Carpatsky and no statement by Carpatsky or other information contained in or
documents referred to in the Carpatsky Disclosure Schedule, as of the date of
such representation, warranty, statement or document, contains or contained any
untrue statement of material fact, or, at the date thereof, omits or omitted to
state a material fact necessary in
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order to make the statements contained therein, in light of the circumstances
under which such statements are or were made, not misleading.
SECTION 4.15 Employee Benefit Plans; Labor Matters.
(a) Except as set forth in Schedule 4.15(a) to the Carpatsky
Disclosure Schedule, Carpatsky does not maintain nor has it contributed during
the past five years to any employee benefit plan (as such term is defined in
ERISA section 3(s)) or with respect to which Carpatsky or any member of its
ERISA Group would incur liability under Sections 4065, 4069, 4212 (c) or 4204 of
ERISA, or any analogous federal or provincial law of Canada, and any other
retirement, pension, stock option, stock application rights, profit sharing,
incentive compensation, deferred compensation, savings, thrift, vacation pay,
severance pay, or other employee compensation or benefit plan, agreement,
practice or arrangement, whether written or unwritten, whether or not legally
binding (collectively, the "Carpatsky Benefit Plans"). As of the date of this
Agreement, except as would not have a Carpatsky Material Adverse Effect, the
material Carpatsky Benefit Plans maintained by Carpatsky, or any member of its
ERISA Group, or with respect to which Carpatsky has or may have a liability are
in substantial compliance with applicable laws. Schedule 4.15(a) sets forth a
list of all Carpatsky Plans, true and complete copies of which have been
furnished to Pease.
(b) With respect to the Carpatsky Plans, no event has occurred
and, to the knowledge of Carpatsky, there exists no condition or set of
circumstances, in connection with which Carpatsky or any member of its ERISA
Group could be subject to any liability under the terms of such Carpatsky Plans
or other applicable Law which would have a Carpatsky Material Adverse Effect.
(c) Except as otherwise set forth on Schedule 4.15(c) to the
Carpatsky Disclosure Schedule, neither Carpatsky nor any member of its ERISA
Group contributes to or has an obligation to contribute to, and has not within
five years prior to the date of this Agreement contributed to or had an
obligation to contribute to or has any secondary liability to a multiemployer
plan within the meaning of Section 3(37) of ERISA.
(d) Neither Carpatsky nor any member of its ERISA Group, is or
has ever been a party to any collective bargaining or other labor union
contracts. No collective bargaining agreement is being negotiated by Carpatsky.
There is no pending or threatened labor dispute, strike or work stoppage against
Carpatsky or any of its subsidiaries which may interfere with the business
activities of Carpatsky. None of Carpatsky or any of its representatives or
employees has committed any unfair labor practices in connection with the
operation of the business of Carpatsky, and there is no pending or threatened
charge or complaint against Carpatsky by any governmental authority.
(e) With respect to each Carpatsky Benefit Plan that is a
"group health plan" as defined in Section 5000(b) of the Code, each such
Carpatsky Benefit Plan complies and has complied with the requirements of
applicable laws, except where the failure to so comply would not have a
Carpatsky Material Adverse Effect.
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(f) Except as disclosed in Schedule 4.15(f), through the date
of this Agreement, Carpatsky and its subsidiaries are not obligated nor
responsible for benefit plans, pensions, employee taxes, employer's taxes or
similar obligations with respect to citizens or residents of Ukraine who may be
employed, directly or indirectly, by any subsidiary of Carpatsky, Ukrcarpatoil
or the Representative Office.
SECTION 4.16 Certain Business Practices. None of Carpatsky, its
subsidiaries and its Representative Office or any directors, offices, agents or
employees of any of them has used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns.
SECTION 4.17 Environmental Matters.
(a) Except as disclosed in Schedule 4.17 to the Carpatsky
Disclosure Schedule and except for matters that would not result individually in
liability to Carpatsky or any of its subsidiaries in excess of (i) $10,000 in
the case of matters known to Carpatsky or in the aggregate with all other such
matters, in liability to Carpatsky or any of its subsidiaries in excess of
$25,000, or (ii) $25,000 in the case of matters not known to Carpatsky or in the
aggregate with all other such matters, in liability to Carpatsky or any of its
subsidiaries in excess of $50,000, to the best knowledge of Carpatsky:
(i) the properties, operations and activities of Carpatsky 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 Carpatsky and its subsidiaries and the properties and
operations of Carpatsky and its subsidiaries (including, without
limitation, properties located in the Ukraine) are not subject to any
existing, pending, or, to Carpatsky'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 Carpatsky 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 Carpatsky or its subsidiaries under any
Environmental Law in connection with any aspect of the business of
Carpatsky 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 will remain valid and in effect after
the Merger, and Carpatsky and its subsidiaries are in compliance with the
terms and conditions of all such notices, permits, licenses and similar
authorizations;
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(v) Carpatsky 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 Carpatsky 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 Carpatsky or any of its subsidiaries or resulting from
Carpatsky's or any of its subsidiaries' operations or activities, past or
present, at any location, 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 Carpatsky 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 lease of Hazardous Materials into the
environment by Carpatsky and its subsidiaries or in connection with their
present or prior properties or operations that could reasonably be expected
to give rise to any Environmental Liability;
(ix) No release or clean up of Hazardous Materials has occurred at
Carpatsky's and its subsidiaries' properties which could reasonably be
expected to in the assertion or creation of any lien on the properties by
any governmental body or agency with respect thereto, nor has any such lien
been asserted or made by any governmental body or agency with respect
thereto; and
(x) The operations of each third party operator of any of Carpatsky's
and its subsidiaries' properties are in compliance with the terms of this
Section 4.17.
(b) Carpatsky has made available to Pease all material
internal and external environmental audits, studies, documents and
correspondence on environmental matters in the possession of Carpatsky relating
to any of the present or prior properties or operations of Carpatsky and its
subsidiaries.
SECTION 4.18 Insurance. Schedule 4.18 to the Carpatsky Disclosure
Schedule sets forth a true and complete listing of all material policies
currently in force, and all other policies under which a claim could be made as
of the date hereof (i.e., all incurrence-based policies), for fire, products and
environmental or pollution control liability, general liability, vehicle,
workers' compensation, directors and officers' liability, title and other
insurance owned or held by or covering Carpatsky or any of its property, assets,
or activities, past or present. As of the date hereof, all of such policies are
in full force and effect, and Carpatsky has not received any outstanding notice
of cancellation or termination with respect to any policy of fire, products or
environmental or pollution
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control liability, general liability, vehicle, workers' compensation, directors'
and officers' liability, title and other insurance owned or held by or covering
Carpatsky or any of its property, assets, or activities, past or present.
Neither the Merger nor any of the transactions contemplated hereby shall cause
the termination or may form the basis for terminating any such insurance
policies or insurance coverages presently maintained by Carpatsky.
SECTION 4.19 Certain Contracts and Restrictions. Other than agreements,
contracts or commitments listed elsewhere in the Carpatsky Disclosure Schedule,
Schedule 4.19 to the Carpatsky Disclosure Schedule lists, as of the date hereof,
each agreement, contract or commitment (including any amendments thereto) to
which Carpatsky is a party or by which Carpatsky is bound involving
consideration during the next twelve months in excess of $10,000 or which is
otherwise material to the assets, liabilities, financial condition, results of
operations or current or future business of Carpatsky and its subsidiaries,
taken as a whole. As of the date of this Agreement and except as indicated on
the Carpatsky Disclosure Schedule, (i) Carpatsky and its subsidiaries each has
fully complied with all material terms and conditions of all agreements,
contracts and commitments that will be listed in the Carpatsky Disclosure
Schedule and all such agreements, contracts and commitments are in full force
and effect, Carpatsky has no knowledge of any defaults thereunder or any
cancellations or modifications thereof, and such agreements, contracts and
commitments are not subject to any memorandum or other written document or
understanding permitting cancellation.
SECTION 4.20 Properties. Except for liens arising in the ordinary
course of business after the date hereof and properties and assets disposed of
in the ordinary course of business after the date of Carpatsky's most recent
consolidated balance sheet, each of Carpatsky and its subsidiaries has good and
marketable title free and clear of all liens, the existence of which would not
have a Carpatsky Material Adverse Effect, to all their material properties and
assets, whether tangible or intangible, real, personal or mixed, reflected in
Carpatsky's most recent balance sheet as being owned by Carpatsky and its
subsidiaries as of the date thereof or purported to be owned on the date hereof,
including, without limitation, the oil and gas interests reported upon by Ryder
Scott Inc. in its most recent reserve report dated December 31, 1998 which was
prepared in accordance with the requirements of Reg. S-X (the "Carpatsky Reserve
Report") and which has been furnished to Pease. All buildings, and all fixtures,
equipment and other property and assets which are material to its business on a
consolidated basis, held under leases by Carpatsky and its subsidiaries are held
under valid instruments enforceable by each of them in accordance with their
respective terms. Substantially all of Carpatsky'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.
SECTION 4.21 Easements. The business of Carpatsky and its subsidiaries
has been operated in a manner that does not violate the material terms of any
easements, rights of way, permits, servitude, licenses, leases, operating
agreements, royalty agreements, joint venture and partnership agreements,
drilling agreements, production sharing agreements and similar rights relating
to their oil and gas interests and real property used by Carpatsky and its
subsidiaries in its business (collectively, "Carpatsky Easements") except for
violations that have not resulted and will not result in a Carpatsky Material
Adverse Effect. All material Carpatsky Easements are valid and enforceable and
grant the
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rights purported to be granted thereby and all rights necessary thereunder for
the current operation of such business.
SECTION 4.22 Futures Trading and Fixed Price Exposure. Neither
Carpatsky nor any of its subsidiaries is presently engaged in any futures or
options trading nor are they party to any price, interest rate or currency
swaps, hedges, futures or other derivative instruments.
SECTION 4.23 Intellectual Property. Schedule 4.23 lists all the
registered patents, trademarks, service marks, copyrights, trade names and
applications for any of the foregoing owned by Carpatsky and its subsidiaries as
of the date of this Agreement (the "Carpatsky Registered Intellectual
Property"). Each of Carpatsky and its subsidiaries has good and marketable title
to the Carpatsky Registered Intellectual Property and has good and marketable
title to, or valid licenses or rights to use, all patents, copyrights,
trademarks, trade names, brand names, proprietary and other technical
information, technology and software (collectively, "Carpatsky Intellectual
Property") which are used in the operation of its business as presently
conducted, free from any liens and free from any requirement of any past,
present or future royalty payments, license fees, charges or other payments or
conditions or restrictions, whatsoever, except as set forth on Schedule 4.23.
Immediately after the Effective Time, Pease will own or will have the right to
use all Carpatsky Intellectual Property free from liens and on the same terms
and conditions as in effect prior to the Effective Time. Except as set forth in
Schedule 4.23, there are no claims or proceedings pending or, to the Carpatsky's
knowledge, threatened, against Carpatsky asserting that Carpatsky is infringing
or engaging in the unauthorized use of any Carpatsky Intellectual Property of
any other person or entity. Section 4.23 sets forth all agreements and
arrangements (i) pursuant to which Carpatsky and its subsidiaries has licensed
Carpatsky Intellectual Property to, or the use of Carpatsky Intellectual
Property in other areas permitted (through non-assertion, settlement or similar
agreements or otherwise) by, any other person and (ii) pursuant to which each of
Carpatsky and its subsidiaries has had Carpatsky Intellectual Property licensed
to it, or has otherwise been permitted to use Carpatsky Intellectual Property
(through non-assertion, settlement or similar agreements or otherwise). All of
the agreements or arrangements to the extent set forth on Schedule 4.23 (x) are
in full force and effect in accordance with their terms and Carpatsky is not
aware that any default exists thereunder by Carpatsky or by any other party
thereto; (y) are free and clear or liens; (z) do not contain any change of
control or other terms or conditions that will become applicable or inapplicable
as a result of the consummation of the Merger and the transactions contemplated
by this Agreement. Carpatsky has delivered to Pease true and complete copies of
all agreements and arrangements set forth on Schedule 4.23. There are no
royalties, license fees, charges or other amounts payable by, or on behalf of
Carpatsky in respect of any Carpatsky Intellectual Property other than as set
forth on Schedule 4.23.
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ARTICLE V
COVENANTS
SECTION 5.01 Affirmative Covenants of Pease. Pease hereby covenants and
agrees that, at or prior to the Effective Time, unless otherwise expressly
contemplated by this Agreement or consented to in writing by Carpatsky, Pease
will and will cause its subsidiaries to:
(a) Use all reasonable efforts to preserve substantially
intact its business organization, maintain its material rights and franchises,
retain the services of its respective officers and employees and maintain its
relationships with its material customers and suppliers;
(b) maintain and keep its material properties and assets in as
good repair and conditions as at present, ordinary wear and tear excepted;
(c) use all reasonable efforts to keep in full force and
effect insurance and bonds comparable in amount and scope of coverage to that
currently maintained;
(d) furnish to Carpatsky the most recent reserve report
regarding Pease's interests in its oil and gas properties prepared by
Netherland, Sewell & Associates, Inc. in accordance with Reg. S-X; and
(e) take all such steps as are commercially reasonable in
order to consummate the Exchange and the Merger and all other transactions
contemplated hereby, including, without limitation, securing all requisite
consents thereto.
SECTION 5.02 Negative Covenants of Pease. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by
Carpatsky, from the date of this Agreement until the Effective Time, Pease will
not do, and will not permit any of its subsidiaries to do, any of the foregoing:
(a) declare or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock, except for
dividends by a wholly owned subsidiary of Pease to Pease or another wholly owned
subsidiary of Pease;
(b) except as contemplated by this Agreement or as described
in Schedule 3.03(b)(ii) to the Pease Disclosure Schedule, (i) redeem, purchase
or otherwise acquire any shares of its or any of its subsidiaries' capital stock
or any securities or obligations convertible into or exchangeable for any shares
of its or its subsidiaries' capital stock (other than pursuant to the Exchange
or any such acquisitions directly from any wholly owned subsidiary of Pease in
exchange for capital contributions or loans to such subsidiary), or any options,
warrants or conversion or other rights to acquire any shares of its or its
subsidiaries' capital stock or any such securities or obligations (except in
connection with the exercise of outstanding stock options in accordance with
their terms);
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effect any reorganization or recapitalization (other than the Exchange); or
split, combine or reclassify any of its or its subsidiaries' capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its or its subsidiaries'
capital stock;
(c) except as described in Schedule 3.03(b)(i) to the Pease
Disclosure Schedule or as contemplated by the Exchange and this Agreement,
issue, deliver, award, grant or sell, or authorize or propose the issuance,
delivery, award, grant or sale (including the grant of any security interests,
liens, claims, pledges, limitations in voting rights, charges or other
encumbrances) of, any shares of any class of its or its subsidiaries' capital
stock (including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire any such shares (except as permitted pursuant to Sections
2.01(a), 2.01(b) and 2.01(f) of this Agreement or for the issuance of shares
upon the exercise of outstanding stock options or the vesting of restricted
stock in accordance with the terms of outstanding Pease Stock Awards); amend or
otherwise modify the terms of any such rights, warrants or options the effect of
which shall be to make such terms more favorable to the holders thereof; or take
any action to accelerate the exercisability of stock options;
(d) except as contemplated by this Agreement, acquire or agree
to acquire, by merging or consolidating with, by purchasing any equity interest
in or a portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets of any other person
(other than the purchase of assets from suppliers or vendors in the ordinary
course of business and consistent with past practice);
(e) except as disclosed in Schedule 5.02(e) to the Pease
Disclosure Schedule, sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its material assets or any material
assets of any of its subsidiaries, except for the sale of inventory or other
dispositions in the ordinary course;
(f) initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal relating to, or that may reasonably
be expected to lead to, any Competing Transaction (as defined below), or enter
into discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any of the officers, directors or
employees of Pease or any of its subsidiaries or any investment banker,
financial advisor, attorney, accountant or other representative retained by
Pease or any of Pease's subsidiaries to take any such action, and Pease shall
promptly notify Carpatsky of all relevant terms of any such inquiries and
proposals received by Pease or any of its subsidiaries or by any such officer,
director, investment banker, financial advisor, attorney, accountant or other
representative relating to any of such matters and if such inquiry or proposal
is in writing, Pease shall promptly deliver or cause to be delivered to
Carpatsky a copy of such inquiry or proposal. For purposes of this Agreement,
"Competing Transaction" shall mean any of the following (other than the
transactions contemplated by this Agreement, including, without limitation, the
Exchange) involving a party hereto or any of its
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subsidiaries: (i) any merger, consolidation, share exchange, business
combination or similar transaction; (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of 20% or more of the assets of a party
hereto and its subsidiaries, taken as a whole, (iii) any tender offer or
exchange offer for 20% or more of the outstanding shares of capital stock of a
party hereto or the filing of a registration statement under the Securities Act
in connection therewith; (iv) any person (other than stockholders as of the date
of this Agreement) having acquired beneficial ownership of, or any group (as
such term is defined under Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder) having been formed which beneficially owns
or has the right to acquire beneficial ownership of, 20% or more of the
outstanding shares of capital stock of a party hereto; or (v) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing;
(g) release any third party from its obligations, or grant any
consent, under any existing standstill provision relating to a Competing
Transaction or otherwise under any confidentiality or other agreement, or fail
to fully enforce any such agreement;
(h) adopt or propose to adopt any amendments to its articles
of incorporation or bylaws, which would alter the terms of its capital stock or
would have an adverse impact on the consummation of the transactions
contemplated by this Agreement;
(i) (A) change any of its methods of accounting in effect at
December 31, 1998, or (B) make or rescind any express or deemed election
relating to Taxes, settle or compromise any claim, action, suit, litigation,
audit or controversy relating to Taxes (except where the amount of such
settlements or controversies, individually or in the aggregate, does not exceed
$10,000), or change any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of the
federal income tax returns for the taxable year ended December 31, 1998, except
in each case, as may be required by Law or generally accepted accounting
principles;
(j) incur any obligations for borrowed money or purchase money
indebtedness or guarantee, whether or not evidenced by a note, bond, debenture
or similar instrument, except in the ordinary course of business consistent with
past practice and in no event in excess of $10,000 in the aggregate;
(k) enter into any material arrangement, agreement or contract
with any third party which provides for an exclusive arrangement with that third
party or is substantially more restrictive on Pease or substantially less
advantageous to Pease than arrangements, agreements or contracts existing on the
date hereof;
(l) take any action, other than actions required by this
Agreement, which would result in a failure to maintain the registration of the
Pease Common Stock under the Exchange Act;
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(m) except as contemplated by this Agreement, adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other material reorganization of Pease or any
of its subsidiaries;
(n) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of any such
claims, liabilities or obligations, (x) reflected on, or reserved against in, or
contemplated by, the financial statements (or the notes thereto) of Pease and
its subsidiaries, (y) incurred in the ordinary course of business consistent
with past practice or (z) which are legally required to be paid, discharged or
satisfied;
(o) knowingly take, or agree to commit to take, any action
that would make any representation or warranty of Pease contained herein
inaccurate in any respect at, or as of any time prior to, the Effective Time;
(p) other than between or among wholly-owned subsidiaries of
Pease which remain wholly-owned or between Pease and its wholly-owned
subsidiaries which remain wholly-owned, neither Pease nor any of its
subsidiaries will engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of Pease's
affiliates, including, without limitation, any transactions, agreements,
arrangements or understanding with any affiliate or other person covered under
Item 404 of Regulation S-K promulgated under the Securities Act, other than
pursuant to such agreement, arrangements or understandings existing on the date
of this Agreement (which are set forth on Schedule 5.02(p) of the Pease
Disclosure Schedule) or as disclosed in writing to Carpatsky on the date hereof
or which are contemplated under this Agreement; provided, that Pease provides
Carpatsky with all information concerning any such agreement, arrangement or
understanding that Carpatsky may reasonably request;
(q) agree to or approve any commitment, including any
authorization for expenditure or agreement to acquire property, obligating Pease
for an amount in excess of $100,000, other than for authorizations for
expenditure involving Pease oil field operations which are made pursuant to
existing agreements or are otherwise effected in the ordinary course or in order
that Pease conduct its operations in a prudent manner consistent with industry
standards;
(r) engage in any futures or options trading or be a party to
any price or currency swaps, hedges, futures or derivative instruments; or
(s) agree in writing or otherwise to do any of the foregoing.
