Final Execution Copy
FIRST AMENDMENT TO MERGER AGREEMENT
This first amendment (the "Amendment") to the Merger Agreement is
entered into on this 3rd day of January, 2000, by and among Pease Oil and Gas
Company, a Nevada corporation ("Pease"), its wholly owned Delaware subsidiary
CPI Acquisition Corp. ("CPI Acquisition") and Carpatsky Petroleum Inc., an
Alberta corporation ("Carpatsky"), and evidences the following:
WHEREAS, Pease, CPI Acquisition and Carpatsky have entered into an
Agreement and Plan of Merger ("Merger Agreement"), dated August 31, 1999,
providing for, among other things, the continuance of Carpatsky into a newly
formed Delaware corporation ("New Carpatsky"), and the merger of CPI Acquisition
with and into New Carpatsky;
WHEREAS, capitalized terms used herein have the meaning given to them
in the Merger Agreement, unless otherwise provided herein;
WHEREAS, Carpatsky and Bellwether Exploration Company, a Delaware
corporation ("Bellwether"), have entered into a Securities Purchase Agreement,
of even date herewith, ("the "Purchase Agreement"), pursuant to which Bellwether
has agreed to purchase, and Carpatsky has agreed to issue and sell, a newly
created series of Carpatsky convertible preferred shares (the "Carpatsky
Preferred Shares"), having the rights, preferences and privileges as set forth
in the Articles of Amendment attached as Exhibit A to the Purchase Agreement;
WHEREAS, among other things, the Carpatsky Preferred Shares will grant
to Bellwether the right to cast a majority of the votes cast at a meeting of
Carpatsky shareholders;
WHEREAS, in connection with the issuance of such Carpatsky Preferred
Shares, (i) the parties to the Merger Agreement desire to make certain changes
to the Merger Agreement to provide for the treatment of the Carpatsky Preferred
Shares in the Redomestication and Merger and (ii) Pease desires to consent to
the issuance of the Carpatsky Preferred Stock as required by the Merger
Agreement;
NOW, THEREFORE, the parties hereto, for good and valuable
consideration, the receipt and sufficiency of which is acknowledged, and
desiring to be legally bound, do hereby agree as follows:
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ARTICLE I. CONSENT TO PURCHASE AGREEMENT
Section 1.1 Consent of Pease and CPI Acquisition. Pease and CPI
Acquisition acknowledge receipt of a copy of the Purchase Agreement and hereby
consent to the issuance of the Carpatsky Preferred Stock and the other
transactions contemplated by the Purchase Agreement. The issuance of the
Preferred Stock pursuant to and other transactions contemplated by the Purchase
Agreement shall not be a "Competing Transaction" as defined in the Merger
Agreement.
ARTICLE II. AMENDMENTS TO MERGER AGREEMENT
Section 2.1 Amendment to Recitals of the Merger Agreement. The Section
of the Merger Agreement entitled "RECITALS" is hereby amended to read in its
entirety as follows:
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") and the holders of
convertible preferred shares, series A, without par value ("Old Carpatsky
Preferred Shares") (each such dissenting holder, a "Dissenting Old Carpatsky
Stockholder") to seek an appraisal of the fair value thereof as provided in
Section 184 of the ABCA, and
(i) 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");
(ii) each Old Carpatsky Preferred Share, issued and
outstanding prior to the effective time of the Redomestication not
owned by Carpatsky or any subsidiary of Carpatsky, will be converted
into 1.073 shares of convertible preferred stock, series A, $.01 par
value ("New Carpatsky Preferred Stock"), of New Carpatsky having the
rights, preferences and privileges set forth in the certificate of
designation attached to the First Amendment to Merger Agreement dated
December 30, 1999 (the "First Amendment to Merger Agreement") as
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Exhibit A (Old Carpatsky Preferred Shares and New Carpatsky Preferred
Stock are sometimes referred to herein collectively as "Carpatsky
Preferred Stock"); and
(iii) 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 terms and
conditions provided for in such warrant, option or other right.
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, each share of New Carpatsky Common Stock, issued and
outstanding immediately prior to the Effective Time (as defined herein) of the
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 0.57842 shares of common stock, par value $.01 per share of Pease
("Pease Common Stock"), and each share of New Carpatsky Preferred Stock will be
converted into one share of convertible preferred stock, series A, par value
$0.01 per share of Pease ("New Pease Preferred Stock") having the rights,
preferences and privileges set forth in Exhibit B to the First Amendment to
Merger Agreement, subject to the right of holders of such shares of New
Carpatsky Common Stock and New Carpatsky Preferred 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, will be converted at the Effective Time into one share of New
Carpatsky Common Stock.
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 8,865,665 shares of Pease Common Stock (the "Pease Preferred Stock
Exchange Ratio").
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D. Following the consummation of the Merger, the fully diluted
ownership of the common stock of the Surviving Corporation will be:
Number Percent
Pease Common Stockholders 1,688,698 1.65%
Pease Preferred Stockholders 8,865,665 8.66%
Pease Option and Warrant holders 393,811 .38%
Carpatsky Common Stockholders 44,959,557 43.91%
Carpatsky Preferred Stockholders 28,920,984 28.25%
Carpatsky Warrant holders 17,448,263 17.04%
Carpatsky Option holders 115,684 .11%
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102,392,662 100.0%
E. In the Purchase Agreement (as defined in the Amendment) Bellwether
has agreed to vote for the Redomestication and Merger, subject to the terms and
conditions of the Merger Agreement, and when Bellwether votes for the
Redomestication and Merger it will no longer be able to exercise its dissenters
rights of appraisal;
F. The Board of Directors of Pease has determined that the Exchange and
the Merger, as amended by the First Amendment to Merger Agreement, 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.
G. The Board of Directors of Carpatsky has determined that the
Redomestication and Merger, as amended by the First Amendment to Merger
Agreement, 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.
H. 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").
Section 2.2 Amendment to Article II of the Merger Agreement. Article II
of the Merger Agreement entitled "CONVERSION OF SECURITIES; EXCHANGE OF
CERTIFICATES" is hereby amended to read in its entirety as follows:
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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,
(i) 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 0.57842 shares of Pease Common
Stock (the "Carpatsky Common Stock Exchange Ratio");
(ii) each share of New Carpatsky Preferred Stock
issued and outstanding immediately prior to the Effective Time
(excluding any Carpatsky Preferred 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 one share of New Pease
Preferred Stock (the "Carpatsky Preferred Stock Exchange Ratio"); and
(iii) 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 Exchange Ratio, the Carpatsky Preferred Stock
Exchange Ratio and the 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, Old Carpatsky Preferred
Shares, New Carpatsky Preferred Stock or Pease Common Stock or Pease 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
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Time, in accordance with the provisions of such agreements, to reflect the
Carpatsky Common Stock Exchange Ratio.
(c) Notwithstanding any provision of this Agreement to the
contrary, each share of Carpatsky Common Stock or Carpatsky Preferred Stock held
in the treasury of Carpatsky and each share of Carpatsky Common Stock or
Carpatsky Preferred 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 (other than shares of New Carpatsky Common Stock held
by Pease at the Effective Time), Carpatsky Preferred 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 Carpatsky Common Stock, Carpatsky Preferred Stock 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(g) of this Agreement, that number
of shares of Pease Common Stock or New Pease Preferred 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 or New Pease Preferred 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
or New Pease Preferred 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 and New Pease Preferred
Stock issued to the former holders of Carpatsky Common Stock, Carpatsky
Preferred Stock and Pease Preferred Stock in the Merger shall be registered
under the Securities Act of 1933, as amended (the "Securities Act").
(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
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Law, as the case may be; provided, however, that shares of Carpatsky Common
Stock or Carpatsky Preferred 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 or New Pease Preferred Stock, respectively.