SECTION 5.03 Affirmative and Negative Covenants of Carpatsky.
(a) Carpatsky hereby covenants and agrees that, prior to the
Effective Time, unless otherwise expressly contemplated by this Agreement or
consented to in writing by Pease, Carpatsky will:
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(i) furnish to Pease the most recent reserve report regarding
Carpatsky's interests in oil and gas properties in the Republic of the
Ukraine prepared by Ryder Scott Company Petroleum Engineers, prepared in
accordance with Reg. S-X;
(ii) operate its business in all material respects in the usual and
ordinary course, consistent with good oil field practice;
(iii) use all reasonable efforts to preserve substantially intact its
business organization, maintain its material rights and franchises, retain
the serves of its respective officers and Carpatsky employees and maintain
its relationships with its material customers and suppliers;
(iv) use all commercially reasonable efforts to maintain and keep its
material properties and assets in as good repair and condition as at
present, ordinary wear and tear excepted, and maintain supplies and
inventories in quantities consistent with its customary business practice;
(v) use all reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained;
(vi) take all such steps as are commercially reasonable in order to
consummate the Redomestication and the Merger and all other transactions
contemplated hereby, including, without limitation, securing all requisite
consents thereto; and
(vii) use all commercially reasonable efforts to maintain and keep its
business relationships with joint activities partners and joint enterprise
shareholders in the Ukraine consistent in all material respects with its
customary business practice.
(b) Except as expressly contemplated by this Agreement or
otherwise consented to in writing by Carpatsky, from the date of this Agreement
until the Effective Time, Carpatsky will not do or permit any of its
subsidiaries to do any of the following:
(i) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock;
(ii) except as contemplated by this Agreement or as described in
Schedule 5.03(b)(ii) to the Carpatsky Disclosure Schedule, (i) redeem,
purchase or otherwise acquire any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any shares
of its capital stock, or any options, warrants or conversion or other
rights to acquire any shares of its or any such securities or obligations
(except in connection with the exercise of outstanding stock options in
accordance with their terms); (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for, shares of its capital
stock;
(iii) except as described in Schedule 5.03(b)(iii) to the Carpatsky
Disclosure
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Schedule or as contemplated by this Agreement, (i) issue, deliver, award,
grant or sell, or authorize or propose the issuance, delivery, award, grant
or sale (including the grant of any security interests, liens, claims,
pledges, limitations in voting rights, charges or other encumbrances) of,
any shares of any class of its capital stock (including shares held in
treasury), any securities convertible into or exercisable or exchangeable
for any such shares, or any rights, warrants or options to acquire any such
shares (except as permitted pursuant to Sections 2.01(a), 2.01(b) and
2.01(f) of this Agreement or for the issuance of shares upon the exercise
of outstanding stock options or the vesting of restricted stock in
accordance with the terms of outstanding Carpatsky Stock Awards); (ii)
amend or otherwise modify the terms of any such rights, warrants or options
the effect of which shall be to make such terms more favorable to the
holders thereof; or (iii) take any action to accelerate the exercisability
of stock options;
(iv) acquire or agree to acquire, by merging or consolidating with, by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person (other than pursuant to
this Agreement or for the purchase of assets from suppliers or vendors in
the ordinary course of business and consistent with past practice);
(v) except as discussed in Schedule 5.03(b)(v) to the Carpatsky
Disclosure Schedule, sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its material assets;
(vi) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal relating to, or that may reasonably
be expected to lead to, any Competing Transaction, or enter into
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any of the officers,
directors or employees of Carpatsky or any investment banker, financial
advisor, attorney, accountant or other representative retained by Carpatsky
to take any such action, and Carpatsky shall promptly notify Pease of all
relevant terms of any such inquiries and proposals received by Carpatsky or
any of its subsidiaries or by any such officer, director, investment
banker, financial advisor, attorney, accountant or other representative
relating to any of such matters and if such inquiry or proposal is in
writing, Carpatsky shall promptly deliver or cause to be delivered to Pease
a copy of such inquiry or proposal;
(vii) release any third party from its obligations, or grant any
consent, under any existing standstill provision relating to a Competing
Transaction or otherwise under any confidentiality or other agreement, or
fail to fully enforce any such agreement;
(viii) adopt or propose to adopt any amendments to its certificate of
incorporation or bylaws, which would alter the terms of its capital stock
or would have an adverse impact on the consummation of the transactions
contemplated by this Agreement;
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(ix) (A) except for changing its fiscal year end in connection with
the Merger to December 31 in each year and, as a result of the
Redomestication becoming subject to generally accepted United States
accounting principles, change any of its methods of accounting in effect at
June 30, 1998 or (B) make or rescind any express or deemed election
relating to Taxes, settle or compromise any claim, action, suit,
litigation, audit or controversy relating to Taxes (except where the amount
of such settlements or controversies, individually or in the aggregate,
does not exceed $10,000), or change any of its methods of reporting income
or deductions for federal income tax purposes from those employed in the
preparation of the its income tax returns for the taxable year ended June
30, 1998, except in each case, as may be required by Law or generally
accepted accounting principles;
(x) incur any obligations for borrowed money or purchase money
indebtedness or guarantee, whether or not evidenced by a note, bond,
debenture or similar instrument, except in the ordinary course of business
consistent with past practice and in no event in excess of $10,000 in the
aggregate;
(xi) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other material
reorganization of Carpatsky;
(xii) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction of any such claims, liabilities
or obligations, (x) reflected on, or reserved against in, or contemplated
by, the financial statements (or the notes thereto) of Carpatsky, (y)
incurred in the ordinary course of business consistent with past practice
or (z) which are legally required to be paid, discharged or satisfied;
(xiii) knowingly take, or agree to commit to take, any action that
would make any representation or warranty of Carpatsky contained herein
inaccurate in any respect at, or as of any time prior to, the Effective
Time;
(xiv) Except to the extent described in Schedule 5.03(b) (xiv),
Carpatsky will not engage in any transaction with, or enter into any
agreement, arrangement, or understanding with, directly or indirectly, any
of Carpatsky's affiliates, including, without limitation, any transactions,
agreements, arrangements or understanding with any affiliate or other
person covered under Item 404 of Regulation S-K promulgated under the
Securities Act, other than pursuant to such agreement, arrangements or
understandings existing on the date of this Agreement (which are set forth
on Section 5.03(b)(xiv) of the Carpatsky Disclosure Schedule) or as
disclosed in writing to Pease on the date hereof or which are contemplated
under this Agreement; provided, that Carpatsky provides Pease with all
information concerning any such agreement, arrangement or understanding
that Pease may reasonably request;
(xv) engage in any futures or options trading or be a party to any
price or currency swaps, hedges, futures or derivative instruments; or
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(xvi) agree in writing or otherwise to do any of the foregoing.
(c) Except as may otherwise be determined by the Board of
Directors of Pease in the exercise of their business judgment and for reasons
that are presently unforseen, Carpatsky covenants and agrees that, at or prior
to taking over operations and transferring the assets of the Bitkov Field in the
Ukraine ("Bitkov"), Carpatsky will, or will cause its subsidiaries or
Representative Office to: (i) use reasonable commercial efforts to identify
environmental conditions then existing at Bitkov by employing a western
environmental consultant to conduct a pre-transfer baseline study of open
environmental liabilities and to obtain the concurrence from their partner OJSC
Ukrneft, therein (thereby reducing post-transfer responsibilities) and (ii) use
reasonable commercial efforts to reduce the labor force employed at Bitkov
consistent with the laws of Ukraine.
SECTION 5.04 Access and Information.
(a) Pease shall, and shall cause its subsidiaries to, (i)
afford Carpatsky and its officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively, the
"Carpatsky Representatives") reasonable access at reasonable times, upon
reasonable prior notice, to the officers, employees, agents, properties, offices
and other facilities of Pease and its subsidiaries and to the books and records
thereof and (ii) furnish promptly to Carpatsky and the Carpatsky Representatives
such information concerning the business, properties, contracts, records and
personnel of Pease and its subsidiaries (including, without limitation,
financial, operating and other data and information) as may be reasonably
requested, from time to time, by Carpatsky or such Representatives.
(b) Carpatsky shall, and shall cause its subsidiaries to, (i)
afford to Pease and its officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively, the
"Pease Representatives") reasonable access at reasonable times, upon reasonable
prior notice, to the officers, employees, accountants, agents, properties,
offices and other facilities of Carpatsky and its subsidiaries and to the books
and records thereof and (ii) furnish promptly to Pease and Pease Representatives
such information concerning the business, properties, contracts, records and
personnel of Carpatsky and its subsidiaries (including, without limitation,
financial, operating and other data and information) as may be reasonably
requested, from time to time, by Pease or such Representatives.
(c) Notwithstanding the foregoing provisions of this Section
5.04, neither party shall be required to grant access or furnish information to
the other party to the extent that such access to or the furnishing of such
information is prohibited by Law. No investigation by the parties hereto made
heretofore or hereafter shall affect the representations and warranties of the
parties which are herein contained and each such representation and warranty
shall survive such investigation.
(d) The information received pursuant to Section 5.04(a)
and (b) by either party
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hereto (the "Recipient") shall be deemed to be "confidential information" and
may not be publically disclosed except pursuant to express written permission by
the other party hereto (the "Informant") or valid court or investigative order
unless such information is already in the public domain or in the possession of
the Recipient and such disclosure and was not obtained in breach of any duty
owed by the Informant.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 Meetings of Stockholders.
(a) Pease shall, promptly after the effectiveness of the Form
S-4, take all actions necessary in accordance with Nevada Law and its articles
of incorporation and bylaws to convene a special meeting of Pease's stockholders
to approve the Amended and Restated Articles of Pease and to act on this
Agreement (the "Pease Stockholders Meeting"), and Pease shall consult with
Carpatsky in connection therewith. Pease shall use its best efforts to solicit
from stockholders of Pease proxies in favor of the approval and adoption of the
Amendment, the Merger and this Agreement and to secure the vote of stockholders
required by Nevada Law and its articles of incorporation and bylaws to approve
and adopt the Amended and Restated Articles of Pease, the Merger and this
Agreement and the transactions contemplated hereby.
(b) Carpatsky shall, promptly after the effectiveness of the
Form S-4, take all action necessary in accordance with Delaware and Canadian Law
and its charter and bylaws to convene a special meeting of Carpatsky's
stockholders to (i) approve the Redomestication and (ii) act on this Agreement
(the "Carpatsky Stockholders Meeting"). Carpatsky shall recommend approval of
the Redomestication of Carpatsky in Delaware and the approval and adoption of
this Agreement and the Merger and shall use its best efforts to solicit from
stockholders of Carpatsky proxies in favor of the approval and adoption of the
Redomestication, the Merger and this Agreement and to secure the vote of
stockholders required by Canadian and Delaware Law and its charter and bylaws to
approve and adopt the Redomestication, the Merger, this Agreement and the
transactions contemplated hereby.
SECTION 6.02 Registration Statement.
(a) As promptly as practicable after the execution of this
Agreement, Carpatsky and Pease shall prepare and file with the SEC the Form S-4,
including a proxy statement for stockholders of Pease and Carpatsky in
connection with the transactions contemplated by this Agreement and a prospectus
for the issuance by Pease of the Pease Common Stock (the "Proxy
Statement/Prospectus"). In connection with the preparation and filing of the
Proxy Statement/Prospectus, Carpatsky shall reconcile its financial statements
in accordance with generally accepted United States accounting principles and
the provisions of Reg. S-X and shall change its fiscal year end to December 31
for all fiscal years ending after June 30, 1999. Each of Carpatsky and Pease
shall use its best efforts to cause the Form S-4 to be declared effective by the
SEC as promptly as practicable, and shall take any action
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required to be taken under any applicable federal or state securities laws in
connection with the issuance of shares of Pease Common Stock in the Exchange and
the Merger. Each of Carpatsky and Pease shall furnish to the other all
information concerning it and the holders of its capital stock as the other may
reasonably request in connection with such actions. As promptly as practicable
after the Form S-4 shall have been declared effective by the SEC, Pease shall
mail the Proxy Statement/Prospectus to its stockholders entitled to notice of
and to vote at the Pease Stockholders Meeting and to the stockholders of
Carpatsky entitled to notice of and to vote at the Carpatsky Stockholders
Meeting. The Proxy Statement/Prospectus shall include the recommendation of
Pease's Board of Directors in favor of the Amendment and adoption of this
Agreement. The Proxy Statement/Prospectus shall include the recommendation of
Carpatsky's Board of Directors in favor of approval of the Redomestication, the
Merger and adoption of this Agreement.
(b) The information supplied by Pease for inclusion in the
Form S-4 shall not, at the time the Proxy Statement/Prospectus is mailed to the
stockholders of Pease and Carpatsky, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. If at any time
prior to the Effective Time any event or circumstance relating to Pease or any
of its affiliates, or its or their respective officers or directors, is
discovered by Pease that should be set forth in a supplement to the Proxy
Statement/Prospectus, Pease shall promptly inform Carpatsky thereof in writing.
All documents that Pease is responsible for filing with the SEC in connection
with the transactions contemplated herein shall comply as to form in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
(c) The information supplied by Carpatsky for inclusion in the
Form S-4 shall not, at the time the Proxy Statement/Prospectus is mailed to the
stockholders of Pease and Carpatsky, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. If at any time
prior to the Effective Time any event or circumstance relating to Carpatsky or
any of its affiliates, or to their respective officers or directors, is
discovered by Carpatsky that should be set forth in a supplement to the Proxy
Statement/Prospectus, Carpatsky shall promptly inform Pease thereof in writing.
SECTION 6.03 Appropriate Action; Consents; Filings.
(a) Pease and Carpatsky shall each use, and shall cause each
of their subsidiaries to use, all reasonable efforts to (i) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the transactions contemplated by this Agreement, (ii) obtain
from any Governmental Authorities any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made by Carpatsky
or Pease or any of its subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, including, without limitation, the
Redomestication, the Exchange and the Merger, (iii) make all necessary filings,
and thereafter make any other required submissions, with
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respect to this Agreement, the Redomestication, the Exchange and the Merger
required under (A) the Securities Act and the Exchange Act and the rules and
regulations thereunder, and any other applicable federal or state securities
laws, and (B) any other applicable Law; provided that Carpatsky and Pease shall
cooperate with each other in connection with the making of all such filings,
including providing copies of all such documents to the nonfiling party and its
advisors prior to such filings and, if requested, shall accept all reasonable
additions, deletions or changes suggested in connection therewith. Pease and
Carpatsky shall furnish all information required for any application or other
filing to be made pursuant to the rules and regulations of any applicable Law
(including all information required to be included in the Form S-4) in
connection with the transactions contemplated by this Agreement.
(b) Carpatsky and Pease agree to cooperate with respect to,
and shall cause each of their respective subsidiaries to cooperate with respect
to, and agree to use all reasonable efforts vigorously to contest and resist,
any action, including legislative, administrative or judicial action, and to
have vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order (whether temporary, preliminary or permanent) (an "Order") of any
Governmental Authority that is in effect and that restricts, prevents or
prohibits the consummation of the Redomestication, the Merger or any other
transactions contemplated by this Agreement, including, without limitation, by
vigorously pursuing all available avenues of administrative and judicial appeal
and all available legislative action. Each of Carpatsky and Pease also agree to
take any and all commercially reasonable actions, including, without limitation,
the disposition of assets or the withdrawal from doing business in particular
jurisdictions, required by regulatory authorities as a condition to the granting
of any approvals required in order to permit the consummation of the Merger or
as may be required to avoid, lift, vacate or reverse any legislative or judicial
action which would otherwise cause any condition to Closing not to be satisfied;
provided, however, that in no event shall Carpatsky be required to take any
action that would or could reasonably be expected to have a Carpatsky Material
Adverse Effect, and Pease shall not be required to take any action which would
or could reasonably be expected to have a Pease Material Adverse Effect.
(c) (i) Each of Pease and Carpatsky shall give (or Pease or
Carpatsky shall cause its subsidiaries to give) any notices to third parties,
and use, and cause their respective subsidiaries to use, all reasonable efforts
to obtain any third party consents (A) necessary, proper or advisable to
consummate the transactions contemplated by this Agreement, (B) otherwise
required under any contracts, licenses, leases or other agreements in connection
with the consummation of the transactions contemplated hereby or (C) required to
prevent a Pease Material Adverse Effect from occurring prior to the Effective
Time or a Carpatsky Material Adverse Effect from occurring after the Effective
Time.
(ii) In the event that any party shall fail to obtain any third party
consent described in subsection (c)(i) above, such party shall use all
reasonable efforts, and shall take any such actions reasonably requested by
the other party, to limit the adverse effect upon Carpatsky and its
subsidiaries and Pease and its subsidiaries, and their respective
businesses resulting or which could reasonably be expected to result after
the Effective Time, from the failure to obtain such consent.