Section 2.02 Exchange and Surrender of Certificates.
(a) Subject to Section 2.02(h) below, 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(e) 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 Stock, Carpatsky Preferred Stock and Pease Preferred Stock who
have not exchanged their Converted Share Certificates as contemplated by Section
2.02(h), 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 or New Pease
Preferred 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 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 or New Pease Preferred Stock (as the case may be)
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 Stock, Carpatsky Preferred
Stock 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 or New Pease Preferred Stock may be
issued to a transferee if the Converted Share Certificate representing such
Carpatsky Common Stock, Carpatsky Preferred Stock 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
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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 or New Pease Preferred
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 or New Pease Preferred Stock as contemplated by Section 2.02(f).
(c) After the Effective Time, there shall be no further
registration of transfers of Carpatsky Common Stock, Carpatsky Preferred Stock
or Pease Preferred Stock. If, after the Effective Time, certificates
representing shares of Carpatsky Common Stock, Carpatsky Preferred 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 Stock, Carpatsky
Preferred Stock 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, Carpatsky Preferred 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 Stock, Carpatsky Preferred Stock 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 or New Pease Preferred 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 or
New Pease Preferred 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 or New Pease Preferred 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 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 or New Pease
Preferred Stock (on an as converted basis) 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).
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(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 Stock, Carpatsky Preferred Stock 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
Stock, Carpatsky Preferred Stock 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.
Notwithstanding the foregoing, no such withholding shall be required with
respect to any shares of Carpatsky Preferred Stock or New Pease Preferred Stock
issued or issuable in the Merger to Bellwether Exploration Company
("Bellwether").
(h) Bellwether shall be entitled, at its election, to attend
the Closing of the Merger and to tender at such Closing to Pease the Converted
Share Certificates held by Bellwether duly endorsed for transfer to New
Carpatsky, and shall be entitled to receive certificates registered in
Bellwether's name representing the number of shares of Pease Common Stock and
New Pease Preferred Stock to which Bellwether is entitled under this Agreement.
Section 2.03 Amendment to Article III. The following amendments are
hereby made to the Sections of Article III of the Merger Agreement as indicated:
(a) Section 3.03(d) is amended to add the words "and New Pease
Preferred Stock" after the words "Pease Common Stock" in the first sentence
thereof.
(b) Section 3.04 is amended to add the words "and New Pease
Preferred Stock" after the words "Pease Common Stock" in the first and second
sentence thereof.
(c) Section 3.12(b) is amended to add the words "or New Pease
Preferred Stock" after the words "Pease Common Stock."
Section 2.04 Amendment to Article IV. The following amendments are
hereby made to the Sections of Article IV of the Merger Agreement as indicated:
(a) Section 4.03(a) is amended to replace the number
77,728,263 for 40,796,246; and to add the words ", and an unlimited number of
shares of Old Carpatsky Preferred Stock" after the words "issued and
outstanding".
(b) Section 4.03(b) is amended to add the words "or Preferred
Stock" after the words "Common Stock" in the second sentence thereof.
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(c) Section 4.04 is amended to add the words "and Preferred
Stock" after the words "Common Stock" in the second sentence thereof.
(d) Section 4.11(c) is amended to add the words "and Old
Carpatsky Preferred Shares" after the words "Old Carpatsky Common Stock" in the
two locations where such words appear, to add the words "and New Pease Preferred
Stock" after the words "Pease Common Stock" in the two locations where such
words appear and to add the words "and Preferred Stock" after the words "Common
Stock" in the two locations where such words appear in the parenthetical to such
sentence.
(e) Section 4.12 is amended to add the words "and Preferred
Shares voting together as a class" after "Old Carpatsky Common Stock" in clause
(i) and to add the words "and Preferred Stock voting together as a class" after
the words "New Carpatsky Common Stock" in clause (ii).
Section 2.05 Amendment to Article VI. Section 6.02(a) of Article VI of
the Merger Agreement is hereby amended to add the words "and New Pease Preferred
Stock" after the words "Pease Common Stock" in the first and second sentences
thereof.
Section 2.06 Amendment to Article VII. The following amendments are
hereby made to the Sections of Article VII the Merger Agreement as indicated.
(a) The first sentence of Section 7.01(b) is amended to read
as follows:
"(b) Stockholder Approval. The Amendment, this Agreement and the
issuance of the Pease shares described in this Agreement in connection
with 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."
(b) Section 7.02(e)(2) is amended to read in its entirety as
follows:
"(2) Carpatsky shall have received the written opinion of Messrs.
Feleski Flynn, Calgary, Alberta dated the Closing Date, the effect that
the tax consequences to Canadian stockholder of Carpatsky under
Canadian income tax laws shall be consistent with the description
thereof included in Form S-4 at the time the Form S-4 is declared
effective."
(c) Section 7.02(h) and 7.03(g), requiring "comfort letters"
from auditors of Pease and Carpatsky, are deleted.
(d) Section 7.03(h) is amended to add the words "and Preferred
Stock" after the words "Carpatsky Common Stock" in the two places where such
words appear.
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(e) Section 7.03(l) is amended to read in its entirety as
follows:
"(l) Carpatsky Financial Statements. Carpatsky shall have completed and
obtained audits of its financial statements for the years ended
December 31, 1997 and 1998 and completed its financial statements for
the fiscal periods ended September 30, 1998 and 1999, all by December
31, 1999. Assuming such financial statements have accounted for the
Ukrainian joint ventures using proportionate consolidation, they shall
reflect the following (to the extent provided below):
(i) A working capital deficit for Carpatsky, on a
proportionately consolidated basis, as of September 30, 1999 no greater
than $5,000,000. For purposes of this calculation, any amount received
under Carpatsky's $1.0 private placement of securities may be added to
current assets as at September 30, 1999 and debt actually converted
into equity may be deleted as at September 30, 1999, on a pro forma
basis.
(ii) Total long term liabilities, on a
proportionately consolidated basis, as at September 30, 1999 shall not
exceed $550,000 (excluding accrued interest payable).
(iii) The balance due to the joint account as at
September 30, 1999 for Carpatsky's working interest in the RC Field in
the Ukraine does not exceed $6.75 million.
(iv) Carpatsky's net revenue interest in the RC Field
shall not be less than 19.7% on October 1, 1999.
(v) Carpatsky or its subsidiaries is delivering gas
for sale by Closing of the Merger under such reasonable gas sales
arrangements as Pease shall have approved in writing, which approval
shall not be unreasonably withheld.
(vi) Carpatsky, its subsidiaries or Ukrainian joint
ventures have commenced receiving payment for at least 90% of the gas
sold pursuant to 7.03(l)(v) above by the Closing of the Merger and that
reasonable assurance can be given that future payments will continue to
be received.
(vii) [This subsection has been deleted.]"
Section 2.07 Amendment to Section 8.01 of Article VIII.
Section 8.01 is amended by changing the words "December 31, 1999" to "March 31,
2000" and changing the words "March 31, 2000" to "April 30, 2000" and the last
clause of such section, ("to receive . . . merger") shall be deleted.
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ARTICLE III. AMENDMENTS TO EXHIBITS AND SCHEDULES
Section 3.1 Amendments to Exhibits. The following Exhibits to the
Merger Agreement are added or amended as indicated below:
(a) The following Exhibits to are added to the Merger
Agreement in the form attached to this Amendment:
Exhibit A Preferred Stock Designation for New
Carpatsky
Exhibit B Preferred Stock Designation for Pease
(b) The following amendments are made to the Exhibits attached
to the Merger Agreement:
Exhibit A to the Merger Agreement (changes to Pease
preferred stockholder agreements) is amended as reflected on the attachment
hereto.
Exhibit B-4 is amended to read in its entirety as
Exhibit B-4 attached hereto.