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(d) Each of Carpatsky and Pease shall promptly notify the
other of (w) any material change in its current or future business, assets,
liabilities, financial condition or results of operations, (x) any complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) of any Governmental Authorities with respect to its business or
the transactions contemplated hereby, (y) the institution or the threat of
material litigation involving it or any of its subsidiaries or (z) any event or
condition that might reasonably be expected to cause any of its representations,
warranties, covenants or agreements set forth herein not to be true and correct
at the Effective Time. As used in the preceding sentence, "material litigation"
means any case, arbitration or adversary proceeding or other matter which would
have been required to be disclosed on the Pease Disclosure Schedule pursuant to
Section 3.09 or the Carpatsky Disclosure Schedule pursuant to Section 4.09, as
the case may be, if in existence on the date hereof, or in respect of which the
legal fees and other costs to Pease (or its subsidiaries) might reasonably be
expected to exceed $100,000 over the life of the matter or to Carpatsky (or its
subsidiaries) might reasonably be expected to exceed $100,000 over the life of
the matter.
SECTION 6.04 Tax Treatment. Each party hereto shall use all reasonable
efforts to cause the Redomestication, the Exchange and the Merger to qualify,
and shall not take, and shall use all reasonable efforts to prevent any
affiliate of such party from taking, any actions that could prevent the
Redomestication, the Exchange and the Merger from qualifying, as tax-free
reorganizations under relevant provisions of the Code.
SECTION 6.05 Public Announcements. Neither party shall issue any press
release or otherwise make any public statements with respect to the Merger
without the approval of the other. The press release announcing the execution
and delivery of this Agreement shall be a joint press release of Carpatsky and
Pease.
SECTION 6.06 AMEX Listing. Each party hereto shall use all reasonable
efforts to cause the shares of Pease Common Stock to be issued in the Exchange
and the Merger to be approved for listing (subject to official notice of
issuance) on the AMEX or other national securities exchange at or prior to the
Effective Time.
SECTION 6.07 Amendment. For a period of six years after the Effective
Time, Pease shall not amend or otherwise modify the Amended and Restated
Articles of Pease or the Pease bylaws which could adversely affect the rights
thereunder of any individuals, who at any time prior to and at the Effective
Time were or are directors or officers of Pease, in respect of their terms of
office or acts or omissions occurring at or prior to or after the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement), unless such amendment or modification is required by Law. This
Section 6.07 is intended to be for the benefit of, and shall be enforceable by,
the persons referred to in the foregoing sentence, their heirs and personal
representatives, and shall be binding on Pease and its successors and assigns.
SECTION 6.08 Stock Resale Agreement. Pease and Carpatsky each agrees, and
each will obtain the agreement of each of their respective offices, directors
and affiliates, not purchase or
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sell or acquire or dispose of rights to purchase either party's Common Stock in
the open market or from any stockholders during the period from the date hereof
until consummation of the transactions contemplated hereby. Carpatsky agrees to
deliver to Pease, on or prior to the Effective Time, agreements in substantially
the form of Exhibit C attached hereto of each stockholder who is a director or
executive officer or who may be deemed to be an affiliate of Carpatsky not to
effect any sales of the Pease Common Stock in excess of the volume limitations
specified in Rule 145(d) promulgated under the Securities Act.
SECTION 6.09 SEC Reports and Registration Statements. Pease shall use
all reasonable efforts, including the timely filing of all Pease SEC Reports
that may be due subsequent to the date hereof and obtaining any consents
required from Pease's auditors necessary to include such Pease SEC Reports and
the Form S-4.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01 Conditions to Obligations of Each Party Under This
Agreement. The respective obligations of each party to effect the
Redomestication, the Exchange, the Merger and the other transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of the following conditions, any or all of which may be waived in
writing by the parties hereto, in whole or in part, to the extent permitted by
applicable Law:
(a) Securities Laws. The Form S-4 shall have been declared
effective by the SEC and Pease shall have received all Blue Sky permits and
other authorizations necessary to consummate the transactions contemplated by
this Agreement.
(b) Stockholder Approval. The Amendment, this Agreement and
the Merger shall have been approved and adopted by the requisite vote of the
stockholders of Pease, and the Redomestication, this Agreement and the Merger
shall have been approved and adopted by the requisite vote of the stockholders
of Carpatsky. No claim, actions, suit or other legal proceeding shall be pending
or threatened which seeks to impair or impede Pease's ability to perform its
obligations under the Preferred Stockholders Agreement or which otherwise
challenge their validity or enforceability.
(c) No Order. No Governmental Authority or federal, provincial
or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Redomestication, the
Amendment, the Merger illegal or otherwise prohibiting consummation of the
transactions contemplated hereby.
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SECTION 7.02 Additional Conditions to Obligations of Carpatsky. The
obligations of Carpatsky to effect the Redomestication, the Merger and the other
transactions contemplated hereby are also subject to the satisfaction at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in writing by Carpatsky, in whole or in part, to the extent permitted
by applicable Law:
(a) Representations and Warranties. Each of the
representations and warranties of Pease contained in this Agreement shall be
true and correct as of the Closing Date as though made on and as of 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). Carpatsky shall have
received a certificate of the President and the Chief Financial Officer of
Pease, dated the Closing Date, to such effect.
(b) Agreements and Covenants. Pease shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date. Carpatsky
shall have received a certificate of the President and the Chief Financial
Officer of Pease, dated the Closing Date, to such effect.
(c) Material Adverse Change. Since the date of this Agreement,
there shall have been no change, occurrence or circumstance in the current or
future business, assets, liabilities, financial condition or results of
operations of Pease or any of its subsidiaries having or reasonably likely to
have, individually or in the aggregate, a Pease Material Adverse Effect.
Carpatsky shall have received a certificate of the President and the Chief
Financial Officer of Pease, dated the Closing Date, to such effect.
(d) Absence of Regulatory Conditions. There shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Redomestication or the Merger, by any
Governmental Authority in connection with the grant of a regulatory approval
necessary, in the reasonable business judgment of Carpatsky, to the continuing
operation of the current or future business of Pease, which imposes any
condition or restriction upon Carpatsky or the business or operations of Pease
which, in the reasonable business judgment of Carpatsky, would be materially
burdensome in the context of the transactions contemplated by this Agreement.
(e) Tax Opinions.
(1) Carpatsky shall have received the written opinion of Messrs. Satterlee
Stephens Burke & Burke LLP, dated the Closing Date, substantially to the effect
that: (a) the Redomestication, the Exchange and the Merger will constitute
reorganizations within the meaning of sections 368(a) of the Code; (b) Old
Carpatsky and New Carpatsky and Pease will each be a party to such
reorganizations within the meaning of section 368(b) of the Code; (c) Carpatsky
and New Carpatsky will not recognize any gain or loss for United States federal
income tax purposes as a result of the Redomestication and the Merger; and (d)
for United States federal income tax purposes no gain
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or loss will be recognized by the holders of Carpatsky Common Stock upon receipt
of shares of Pease Common Stock in the Merger, except with respect to any cash
received in lieu of a fractional share interest in the Pease Common Stock; and
such tax opinion shall not have been withdrawn or modified in any material
respect prior to the Closing Date. Counsel may rely on representations from the
parties and the Carpatsky stockholders in rendering its opinion.
(2) Carpatsky shall have received the written opinion of Messrs. Feleski
Flynn, Calgary, Alberta dated the Closing Date, to the effect that the proposed
transactions contemplated hereby shall not be taxable to the Canadian
stockholders of Carpatsky under Canadian income tax laws.
(f) Alan W. Peryam, LLC Opinion. Carpatsky shall have received
from Alan W. Peryam, LLC, counsel to Pease, a written opinion dated the Closing
Date in substantially the form set forth in Exhibit D hereto.
(g) Withholding. Pease must not have determined to withhold
any amount from the Merger Consideration pursuant to the tax withholding
provisions of section 3406 of the Code, or of Subchapter A of Chapter 3 of the
Code, or of any other provision of law, except with respect to cash paid for
fractional shares and to dissenting stockholders.
(h) Comfort Letter. Carpatsky shall have received a letter
from Hein & Associates, LLP stating that they are independent public
accountants, within the meaning of the Securities Act and the rules and
regulations thereunder, and that on the basis of a reading of the latest
unaudited interim financial statements prepared by Pease (the "Pease Interim
Statements") and inquiries of officers of Pease responsible for financial and
accounting matters and such other procedures and inquiries as may be specified
in such letter, nothing has come to their attention which gives them reason to
believe that (i) the financial statements included in the Form S-4 were not
prepared in accordance with the related requirements under Securities Act or the
Exchange Act and generally accepted accounting principles and practices applied
on a basis substantially consistent with those followed in the preparation of
the audited financial statements included in such Form S-4, and (ii) during the
period from the date of the Pease Interim Statements to a specified date not
more than five days prior to the Closing Date, there was any change in the
capital stock or increase in the indebtedness for borrowed money of Pease.
(i) Dissenters' Rights. The number of shares of Pease Common
Stock for which valid notices of intention to demand payment pursuant to the
applicable provisions of Delaware and Nevada Law have been provided and remain
outstanding immediately prior to the effectiveness of the Merger does not exceed
1% of the issued and outstanding shares of Pease Common Stock immediately prior
to the Effective Time.
(j) Exchange of Pease Preferred Stock. All of the issued and
outstanding shares of Pease Preferred Stock shall have been exchanged in
accordance with the Exchange and no Pease Preferred Stockholder shall have
asserted any dissenters' rights or any demand for payment in respect of its
shares.
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SECTION 7.03 Additional Conditions to Obligations of Pease. The
obligations of Pease to effect the Exchange and the Merger and the other
transactions contemplated hereby are also subject to the satisfaction at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in writing by Pease, in whole or in part, to the extent permitted by
applicable law:
(a) Representations and Warranties. Each of the
representations and warranties of Carpatsky contained in this Agreement shall be
true and correct as of the Closing Date as though made on and as of 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). Pease shall have received a
certificate of the President and the Chief Financial Officer of Carpatsky, dated
the Closing Date, to such effect.
(b) Agreements and Covenants. Carpatsky shall have performed
or complied with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date. Pease shall
have received a certificate of the President and the Chief Financial Officer of
Carpatsky, dated the Closing Date, to such effect.
(c) Material Adverse Change. Since the date of this Agreement,
there shall have been no change, occurrence or circumstance in (i) the current
or future business, assets, liabilities, financial condition or results of
operations of Carpatsky or any of its subsidiaries having or reasonably likely
to have, individually or in the aggregate, a Carpatsky Material Adverse Effect
or (ii) the assumptions used in preparing the reserve report for the RC Field
which materially adversely effects the reserve values set forth therein. Pease
shall have received a certificate of the President and the Chief Financial
Officer of Carpatsky, dated the Closing Date, to such effect.
(d) Absence of Regulatory Conditions. There shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger, by any Governmental Authority in
connection with the grant of a regulatory approval necessary, in the reasonable
business judgment of Pease, to the continuing operation of the current or future
business of Carpatsky, which imposes any condition or restriction upon Pease or
the business or operations of Carpatsky which, in the reasonable business
judgment of Pease, would be materially burdensome in the context of the
transactions contemplated by this Agreement.
(e) Tax Opinion. Messrs. Satterlee Stephens Burke & Burke LLP
shall have delivered its written opinion to Pease, to the effect that: (i) Pease
will be a "party to the reorganization," within the meaning of Section 368(a) of
the Code, with respect to the Exchange and the Merger; (ii) no gain or loss will
be recognized by Pease as a result of the Exchange or the Merger; and (iii) no
gain or loss will be recognized by the Pease Preferred Stockholders as a result
of the Exchange; and such tax opinion shall not have been withdrawn or modified
in any material respect prior to the Closing Date. Counsel may rely on
representations from the parties and the Pease stockholders in rendering its
opinion.
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(f) SSB&B Opinion. Pease shall have received from Messrs.
Satterlee Stephens Burke & Burke, LLP, counsel to Carpatsky, an opinion dated
the Closing Date, in substantially the form set forth in Exhibit E hereto.
(g) Comfort Letter. Pease shall have received a letter from
Hein & Associates, LLP stating that they are independent public accountants,
within the meaning of the Securities Act and the rules and regulations
thereunder, and that on the basis of a reading of the latest unaudited interim
financial statements prepared by Carpatsky (the "Carpatsky Interim Statements")
and inquiries of officers of Carpatsky responsible for financial and accounting
matters and such other procedures and inquiries as may be specified in such
letter, nothing has come to their attention which gives them reason to believe
that (i) the financial statements included in the Form S-4 were not prepared in
accordance with the related requirements under the Securities Act and generally
accepted Canadian accounting principles and practices applied on a consistent
basis, and (ii) during the period from the date of the Carpatsky Interim
Statements to a specified date not more than five days prior to the Closing
Date, there was any change in the capital stock or increase in the indebtedness
for borrowed money of Carpatsky.
(h) Dissenters Rights. The number of shares of Carpatsky
Common Stock for which valid notices of intention to demand payment pursuant to
the applicable provisions of the ABCA and Delaware Law have been provided and
remain outstanding immediately prior to the effectiveness of the Merger does not
exceed five-eighths of one percent (0.625%) of the issued and outstanding
Carpatsky Common Stock immediately prior to the Effective Time.
(i) Redomestication. The Redomestication of Carpatsky in
Delaware shall have been consummated.
(j) Conversion of Debt. Carpatsky shall have completed (i)
converting at least $2,300,000 in outstanding debt into shares of Old Carpatsky
Common Stock (the "Debt Conversion") and (ii) in addition to converting at least
the $2,300,000 referred to in (i) above, Carpatsky shall have either (x)
exchanged the RLG Note and the Callaway Debentures for Old Carpatsky Common
Stock or (y) restructured the Notes and Debentures on reasonable terms approved
by Pease, which approval shall not be unreasonably withheld.
(k) Equity Offering. Carpatsky shall have completed a private
placement of shares of Old Carpatsky Common Stock with an aggregate of at least
$1,000,000 in proceeds from such equity offering (the "Equity Offering").
(l) Carpatsky Financial Statements. Carpatsky shall have
completed its audited financial statements for the years ended December 31, 1999
and 1998 and for the fiscal periods ended June 30, 1998 and 1999, all by
September 15, 1999, and such financial statements shall reflect the following
(to the extent provided below):
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(i) Positive working capital for Carpatsky on a consolidated basis as
of June 30, 1999. For purposes of this calculation, any amount received
under Carpatsky's private placement of securities may be added to current
assets as at June 30, 1999 and debt actually converted into equity may be
deleted as at June 30, 1999, on a pro forma basis.
(ii) Total long term liabilities as at June 30, 1999 shall not exceed
$500,000 (excluding amounts due under the joint activities agreement).
(iii) The balance due to the joint account as at June 30, 1999 for
Carpatsky's working interest in the RC Field in the Ukraine does not exceed
$6.75 million.
(iv) The net working interest net to Carpatsky in the RC Field should
not be less than 19.7% at June 30, 1999.
(v) Carpatsky or its subsidiaries is delivering gas for sale under its
contract with Unocal (the "Unocal Contract") or such other reasonable gas
sales arrangements as Pease shall have approved in writing ("Other
Contracts"), which approval shall not be unreasonably withheld, by no later
than November 1, 1999.
(vi) Carpatsky or its subsidiaries have commenced receiving payments
for gas sold under the Unocal Contract (or Other Contracts) by January 1,
2000, or the date of the Closing, whichever occurs first.
(vii) Prior to Closing or December 31, 1999, whichever occurs first,
Carpatsky shall have obtained appropriate contract extensions or approvals
to transport and sell gas under the Unocal Contract (or other Contracts)
from both Unocal (or the purchasers under the Other Contracts) and the
Ukrainian government for the year 2000.
(m) The Bitkov Licensing Agreement shall have been amended to
change the Organizational Period (as defined therein) to be at least five years
from July 28, 1995, and this amendment shall have been duly signed by the
parties and registered with, and accepted by, the appropriate officials of the
Ukraine Government.
(n) All taxes due, but unpaid, to Ukraine or any taxing
authority in Ukraine, by any subsidiary of Carpatsky, the Representative Office,
Ukcarpatoil, or any other entity in which Carpatsky has a material interest, and
which were identified or provided for in the latest financial statements
included in the Form S-4 at the time it is declared effective, shall be paid or
otherwise provided for, as evidenced by written acknowledgment from the taxing
authority.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement,
the Redomestication, the Exchange and the Merger by the stockholders of Pease
and Carpatsky:
(a) by mutual consent of Carpatsky and Pease;
(b) by Carpatsky, upon a material breach of any
representation, warranty, covenant, condition or agreement on the part of Pease
set forth in this Agreement, including, without limitation, Pease's failure to
consummate the Exchange, or if any representation or warranty of Pease shall
have become untrue, in either case such that the conditions set forth in Section
7.02(a) or Section 7.02(b) of this Agreement, as the case may be, would be
incapable of being satisfied by December 30, 1999 (or as otherwise extended as
described in Section 8.01(e)); provided, that in any case, a wilful breach shall
be deemed to cause such condition as to be incapable of being satisfied for
purposes of this Section 8.01(b);
(c) by Pease, upon a material breach of any representation,
warranty, covenant, condition, or agreement on the part of Carpatsky set forth
in this Agreement, or if any representation or warranty of Carpatsky shall have
become untrue, in either case such that the conditions set forth in Section
7.03(a) or Section 7.03(b) of this Agreement, as the case may be, would be
incapable of being satisfied by December 30, 1999 (or as otherwise extended as
described in Section 8.01(e)); provided, that in any case, a wilful breach shall
be deemed to cause such condition as to be incapable of being satisfied for
purposes of Section 8.01(c);
(d) by either Carpatsky or Pease, if there shall be any Order
which is final and nonappealable preventing the consummation of the
Redomestication, the Exchange or the Merger, except if the party relying on such
Order to terminate this Agreement has not complied with its obligations under
Section 6.03(b) of this Agreement;
(e) by either Carpatsky or Pease, if the Merger shall not have
been consummated before December 31, 1999; provided, however, that this
Agreement may be extended by written notice of either Carpatsky or Pease to a
date not later than March 31, 2000, if the Merger shall not have been
consummated by December 31, 1999, to receive all required regulatory approvals
or consents with respect to the Merger;
(f) by either Carpatsky or Pease, if this Agreement and the
Merger shall fail to receive the requisite vote for approval and adoption by the
stockholders of Pease at the Pease Stockholders Meeting or by the stockholders
of Carpatsky at the Carpatsky Stockholders Meeting;
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(g) by Carpatsky, if (i) the Board of Directors of Pease
withdraws, modifies or changes its recommendation of this Agreement, the
Exchange or the Merger in a manner adverse to Carpatsky or shall resolved to do
any of the foregoing; (ii) the Board of Directors of Pease shall have
recommended to the stockholders of Pease any Competing Transaction or shall have
resolved to do so; (iii) a tender offer or exchange offer for 20% or more of the
outstanding shares of capital stock of Pease is commenced, and the Board of
Directors of Pease does not recommend that stockholders not tender their shares
into such tender or exchange offer; (iv) any person (other than Carpatsky or an
affiliate thereof, or any stockholder of Pease as of the date of this Agreement)
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "group" (as such term if defined under Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder), shall have
been formed which beneficially owns, or has the right to acquire beneficial
ownership of, 20% or more of the then outstanding shares of capital stock of
Pease; or (v) Pease fails to satisfy the condition to Carpatsky's obligation set
forth in Section 7.02(k);
(h) by Pease if (i) the Board of Directors of Carpatsky
withdraws, modifies or changes its recommendation of this Agreement, the
Redomestication or the Merger in a manner adverse to Pease or shall resolved to
do any of the foregoing; (ii) the Board of Directors of Carpatsky shall have
recommended to the stockholders of Carpatsky any Competing Transaction or shall
have resolved to do so; (iii) a tender offer or exchange offer for 20% or more
of the outstanding shares of capital stock of Carpatsky is commenced, and the
Board of Directors of Carpatsky does not recommend that stockholders not tender
their shares into such tender or exchange offer; (iv) any person (other than
Pease or an affiliate thereof, or any stockholder of Carpatsky as of the date of
this Agreement) shall have acquired beneficial ownership or the right to acquire
beneficial ownership of, or any "group" (as such term if defined under Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder),
shall have been formed which beneficially owns, or has the right to acquire
beneficial ownership of, 20% or more of the then outstanding shares of capital
stock of Carpatsky; or (v) Pease's investment banking consultant, Houlihan Smith
& Company (or other investment banking firm or consultant) fails to deliver an
opinion that the transaction is fair, from a financial point of view, to the
Pease stockholders.
The right of any party hereto to terminate this Agreement
pursuant to this Section 8.01 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any party hereto,
any person controlling any such party or any of their respective officers,
directors, representatives or agents, whether prior to or after the execution of
this Agreement.
SECTION 8.02 Effect of Termination. Except as provided in Section 8.05
or Section 9.01 of this Agreement, in the event of the termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void,
there shall be no liability on the part of Carpatsky or Pease to the other and
all rights and obligations of any party hereto shall cease, except that nothing
herein shall relieve any party of any liability for any breach of such party's
covenants or agreements contained in this Agreement, or any willful breach of
such party's representations or warranties contained in this Agreement.
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SECTION 8.03 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the stockholders of Pease and Carpatsky, no amendment, which
under applicable Law may not be made without the approval of the stockholders of
Pease or Carpatsky, may be made without such approval, and no amendment, which
under the applicable rules of the AMEX (or other national securities exchange,
if any, on which the Pease Common Stock shall then be listed or shall be
approved for listing), may not be made without the approval of the stockholders
of Pease, may be made without such approval. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 8.04 Waiver. At any time prior to the Effective Time, any party
hereto may extend the time for the performance of any of the obligations or
other acts of the other party hereto, waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and waive compliance by the other party with
any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
SECTION 8.05 Fees, Expenses and Other Payments.
(a) Except as provided in Section 8.05(c) of this Agreement,
in the event the Merger is not consummated all Expenses (as defined in paragraph
(b) of this Section 8.05) incurred by the parties hereto shall be borne solely
and entirely by the party that has incurred such Expenses; it being agreed that
all Expenses incurred in connection with the Form S-4 shall be borne equally by
Pease and Carpatsky (other than for the fees and expenses of such parties'
respective counsel and accountants which will be borne by such parties);
provided, however, in the event the Merger is consummated, all Expenses incurred
in connection with the Merger and the transactions contemplated hereby will be
paid by Pease.
(b) "Expenses" as used in this Agreement shall include all
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing, filing and mailing of
the Form S-4 and the Proxy Statement/Prospectus, the solicitation of stockholder
approvals and all other matters related to the consummation of the transactions
contemplated hereby.
(c) Pease agrees that if this Agreement is terminated pursuant
to:
(i) Section 8.01(b) and (x) such termination is the result of a wilful
breach of any representation, warranty, covenant or agreement of Pease
contained herein, (y) Pease shall have had contacts or entered into
negotiations relating to a Competing Transaction prior to or on the date of
termination of this Agreement, and (z) within twelve months after the date
of termination of this Agreement, and with respect to any person or group
with whom the contacts or negotiations referred
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to in clause (y) have occurred, a Business Combination (as defined in
Section 8.05(f)) shall have occurred or Pease shall have entered into a
definitive agreement providing for a Business Combination; or
(ii) Section 8.01(f) because this Agreement and the Merger shall fail
to receive the requisite vote for approval and adoption by the stockholders
of Pease at the Pease Stockholders Meeting and at the time of such meeting
there shall exist a Competing Transaction; or
(iii) Section 8.01(g)(i) and at the time of the withdrawal,
modification or change (or resolution to do so) of its recommendation by
the Board of Directors of Pease, there shall exist a Competing Transaction;
or
(iv) Sections 8.01(g)(ii), (iii) or (v); or
(v) Section 8.01(h)(v) and within twelve months after the date of
termination of this Agreement, Pease shall have entered into a Competing
Transaction;
then Pease shall pay to Carpatsky an amount equal to $250,000, which amount is
inclusive of all of Carpatsky's Expenses.
(d) Carpatsky agrees that if this Agreement is terminated
pursuant to:
(i) Section 8.01(c) and (x) such termination is the result of a wilful
breach of any representation, warranty, covenant or agreement of Carpatsky
contained herein, (y) Carpatsky shall have had contacts or entered into
negotiations relating to a Competing Transaction prior to or on the date of
termination of this Agreement, and (z) within twelve months after the date
of termination of this Agreement, and with respect to any person or group
with whom the contacts or negotiations referred to in clause (y) have
occurred, a Business Combination (as defined in Section 8.05(f)) shall have
occurred or Carpatsky shall have entered into a definitive agreement
providing for a Business Combination; or
(ii) Section 8.01(f) because this Agreement and the Merger shall fail
to receive the requisite vote for approval and adoption by the stockholders
of Carpatsky at the Carpatsky Stockholders Meeting and at the time of such
meeting there shall exist a Competing Transaction; or
(iii) Section 8.01(h)(i) and at the time of the withdrawal,
modification or change (or resolution to do so) of its recommendation by
the Board of Directors of Carpatsky, there shall exist a Competing
Transaction; or
(iv) Sections 8.01(h)(ii) or (iii).
then Carpatsky shall pay to Pease an amount equal to $250,000, which amount is
inclusive of all of Pease's Expenses.
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(e) Any payment required to be made pursuant to Section
8.05(c) or Section 8.05(d) of this Agreement shall be made as promptly as
practicable but not later than three business days after termination of this
Agreement, and shall be made by wire transfer of immediately available funds to
an account designated by Pease or Carpatsky, as the case may be, except that any
payment to be made as the result of an event described in Section 8.05(c)(i) or
Section 8.05(d)(i) shall be made as promptly as practicable but not later than
three business days after the occurrence of the Business Combination or the
execution of the definitive agreement providing for a Business Combination.
(f) For purposes of this Section 8.05, the term "Business
Combination" means a merger (other than pursuant to this Agreement),
consolidation, share exchange, business combination or similar transaction
involving Pease or Carpatsky, a sale, lease, exchange, transfer or other
disposition of 20% or more of the assets of Pease and its subsidiaries, or
Carpatsky and its subsidiaries, taken as a whole, in a single transaction or a
series of transactions, or the acquisition, by a person (other than Carpatsky or
any affiliate thereof) or group (as such term is defined under Section 13(d) of
the Exchange Act and the rules and regulations thereunder) of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of 20% or more of
the Pease or Carpatsky Common or Pease Preferred Stock, as the case may be,
whether by tender or exchange offer or otherwise.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 Effectiveness of Representations, Warranties
and Agreements.
(a) Except as set forth in Section 9.01(b) of this Agreement,
the representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers, directors, representatives or agents, whether prior to or
after the execution of this Agreement.
(b) The representations, warranties and agreements in this
Agreement shall terminate at the Effective Time or upon the termination of this
Agreement pursuant to Article VIII, except that the agreements set forth in
Articles I and II and Sections 5.03(c), 6.04, 6.07 and 6.09 shall survive the
Effective Time and those set forth in Sections 5.04(d), 8.02 and 8.05 and
Article IX hereof shall survive termination.
SECTION 9.02 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given upon receipt, if delivered personally or by air courier, or mailed by
registered or certified mail (postage prepaid, return receipt requested), to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address) or sent by electronic
transmission to the telecopier number specified below (to be followed promptly
by personal or air courier delivery or mailing as hereinafter provided):
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(a) If to Carpatsky, to:
Carpatsky Petroleum, Inc.
6671 Southwest Freeway, Suite 303
Houston, TX 77074-2284
Attention: David A. Melman
Facsimile Number: (713) 981-8670
with copy to:
Satterlee Stephens Burke & Burke LLP
230 Park Avenue, Room 1130
New York, NY 10169
Attention: Peter A. Basilevsky, Esq.
Facsimile Number: (212) 818-9606
(b) If to Pease, to:
Pease Oil and Gas Company
751 Horizon Court, Suite 203
Grand Junction, CO 81506
Attention: Patrick J. Duncan
Facsimile Number: (970) 243-8840
with copy to:
Alan W. Peryam, LLC
1120 Lincoln Street, Suite 1000
Denver, CO 80202
Attention: Alan W. Peryam, Esq.
Facsimile Number: (303) 866-0999
SECTION 9.03 Certain Definitions.
For the purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) a person shall be deemed a "beneficial owner" of or to
have "beneficial ownership" of Carpatsky Common Stock or Pease Common and
Preferred Stock, as the case may be, in accordance with the interpretation of
the term "beneficial ownership" as defined in Rule 13d-3 under the Exchange Act,
as in effect on the date hereof; provided that a person shall be deemed to be
the beneficial owner of, and to have beneficial ownership of, Carpatsky Common
Stock or Pease Common or Preferred Stock, as the case may be, that such person
or any affiliate of such person has the right
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to acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or options, or
otherwise.
(c) "business day" means any day other than a day on which
banks in the State of Delaware are authorized or obligated to be closed;
(d) "control" (including the terms "controlled," "controlled
by" and "under common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of stock or as trustee or executor, by contract or credit arrangement
or otherwise;
(e) "dollar" or "$" shall refer to the freely transferable
currency of the United States of America.
(f) "knowledge" or "known" shall mean, with respect to any
matter in question, if an executive officer of Pease or Carpatsky, as the case
may be, has actual knowledge of such matter;
(g) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(h) "Significant Subsidiary" means any subsidiary of Pease or
Carpatsky that would constitute a Significant Subsidiary of such party within
the meaning of Rule 1-02 of Reg. S-X of the SEC; and
(i) "subsidiary" or "subsidiaries" of Pease, Carpatsky, or of
any other person, means any corporation, partnership, joint venture or other
legal entity of which Pease, Carpatsky, Pease or any such other person, as the
case may be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, currently or in the past, 50% or more of the stock
or other equity interests the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of such
corporation or other legal entity; provided, however, for purposes of this
Agreement Ukrcarpatoil, Ltd. shall be deemed to constitute a subsidiary of
Carpatsky.
SECTION 9.04 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Section references herein are, unless the
context otherwise requires, references to sections of this Agreement.
SECTION 9.05 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this
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Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
SECTION 9.06 Entire Agreement. This Agreement (together with the
Exhibits, the Pease Disclosure Schedule and the Carpatsky Disclosure Schedule)
constitutes the entire agreement of the parties, and supersede all prior
agreements and undertakings, both written and oral, among the parties or between
any of them, with respect to the subject matter hereof.
SECTION 9.07 Assignment. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 9.08 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied (other than as contemplated by Section 6.07 or
Section 6.09), is intended to or shall confer upon any other person any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 9.09 Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
SECTION 9.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 9.11 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
SECTION 9.12 Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
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PEASE OIL AND GAS COMPANY
By: /s/ Patrick J. Duncan
Name PATRICK J. DUNCAN
Title President
CPI ACQUISITION CORP.
By: /s/ Fred Hofheinz
Name FRED HOFHEINZ
Title Director and
Authorized Signatory
CARPATSKY PETROLEUM, INC.
By: /s/ Fred Hofheinz
Name FRED HOFHEINZ
Title Director and
Authorized Signatory
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Schedule 1.05
OFFICERS OF PEASE
Les C. Texas, Chairman, President & COO
David A. Melman, CEO
Patrick J. Duncan, V.P. CFO, Secretary & Treasurer
DIRECTORS OF PEASE
L. Texas
F. Hofheinz
D. Melman
D. Davis
S. Antry
OFFICERS OF CPC
Les Texas, President
Pat Duncan, V.P., Secretary & Treasurer
DIRECTORS OF CPC
L. Texas
D. Melman
F. Hofheinz
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PEASE DISCLOSURE SCHEDULES
The following disclosures are made by Pease in addition to matters set
forth in Article III of the Agreement and Plan of Merger.
Schedule 3.01: Pease's Directly or Indirectly Owned Subsidiaries.
The following is a list of subsidiary corporations wholly-owned by
Pease Oil and Gas Company, a Nevada corporation. The assets of these
subsidiaries were sold to Magpie Operating, Inc. effective October 1, 1998 and
none of the subsidiaries hold any stock ownership in Pease Oil and Gas Company.
Jurisdiction of Percentage of
Name of Subsidiary Organization Ownership
PEASE OPERATING COMPANY, INC. Colorado 100%
PEASE OIL FIELD SERVICES, INC. Colorado 100%
PEASE OIL FIELD SUPPLY COMPANY, INC. Colorado 100%
LOVELAND GAS PROCESSING CO., LTD. Colorado limited partnership 100%
None of the above subsidiaries would be a "significant subsidiary" as defined in
Section 903(h).
Schedule 3.02: Articles of Incorporation and Bylaws.
Pease has not furnished organizational documents for the subsidiaries
listed in Schedule 3.01, as the subsidiaries are not significant.
Schedule 3.03(a): Reserved Capital Stock.
The following shares of capital stock of Pease are reserved for the
purposes stated.
P. Reserved for issuance under stock options plans: 198,432 shares.
Q. Reserved for issuance upon exercise of outstanding warrants:
227,332 shares.
R. Reserved for issuance upon conversion of outstanding Series B
Preferred Stock: 11,288,320 shares [at assumed market price of Pease common
stock of $0.625 per share].
S. Reserved for issuance to Pease directors in satisfaction of accrued,
but unpaid director fees through August 1999: 43,395 shares.
T. Reserved for issuance upon conversion of outstanding debentures:
92,700 shares
The number of reserved shares exceeds the number of shares of Pease's
authorized but unissued common stock.