Section 3.2 Amendment to Schedules. The following Schedules to the
Merger Agreement are hereby amended as follows:
(a) Schedule 1.05 is amended to read in its entirety as
Schedule 1.05 attached hereto.
(b) Schedules 4.01, 4.03(b)(iii), 4.07(ii), 4.08, 4.11, 4.17
and 4.19 are amended to add the following language: "The letter from Krug &
Sobel, LLC addressed to the Pease Board of Directors, dated August 19, 1999, is
incorporated into this Schedule and the entire text of such letter is deemed to
be included herein."
(c) Schedules 4.01(c), 4.03(b)(iii), 4.03(c)B (regarding
Melman Shares), 4.08 and 4.11 (regarding taxes), 4.19(A) are modified or
replaced as reflected on the attachments to this Amendment:
ARTICLE IV. GENERAL PROVISIONS
Section 4.1 No Other Changes. Except as otherwise changed by this
Amendment, the Merger Agreement shall remain in full force and effect, unaltered
by this Amendment.
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Section 4.2 Multiple Counterparts. This Amendment may be executed in
multiple counterparts, each of which shall be an original, and all of which
taken together shall be one instrument.
IN WITNESS WHEREOF, this Amendment was executed as of the date above
first written.
PEASE OIL AND GAS COMPANY
By:
----------------------------------------
Name: Patrick J. Duncan
Title: President
CPI ACQUISISTION CORP.
By:
----------------------------------------
Name:
Title:
CARPATSKY PETROLEUM, INC.
By:
----------------------------------------
Name: David A. Melman
Title: Chief Corporate Officer
13
<PAGE>
Exhibit A
to
First Amendment to Merger Agreement
dated December 30, 1999
[NEW CARPATSKY PETROLEUM, INC.]
CERTIFICATE OF DESIGNATION
OF CONVERTIBLE PREFERRED STOCK,
SERIES A SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF
SUCH PREFERRED STOCK
Pursuant to the Delaware General Corporation Law, [NEW CARPATSKY
PETROLEUM, INC.], a Delaware corporation (the "Corporation"), DOES HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of
the Corporation by the Articles of Incorporation of the Corporation (the
"Charter"), the Board of Directors of the Corporation on [ ], 2000 duly adopted
the following resolution creating a series of Preferred Stock designated as
Convertible Preferred Stock, Series A and such resolution has not been modified
and is in full force and effect on the date hereof:
RESOLVED that, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the Charter, a
series of authorized Preferred Stock, without par value, of the Corporation are
hereby created and that the designation and number of shares thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series of Preferred Stock, and the
qualifications, limitations and restrictions thereof are as follows:
Section 1. Designation and Number.
(a) The shares of such series of Preferred Stock shall be designated as
"Convertible Preferred Stock, Series A" ("Preferred Stock"). The number of
shares initially constituting the Preferred Stock shall be 102,410,000 shares,
which number may be increased or decreased by the Board of Directors without a
vote of stockholders; provided, however, that such number may not be decreased
below the number of then outstanding shares of such series of Preferred Stock.
(b) The Preferred Stock shall, with respect to rights on liquidation,
dissolution or winding up, rank prior to all other classes and series of Junior
Stock of the Corporation now or hereafter authorized including, without
limitation, the Common Stock.
(c) Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in Section 10 below.
Section 2. Dividends and Distributions.
In the event that the Corporation shall declare a cash dividend to
holders of Common Stock, then the Board of Directors shall declare, and the
holder of each share of Preferred Stock shall be entitled to receive, a dividend
in an amount equal to the amount of such dividend received by a holder of the
number of shares of Common Stock for which such share of Preferred Stock is
convertible on the record date for such dividend. Any such amount shall be paid
to the holders of shares of Preferred Stock at the same time such dividend is
made to holders of Common Stock.
The holders of shares of Preferred Stock shall not be entitled to
receive any dividends or other distributions except as provided herein.
Section 3. Voting Rights.
In addition to any voting rights provided by law and except where only
a specified class or series of shares is entitled to vote, the holders of shares
of Preferred Stock shall have the following voting rights:
<PAGE>
(a) Except as otherwise required by applicable law and so long as the
Preferred Stock is outstanding, each share of Preferred Stock shall entitle the
holder thereof to vote, in person or by proxy or written consent, at a special
or annual meeting of stockholders or in connection with any stockholder action
taken in lieu of a meeting of stockholders, on all matters voted on by holders
of Common Stock, including the election of directors, voting together as a
single class with all other shares entitled to vote thereon. With respect to any
such vote, each share of Preferred Stock shall entitle the holder thereof to
cast one vote for each share of Preferred Stock standing in his or her name on
the transfer books of the Corporation as of the record date for determining the
stockholders of the Corporation eligible to vote on any such matters.
(b) Unless the consent or approval of a greater number of shares shall
then be required by law, the affirmative vote of the holders of at least 66-2/3%
of the outstanding shares of Preferred Stock, voting separately as a single
class, in person or by proxy, at a special or annual meeting of stockholders
called for the purpose, shall be necessary to (i) authorize, adopt or approve an
amendment to the Charter that would increase or decrease the par value of the
shares of Preferred Stock, or alter or change the powers, preferences or special
rights of the shares of Preferred Stock, (ii) amend, alter or repeal the Charter
so as to affect the shares of Preferred Stock adversely, including, without
limitation, by granting any voting right to any holder of notes, bonds,
debentures or other debt obligations of the Corporation, or (iii) authorize,
increase the authorized number of shares of, or issue (including on conversion
or exchange of any convertible or exchangeable securities or by
reclassification) any additional shares of Preferred Stock except under Section
9.
(c) For so long as the shares of Preferred Stock are outstanding, the
Corporation shall not issue any capital stock entitling the holder thereof to
vote generally under ordinary circumstances in the election of directors, other
than (i) Common Stock and (ii) Preferred Stock issued pursuant to Section 9.
Section 4. Redemption.
The Corporation shall not have any right to redeem any shares of
Preferred Stock.
Section 5. Reacquired Shares.
Any shares of Preferred Stock converted, exchanged, redeemed, purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares of
Preferred Stock shall upon their cancellation become authorized but unissued
shares of preferred stock.
Section 6. Liquidation, Dissolution or Winding Up.
(a) If the Corporation shall commence a voluntary case under the United
States bankruptcy laws or any applicable bankruptcy, insolvency or similar law
of any other country, or consent to the entry of an order for relief in an
involuntary case under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due (any such event, a
"Voluntary Liquidation Event"), or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and on account of any
such event the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up, the holders of the
Preferred Stock shall be entitled to receive the Liquidation Amount prior to any
payment being made or any property of the Corporation being distributed to the
<PAGE>
holders of the Common Stock or the holders of any Junior Stock. After payment to
the holders of the Preferred Stock of the Liquidation Amount, the holders of the
Preferred Stock shall be entitled to receive (rateably with the holders of the
Common Shares) for each share of Preferred Stock held, the amount which would
have been received by the Holder of such Preferred Stock if on the record date
for such distribution, the holder of such Preferred Stock had converted such
Preferred Stock into the number of shares of Common Stock into which such
Preferred Stock was convertible on the record date for such distribution.
(b) Neither the consolidation or merger of the Corporation with or into
any other Person nor the sale or other distribution to another Person of all or
substantially all the assets, property or business of the Corporation shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 6.
Section 7. Conversion.
(a) Subject to the terms and conditions set forth herein, each share of
Preferred Stock shall be convertible into a number of fully paid and
non-assessable shares of Common Stock as is equal, subject to Section 7(g), to a
fraction, the numerator of which shall be the Common Stock Conversion Number and
the denominator of which shall be the number of shares of Preferred Stock issued
and outstanding on the date of conversion. The Common Stock Conversion Number
shall initially be 50,000,000, and shall be subject to adjustment as set forth
in this Section. Such conversion right may only be exercised by the holders of a
majority of the outstanding shares of Preferred Stock surrendering certificates
("Surrendered Certificates") representing a majority of the outstanding shares
of Preferred Stock to the Corporation at any time during usual business hours at
its principal place of business to be maintained by it, accompanied by written
notice that the holders of a majority of the outstanding shares of Preferred
Stock elect to convert such shares and specifying the name or names (with
address) in which a certificate or certificates for shares of Common Stock are
to be issued and (if so required by the Corporation) by a written instrument or
instruments of transfer in form reasonably satisfactory to the Corporation duly
executed by the holder or its duly authorized legal representative and transfer
tax stamps or funds therefor, if required pursuant to Section 7(j). Upon such
surrender, all shares of Preferred Stock shall automatically be converted into
Common Stock as provided in this Section. Notwithstanding the foregoing
provisions or anything set forth herein or in the Certificate, any shares of
Preferred Stock remaining outstanding on December 28, 2004 shall be and be
deemed to have been converted into Common Stock at the Conversion Number then in
effect.
(b) As promptly as practicable after the surrender, as herein provided,
of shares of Preferred Stock for conversion pursuant to Section 7(a), the
Corporation shall deliver to all holders of Preferred Stock a written notice
informing such holders (i) that the holders of a majority of the outstanding
shares of Preferred Stock have delivered their certificates for such shares to
the Corporation in satisfactory form for conversion into Common Shares pursuant
to the requirements of this Section 7, (ii) that, as result of such delivery,
all outstanding Preferred Stock has been converted into the right to receive
Common Stock and (iii) of the Common Stock Conversion Number and instructing
such holders to surrender the certificates representing their Preferred Stock to
the Corporation in the manner specified in Section 7(a) above in order to
receive certificates representing the Common Stock deliverable upon the
conversion of their Preferred Stock. As promptly as practicable after the
surrender of any certificates representing Preferred Stock in accordance with
the requirements of this Section 7, the Corporation shall deliver to or upon the
written order of the holder of such shares so surrendered a certificate or
certificates representing the number of fully paid and non-assessable shares of
Common Stock into which such shares of Preferred Stock may be or have been
converted in accordance with the provisions of this Section 7. Subject to the
<PAGE>
following provisions of this paragraph and of Section 7(d), such conversion
shall be deemed to have been made immediately prior to the close of business on
the date that such shares of Preferred Stock shall have been surrendered in
satisfactory form for conversion, and the Person or Persons entitled to receive
the Common Stock deliverable upon conversion of such shares of Preferred Stock
shall be treated for all purposes as having become the record holder or holders
of such Common Stock at such appropriate time, and such conversion shall be
based on the Common Stock Conversion Number in effect at such time; provided,
however, that no surrender shall be effective to constitute the Person or
Persons entitled to receive the Common Stock deliverable upon such conversion as
the record holder or holders of such Common Stock while the share transfer books
of the Corporation shall be closed (but not for any period in excess of five
days), but such surrender shall be effective to constitute the Person or Persons
entitled to receive such Common Stock as the record holder or holders thereof
for all purposes immediately prior to the close of business on the next
succeeding day on which such share transfer books are open, and such conversion
shall be deemed to have been made at, and shall be based on the Common Stock
Conversion Number in effect at, such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Preferred Stock are
converted, all dividends declared and unpaid on the Preferred Stock so converted
to the date of conversion shall be immediately due and payable and must
accompany the shares of Common Stock issued upon such conversion.
(d) The Common Stock Conversion Number shall be subject to adjustment
as follows:
(i) In case the Corporation shall at any time or from time to
time (A) pay a dividend or make a distribution on the outstanding
shares of Common Stock in capital stock (which, for purposes of this
Section 7(d) shall include, without limitation, any dividends or
distributions in the form of options, warrants or other rights to
acquire capital stock) of the Corporation, (B) subdivide the
outstanding shares of Common Stock into a larger number of shares, (C)
combine the outstanding shares of Common Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Stock then, and in each such case, the
Common Stock Conversion Number in effect immediately prior to such
event shall be adjusted to equal the Common Stock Conversion Number in
effect immediately prior to such action multiplied by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
after the action described in clauses (A) through (D) and the
denominator of which is the number of shares of Common Stock
outstanding immediately prior to such action. An adjustment made
pursuant to this Section 7(d)(i) shall become effective retroactively
(A) in the case of any such dividend or distribution, to a date
immediately following the close of business on the record date for the
determination of holders of Common Stock entitled to receive such
dividend or distribution or (B) in the case of any such subdivision,
combination or reclassification, to the close of business on the day
upon which such corporate action becomes effective.
(ii) In case the Corporation shall at any time or from time to
time issue shares of Common Stock (or securities convertible into or
exchangeable for Common Stock, or any options, warrants or other rights
to acquire shares of Common Stock) for a consideration per share less
than the Current Market Price per share of Common Stock then in effect
at the record date or issuance date, as the case may be (the "Date"),
referred to in the following sentence (treating the consideration per
share of any security convertible or exchangeable or exercisable into
Common Stock as equal to (A) the sum of the price for such security
convertible, exchangeable or exercisable into Common Stock plus any
additional consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of such security
into Common Stock divided by (B) the number of shares of Common Stock
initially underlying such convertible, exchangeable or exercisable
<PAGE>
security), then, and in each such case, the Common Stock Conversion
Number in effect shall be adjusted by multiplying the Common Stock
Conversion Number in effect on the day immediately prior to the Date by
a fraction (x) the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the Date plus the number of
additional shares of Common Stock issued or to be issued (or the
maximum number into which such convertible or exchangeable securities
initially may convert or exchange or for which such options, warrants
or other rights initially may be exercised) and (y) the denominator of
which shall be the sum of the number of shares of Common Stock
outstanding on the Date plus the number of shares of Common Stock which
the aggregate consideration for the total number of such additional
shares of Common Stock (or securities convertible into or exchangeable
for Common Stock, or any options, warrants or other rights to acquire
shares of Common Stock) plus the aggregate amount of any additional
consideration initially payable (without regard to any anti-dilution
adjustments) upon such conversion, exchange or exercise of such
security into Common Stock would purchase at the Current Market Price
per share of Common Stock on the Date. Such adjustment shall be made
whenever such shares, securities, options, warrants or other rights are
issued, and shall become effective retroactively to a date immediately
following the close of business (i) in the case of issuance to
stockholders of the Corporation, as such, on the record date for the
determination of stockholders entitled to receive such shares,
securities, options, warrants or other rights and (ii) in all other
cases, on the date ("issuance date") of such issuance; provided that:
(A) the determination as to whether an adjustment is required to be
made pursuant to this Section 7(d)(ii) shall be made upon the issuance
of such shares or such convertible or exchangeable securities, options,
warrants or other rights; (B) if any convertible or exchangeable
securities, options, warrants or other rights (or any portions thereof)
which shall have given rise to an adjustment pursuant to this Section
7(d)(ii) shall have expired or terminated without the exercise thereof
and/or if by reason of the terms of such convertible or exchangeable
securities, options, warrants or other rights there shall have been an
increase or increases or decrease or decreases, with the passage of
time or otherwise, in the price payable upon the exercise or conversion
thereof, then the Common Stock Conversion Number hereunder shall be
readjusted (but to no greater extent than originally adjusted) on the
basis of (x) eliminating from the computation any additional shares of
Common Stock corresponding to such convertible or exchangeable
securities, options, warrants or other rights as shall have expired or
terminated, (y) treating the additional shares of Common Stock, if any,
actually issued or issuable pursuant to the previous exercise of such
convertible or exchangeable securities, options, warrants or other
rights as having been issued for the consideration actually received
and receivable therefor and (z) treating any of such convertible or
exchangeable securities, options, warrants or other rights which remain
outstanding as being subject to exercise or conversion on the basis of
such exercise or conversion price as shall be in effect at the time of
adjustment; and (C) no adjustment in the Common Stock Conversion Number
shall be made pursuant to this Section 7(d)(ii) as a result of any
issuance of securities by the Corporation in respect of which an
adjustment to the Common Stock Conversion Number is made pursuant to
Section 7(d)(i).