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Schedule 3.03(b)(i): Pease Oil and Gas Company Options, Warrants and Rights
1. ADOPTED STOCK OPTION PLANS
(a) Summary of Pease Outstanding Options as of June 30, 1999:
No. Of Option Proceeds If
Grant Date ............... Expiration Date Options Price Exercised
- -------------------------- ---------------- -------- ------ --------
March 9, 1996 ............ July 31, 1999 500 $10.00 $ 5,000
May 16, 1995 ............. May 15, 2000 16,433 8.30 136,390
June 16, 1995 ............ June 15, 2000 9,000 7.00 63,000
March 9, 1996 ............ March 8, 2001 6,650 10.00 71,500
August 9, 1996 ........... August 9, 2001 5,197 18.10 94,075
January 27, 1997 ......... January 26, 2002 13,250 29.70 393,525
November 7, 1997 ......... November 7, 2002 10,000 17.50 175,000
November 7, 1997 ......... November 7, 2002 10,000 5.00 50,000
-------- ------ --------
Totals: .................. 71,030 $13.85 $983,490
======== ====== ========
(b) Detail of Adopted Stock Options as of June 30, 1999:
<TABLE>
<CAPTION>
Plan Options Option Expiration
Grantee ............................ Year Outstanding Price Grant Date Date
- ------------------------------------ ------ --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Adams, Marilyn ..................... 1993 1,000 $ 7.00 6/16/95 6/15/00
1994 750 10.00 3/9/96 3/8/01
Antry, Steve ....................... 1996 750 29.70 1/27/97 1/26/02
Burkhalter, Newt ................... 1993 4,800 8.30 5/16/95 5/15/00
(former ............................ 1993 4,000 7.00 6/16/95 6/15/00
Officer/Director) .................. 1993 2,700 10.00 3/9/96 3/8/01
1996 3,500 29.70 1/27/97 1/26/02
Duncan, Pat ........................ 1994 3,600 8.30 5/16/95 5/15/00
1994 4,000 7.00 6/16/95 6/15/00
1994 2,900 10.00 3/9/96 3/8/01
1996 4,500 29.70 1/27/97 1/26/02
1997 10,000 5.00 11/7/97 11/7/07
1997 10,000 17.50 11/7/97 11/7/07
</TABLE>
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<TABLE>
<CAPTION>
Plan Options Option Expiration
<S> <C> <C> <C> <C> <C> <C> <C>
Osborne, Homer ..................... 1990 1,698 8.30 5/16/95 5/15/00
1993 100 10.00 3/9/96 3/8/01
1996 1,732 18.10 8/9/96 8/8/01
1996 750 29.70 1/27/97 1/26/02
Ratcliff, John ..................... 1994 500 10.00 3/9/96 7/31/99
(former employee)
Ruane, Chuck ....................... 1990 3,168 8.30 5/16/95 5/15/00
1993 100 10.00 3/9/96 3/8/01
1996 1,732 18.10 8/9/96 8/8/01
1996 750 29.70 1/27/97 1/26/02
Smith, Leroy ....................... 1996 750 29.70 1/27/97 1/26/02
(former Director)
Timlin, Robert ..................... 1996 750 29.70 1/27/97 1/26/02
(former Director)
Walker, Clemons .................... 1996 750 29.70 1/27/97 1/26/02
Warnick, William ................... 1990 3,168 8.30 5/16/95 5/15/00
1993 100 10.00 3/9/96 3/8/01
1996 1,732 18.10 8/9/96 8/8/01
1996 750 29.70 1/27/97 1/26/02
----------
Total .............................. 71,030
</TABLE>
69
<PAGE>
2. SUMMARY OF NON-QUALIFIED OPTIONS AS OF JUNE 30, 1999:
<TABLE>
<CAPTION>
No. Of Option Proceeds If
Grantee Grant Date Expiration Date Options Price Exercised
- ------- ---------- --------------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fitch, Bill April 12, 1995 April 12, 2000 400 $ 53.20 $ 21,280
(former Officer/ April 12, 1995 April 12, 2000 1,200 71.90 86,280
Director) April 12, 1995 April 12, 2000 500 34.40 17,200
April 12, 1995 April 12, 2000 1,400 21.00 29,400
April 12, 1995 April 12, 2000 4,200 29.40 123,480
Gries, Robbie Nov. 2, 1994 Nov. 2, 1999 4,000 34.40 137,600
(former Officer/ Nov. 2, 1994 Nov. 2, 1999 1,000 29.40 29,400
-------- --------- ------------
Director)
Weighted
Avg/Total 12,700 $ 35.01 $ 446,640
======= ======== ==========
</TABLE>
3. WARRANTS OUTSTANDING
(a) Summary of Warrants Outstanding June 30, 1999:
Shares
Grant Expiration Underlying Exercise
Date Date Warrants Price
7/31/96 7/31/99 500 $ 20.00
8/23/93 8/13/99 317,581 60.00
8/19/96 8/18/99 900 20.00
8/20/96 8/19/99 638 20.00
8/26/96 8/25/99 750 20.00
8/27/96 8/26/99 1,563 20.00
9/24/96 9/23/99 650 20.00
5/05/97 4/14/00 7,499 37.50
5/16/95 5/15/00 1,800 8.30
8/23/95 12/31/00 10,000 7.50
12/07/98 12/31/00 10,000 5.00
70
<PAGE>
Shares
Grant Expiration Underlying Exercise
Date Date Warrants Price
----------- --------------- -------- -------
12/07/98 12/31/00 4,000 7.00
12/07/98 12/31/00 9,960 8.30
12/07/98 12/31/00 890 10.00
12/07/98 12/31/00 10,000 27.50
12/07/98 12/31/00 5,000 29.70
3/09/96 3/08/01 78,751 7.50
3/09/96 3/08/01 10,150 10.00
4/09/97 3/08/01 10,000 37.50
6/03/97 6/02/02 22,401 25.00
9/03/97 9/02/02 5,000 30.00
9/29/97 9/28/02 5,000 30.31
12/31/97 12/31/02 32,380 17.50
TOTAL: 545,413
(b) Detail of Warrants Outstanding As Of June 30, 1999:
Shares Redemption
Underlying Exercise Grant Expiration Price Per
Description ............ Warrants Price Date Date Share
Lisa Antry ............. 35,500 7.50 3/09/96 3/08/01 N/A
10,000 7.50 3/09/96 3/08/01 N/A
Ralph W. Baird ......... 5,000 30.00 9/03/97 9/02/02 N/A
BAL Associates ......... 10 37.50 5/05/97 4/14/00 N/A
Frank J. Batchkoff III . 124 37.50 5/05/97 4/14/00 N/A
1,000 37.50 4/09/97 3/08/01 N/A
Brigitte Bates ......... 1,000 37.50 4/09/97 3/08/01 N/A
Gloria K. Berry ........ 1,190 17.50 12/31/97 12/31/99 N/A
235 25.00 6/03/97 6/02/02 N/A
71
<PAGE>
Shares Redemption
Underlying Exercise Grant Expiration Price Per
Description ............ Warrants Price Date Date Share
Birchtree Financial 35 37.50 5/05/97 4/14/00 N/A
Services, Inc.
Michael D. Bodino 10,000 17.50 12/31/97 12/31/02 N/A
6,700 25.00 6/03/97 6/02/02 N/A
John Boesel 500 37.50 4/09/97 3/08/01 N/A
Gordon Christopher 49 37.50 5/05/97 4/14/00 N/A
Brown
Wanda J. Burford 1,190 17.50 12/31/97 12/31/02 N/A
Jenni Buys 90 20.00 8/19/96 8/18/99 N/A
39 37.50 5/05/97 4/14/00 N/A
Thomas Carey 170 37.50 5/05/97 4/14/00 N/A
Carib Financial Group, 500 37.50 5/05/97 4/14/00 N/A
Ltd.
Jeff Clark 500 37.50 4/09/97 3/08/01 N/A
Gary Cohee 1,000 7.50 3/09/96 3/08/01 N/A
Coleman and Company 360 20.00 8/19/96 8/18/99 N/A
Securities, Inc. 156 37.50 5/05/97 4/14/00 N/A
Kenneth R. Etheredge 10,000 17.50 12/31/97 12/31/02 N/A
6,700 25.00 6/03/97 6/02/02 N/A
William Patrick Farrand 413 25.00 6/03/97 6/02/02 N/A
R. Thomas Fetters, Jr. 5,000 30.31 9/29/97 9/28/02 N/A
Stephen L. Fischer 20,500 7.50 3/09/96 3/08/01 N/A
170 37.50 5/05/97 4/14/00 N/A
Fox & Company 75 37.50 5/05/97 4/14/00 N/A
Investments, Inc.
Theron Froggate 112 37.50 5/05/97 4/14/00 N/A
GBS Financial Corp 300 7.50 3/09/96 3/08/01 N/A
Gloisten Family Trust 32 37.50 5/05/97 4/14/00 N/A
72
<PAGE>
Shares Redemption
Underlying Exercise Grant Expiration Price Per
Description ............ Warrants Price Date Date Share
Michael Golden 150 37.50 5/05/97 4/14/00 N/A
Scott Gulbranson 25 37.50 5/05/97 4/14/00 N/A
William Kelly Hagerty 638 20.00 8/20/96 8/19/99 N/A
Wm. Kelly Hagerty & 750 37.50 4/09/97 3/08/01 N/A
Gladys W. Hagerty
Hankerson Financial Inc. 800 37.50 5/05/97 4/14/00 N/A
Michael D. Hayes 35 37.50 5/05/97 4/14/00 N/A
William Herndon 650 20.00 9/24/96 9/23/99 N/A
200 37.50 5/05/97 4/14/00 N/A
Frank Hickcox 160 37.50 5/05/97 4/14/00 N/A
500 37.50 4/09/97 3/08/01 N/A
John & Cynthia Hllywa 250 7.50 3/09/96 3/08/01 N/A
Christopher Huey 450 20.00 8/19/96 8/18/99 N/A
195 37.50 5/05/97 4/14/00 N/A
Dawn S. Hunter 10 37.50 5/05/97 4/14/00 N/A
Fred Jones 1,000 7.50 3/09/96 3/08/01 N/A
Joel Kamphuis 200 37.50 5/05/97 4/14/00 N/A
Chris L. Kavanau 76 37.50 5/05/97 4/14/00 N/A
Kelly Kemp 1,000 37.50 4/09/97 3/08/01 N/A
Peter & Marilyn Koonce 1,700 7.50 3/09/96 3/08/01 N/A
J. Peter Koonce 183 37.50 5/05/97 4/14/00 N/A
Bruce E. Lazier 10,000 17.50 12/31/97 2/31/02 N/A
6,700 25.00 6/03/97 6/02/02 N/A
Ben Lichtenberg 150 37.50 5/05/97 4/14/00 N/A
Meridian Capital 350 37.50 5/05/97 4/14/00 N/A
Holdings, Inc.
Timothy L. Minert 35 37.50 5/05/97 4/14/00 N/A
73
<PAGE>
Shares Redemption
Underlying Exercise Grant Expiration Price Per
Description ............ Warrants Price Date Date Share
James Moldermaker 500 37.50 4/09/97 3/08/01 N/A
John Temple Moore 213 37.50 5/05/97 4/14/00 N/A
Howard Neff 10 37.50 5/05/97 4/14/00 N/A
Pacific States Capital 1,563 20.00 8/27/96 8/26/99 N/A
Corporation 500 37.50 4/09/97 3/08/01 N/A
Peacock, Hislop, Staley & 70 37.50 5/05/97 4/14/00 N/A
Given, Inc .
Willard H. Pease, Jr. 10,150 10.00 3/09/96 3/08/01 N/A
9,960 8.30 12/07/98 12/31/00 N/A
4,000 7.00 12/07/98 12/31/00 N/A
890 10.00 12/07/98 12/31/00 N/A
5,000 29.70 12/07/98 12/31/00 N/A
10,000 5.00 12/07/98 12/31/00 N/A
10,000 27.50 12/07/98 12/31/00 N/A
William Prigger, III 44 37.50 5/05/97 4/14/00 N/A
Issie Rabinovich 20 37.50 5/05/97 4/14/00 N/A
Ramat Securities, Ltd. 940 25.00 6/03/97 6/02/02 N/A
Richard K. Roberts 238 7.50 3/09/96 3/08/01 N/A
Travis K. Rogers 238 7.50 3/09/96 3/08/01 N/A
25 37.50 5/05/97 4/14/00 N/A
Jeffrey W. Sand 6 37.50 5/05/97 4/14/00 N/A
Securities Underwriting 56 37.50 5/05/97 4/14/00 N/A
Corp
Signal Securities, Inc. 68 37.50 5/05/97 4/14/00 N/A
Jason L. Smith 200 37.50 5/05/97 4/14/00 N/A
Ron E. Snow 10 37.50 5/05/97 4/14/00 N/A
Thoms G. & Sally A. 1,000 37.50 4/09/97 3/08/01 N/A
Southworth
Lanny Stout 1,260 37.50 5/05/97 4/14/00 N/A
2,000 37.50 4/09/97 3/08/01 N/A
74
<PAGE>
Shares Redemption
Underlying Exercise Grant Expiration Price Per
Description ............ Warrants Price Date Date Share
Jamal R. Taha 500 20.00 7/31/96 7/31/99 N/A
620 37.50 5/05/97 4/14/00 N/A
Dick Taylor 250 37.50 4/09/97 3/08/01 N/A
James R. Thomas 500 37.50 4/09/97 3/08/01 N/A
Don Thorne 20 37.50 5/05/97 4/14/00 N/A
Everett G. Titus, III 63 25.00 6/03/97 6/02/02 N/A
TNC 5,000 7.50 8/23/95 8/23/00 N/A
650 25.00 6/03/97 6/02/02 N/A
Tradeway Securities 220 37.50 5/05/97 4/14/00 N/A
Group, Inc.
Wagner Investment 5,000 7.50 8/23/95 8/23/00 N/A
Group
Waldron & Co. Inc. 750 20.00 8/26/96 8/25/99 N/A
Clemons Walker 1,800 8.30 5/16/95 5/15/00 N/A
8,025 7.50 3/09/96 3/08/01 N/A
Bradley C. Weddon 150 37.50 5/05/97 4/14/00 N/A
Charles J. Weschler 13 37.50 5/05/97 4/14/00 N/A
Richard & Kay Woltman 140 37.50 5/05/97 4/14/00 N/A
Yee, Desmond, Schroeder 313 37.50 5/05/97 4/14/00 N/A
& Allen, Inc.
Warrants issued in
connection w/Conversion
of Series A Preferred
Stock into Common
(publicly held) 317,581 60.00 8/23/93 8/13/99 2.50
-------
Total: 545,413
=======
Registration rights relating to the resale of the underlying common
stock exists for the above warrants. Pease has outstanding registration
statements on Form S-3 registering the underlying shares which are in effect.
75
<PAGE>
Schedule 3.03(b)(ii): Obligations to Redeem the Shares.
Under certain circumstances, Pease would be obligated to redeem
outstanding Series B Preferred Stock.
Pease would be obligated to repurchase common stock owned by Patrick J.
Duncan at Mr. Duncan's cost, at any time there is a change of control of Pease,
as described in Mr. Duncan's Employment Agreement.
Schedule 3.03(b)(iii): Not Applicable.
Schedule 3.03(b)(v): Not Applicable.
Schedule 3.03(c): List of Outstanding Warrants and Options.
The disclosure required by this schedule is included in Schedule
3.03(b)(ii) above.
Schedule 3.05: List of Defaults Resulting From the Agreement: Not Applicable.
Schedule 3.06: Notices Relating to Possible Conflicts, Defaults or Violations:
Not Applicable.
Schedule 3.08: Absence of Changes.
(i) As is typical in the oil and gas industry, there have been
fluctuations and revisions to the productive capacity of certain oil
and gas wells in which Pease has an interest. In addition, there are
other risks and uncertainties that are inherent in the production of
oil and gas wells. Some of these risks and uncertainties are discussed
in the June 30, 1999 10-QSB under Management's Discussion and Analysis
("MD&A"). Accordingly, the Company's MD&A for the June 30, 1999 10-QSB
is hereby incorporated herein by reference.
(ii) Not applicable.
(iii) Pease has paid dividends, as required under the terms of
the Series B Preferred stock;
Pease has paid interest on its outstanding
convertible debentures.
(iv) Not applicable.
(v) Not applicable.
Schedule 3.09: Litigation: Not Applicable.
Schedule 3.10(a): Employee Benefit Plan.
76
<PAGE>
Pease has the following Employee Benefit Plans.
1. Medical and Dental Insurance: Medical and dental insurance premiums are
completely paid by the Company for the employee and spouse/family. The following
schedule is a breakdown of the premiums:
Single employee $229.29 x 2 employees = $ 458.58
Employee and spouse 457.85 x 1 employee = 457.85
Employee and family 612.22 x 2 employees = 1,224.44
-----------
Total Company contribution: $ 2,140.87
==========
This is a written medical plan contracted through Rocky
Mountain HMO. The dental plan is contracted through Delta Dental Plan of
Colorado and administered by Rocky Mountain HMO.
2. Vacation Pay: The Company has a formal vacation program available to
each employee and based on years of service. The plan is given in writing to
each employee upon start of employment. After the first anniversary of the start
of employment the employee is entitled to take 5 paid days of paid vacation.
After the second anniversary the employee is entitled to take ten days of paid
vacation. After the fifth anniversary to nine years of employment the employee
earns one extra day per year up to a maximum of 15 days. All vacation hours are
awarded yearly on individual anniversary dates. Full-time and salaried staff are
eligible for vacation time off with pay after one year of continuous employment.
Employees that are terminated receive payment for the unused and awarded
vacation hours net of all applicable payroll taxes.
3. Health Club: The Company pays for the monthly membership fee for any
employee who wishes to attend a local health club, Crossroads Fitness Center.
The membership fee is $29.00 per month and the employee must continually attend
a minimum of 8 times per month to be eligible.
4. 401(k) Plan: The Company offers a 401(k) Plan administered through
Dean Witter Reynolds to all full-time employees. The Company contributes $9.25
per pay period up to $240.50 per year for each employee enrolled in the plan.
5. 125 Flex Plan: This plan is entirely sustained by employee
contribution with no Company participation and is currently inactive.
6. Severance Pay: The Company's unofficial plan for severance pay of
terminated employees is one week's pay for each year of service.
All benefits are available only to regular or salaried employees who work a
minimum of 1,000 hours per year.
Schedule 3.10(b): ERISA Liability: Not Applicable.
Schedule 3.10(c): Collective Bargaining/Labor: Not Applicable.
77
<PAGE>
Schedule 3.10(d): Employment Agreements; Severance Agreements.
Pease has the following Severance/Employment Agreements:
A. Retirement, Severance and Termination of Employment Agreement dated
January 1, 1998 by and between Pease Oil and Gas Company and J. N. "Newt"
Burkhalter. Agreement provided that severance would be at rate of $4,500 per
month for the first 12 months and $3,785 for next 20 months for a total of
$129,700. Stock options shall remain effective.
7. Employment Agreement dated December 27, 1994 by and between Pease Oil
and Gas Company and Patrick J. Duncan. Stipulates lump sum payments
plus extension of all options from date of termination upon change of
control of company.
8. Letter Confirmation of Employment Contract dated January 11, 1999 by
and between Pease Oil and Gas Company and Patrick J. Duncan. Reconfirms
POG obligation under employment agreement. Stipulates payment of a lump
sum amount equal to two years annual compensation at current rate [
$97,500 annually], repurchase by POG of Duncan's POG stock owned [1,563
shares] at the higher of Duncan's cost [$25,000] or current fair market
value at the time of change of control, plus a two-year extension of
all options from date of change of control.
Schedule 3.10(e): Retiree Medical/Insurance Benefits: Not Applicable.
Schedule 3.10(f): Other ERISA Matters: Not Applicable.
Schedule 3.10(g): Amendments to Plans: Not Applicable.
Schedule 3.11: Tax Liens: Not Applicable.
Schedule 3.11(b): Certain Tax Representations: Not Applicable.
Schedule 3.11(c): Other Tax Matters: Not Applicable.
Schedule 3.14: Environmental Matters.
The following is a list of outstanding surface
reclamation/environmental matters:
1. Final surface reclamation settlement with Ms. Judy Durnal on P&A'd well
locations located in Morrill County, Nebraska. Estimated remaining
obligation cost: $5,000.
2. Final surface reclamation approval from the State of Colorado on eight
(8) P&A'd well locations located in Logan and Washington Counties.
Estimated remaining obligation cost: $25,000.
78
<PAGE>
3. Pursuant to Purchase and Sale Agreement dated effective October 1,
1998, with Magpie Operating, Inc., Pease's environmental liability for
its operations remains an outstanding obligation until March 31, 2000.
This liability is based on any legal notice from the landowner and/or
State of Colorado. Although Pease has not received any notice from
either a landowner or the State of Colorado to date on any of the well
locations sold to Magpie Operating, Inc., the possibility of a notice
of an environmental or surface reclamation claim remains outstanding.
4. Pursuant to Purchase and Sale Agreement dated effective November 1,
1998, with Coral Production Corporation, Pease's environmental
liability for its operations remains an outstanding obligation until
December 4, 1999. This liability is based on any legal notice from the
landowner and/or State of Colorado. Although Pease has not received any
notice from either a landowner or the State of Colorado to date on any
of the well locations sold to coral Production Corporation, the
possibility of a notice of an environmental or surface reclamation
claim remains outstanding.
5. The Utah office of the Bureau of Land Management has refused to
release Pease's operator's bond on wells located in Grand County,
Utah. The property, on which both producing and temporarily abandoned
wells are located, were sold to Burkhalter Engineering, Inc. effective
April 1, 1998. The BLM is withholding release of Pease's bond pending
negotiations with Burkhalter Engineering, Inc. on operational and
development plans for the field and a decision as to the amount of
bond increase the BLM will require for Burkhalter Engineering, Inc.