(iii) In the case the Corporation, at any time or from time to
time, shall take any action affecting its Common Stock similar to or
having an effect similar to any of the actions described in any of
Section 7(d)(i) and Section 7(d)(ii), or Section 7(h) (but not
including any action described in any such Section) and the Board of
Directors of the Corporation in good faith determines that it would be
equitable in the circumstances to adjust the Common Stock Conversion
Number as a result of such action, then, and in each such case, the
Common Stock Conversion Number shall be adjusted in such manner and at
such time as the Board of Directors of the Corporation in good faith
determines would be equitable in the circumstances (such determination
to be evidenced in a resolution, a certified copy of which shall be
mailed to the holders of the Preferred Stock).
<PAGE>
(iv) Notwithstanding anything herein to the contrary, no
adjustment under this Section 7(d) shall be made upon the grant of
options to employees or directors of the Corporation pursuant to
benefit plans approved by the Board of Directors of the Corporation or
upon the issuance of shares of Common Stock upon exercise of such
options if the exercise price thereof was not less than the Market
Price of the Common Stock on the date such options were granted.
(e) If the Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Common Stock Conversion
Number then in effect shall be required by reason of the taking of such record.
(f) Upon any increase or decrease in the Common Stock Conversion
Number, then, and in each such case, the Corporation promptly shall deliver to
each registered holder of Preferred Stock at least 10 Business Days prior to
effecting any of the foregoing transactions a certificate, signed by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the increased or decreased Common
Stock Conversion Number then in effect following such adjustment.
(g) No fractional shares or scrip representing fractional shares shall
be issued upon the conversion of any shares of Preferred Stock. If more than one
share of Preferred Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Preferred Stock so surrendered. If the conversion of any share or shares of
Preferred Stock results in a fraction, an amount equal to such fraction
multiplied by the Current Market Price of the Common Stock on the Business Day
preceding the day of conversion shall be paid to such holder in cash by the
Corporation.
(h) In case of any capital reorganization or reclassification or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value), or in
case of any consolidation or merger of the Corporation with or into another
Person (other than a consolidation or merger in which the Corporation is the
resulting or surviving Person and which does not result in any reclassification
or change of outstanding Common Stock), or in case of any sale or other
disposition to another Person of all or substantially all of the assets of the
Corporation (any of the foregoing, a "Transaction"), the Corporation, or such
successor or purchasing Person, as the case may be, shall execute and deliver to
each holder of Preferred Stock at least 10 Business Days prior to effecting any
of the foregoing Transactions a certificate that the holder of each share of
Preferred Stock then outstanding shall have the right thereafter to convert such
share of Preferred Stock into the kind and amount of shares of stock or other
securities (of the Corporation or another issuer, the "Other Securities")) or
property or cash receivable upon such Transaction by a holder of the number of
shares of Common Stock into which such share of Preferred Stock could have been
converted immediately prior to such Transaction. Such certificate shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 7. If, in the case of any such
Transaction, the Other Securities, cash or property receivable thereupon by a
holder of Common Stock includes shares of stock or other securities of a Person
other than the successor or purchasing Person and other than the Corporation,
which controls or is controlled by the successor or purchasing Person or which,
in connection with such Transaction, issues Other Securities, other property or
cash to holders of Common Stock, then such certificate also shall be executed by
such Person, and such Person shall, in such certificate, specifically
acknowledge the obligations of such successor or purchasing Person and
acknowledge its obligations to issue such Other Securities, other property or
cash to the holders of Preferred Stock upon conversion of the shares of
Preferred Stock as provided above. The provisions of this Section 7(h) and any
equivalent thereof in any such certificate similarly shall apply to successive
Transactions.
<PAGE>
(i) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Preferred Stock, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Preferred
Stock, and shall take all action required to increase the authorized number of
shares of Common Stock if at any time there shall be insufficient authorized but
unissued shares of Common Stock to permit such reservation or to permit the
conversion of all outstanding shares of Preferred Stock.
(j) The issuance or delivery of certificates for Common Stock upon the
conversion of shares of Preferred Stock shall be made without charge to the
converting holder of shares of Preferred Stock for such certificates or for any
tax in respect of the issuance or delivery of such certificates or the
securities represented thereby, and such certificates shall be issued or
delivered in the respective names of, or (subject to compliance with the
applicable provisions of federal and state securities laws) in such names as may
be directed by, the holders of the shares of Preferred Stock converted;
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of the
shares of Preferred Stock converted, and the Corporation shall not be required
to issue or deliver such certificate unless or until the Person or Persons
requesting the issuance or delivery thereof shall have paid to the Corporation
the amount of such tax or shall have established to the reasonable satisfaction
of the Corporation that such tax has been paid.
(k) If an offer is made to purchase Common Stock and the offer must, by
reason of applicable securities legislation or the requirements of a stock
exchange on which the Common Stock is listed, be made to all or substantially
all holders of Common Stock located in a province of Canada in which the
requirement applies, the holders of Preferred Stock shall be given the
opportunity to participate in the offer through conversion of the Preferred
Stock into Common Stock; unless
(i) an identical offer (in terms of price per security and
percentage of outstanding securities to be taken upon, exclusive of
securities owned immediately prior to the bid by the offeror, or
associates or affiliates of the offeror, and in all other material
respects) is made concurrently to purchase Preferred Stock, which offer
has no condition attached other than the right not to take up and pay
for securities tendered if no securities are purchased pursuant to the
offer for Common Stock; or
(ii) less than 50% of the Common Stock outstanding immediately
prior to the offer, other than Common Stock owned by the offeror, or
associates or affiliates of the offeror, are deposited pursuant to the
offer.
Section 8. Certain Remedies.
Any registered holder of Preferred Stock shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Certificate of Designation and to enforce specifically the terms and provisions
of this Certificate of Designation in any court of the United States or any
state thereof having jurisdiction, this being in addition to any other remedy to
which such holder may be entitled at law or in equity.
Section 9. Additional Shares of Preferred Stock.
While any shares of Preferred Stock are outstanding, the Corporation
shall not issue any additional shares of Common Stock or convertible securities,
rights, warrants, options or other commitments to issue Common Stock unless,
prior to such issuance, the Corporation declares and pays a dividend on the
Preferred Stock of a number of shares of Preferred Stock equal to the number of
shares of Common Stock being issued or the maximum number of shares of Common
Stock which may be issued pursuant to such convertible securities, rights,
warrants, options or commitments; provided, however, the Corporation shall not
be required to issue additional shares of Preferred Stock in connection with the
issuance of Common Stock pursuant to agreements described in a Schedule to the
Purchase Agreement.
<PAGE>
Section 10. Definitions.
For the purposes of this Certificate of Designation of Preferred Stock,
the following terms shall have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Common Stock" shall mean and include the Common Stock, without par
value, of the Corporation and each other class of capital stock of the
Corporation that does not have a preference over any other class of capital
stock of the Corporation as to dividends or upon liquidation, dissolution or
winding up of the Corporation and, in each case, shall include any other class
of capital stock of the Corporation into which such stock is reclassified or
reconstituted.
"Current Market Price" per share shall mean, on any date specified
herein for the determination thereof, (a) the average daily Market Price of the
Common Stock for those days during the period of 20 days, ending on such date,
which are Trading Days, and (b) if the Common Stock is not then listed or
admitted to trading on any national securities exchange or quoted in the
over-the-counter market, the Market Price on such date.