The Pease $25,000 bond is currently held by a Certificate of Deposit.
6. Final surface reclamation pending on two well locations in Hot Springs
County, Wyoming. Estimated remaining obligation cost: $5,000.
Note: Oil and/or natural gas, when produced from an oil or natural gas well,
may technically be designated as a "hazardous material."
Schedule 3.16: Brokers/Finders.
San Jacinto Securities, Inc. is entitled to an investment banking fee
at the completion of the transaction, a substantial portion of which
has been prepaid by Pease.
Schedule 3.17: Insurance.
Pease has the following insurance coverage:
79
<PAGE>
<TABLE>
<CAPTION>
Insurance Property/Risk
Insurance Policy Company Policy No. Covered Extent of Coverage Annual Premium
- ---------------- ------------------ ------------- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series 2000 + St. Paul Fire & VK08300020 Automobile Combined Single Limit $1,000,000/ $8,981.00
Umbrella Excess Marine Ins. BIPD/$50,000 Uninsured Motorist
-
Liability
Liability $2,000,000 general total limit/
$1,000,000 ea.person/event limit
Excess Liability $2,000,000
Business Property $300,000
Directors and Agricultural NSP2421978 Liability Coverage for $5,000,000 $61,197.00
Officers Liability Excess & Surplus Officers and Directors
Ins.
Control of Well Windsor WIN01471B Ownership of wells $3,000,000 wells under 7,500 feet/ Pd qrtrly on
Insurance Insurance Brokers drilled in Texas & $5,000,000 wells over 7,501 feet/ act.wells drill
Ltd Louisiana $15,000,000 wet drilling wells Yrly prem appx.
$25,000
401(k) Plan St. Paul Fire & 483 CF 0152 401(k) Plan $100,000 $250.00
Marine Ins.
Workers Colorado SIP 1383692 $1,059.00
Compensation Compensation
Insurance Insurance Agency
</TABLE>
Schedule 3.18: Properties: Not Applicable
Schedule 3.19: Certain Contracts and Restrictions.
Pease is a party to the following contracts or commitments:
A. Series B PIK Preferred Stockholders. The following persons hold
Series B PIK Preferred Stock pursuant to the Preferred Stock Investment
Agreement dated December 30, 1997:
<TABLE>
<CAPTION>
Original Social No. Of Invest-
Cert. No. Name of Holder Security No. Shares ment $
- --------- -------------------------------- ------------ ------ ------
<S> <C> <C> <C> <C>
1 Everen Clearing Corp. Cust. 36-3223831 1,000 $ 50,000
FBO Howard Amster IRA
2 Arbco Associates LP 95-3214739 16,000 800,000
3 Kayne Anderson Non-Traditional 95-4198602 18,000 900,000
Investments, L.P.
4 The Madav IX Foundation 34-1638258 2,000 100,000
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
5 Marine Crew & Co. ............ 04-3146033 14,000 700,000
6 Offense Group Associates, L.P. 95-411106 19,503 975,150
7 Opportunity Associates, L.P. . 95-4276878 6,000 300,000
8 Ramat Securities, Ltd. ....... 34-1786330 325 16,250
9 Sandpiper & Co. .............. 04-2831986 26,000 1,300,000
10 Tamar Securities Inc. ........ 34-16886387 3,000 150,000
---------- ----------
Total: 105,828 $5,291,400
========== ==========
</TABLE>
2. Convertible Debenture Holders. Pease has outstanding $2,782,500 in
Series B, 5% PIK Preferred Stock held by the following persons in the
following principal amounts:
Unsecured Principal
Name and Address of Holders Amount of Debenture
Gylan C. & Mary H. Allen Family Trust
Gylan C. Allen Trustee $ 17,500
American Energy Mgmt Profit Sharing Plan 70,000
Wilma Awerbuch 17,500
Hal Barstow 35,000
Lloyd K. Benson 14,000
Paul A. Bobzin 17,500
Wallace T. Boyack 17,500
Harry E. & Gloria S. Boyd 17,500
William L. & Ruth A. Bradford 17,500
Robert C. & Helen H. Broadbent 21,000
Broschart Family Trust
James & Gloria Broschart TTEES 17,500
Raymond and Jacquelyn Byrne 7,000
Everett C. & Joan M. Carty TTEES
FBO the Carty Living Trust 17,500
Larry W. & Suanne B. Casey, TTEES
FBO the Casey Family Trust 17,500
William J. (Jr) and M. Janice Cavin 35,000
David C. Cox 35,000
Patrick G. Curry 17,500
Stanley Cutler 17,500
Michael A. D'Asaro 17,500
Janice Davidson 56,000
Steven A. Dawes 35,000
81
<PAGE>
PEASE DISCLOSURE SCHEDULE
Unsecured Principal
Name and Address of Holders Amount of Debenture
Delta Financial Resources, Inc. 35,000
Leroy W. Smith TTEE
Doctors Financial Mgmt. Co., Inc. 70,000
Abed K. Elhaj 87,500
John A. and Alexandra Engs 17,500
Leita Foster Revokable Trust 14,000
Ronald A. & Margaret Fredson 35,000
Philip Frey Jr. 35,000
Jack H. Galbraith, TTEE
Jack H. Galbraith Living Trust 7,000
Mrs. Jill T. Georgeson 17,500
Robert Gilman 70,000
Barton Gleave 17,500
Wasatch Family Dental Care PC Pension Plan
FBO Rodney S. Gleave Family 17,500
The Gary B. Godfrey Family Revocable Trust
Gary B. Godfrey TTEE 14,000
Kilbourn Gordon III 7,000
Charles Grobe 175,000
Charles and Ila Grobe 1973 Trust,
The Separate Property of Ila Grobe 17,500
Edward Hafer 52,500
William Kelly Hagerty IRA 17,500
Alfred Fletcher & Bonnie F. Harris TTEES
The Harris Trust 21,000
Hartunian Family Trust 35,000
Patrick L. Harvey 35,000
R. Heiman Feed Yard, Inc. 14,000
Richard Houlihan 17,500
Betty R. Hughes, TTEE
R.P. & B.R. Hughes Trust 35,000
Evelyn Louise Jamett 17,500
Carroll S. Jones 17,500
Charles R. Kanne, Jr. 40,000
Charles Keiser 14,000
Mansour & Victoria Khayyam 35,000
Thomas B. Kirby 7,000
The Kirby Trust
Thomas B. Kirby TTEE 14,000
Kulick 1984 Trust
82
<PAGE>
PEASE DISCLOSURE SCHEDULE
Unsecured Principal
Name and Address of Holders Amount of Debenture
Edward L. Kulick TTEE 49,000
Doris Gene Lawler
c/o Janice Hosford 35,000
Lewis Family Trust
Phillis & Clair Lewis TTEES 7,000
Hanna Madaien 70,000
Jim H. Martin IRA -
Mesirow Financial Inc. Cust. 35,000
Thomas James McDonald 17,500
Daniel V. McLeod 112,000
Nicholas Mencinger & Julie Johnson 35,000
Dennis C. Meyer 14,000
Donald L. & Grave M. Modglin Co-TTEES 17,500
North County Pulmonary Medical Group Inc.
Profit Sharing Plan 21,000
Geraldine W. Paul 17,500
Don D. and Juanita J. Pierce 35,000
Dr. Franz J. Pum IRA 7,000
Milton Rabinowitz 35,000
William K. Ramey 17,500
Lavina G. Reott 35,000
D.R. Technologies, Inc. PSP
FBO Stuart N. Rosenwasser 35,000
George H. Ryan 14,000
Steve Schubert 35,000
Wayne Schwab 35,000
Schwartz Family Revocable Trust 7,000
Andrew D. Smith Profit Sharing Plan
FBO A. Smith 17,500
David E. Sproul 14,000
David E. Sproul as Custodian for
Lindsey M. Sproul (Minor) 7,000
Stauffer Family Revocable Living Trust 17,500
Lincoln F. & Helen M. Stock, TTEES
L.F. Stock and H.M. Stock Revocable Trust 35,000
Swarts Family Trust 21,000
Tamar Properties Inc. Profit Sharing Plan 17,500
Rennie C. and Kathleen Tejeda 35,000
W. Gayle Thompson TTEE 35,000
James W. Totman TTEE
83
<PAGE>
PEASE DISCLOSURE SCHEDULE
Unsecured Principal
Name and Address of Holders Amount of Debenture
FBO James W. Totman Trust 35,000
Tully Family Trust 7,000
Thomas R. Villone Trust
Thomas R. Villone TTEE 35,000
Julian R. Warner 17,500
Wayne Warner IRA 17,500
Harold L. and Sandra R. White 35,000
Guy B. and Jeanette Wilson, TTEES
FBO the Wilson Family Trust 17,500
John J. and Carolyn A. Witkowski 17,500
James J. Witwer TTEE
Employee Benefit Trust 70,000
Yamamoto Trust 17,500
TOTAL: $ 2,782,500
============
3. Unrecorded Contracts. Pease has the following material contracts
relating to its oil and gas properties which have not been recorded in
applicable real estate records:
1. SOUTH LAKE ARTHUR PROSPECT - E. WINN #1 WELL
Jefferson Davis Parish, Louisiana
a. Participation Agreement with Joint Operating Agreement attached as
Exhibit "B" dated November 12, 1996, as amended May 16, 1997.
2. EAST BAYOU SORREL PROSPECT - C. E. SCHWING #1, C. E. SCHWING #2 AND
STATE 2102 #1 WELLS
Iberville Parish, Louisiana
a. Participation Agreement with Joint Operating Agreement attached as
Exhibit "C" dated December 15, 1995. The JOA was amended effective
July 1, 1998, to allow additional parties to participate in the future
development of certain lands within the East Bayou Sorrel Area of
Mutual Interest.
b. Purchase and Sale Agreement dated December 31, 1996, between Atocha
Exploration, Inc., Browning Oil Company, Inc. and Potosky Oil and Gas,
Inc., as Sellers, and Pease Oil and Gas Company, as Buyer. (Pease
purchased a 7.8125% After Prospect Payout Interest in East Bayou
Sorrel Prospect).
c. Purchase and Sale Agreement dated February 26, 1997, between
Transworld Exploration & Production, Inc., Seller, and Pease Oil and
84
<PAGE>
Gas Company, Buyer. (Pease purchased a 10% working interest in East
Bayou Sorrel Prospect.)
d. Termination Letter Agreement dated May 20, 1998, between National
Energy Group, Inc., and Pease Oil and Gas Company which terminated an
on-going Pease participation in various National Energy prospects and
terminated Pease's participation in a 3-D seismic shoot for the
greater Bayou Sorrel field. Pease maintained its participation in the
3-D seismic shoot for the East Bayou Sorrel Area of Mutual Interest.
3. AUSTIN BAYOU PROSPECT - ZINN UNIT #1, KOPPLIN #1, BENNETT #1 WELLS
Brazoria County, Texas
a. Joint Operating Agreement dated May 15, 1997, between TransTexas
Gas Corporation, as Operator, and Pease Oil and Gas Company, et al, as
Non-Operators, as amended July 9, 1997, between Pease Oil and Gas
Company and Davis Petroleum Corp.
4. MAURICE PROSPECT - R. TRAHAN #1, J. P. OWEN #1 AND LAURA TRAHAN
#2 WELLS
Lafayette and Vermilion Parishes, Louisiana
a. Letter Agreement dated July 2, 1997, between Davis Petroleum Corp.
and Pease Oil and Gas Company with Joint Operating Agreement dated
April 21, 1997, between Amerada Hess Corporation, as Operator, and
Davis Petroleum Corp., as Non-Operator, attached as Exhibit "B" to the
Letter Agreement between Davis and Pease, as above referenced. The
Area of Mutual Interest of the JOA was amended October 2, 1997, as
between Amerada Hess Corporation, Davis Petroleum Corp. and Pease Oil
and Gas Company. The term of the Area of Mutual Interest under the JOA
was extended to 4/21/2000 by letter dated November 3, 1998, between
Amerada Hess Corporation, TransTexas Gas Corporation, Pease Oil and
Gas Company and Davis Petroleum Corp. An Amendment Letter to the
Operating Agreement dated November 1, 1998, which provided for Pease
and TransTexas to become signatory parties to the JOA, amended Article
VIII D. Maintenance of Uniform Interest, and amended Exhibit "A" to
include Pease and TransTexas Gas Corp.
b. Letter Agreement dated March 25, 1998, between Davis Petroleum
Corp., TransTexas Gas Corp. and Pease Oil and Gas Company wherein
Pease elected to purchase its proportionate share of Karbuhn Oil
Company's interest in the Camerina Sand formation in the Maurice
Prospect Area.
85
<PAGE>
c. Seismic Option Exploration Agreement dated April 20, 1998, between
Amerada Hess Corporation and Karbuhn Oil Company which was ratified by
Pease Oil and Gas Company,
d. Farmout Agreement dated June 1, 1998, from Amerada Hess
Corporation, Pease Oil and Gas Company, Davis Petroleum Corp. and
TransTexas Gas Corporation to Karbuhn Oil Company covering farmors
interest in the Bol Mex 2-A sand and limited to unit production from
the well bore of the Weston Hebert No. 1 well (a Karbuhn Oil Company
well).
e. Letter Agreement dated September 26, 1997, between Davis Petroleum
Corp., Amerada Hess Corporation, Pease Oil and Gas Company and
TransTexas Gas Corporation wherein Pease elected to participate in
purchasing oil and gas leases covering 200-250 acres, m/l, within the
Maurice Area of Mutual Interest. (Davis coordinating lease
purchasing).
f. Letter Agreement dated September 29, 1997, between Amerada Hess
Corporation, Davis Petroleum Corp., Pease Oil and Gas Company and
TransTexas Gas Corporation wherein Pease elected to participate in
purchasing oil and gas leases covering 200-250 acres, m/l, within the
Maurice Area of Mutual Interest. (Amerada Hess coordinating the lease
purchasing).
5. PARALLEL PETROLEUM CORPORATION PROJECTS
a. Formosa Grande Project - Exploration Agreement dated August 1,
1997, between Parallel Petroleum Corporation and Pease Oil and Gas
Company, et al.
b. Texana Project - Exploration Agreement dated July 15, 1997, between
Parallel Petroleum Corporation and Pease Oil and Gas Company, et al.
c. Ganado Project - Exploration Agreement dated November 1, 1997,
between Parallel Petroleum Corporation and Pease Oil and Gas Company,
et al.
(I) Joint Operating Agreement for the Strickler Prospect
(Alamo Royalty #1 Well) dated November 1, 1997.
6. OTHER CONTRACTS
a. Purchase and Sale Agreement dated July 31, 1998, between Pease Oil
and Gas Company, as Seller, and Magpie Operating, Inc., as Buyer.
Pease sold 100% of its interest in Colorado properties located in
Larimer
86
<PAGE>
and Weld Counties to Magpie with an effective date of August 1, 1998.
In the purchase and sale contract Pease assumed responsibility for
environmental claims through 3/31/2000 on the properties Pease owned
or operated prior to the effective date. Thereafter, Magpie is totally
responsible for any environmental claims no matter when the liability
may have occurred.
b. Purchase and Sale Agreement dated November 13, 1998, between Pease
Oil and Gas Company, as Seller, and Coral Production Corporation, as
Buyer. Pease sold 100% of its interest in Colorado Properties located
in Washington, Logan, Morgan, Weld Counties, in Nebraska Properties
located in Banner and Kimball Counties, and in Wyoming Properties
located in Laramie County to Coral with an effective date of November
1, 1998. In the purchase and sale contract Pease assumed
responsibility for environmental claims through 12/4/1999 on the
properties Pease owned or operated prior to the effective date.
Thereafter, Coral is totally responsible for any environmental claims
no matter when the liability may have occurred.
B. Unrecorded Contracts. Pease has the following material contracts
relating to its oil and gas properties which have not been recorded in
applicable real estate records:
1. SOUTH LAKE ARTHUR PROSPECT - E. WINN #1 WELL
Jefferson Davis Parish, Louisiana
a. Participation Agreement with Joint Operating Agreement attached as
Exhibit "B" dated November 12, 1996, as amended May 16, 1997.
2. EAST BAYOU SORREL PROSPECT - C. E. SCHWING #1, C. E. SCHWING #2 AND
STATE 2102 #1 WELLS
Iberville Parish, Louisiana
a. Participation Agreement with Joint Operating Agreement attached as
Exhibit "C" dated December 15, 1995. The JOA was amended effective
July 1, 1998, to allow additional parties to participate in the future
development of certain lands within the East Bayou Sorrel Area of
Mutual Interest.
b. Purchase and Sale Agreement dated December 31, 1996, between Atocha
Exploration, Inc., Browning Oil Company, Inc. and Potosky Oil and Gas,
Inc., as Sellers, and Pease Oil and Gas Company, as Buyer. (Pease
purchased a 7.8125% After Prospect Payout Interest in East Bayou
Sorrel Prospect).
87
<PAGE>
c. Purchase and Sale Agreement dated February 26, 1997, between
Transworld Exploration & Production, Inc., Seller, and Pease Oil and
Gas Company, Buyer. (Pease purchased a 10% working interest in East
Bayou Sorrel Prospect.)
d. Termination Letter Agreement dated May 20, 1998, between National
Energy Group, Inc., and Pease Oil and Gas Company which terminated an
on-going Pease participation in various National Energy prospects and
terminated Pease's participation in a 3-D seismic shoot for the
greater Bayou Sorrel field. Pease maintained its participation in the
3-D seismic shoot for the East Bayou Sorrel Area of Mutual Interest.
3. AUSTIN BAYOU PROSPECT - ZINN UNIT #1, KOPPLIN #1, BENNETT #1 WELLS
Brazoria County, Texas
a. Joint Operating Agreement dated May 15, 1997, between TransTexas
Gas Corporation, as Operator, and Pease Oil and Gas Company, et al, as
Non-Operators, as amended July 9, 1997, between Pease Oil and Gas
Company and Davis Petroleum Corp.