"Junior Stock" shall mean any capital stock of the Corporation ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Preferred Stock including, without limitation, the Common Stock.
"Liquidation Amount" with respect to a share of Preferred Stock shall
mean the sum of (a) all declared and unpaid dividends on such Preferred Stock,
and (b) the sum of $10.00 divided by the number of shares of Preferred Stock
outstanding on the applicable date.
"Market Price" shall mean, per share of Common Stock on any date
specified herein: (a) the closing price per share of the Common Stock on the
Alberta Stock Exchange or other principal Canadian stock exchange on which the
Common Stock is traded, stated in U.S. dollars at the then current exchange
ratio of Canadian dollars into U.S. dollars or (b) if there shall have been no
trading on such date or if the Common Stock is not so designated, the average of
the reported closing bid and asked prices of the Common Stock on such date as
shown by any reputable dealer in Common Stock as selected by the Board of
Directors of the Corporation. If none of (a) or (b) is applicable, Market Price
shall mean a market price per share determined at the Corporation's expense by
an appraiser chosen by the holders of a majority of the shares of Preferred
Stock or, if no such appraiser is so chosen more than twenty business days after
notice of the necessity of such calculation shall have been delivered by the
Corporation to the holders of Preferred Stock, then by an appraiser chosen by
the Corporation.
"Person" shall mean any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, limited liability company,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind, and shall include any
successor (by merger) of such entity.
"Purchase Agreement" shall mean the Securities Purchase Agreement,
dated December 30, 1999, between the Corporation and Bellwether Exploration
Company.
"Trading Day" shall mean a day on which the national securities
exchanges are open for trading.
<PAGE>
IN WITNESS WHEREOF, CARPATSKY PETROLEUM, INC. has caused this Certificate
to be duly executed in its corporate name on this [ ]th day of [ ], 2000.
[NEW CARPATSKY PETROLEUM, INC.]
By
-------------------------------------
Name:
Title: President
ATTEST:
By
----------------------------------
Name:
Title: Secretary
<PAGE>
Exhibit B
to
First Amendment to Merger Agreement
dated December 30, 1999
[PEASE OIL AND GAS COMPANY]
CERTIFICATE OF DESIGNATION
OF CONVERTIBLE PREFERRED STOCK,
SERIES A SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF
SUCH PREFERRED STOCK
Pursuant to the Nevada Business Corporations Act, [PEASE OIL AND GAS
COMPANY], a Nevada corporation (the "Corporation"), DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of
the Corporation by the Articles of Incorporation of the Corporation (the
"Charter"), the Board of Directors of the Corporation on [ ], 2000 duly adopted
the following resolution creating a series of Preferred Stock designated as
Convertible Preferred Stock, Series A and such resolution has not been modified
and is in full force and effect on the date hereof:
RESOLVED that, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the Charter, a
series of authorized Preferred Stock, without par value, of the Corporation are
hereby created and that the designation and number of shares thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series of Preferred Stock, and the
qualifications, limitations and restrictions thereof are as follows:
Section 1. Designation and Number.
(a) The shares of such series of Preferred Stock shall be designated as
"Convertible Preferred Stock, Series A" ("Preferred Stock"). The number of
shares initially constituting the Preferred Stock shall be 102,410,000 shares,
which number may be increased or decreased by the Board of Directors without a
vote of stockholders; provided, however, that such number may not be decreased
below the number of then outstanding shares of such series of Preferred Stock.
(b) The Preferred Stock shall, with respect to rights on liquidation,
dissolution or winding up, rank prior to all other classes and series of Junior
Stock of the Corporation now or hereafter authorized including, without
limitation, the Common Stock.
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(c) Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in Section 10 below.
Section 2. Dividends and Distributions.
In the event that the Corporation shall declare a cash dividend to
holders of Common Stock, then the Board of Directors shall declare, and the
holder of each share of Preferred Stock shall be entitled to receive, a dividend
in an amount equal to the amount of such dividend received by a holder of the
number of shares of Common Stock for which such share of Preferred Stock is
convertible on the record date for such dividend. Any such amount shall be paid
to the holders of shares of Preferred Stock at the same time such dividend is
made to holders of Common Stock.
The holders of shares of Preferred Stock shall not be entitled to
receive any dividends or other distributions except as provided herein.
Section 3. Voting Rights.
In addition to any voting rights provided by law and except where only
a specified class or series of shares is entitled to vote, the holders of shares
of Preferred Stock shall have the following voting rights:
(a) Except as otherwise required by applicable law and so long as the
Preferred Stock is outstanding, each share of Preferred Stock shall entitle the
holder thereof to vote, in person or by proxy or written consent, at a special
or annual meeting of stockholders or in connection with any stockholder action
taken in lieu of a meeting of stockholders, on all matters voted on by holders
of Common Stock, including the election of directors, voting together as a
single class with all other shares entitled to vote thereon. With respect to any
such vote, each share of Preferred Stock shall entitle the holder thereof to
cast one vote for each share of Preferred Stock standing in his or her name on
the transfer books of the Corporation as of the record date for determining the
stockholders of the Corporation eligible to vote on any such matters.
(b) Unless the consent or approval of a greater number of shares shall
then be required by law, the affirmative vote of the holders of at least 66-2/3%
of the outstanding shares of Preferred Stock, voting separately as a single
class, in person or by proxy, at a special or annual meeting of stockholders
called for the purpose, shall be necessary to (i) authorize, adopt or approve an
amendment to the Charter that would increase or decrease the par value of the
shares of Preferred Stock, or alter or change the powers, preferences or special
rights of the shares of Preferred Stock, (ii) amend, alter or repeal the Charter
so as to affect the shares of Preferred Stock adversely, including, without
limitation, by granting any voting right to any holder of notes, bonds,
debentures or other debt obligations of the Corporation, or (iii) authorize,
increase the authorized number of shares of, or issue (including on conversion
or exchange of any convertible or exchangeable securities or by
reclassification) any additional shares of Preferred Stock except under Section
9.
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(c) For so long as the shares of Preferred Stock are outstanding, the
Corporation shall not issue any capital stock entitling the holder thereof to
vote generally under ordinary circumstances in the election of directors, other
than (i) Common Stock and (ii) Preferred Stock issued pursuant to Section 9.
Section 4. Redemption.
The Corporation shall not have any right to redeem any shares of
Preferred Stock.
Section 5. Reacquired Shares.
Any shares of Preferred Stock converted, exchanged, redeemed, purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares of
Preferred Stock shall upon their cancellation become authorized but unissued
shares of preferred stock.
Section 6. Liquidation, Dissolution or Winding Up.
(a) If the Corporation shall commence a voluntary case under the United
States bankruptcy laws or any applicable bankruptcy, insolvency or similar law
of any other country, or consent to the entry of an order for relief in an
involuntary case under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due (any such event, a
"Voluntary Liquidation Event"), or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and on account of any
such event the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up, the holders of the
Preferred Stock shall be entitled to receive the Liquidation Amount prior to any
payment being made or any property of the Corporation being distributed to the
holders of the Common Stock or the holders of any Junior Stock. After payment to
the holders of the Preferred Stock of the Liquidation Amount, the holders of the
Preferred Stock shall be entitled to receive (rateably with the holders of the
Common Shares) for each share of Preferred Stock held, the amount which would
have been received by the Holder of such Preferred Stock if on the record date
for such distribution, the holder of such Preferred Stock had converted such
Preferred Stock into the number of shares of Common Stock into which such
Preferred Stock was convertible on the record date for such distribution.
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(b) Neither the consolidation or merger of the Corporation with or into
any other Person nor the sale or other distribution to another Person of all or
substantially all the assets, property or business of the Corporation shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 6.
Section 7. Conversion.
(a) Subject to the terms and conditions set forth herein, each share of
Preferred Stock shall be convertible into a number of fully paid and
non-assessable shares of Common Stock as is equal, subject to Section 7(g), to a
fraction, the numerator of which shall be the Common Stock Conversion Number and
the denominator of which shall be the number of shares of Preferred Stock issued
and outstanding on the date of conversion. The Common Stock Conversion Number
shall initially be 50,000,000, and shall be subject to adjustment as set forth
in this Section. Such conversion right may only be exercised by the holders of a
majority of the outstanding shares of Preferred Stock surrendering certificates
("Surrendered Certificates") representing a majority of the outstanding shares
of Preferred Stock to the Corporation at any time during usual business hours at
its principal place of business to be maintained by it, accompanied by written
notice that the holders of a majority of the outstanding shares of Preferred
Stock elect to convert such shares and specifying the name or names (with
address) in which a certificate or certificates for shares of Common Stock are
to be issued and (if so required by the Corporation) by a written instrument or
instruments of transfer in form reasonably satisfactory to the Corporation duly
executed by the holder or its duly authorized legal representative and transfer
tax stamps or funds therefor, if required pursuant to Section 7(j). Upon such
surrender, all shares of Preferred Stock shall automatically be converted into
Common Stock as provided in this Section. Notwithstanding the foregoing
provisions or anything set forth herein or in the Certificate, any shares of
Preferred Stock remaining outstanding on December 28, 2004 shall be and be
deemed to have been converted into Common Stock at the Conversion Number then in
effect.
(b) As promptly as practicable after the surrender, as herein provided,
of shares of Preferred Stock for conversion pursuant to Section 7(a), the
Corporation shall deliver to all holders of Preferred Stock a written notice
informing such holders (i) that the holders of a majority of the outstanding
shares of Preferred Stock have delivered their certificates for such shares to
the Corporation in satisfactory form for conversion into Common Shares pursuant
to the requirements of this Section 7, (ii) that, as result of such delivery,
all outstanding Preferred Stock has been converted into the right to receive
Common Stock and (iii) of the Common Stock Conversion Number and instructing
such holders to surrender the certificates representing their Preferred Stock to
the Corporation in the manner specified in Section 7(a) above in order to
receive certificates representing the Common Stock deliverable upon the
conversion of their Preferred Stock. As promptly as practicable after the
surrender of any certificates representing Preferred Stock in accordance with
the requirements of this Section 7, the Corporation shall deliver to or upon the
written order of the holder of such shares so surrendered a certificate or
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certificates representing the number of fully paid and non-assessable shares of
Common Stock into which such shares of Preferred Stock may be or have been
converted in accordance with the provisions of this Section 7. Subject to the
following provisions of this paragraph and of Section 7(d), such conversion
shall be deemed to have been made immediately prior to the close of business on
the date that such shares of Preferred Stock shall have been surrendered in
satisfactory form for conversion, and the Person or Persons entitled to receive
the Common Stock deliverable upon conversion of such shares of Preferred Stock
shall be treated for all purposes as having become the record holder or holders
of such Common Stock at such appropriate time, and such conversion shall be
based on the Common Stock Conversion Number in effect at such time; provided,
however, that no surrender shall be effective to constitute the Person or
Persons entitled to receive the Common Stock deliverable upon such conversion as
the record holder or holders of such Common Stock while the share transfer books
of the Corporation shall be closed (but not for any period in excess of five
days), but such surrender shall be effective to constitute the Person or Persons
entitled to receive such Common Stock as the record holder or holders thereof
for all purposes immediately prior to the close of business on the next
succeeding day on which such share transfer books are open, and such conversion
shall be deemed to have been made at, and shall be based on the Common Stock
Conversion Number in effect at, such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Preferred Stock are
converted, all dividends declared and unpaid on the Preferred Stock so converted
to the date of conversion shall be immediately due and payable and must
accompany the shares of Common Stock issued upon such conversion.
(d) The Common Stock Conversion Number shall be subject to adjustment
as follows:
(i) In case the Corporation shall at any time or from time to
time (A) pay a dividend or make a distribution on the outstanding
shares of Common Stock in capital stock (which, for purposes of this
Section 7(d) shall include, without limitation, any dividends or
distributions in the form of options, warrants or other rights to
acquire capital stock) of the Corporation, (B) subdivide the
outstanding shares of Common Stock into a larger number of shares, (C)
combine the outstanding shares of Common Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Stock then, and in each such case, the
Common Stock Conversion Number in effect immediately prior to such
event shall be adjusted to equal the Common Stock Conversion Number in
effect immediately prior to such action multiplied by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
after the action described in clauses (A) through (D) and the
denominator of which is the number of shares of Common Stock
outstanding immediately prior to such action. An adjustment made
pursuant to this Section 7(d)(i) shall become effective retroactively
(A) in the case of any such dividend or distribution, to a date
immediately following the close of business on the record date for the
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determination of holders of Common Stock entitled to receive such
dividend or distribution or (B) in the case of any such subdivision,
combination or reclassification, to the close of business on the day
upon which such corporate action becomes effective.
(ii) In case the Corporation shall at any time or from time to
time issue shares of Common Stock (or securities convertible into or
exchangeable for Common Stock, or any options, warrants or other rights
to acquire shares of Common Stock) for a consideration per share less
than the Current Market Price per share of Common Stock then in effect
at the record date or issuance date, as the case may be (the "Date"),
referred to in the following sentence (treating the consideration per
share of any security convertible or exchangeable or exercisable into
Common Stock as equal to (A) the sum of the price for such security
convertible, exchangeable or exercisable into Common Stock plus any
additional consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of such security
into Common Stock divided by (B) the number of shares of Common Stock
initially underlying such convertible, exchangeable or exercisable
security), then, and in each such case, the Common Stock Conversion
Number in effect shall be adjusted by multiplying the Common Stock
Conversion Number in effect on the day immediately prior to the Date by
a fraction (x) the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the Date plus the number of
additional shares of Common Stock issued or to be issued (or the
maximum number into which such convertible or exchangeable securities
initially may convert or exchange or for which such options, warrants
or other rights initially may be exercised) and (y) the denominator of
which shall be the sum of the number of shares of Common Stock
outstanding on the Date plus the number of shares of Common Stock which
the aggregate consideration for the total number of such additional
shares of Common Stock (or securities convertible into or exchangeable
for Common Stock, or any options, warrants or other rights to acquire
shares of Common Stock) plus the aggregate amount of any additional
consideration initially payable (without regard to any anti-dilution
adjustments) upon such conversion, exchange or exercise of such
security into Common Stock would purchase at the Current Market Price
per share of Common Stock on the Date. Such adjustment shall be made
whenever such shares, securities, options, warrants or other rights are
issued, and shall become effective retroactively to a date immediately
following the close of business (i) in the case of issuance to
stockholders of the Corporation, as such, on the record date for the
determination of stockholders entitled to receive such shares,
securities, options, warrants or other rights and (ii) in all other
cases, on the date ("issuance date") of such issuance; provided that:
(A) the determination as to whether an adjustment is required to be
made pursuant to this Section 7(d)(ii) shall be made upon the issuance
of such shares or such convertible or exchangeable securities, options,
warrants or other rights; (B) if any convertible or exchangeable
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securities, options, warrants or other rights (or any portions thereof)
which shall have given rise to an adjustment pursuant to this Section
7(d)(ii) shall have expired or terminated without the exercise thereof
and/or if by reason of the terms of such convertible or exchangeable
securities, options, warrants or other rights there shall have been an
increase or increases or decrease or decreases, with the passage of
time or otherwise, in the price payable upon the exercise or conversion
thereof, then the Common Stock Conversion Number hereunder shall be
readjusted (but to no greater extent than originally adjusted) on the
basis of (x) eliminating from the computation any additional shares of
Common Stock corresponding to such convertible or exchangeable
securities, options, warrants or other rights as shall have expired or
terminated, (y) treating the additional shares of Common Stock, if any,
actually issued or issuable pursuant to the previous exercise of such
convertible or exchangeable securities, options, warrants or other
rights as having been issued for the consideration actually received
and receivable therefor and (z) treating any of such convertible or
exchangeable securities, options, warrants or other rights which remain
outstanding as being subject to exercise or conversion on the basis of
such exercise or conversion price as shall be in effect at the time of
adjustment; and (C) no adjustment in the Common Stock Conversion Number
shall be made pursuant to this Section 7(d)(ii) as a result of any
issuance of securities by the Corporation in respect of which an
adjustment to the Common Stock Conversion Number is made pursuant to
Section 7(d)(i).