4. MAURICE PROSPECT - R. TRAHAN #1, J. P. OWEN #1 AND LAURA TRAHAN
#2 WELLS
Lafayette and Vermilion Parishes, Louisiana
a. Letter Agreement dated July 2, 1997, between Davis Petroleum Corp.
and Pease Oil and Gas Company with Joint Operating Agreement dated
April 21, 1997, between Amerada Hess Corporation, as Operator, and
Davis Petroleum Corp., as Non-Operator, attached as Exhibit "B" to the
Letter Agreement between Davis and Pease, as above referenced. The
Area of Mutual Interest of the JOA was amended October 2, 1997, as
between Amerada Hess Corporation, Davis Petroleum Corp. and Pease Oil
and Gas Company. The term of the Area of Mutual Interest under the JOA
was extended to 4/21/2000 by letter dated November 3, 1998, between
Amerada Hess Corporation, TransTexas Gas Corporation, Pease Oil and
Gas Company and Davis Petroleum Corp. An Amendment Letter to the
Operating Agreement dated November 1, 1998, which provided for Pease
and TransTexas to become signatory parties to the JOA, amended Article
VIII D. Maintenance of Uniform Interest, and amended Exhibit "A" to
include Pease and TransTexas Gas Corp.
b. Letter Agreement dated March 25, 1998, between Davis Petroleum
Corp., TransTexas Gas Corp. and Pease Oil and Gas Company wherein
Pease elected to purchase its proportionate share of Karbuhn Oil
Company's interest in the Camerina Sand formation in the Maurice
Prospect Area.
88
<PAGE>
c. Seismic Option Exploration Agreement dated April 20, 1998, between
Amerada Hess Corporation and Karbuhn Oil Company which was ratified by
Pease Oil and Gas Company,
d. Farmout Agreement dated June 1, 1998, from Amerada Hess
Corporation, Pease Oil and Gas Company, Davis Petroleum Corp. and
TransTexas Gas Corporation to Karbuhn Oil Company covering farmouts
interest in the Bol Mex 2-A sand and limited to unit production from
the well bore of the Weston Hebert No. 1 well (a Karbuhn Oil Company
well).
e. Letter Agreement dated September 26, 1997, between Davis Petroleum
Corp., Amerada Hess Corporation, Pease Oil and Gas Company and
TransTexas Gas Corporation wherein Pease elected to participate in
purchasing oil and gas leases covering 200-250 acres, m/l, within the
Maurice Area of Mutual Interest. (Davis coordinating lease
purchasing).
f. Letter Agreement dated September 29, 1997, between Amerada Hess
Corporation, Davis Petroleum Corp., Pease Oil and Gas Company and
TransTexas Gas Corporation wherein Pease elected to participate in
purchasing oil and gas leases covering 200-250 acres, m/l, within the
Maurice Area of Mutual Interest. (Amerada Hess coordinating the lease
purchasing).
5. PARALLEL PETROLEUM CORPORATION PROJECTS
a. Formosa Grande Project - Exploration Agreement dated August 1,
1997, between Parallel Petroleum Corporation and Pease Oil and Gas
Company, et al.
b. Texana Project - Exploration Agreement dated July 15, 1997, between
Parallel Petroleum Corporation and Pease Oil and Gas Company, et al.
c. Ganado Project - Exploration Agreement dated November 1, 1997,
between Parallel Petroleum Corporation and Pease Oil and Gas Company,
et al.
(I) Joint Operating Agreement for the Strickler Prospect
(Alamo Royalty #1 Well) dated November 1, 1997.
6. OTHER CONTRACTS
a. Purchase and Sale Agreement dated July 31, 1998, between Pease Oil
and Gas Company, as Seller, and Magpie Operating, Inc., as Buyer.
Pease sold 100% of its interest in Colorado properties located in
Larimer
89
<PAGE>
and Weld Counties to Magpie with an effective date of August 1, 1998.
In the purchase and sale contract Pease assumed responsibility for
environmental claims through 3/31/2000 on the properties Pease owned
or operated prior to the effective date. Thereafter, Magpie is totally
responsible for any environmental claims no matter when the liability
may have occurred.
b. Purchase and Sale Agreement dated November 13, 1998, between Pease
Oil and Gas Company, as Seller, and Coral Production Corporation, as
Buyer. Pease sold 100% of its interest in Colorado Properties located
in Washington, Logan, Morgan, Weld Counties, in Nebraska Properties
located in Banner and Kimball Counties, and in Wyoming Properties
located in Laramie County to Coral with an effective date of November
1, 1998. In the purchase and sale contract Pease assumed
responsibility for environmental claims through 12/4/1999 on the
properties Pease owned or operated prior to the effective date.
Thereafter, Coral is totally responsible for any environmental claims
no matter when the liability may have occurred.
Schedule 3.23: Intellectual Property: Not Applicable.
Schedule 5.02(f): None.
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<PAGE>
CARPATSKY DISCLOSURE SCHEDULES
[Assumes Torch & Debenture Debt Converted
except for RLG & Calaway]
Schedule 4.01
A. Carpatsky Petroleum Corporation, a Delaware company, is a
wholly-owned subsidiary of Carpatsky Petroleum, Inc. ("Carpatsky"). Carpatsky
Petroleum Corporation also has a representative office in Kyiv, Ukraine.
B. Carpatsky, through a Joint Venture Agreement dated April 18, 1995,
owns a 50% working interest (45% net revenue) in Ukrcarpatoil, Ltd., a Ukrainian
Joint Venture, created for the purpose of production, exploitation and
exploration of the Bitkov-Babchensk field, located in the Ivano-Frankovsk
district of southwestern Ukraine. Ukrcarpatoil Ltd. entered into a License
Agreement dated July 25, 1995. Carpatsky's rights to profits 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 August 13, 1999. Carpatsky's rights and obligations are
subject to all the terms and conditions of the Joint Venture Agreement and
License Agreement, as amended.
C. Carpatsky, through 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, owns an interest for the purpose of investment,
exploration and operation of the Rudovsko-Chervonozavodsky field, located in the
Poltava district of eastern Ukraine (this contract, as amended, is referred to
collectively herein as the "Joint Activity Agreement"). The Joint Activity
Agreement is sometimes referred to as the Carpatsky-Poltavaneftagaz Joint
Activity, which essentially acts as, and is referred to as, a Ukrainian Joint
Venture. Pursuant to the terms of the Joint Activity Agreement, Carpatsky has
the right, not the obligation, to own up to a 45% net revenue interest
(representing a 50% working interest) in the Joint Activity. The net revenue
interest is determined by: a.) dividing Carpatsky's total capital contributions,
as defined in the Joint Activity Agreement, by the total capital contributions
of the Joint Activity; and b.) multiplying this percentage by 90%. The Joint
Activity Agreement is unclear whether or not the working interest decreases
proportionately should Carpatsky's total contributions, as compared to the total
contributions of the Joint Activity, fall below 50%. However, it is Carpatsky's
representation to Pease that the working interest, and corresponding obligations
to the Joint Account, would be proportionately reduced under such circumstances.
As of June 30, 1999, Carpatsky's net revenue interest in the Joint Activity was
17.77% (representing a presumed working interest of 19.74%). Carpatsky's rights
and obligations are subject to all terms and conditions of the Joint Activity
Agreement, as amended.
Schedule 4.03(a)
A. 100% of the common stock of Carpatsky Petroleum Corporation, a
Delaware company, is security for Carpatsky's promissory note to RLG
International, Inc. in the principal amount of $351,073.76 as of June 30, 1999.
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<PAGE>
Schedule 4.03(b)(i)
A. Options: The following options to purchase Carpatsky common stock
are outstanding:
1. Andrew Burgess 150,000 @ Can $0.20
2. James Calaway 100,000 @ Can $0.20
3. James Calaway 200,000 @ Can $0.29
4. Fred Hofheinz 261,112 @ Can $0.25
5. Leslie C. Texas 261,112 @ Can $0.25
6. Clive Richards 400,000 @ Can $0.25
7. Jim Thomson 100,000 @ Can $0.29
8. Vincent Andrews 50,000 @ Can $0.29
9. John Sfondrini 50,000 @ Can $0.29
----------
Total: 1,572,224
The exercise price of the outstanding options in U.S. Dollars will be
determined no later than the Closing Date of the Transaction.
B. Warrants: The following warrants to purchase Carpatsky common shares
are either outstanding or committed to be issued:
SCHEDULE OF CARPATSKY PURCHASE WARRANTS(1)
OUTSTANDING OR COMMITTED TO BE ISSUED AS OF JULY 1, 1999
Holder Existing (2) New (3) Total (1)
- --------------------------------------------- ---------- ------------
Clive Richards 1,040,000 535,934 1,565,934
Green Acres Enterprises, Inc. 1,680,000 849,586 2,529,586
Glebe Investment Corp 100,000 50,570 150,570
Maro Enterprises Corp 100,000 50,570 150,570
Vitali Maritime Corp 200,000 101,140 301,140
Bellwether Exploration, Inc. 0 967,296 967,296
Torch Energy Advisors 4,800,000 1,407,808 6,207,808
Proteus International 0 435,000 435,000
Private Placement Investors (4) 0 5,000,000 5,000,000
David Melman 357,500 357,500
---------------- ---------- -----------
Totals 7,920,000 9,667,904 17,587,904
=========== ========= ==========
Warrant Footnotes:
1. All warrants are exercisable until December 31, 2000 at an
exercise price of US $0.20.
2. Outstanding warrants have, by agreement, been modified
as to term or price to reflect footnote (1).
3. Warrants that may be issued in connection with the loan
exchange/conversion agreements, as additional consideration
for the private placement, or in consideration for fees owed.
4. See detail schedule below under number 6 in item C under
"Other Rights".
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<PAGE>
C. Other rights:
1. Carpatsky has granted registration rights covering
substantially all of the Carpatsky shares held or that could be held
(including those shares underlying warrants or any convertible
securities) by both Torch Energy Advisors, Inc. ("Torch") and
Bellwether Exploration Co. ("Bellwether") in connection with a
Registration Rights Agreement dated January 9, 1998. These registration
rights may be amended in connection with the Third Amendment to Loan
Agreement and Note Conversion Agreement that is expected to be executed
by both Torch and Bellwether prior to the Closing of the Transaction.
2. Carpatsky has offered to settle its outstanding debt with
RLG International, Inc. by converting the entire promissory note,
inclusive of accrued but unpaid interest, into 2.8 million shares of
Carpatsky common stock (equivalent to US $0.125 per share) plus issuing
an additional 597,539 warrants to purchase Carpatsky common stock. The
warrants would expire on December 31, 2000 and be exercisable at US
$0.20 per share. These potential securities are not included in the
disclosures tables because it is unknown at this time whether or not
the offer will be accepted.
3. Carpatsky has offered to settle its outstanding debt with
James Calaway by converting the entire promissory note, inclusive of
accrued but unpaid interest, into 1.76 million shares of Carpatsky
common stock (equivalent to US $0.125 per share) plus issuing an
additional 461,250 warrants to purchase Carpatsky common stock. The
warrants would expire on December 31, 2000 and be exercisable at US
$0.20 per share. These potential securities are not included in the
disclosures tables because it is unknown at this time whether or not
the offer will be accepted.
4. Carpatsky has offered to settle all claims of Proteus
International totaling $90,000 by issuing 720,000 shares of Carpatsky
common stock (equivalent to US$0.125 per share) plus issuing warrants
to purchase an additional 435,000 shares of Carpatsky common stock. The
warrants would expire on December 31, 2000 and be exercisable at US
$0.20 per share.
5. Carpatsky has offered to settle a payable account with
Torch Energy Advisors, Inc. in the amount of US $150,000 by payment of
1,200,000 shares of Carpatsky common stock (equivalent to US $0.125 per
share).
6. Shares and purchase warrants to be issued by Carpatsky to
the Private Placement Investors or their Assignees as of July 31, 1999
are as follows:
Private Placement Investors . Amount Shares Warrants
Eurosecurities Ltd. .......... $ 261,140 3,481,870 1,305,700
J. Craig Nelson .............. 100,000 1,333,334 500,000
J. B. Willis ................. 25,000 333,334 125,000
Robert J. Monroe, Executor
Estate of J. Edgar Monroe 100,000 1,333,334 500,000
Fred Hofheinz 325,000 4,333,334 1,625,000
Larry Brown 75,000 1,000,000 375,000
Andrew Burgess 75,000 1,000,000 375,000
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<PAGE>
Glebe Investments Corp, ...... 38,860 518,134 194,300
---------- ---------- ----------
Subtotal ............ 1,000,000 13,333,340 5,000,000
David A. Melman (Commission) . -- 953,333 357,500
---------- ---------- ----------
Total ............... $1,000,000 14,286,673 5,357,500
========== ========== ==========
7. Shares to be issued to Carpatsky creditors @ US $0.125 per
share as of July 31, 1999 are as follows:
Holder Debt Shares
----------- ----------- -----------
Clive Richards (1) $ 308,100 2,464,800
Green Acres Enterprises, Inc. (1) 497,700 3,981,600
Glebe Investment Corp. (1) 29,625 237,000
Maro Enterprises Corp. (1) 29,625 237,000
Vitali Maritime Corp. (1) 59,250 474,000
Bellwether Exploration (1) 566,653 4,533,224
Torch Energy Advisors (1) 824,715 6,597,720
Proteus International (2) 90,000 720,000
Torch Energy Advisors (2) 100,000 503,635
----------- -----------
Total .................. $ 2,505,668 19,748,979
=========== ===========
Footnotes:
1. Issuable in connection with the loan
conversion/exchange agreements.
2. Issuable in connection with the settlement
of amounts owed for services rendered.
Schedule 4.03(b)(ii) - None
Schedule 4.03(b)(iii)
As discussed in Schedule 4.01 C, Carpatsky's net revenue interest as of
June 30, 1999 in the Carpatsky-Poltavaneftagaz Joint Activity is 17.77%.
Pursuant to the terms of the Joint Activity Agreement, as amended, as of June
30, 1999, Carpatsky has the right to increase its net revenue interest
percentage to 45% by contributing, or repaying, approximately $6.4 million to
the Joint Account, or its partners. The terms of the Joint Activity Agreement
contemplate that Carpatsky will be a 50/50 partner on all expenditures subject
to the Joint Activity. The Joint Activity Agreement also contemplates that from
time-to-time the respective partners may not contribute at the contemplated
50/50 levels and has certain provisions that deal with these imbalances.
However, it is unclear as to whether or not Carpatsky's right to increase its
net revenue interest percentage to 45% will or can be honored by its partners
indefinitely.
Schedule 4.03(b)(iv) - None
Schedule 4.03(b)(v) - None
94
<PAGE>
Schedule 4.03(c)
A. Warrants and Options
All outstanding warrants and options (including those that may
be issued prior to the closing of the Transaction in connection with
the private placement, loan exchange/conversion agreements, or in
consideration for fees owed) of Carpatsky are listed in Schedule
4.03(b)(i) above. A copy of the respective Forms have been provided to
Pease.
B. Carpatsky Stock Awards
1. As previously disclosed in Schedule 4.03(b)(i)C, item 5,
Torch Energy Advisors, Inc. will receive 1,200,000 Carpatsky shares in
settlement of a payable due Torch for services performed for $150,000,
2. As previously disclosed in Schedule 4.03(b)(i)C, item 4,
Proteus International has been offered 720,000 Carpatsky shares and
warrants to purchase 435,000 Carpatsky common shares in settlement of a
$90,000 claim for services. As previously disclosed, the warrants will
be exercisable at US $0.20 per share and will expire on December 31,
2000.
3. As previously disclosed in Schedule 4.03(b)(i)C, item 6,
David A. Melman will receive 953,333 common shares of Carpatsky and
warrants to purchase 357,000 Carpatsky common shares in connection with
financial services rendered in a US $1,000,000 private placement. As
previously disclosed, the warrants will be exercisable at US $0.20 per
share and will expire on December 31, 2000.
Schedule 4.05 - None
Schedule 4.06 - None
Schedule 4.07 (ii)
Carpatsky's financial statements referred to in Section 4.07 have
erroneously omitted the financial condition, results of operations and cash
flows from both the Ukrcarpatoil, Ltd. Joint Venture Company and the
Carpatsky-Poltavaneftagaz Joint Activity.
Schedule 4.08
As of June 30, 1999, the Carpatsky-Poltavaneftagaz Joint Activity had
incurred a Corporate Profits Liability in UAH of 3,361,693 (US equivalent is
$851,298 using June 30, 1999 exchange rates). This liability is past due and
incurring interest at a annual rate of 45% (the discount rate in UAH of the
National Bank of Ukraine). Using Carpatsky's presumed working interest of 19.74%
at June 30, 1999, our proportionate share is approximately US $168,046,
excluding interest. However, as discussed in Schedule 4.01C, the wording of the
Carpatsky-Poltavaneftagaz Joint Activity Agreement leaves the issue of the
adjustable working interest unclear. Accordingly, if the working interest is
50%, Carpatsky's proportionate share could be as high as US$425,649, excluding
interest.
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<PAGE>
Schedule 4.09
Carpatsky has received communications from RLG International, Inc. of its
intentions to protect their rights against the company with litigation, if
necessary. The outstanding principal due to RLG as of June 30, 1999 is
$351,073.76. As disclosed in Schedule 4.03(b)(i)C, item 2, Carpatsky has
extended an offer to RLG to settle this matter in full. However, this matter is
currently unresolved.
Schedule 4.11
A. Historically, Mr. Texas has been classified and paid as an
independent contractor, not as an employee of Carpatsky. Accordingly,
should this ever be challenged, Carpatsky may have a contingent
liability to the Internal Revenue Service and the State of Texas for
failure to withhold and pay certain employment related taxes from
amounts paid in past years to Carpatsky's President, Leslie C. Texas.
B. As disclosed in Schedule 4.08, as of June 30, 1999 the
Carpatsky-Poltavaneftagaz Joint Activity had incurred a Corporate
Profits Liability in UAH of $3,361,693 (US equivalent is $851,298 using
June 30, 1999 exchange rates). This liability is past due and incurring
interest at an annual rate of 45% (the discount rate in UAH of the
National Bank of Ukraine). Using Carpatsky's presumed working interest
of 19.74% at June 30, 1999, our proportionate share is approximately US
$168,046, excluding interest. However, because it is unclear whether
the working interest could arguably be 50% Carpatsky proportionate
share could be as high as US$425,649, excluding interest.
Schedule 4.15(a)
All Ukrainian employers are required by law to pay monies to a Ukrainian
government pension for all Ukrainian employees on a monthly basis. This includes
Ukranian employees of the representative office of Carpatsky, of Ukrcarpatoil
Ltd. and of employees for the Carpatsky- Poltavaneftagaz Joint Activity
Agreement. Because this pension plan is governed by the laws of Ukraine, there
is no copy available to furnish Pease.