(iii) In the case the Corporation, at any time or from time to
time, shall take any action affecting its Common Stock similar to or
having an effect similar to any of the actions described in any of
Section 7(d)(i) and Section 7(d)(ii), or Section 7(h) (but not
including any action described in any such Section) and the Board of
Directors of the Corporation in good faith determines that it would be
equitable in the circumstances to adjust the Common Stock Conversion
Number as a result of such action, then, and in each such case, the
Common Stock Conversion Number shall be adjusted in such manner and at
such time as the Board of Directors of the Corporation in good faith
determines would be equitable in the circumstances (such determination
to be evidenced in a resolution, a certified copy of which shall be
mailed to the holders of the Preferred Stock).
(iv) Notwithstanding anything herein to the contrary, no
adjustment under this Section 7(d) shall be made upon the grant of
options to employees or directors of the Corporation pursuant to
benefit plans approved by the Board of Directors of the Corporation or
upon the issuance of shares of Common Stock upon exercise of such
options if the exercise price thereof was not less than the Market
Price of the Common Stock on the date such options were granted.
(e) If the Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
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thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Common Stock Conversion
Number then in effect shall be required by reason of the taking of such record.
(f) Upon any increase or decrease in the Common Stock Conversion
Number, then, and in each such case, the Corporation promptly shall deliver to
each registered holder of Preferred Stock at least 10 Business Days prior to
effecting any of the foregoing transactions a certificate, signed by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the increased or decreased Common
Stock Conversion Number then in effect following such adjustment.
(g) No fractional shares or scrip representing fractional shares shall
be issued upon the conversion of any shares of Preferred Stock. If more than one
share of Preferred Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Preferred Stock so surrendered. If the conversion of any share or shares of
Preferred Stock results in a fraction, an amount equal to such fraction
multiplied by the Current Market Price of the Common Stock on the Business Day
preceding the day of conversion shall be paid to such holder in cash by the
Corporation.
(h) In case of any capital reorganization or reclassification or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value), or in
case of any consolidation or merger of the Corporation with or into another
Person (other than a consolidation or merger in which the Corporation is the
resulting or surviving Person and which does not result in any reclassification
or change of outstanding Common Stock), or in case of any sale or other
disposition to another Person of all or substantially all of the assets of the
Corporation (any of the foregoing, a "Transaction"), the Corporation, or such
successor or purchasing Person, as the case may be, shall execute and deliver to
each holder of Preferred Stock at least 10 Business Days prior to effecting any
of the foregoing Transactions a certificate that the holder of each share of
Preferred Stock then outstanding shall have the right thereafter to convert such
share of Preferred Stock into the kind and amount of shares of stock or other
securities (of the Corporation or another issuer, the "Other Securities")) or
property or cash receivable upon such Transaction by a holder of the number of
shares of Common Stock into which such share of Preferred Stock could have been
converted immediately prior to such Transaction. Such certificate shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 7. If, in the case of any such
Transaction, the Other Securities, cash or property receivable thereupon by a
holder of Common Stock includes shares of stock or other securities of a Person
other than the successor or purchasing Person and other than the Corporation,
which controls or is controlled by the successor or purchasing Person or which,
in connection with such Transaction, issues Other Securities, other property or
cash to holders of Common Stock, then such certificate also shall be executed by
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such Person, and such Person shall, in such certificate, specifically
acknowledge the obligations of such successor or purchasing Person and
acknowledge its obligations to issue such Other Securities, other property or
cash to the holders of Preferred Stock upon conversion of the shares of
Preferred Stock as provided above. The provisions of this Section 7(h) and any
equivalent thereof in any such certificate similarly shall apply to successive
Transactions.
(i) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Preferred Stock, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Preferred
Stock, and shall take all action required to increase the authorized number of
shares of Common Stock if at any time there shall be insufficient authorized but
unissued shares of Common Stock to permit such reservation or to permit the
conversion of all outstanding shares of Preferred Stock.
(j) The issuance or delivery of certificates for Common Stock upon the
conversion of shares of Preferred Stock shall be made without charge to the
converting holder of shares of Preferred Stock for such certificates or for any
tax in respect of the issuance or delivery of such certificates or the
securities represented thereby, and such certificates shall be issued or
delivered in the respective names of, or (subject to compliance with the
applicable provisions of federal and state securities laws) in such names as may
be directed by, the holders of the shares of Preferred Stock converted;
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of the
shares of Preferred Stock converted, and the Corporation shall not be required
to issue or deliver such certificate unless or until the Person or Persons
requesting the issuance or delivery thereof shall have paid to the Corporation
the amount of such tax or shall have established to the reasonable satisfaction
of the Corporation that such tax has been paid.
(k) If an offer is made to purchase Common Stock and the offer must, by
reason of applicable securities legislation or the requirements of a stock
exchange on which the Common Stock is listed, be made to all or substantially
all holders of Common Stock located in a province of Canada in which the
requirement applies, the holders of Preferred Stock shall be given the
opportunity to participate in the offer through conversion of the Preferred
Stock into Common Stock; unless
(i) an identical offer (in terms of price per security and
percentage of outstanding securities to be taken upon, exclusive of
securities owned immediately prior to the bid by the offeror, or
associates or affiliates of the offeror, and in all other material
respects) is made concurrently to purchase Preferred Stock, which offer
has no condition attached other than the right not to take up and pay
for securities tendered if no securities are purchased pursuant to the
offer for Common Stock; or
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(ii) less than 50% of the Common Stock outstanding immediately
prior to the offer, other than Common Stock owned by the offeror, or
associates or affiliates of the offeror, are deposited pursuant to the
offer.
Section 8. Certain Remedies.
Any registered holder of Preferred Stock shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Certificate of Designation and to enforce specifically the terms and provisions
of this Certificate of Designation in any court of the United States or any
state thereof having jurisdiction, this being in addition to any other remedy to
which such holder may be entitled at law or in equity.
Section 9. Additional Shares of Preferred Stock.
While any shares of Preferred Stock are outstanding, the Corporation
shall not issue any additional shares of Common Stock or convertible securities,
rights, warrants, options or other commitments to issue Common Stock unless,
prior to such issuance, the Corporation declares and pays a dividend on the
Preferred Stock of a number of shares of Preferred Stock equal to the number of
shares of Common Stock being issued or the maximum number of shares of Common
Stock which may be issued pursuant to such convertible securities, rights,
warrants, options or commitments; provided, however, the Corporation shall not
be required to issue additional shares of Preferred Stock in connection with the
issuance of Common Stock pursuant to agreements described in a Schedule to the
Purchase Agreement.
Section 10. Definitions.
For the purposes of this Certificate of Designation of Preferred Stock,
the following terms shall have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Common Stock" shall mean and include the Common Stock, without par
value, of the Corporation and each other class of capital stock of the
Corporation that does not have a preference over any other class of capital
stock of the Corporation as to dividends or upon liquidation, dissolution or
winding up of the Corporation and, in each case, shall include any other class
of capital stock of the Corporation into which such stock is reclassified or
reconstituted.
"Current