Schedule 4.15(c) - None
Schedule 4.15(f)
Carpatsky employs one person in its Ukranian Representative Office. The
Ukrcarpatoil Ltd. joint venture employs 15 persons. Carpatsky does not employ
any person directly to work on the Carpatsky-Poltavaneftagaz Joint Activity
Agreement. The required pensions for all the above employees are paid up as of
the date of this agreement.
Schedule 4.17
Carpatsky has no environmental liability exposure in the United States.
96
<PAGE>
In Ukraine, the property governed by the Carpatsky-Poltavaneftagaz Joint
Activity Agreement and the property governed by the Bitkov License and Licensing
Agreement are subject to the Ukranian Law "On Protection of the Environment"
(hereinafter "Environmental Law"). Carpatsky has not made any independent
evaluation or assessment of the environmental damage either (i) existing at the
time it obtained an interest in either of the properties or (ii) created
subsequent to the time it obtained an interest in either of these properties. To
Carpatsky's best knowledge and belief, the operations conducted on both
properties during the entire time Carpatsky has had an interest in them have
been conducted in compliance with the Environmental Law of Ukraine. Carpatsky
has not received any notice of noncompliance with environmental laws from any
governmental agency.
Carpatsky, pursuant to the terms of the Agreement, will have an independent
environmental assessment (baseline determination) performed on the Bitkov
property and shift the "historic" (damage caused prior to Carpatsky obtaining an
interest in the property) environmental clean up liability and responsibility to
Ukraneft pursuant to the Licensing Agreement prior to the expiration of the
organization period (as defined in the Licensing Agreement, and amendments
thereto).
Carpatsky may have responsibility and liability for historic environmental
damage regarding the property governed by the Carpatsky-Poltavaneftagaz Joint
Activity Agreement. However, Carpatsky represents it will use its best efforts
in the future to mitigate or eliminate any historic environmental damage.
Schedule 4.18 - None
Schedule 4.19
The following are Carpatsky's contractual commitments in excess of
$10,000 over 12 months as of June 30, 1999:
A. As discussed in Schedule 4.01 C and disclosed in Schedule
4.03(b)(iii), Carpatsky's working interest as of June 30, 1999 in the
Carpatsky-Poltavaneftagaz Joint Activity is 19.74%. Pursuant to the terms of the
Joint Activity Agreement, as amended, as of June 30, 1999, Carpatsky has the
right to increase its working interest percentage to 50% by contributing, or
repaying, approximately $6.4 million to the Joint Account, or its partners. The
terms of the Joint Activity Agreement contemplate that Carpatsky will be a 50/50
partner on all expenditures subject to the Joint Activity. The Joint Activity
Agreement also contemplates that from time-to-time the respective partners may
not contribute at the contemplated 50/50 levels and has certain provisions that
deal with these imbalances. However, it is unclear as to whether or not
Carpatsky's right to increase its working interest percentage to 50% will or can
be honored by its partners indefinitely. Right to pay for Carpatsky's share of
RC field operations in Ukraine $6,400,000 to acquire an additional 23.2 percent
working interest.
B. Trade debt to Hughes Christensen: $69,000 as of August 1, 1999.
C. Trade debt to ABB Vetco, Gray: $120,362 as of August 1, 1999.
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D. Promissory Note debt to RLG International, Inc.: $351,073.76. This
note is technically in default. As previously disclosed in Schedule 4.03(b)(i)
C, item 2, Carpatsky has extended an offer to RLG to settle this matter in full.
However, this matter is currently unresolved.
E. Debenture debt to James Calaway: $271,000 inclusive of interest to
August 1, 1999. This note is technically in default. As previously disclosed in
Schedule 4.03(b)(i) C, item 2, Carpatsky has extended an offer to Mr. Calaway to
settle this matter in full. Should Mr. Calaway not accept the conversion offer,
he has indicated to Carpatsky that restructuring the debt into an installment
loan would be an acceptable manner of resolving the default. However, this
matter is currently unresolved.
Schedule 4.23 - None
Schedule 5.03(b)(v) - None
Schedule 5.03(b)(xiv) - None
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<PAGE>
August 31, 1999
Each Holder of Series B Convertible Preferred Stock
Re: Exchange Agreement and Irrevocable Proxy
Gentlemen:
This letter agreement ("Agreement") is intended to set forth the
understandings, representations and agreements by and among Pease Oil and Gas
Company, a Nevada corporation ("Company"), Carpatsky Petroleum, Inc., a
corporation organized under the laws of the Province of Alberta, Canada
("Carpatsky"), and the undersigned holder (the "Holder") of the Company's Series
B 5% PIK Cumulative Convertible Preferred Stock ("Series B Preferred") and is
made with reference to the following agreed facts.
21. Holder is the record and beneficial owner of the number of shares
(the "Shares") of the Company's Series B Preferred set forth on Exhibit A
attached hereto. There are 105,828 shares of Series B Preferred issued and
outstanding.
22. The Company and Carpatsky have entered into a Agreement and Plan of
Merger dated on or about August 31, 1999, (the "Merger Agreement"), of which
this Letter Agreement is Exhibit A.
23. The Merger Agreement provides that all outstanding Series B
Preferred shall be exchanged for a total of 8,865,664 shares of Company common
stock at or before the time of closing of the Merger Agreement.
24. Under agreements dated effective May 24, 1999, the undersigned
Holder and each other holder of outstanding Series B Preferred agreed not to buy
or sell or to convert Company securities, including the Series B Preferred,
until the earlier of: (i) closing of the Merger Agreement, (ii) termination or
abandonment of the Merger Agreement by the parties, or (iii) November 15, 1999
(the "Lock-Up Agreement").
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25. The Company, Carpatsky and the undersigned holder intend to set
forth terms and conditions of the agreement of the Holder to exchange all shares
of Series B Preferred held by Holder at the time of the closing of the Merger
Agreement for shares of Company common stock, as set forth on Exhibit A.
FOR CONSIDERATION, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
a. Merger Agreement. The Company and Carpatsky shall diligently
pursue the closing of the Merger Agreement and completion of
the transactions described therein (the "Closing").
b. Representations and Warranties to Holder. The Representations
and Warranties of Pease as set forth in Article III of the
Merger Agreement, and the Representations and Warranties of
Carpatsky, as set forth in Article IV of the Merger Agreement,
shall be extended to Holder and Holder shall be entitled to
rely upon such representations and warranties to the same
extent as if Holder was a party to the Merger Agreement. All
such representations and warranties shall not survive the
Closing except as provided in the Merger Agreement.
c. Exchange of Series B Preferred. At or before the Closing
of the Merger Agreement, the Holder and each other holder of
outstanding Series B Preferred shall exchange all Series B
Preferred then held, together with all other dividend
rights, conversion rights, voting rights or other rights
which may be applicable to the Series B Preferred, for that
number of shares of Company common stock set forth on
Exhibit A attached hereto and incorporated herein by
reference. At or before the Closing of the Merger Agreement,
Holder shall deliver to the Company, for exchange, each
certificate held by Holder representing Series B Preferred.
At the time of exchange, and no later than the Closing of
the Merger Agreement, the Company shall cause to be issued
one certificate representing the appropriate number of
shares of Company common stock as set forth on Exhibit A in
exchange for Holder's Series B Preferred and the Series B
Preferred shall be canceled.
d. Post-Merger Limitations. Holder agrees not to effect any sales
of the Company common stock to be issued in exchange for the
Series B Preferred in a manner which does not comply with
applicable provisions of Rule 145 promulgated under the
Securities Act of 1933. An appropriate legend reflecting this
restriction may be placed on certificates representing the
Company common stock to be issued in exchange for the Series B
Preferred.
e. Termination of Certain Rights. Upon the completion of the
Exchange, the rights and privileges of the Holder as
described in the Preferred Stock Purchase Agreement dated
effective December 31, 1997 and the Certificate of
Designation of Series B 5% PIK Cumulative Convertible
Preferred Stock, as amended, as filed with the Secretary of
State of Nevada, which designated a total of 145,300 shares
of the Company's Series B Preferred and set forth the rights
and privileges applicable thereto (the "Series B Preferred
Designation") shall be terminated. Following the Exchange,
holders' rights as a security holder of the Company shall be
as the holder of common stock of the Company and Company's
Articles of Incorporation shall be amended to delete the
Series B Preferred Designation.
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<PAGE>
f. Irrevocable Proxy. The undersigned Holder who holds the
number of shares of Series B Preferred set forth on Exhibit
A, hereby makes, constitutes and appoints the President of
Pease Oil and Gas Company, or his designee, as the true and
lawful attorney and proxy of the undersigned Holder, for,
and in its name, place and stead, to attend any and all
meetings of the shareholders of Pease Oil and Gas Company
and to vote any and all shares of Series B 5% PIK Cumulative
Convertible Preferred Stock of Pease Oil and Gas Company
standing in the name of the undersigned Holder at any
meeting of stockholders or any adjournments thereof for the
following purposes only:
(1) To vote to approve the Agreement and Plan of Merger
dated effective August __, 1999 between Pease Oil and
Gas Company and Carpatsky Petroleum, Inc. ("Merger
Agreement");
(2) To approve the Amendment and Restatement of the
Articles of Incorporation of the Company as
contemplated by the Agreement and Plan of
Reorganization; and
(3) To approve, ratify and adopt any and all actions
heretofore or hereafter taken by the Company and its
management to implement the transactions contemplated
by the Merger Agreement and this Agreement.
The undersigned Holder confirms that this proxy is given in connection with a
reorganization of Pease Oil and Gas Company and that this proxy is coupled with
an interest, is binding on the Holder and its successors and assigns and is
irrevocable while the Lock Up Agreement is in effect, as described in Section 8
below, provided, however, that this proxy shall be deemed canceled if the
parties terminate the Merger Agreement before Closing. The undersigned Holder
hereby represents and warrants that the execution, delivery and performance of
this Agreement has been duly authorized and is a legally binding obligation of
the Holder enforceable in accordance with its terms. The Holder hereby
represents and acknowledges that it is familiar with the business and financial
condition of the Company and Carpatsky and has had access to such information as
it has requested to enable it to make an informed decision to acquire the
Company common stock in exchange for its shares of Series B Preferred Stock. The
Holder hereby represents and warrants that it is an "accredited investor," as
defined in Rule 501 under the Securities Act of 1933, as amended, and hereby
ratifies and confirms all that the said proxy lawfully may do or cause to be
done by virtue of this authorization.
g. Other Series B Preferred Holders. This Agreement shall be
effective and binding upon the Holder provided that holders of
at least 95% of the outstanding Series B Preferred, as
identified on Exhibit A, enter into this Agreement with the
Company and Carpatsky.
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<PAGE>
h. Lock-Up Agreement. The Lock-Up Agreement between the Company
and Holder shall remain in full force and effect and shall be
enforceable in accordance with its terms, provided, that the
date through which Holder shall not buy or sell or convert
Series B Preferred shall be extended to the later of (i)
Closing of the Merger Agreement, (ii) termination or
abandonment of the Merger Agreement, or (iii) November 15,
1999.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of August __, 1999.
PEASE OIL AND GAS COMPANY,
a Nevada corporation
By _________________________________
Patrick J. Duncan, President
CARPATSKY PETROLEUM, INC.
an Alberta, Canada corporation
By _________________________________
Fred Hofheinz, Director and
authorized signatory
HOLDER:
Name
------------------------------------
Signature
------------------------------------
Name and Title of Person Signing
Number of Shares of Series B Preferred Held
102
[GRAPHIC OMITTED]
PEASE OIL AND GAS AND CARPATSKY PETROLEUM ANNOUNCE PLAN OF MERGER
FOR IMMEDIATE RELEASE - September 13, 1999
Grand Junction, Colorado - September 13, 1999 - Pease Oil and Gas Company (OTC
BB: WPOG) and Carpatsky Petroleum, Inc. (Alberta: KPY.AL) announced today that
they have signed a definitive Agreement and Plan of Merger (" the Agreement") to
combine their respective businesses through a reverse merger. Pease Oil and Gas
Company ("Pease" or "the Company") holds interests for the exploration,
production and development of oil and gas properties in the United States, with
properties currently located in Louisiana and Texas. Carpatsky Petroleum, Inc.
("Carpatsky") holds interests for the exploration, production and development of
oil and gas properties in the Republic of Ukraine. Carpatsky, once the
transaction is consummated, will own approximately 76.5% of the newly combined
entity. The Agreement is still conditioned upon, among other things, regulatory
and shareholder approvals. However, the Agreement was unanimously approved by
the Boards of Directors of both companies, and the directors and officers of
Pease have agreed to vote their shares in favor of the transaction. The parties
expect to complete the transaction by year-end or early next year.
As discussed in the News Release dated May 27, 1999, Carpatsky's assets consist
of interests in two separate fields: 1.) the Rudovsko-Chervonozavodskoye Field
(a/k/a the "RC" Field) located in the Poltava District of Eastern Ukraine; and
2.) the Bitkov Field located in the Ivano-Frankivs'k District of Southwest
Ukraine (near the Carpathian Mountains). In both areas, Carpatsky's planned
operations will primarily focus on exploitation activities -- drilling
development wells and performing workovers on existing wellbores -- in order to
monetize proven reserves.
Pursuant to the terms of the Agreement, the newly combined entity will have
approximately 45 million shares outstanding distributed as follows:
approximately 76.5% to the former Carpatsky shareholders; approximately 19.7% to
the Company's former Series B Preferred stockholders; and approximately 3.8% to
the Company's current common stockholders. In negotiating the exchange ratio
with Carpatsky, no value was assigned to Carpatsky's right to increase its net
revenue interest ("NRI") in the RC Field from 20% to 45% nor to the reserves
attributable to Carpatsky's interest in the Bitkov Field. All of Pease's Series
B Preferred stockholders have agreed that no additional dividends shall accrue
or be paid subsequent to August 31, 1999, under the presumption that the
transaction will ultimately by consummated. Therefore, this Agreement has stayed
any further dilution to Pease's common stockholders and eliminates the cash
drain of the corresponding dividend.
According to a reserve report prepared by Ryder Scott Company, the dollar
value of Carpatsky's discounted reserves (PV-10) prepared on a SEC basis
(constant pricing and costs) as of June 30, 1999 are as follows:
<PAGE>
FOR IMMEDIATE RELEASE - September 13, 1999 (Page 2 of 2)
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold Interests of
Carpatsky Petroleum
(Paid-In Interest Case)
As of June 30, 1999
<TABLE>
<CAPTION>
Proved
Developed Total
Producing Non-Producing Undeveloped Proved
Net Remaining Reserves
<S> <C> <C> <C> <C>
Oil/Condensate - Barrels 171,000 105,300 1,482,300 1,758,600
Gas - Mcf .............. 14,496,000 7,547,000 84,194,000 106,237,000
Income Data
Future Gross Revenue ... $ 18,597,870 $ 8,965,629 $104,326,582 $131,890,081
Deductions ............. 8,730,625 3,893,399 53,800,346 66,424,370
------------ ------------ ------------ ------------
Future Net Income (FNI) $ 9,867,245 $ 5,072,230 $ 50,526,236 $ 65,465,711
Discounted FNI @ 10% ... $ 7,105,448 $ 1,305,301 $ 20,350,314 $ 28,761,063
</TABLE>
Assuming the NRI in the RC field was increased to 45%, Carpatsky's total proved
reserves according to Ryder Scott would be increased to approximately $57
million, net of an additional funding requirement of approximately $6.4 million.
Patrick J. Duncan, President of Pease, stated: "After reviewing a broad range of
strategic opportunities over the past several months, it became increasingly
obvious that the business combination of Pease Oil and Gas and Carpatsky
Petroleum made compelling sense strategically, operationally and financially. As
such, this merger creates substantial upside potential for all Pease
shareholders, both now and in the future."
Fred Hofheinz, Chairman of the Board of Carpatsky, commented: "The transactions
contemplated by the merger agreement are beneficial to both companies. The Pease
shareholders receive a significant interest in Carpatsky's large proven gas
reserves in Ukraine and the Carpatsky shareholders acquire interests in
producing American reserves as well as a listing in the U.S. over-the-counter
market and a stockholder base which includes several of the most astute and
aggressive institutional oil and gas investors in the United States."
Pease Oil and Gas Company is an independent energy company engaged in the
exploration for and the acquisition and development of oil and gas properties
using 3-D seismic technology. For more information please contact Patrick J.
Duncan, CFO at (970) 245-5917.
Forward-Looking Statements: The statements in this report regarding estimated
proven reserves, expected values, issuance of shares, terms of the merger
transaction, planned operations, exploration, projected production performance
and expected drilling and development activities are "forward-looking
statements" within the meaning of the federal security laws. Such statements are
inherently uncertain, and actual results and activities may differ materially
from those estimated or projected. Certain factors that can affect the Company's
ability to achieve projected results are described in the Company's Annual
Report and other reports filed with the Securities and Exchange Commission. Such
factors include, among others: material unknown factors discovered during
further due diligence; the final negotiated terms while preparing a formal
purchase and sale agreement; the uncertainty of shareholder and regulatory
approvals; uncertainties inherent in reserve estimations and production rates,
especially for estimates of undeveloped reserves; operational risks inherent in
the oil and gas industry with corresponding exposure to delays; significant cost
overruns; mechanical problems; the highly competitive nature of the oil and gas
industry with corresponding shortages of equipment and personnel; the uncertain
cost and pricing environment in the oil and gas industry; and the commercial and
country risks associated with doing business in the Republic of Ukraine. The
Company has no obligation to update the statements contained in this report or
to take action that is described herein or otherwise presently planned.
Law Offices
William F. Warnick
2022 Broadway
Lubbock, Texas 79401
September 10, 1999
Mr. Pat Duncan
President
Pease Oil and Gas Company VIA FAX AND REGULAR MAIL
751 Horizon Court
Suite 203
Grand Junction, Colorado 81506
Re: Pease Board of Dirtectors and Chairmanship of the Board
Dear Mr. Duncan:
Please accept this correspondence as official notification of my
resignation as Chairman of the Board of Pease Oil and Gas Company and as a
Director of said organization.
As you know, if I have lost confidence in the management of the Company
and do not feel that I can in good conscience continue with my present post in
that I strongly disagree with many of your positions. I have been unable to
persuade you to cooperate with me; I have been virtually uninformed for the past
several months and believe a free flow of information is essential to effective
continuation as a Director and Chairman of Pease. After careful consideration, I
have no reasonable alternative but resignation.
I wish you and my fellow board members well in your future endeavors. I
admonish you to take seriously your obligation to protect the interest of both
the Pease debt holders and the common shareholders.
Very truly yours,
WILLIAM F. WARNICK
WFW/ms
cc: Pease Board Members
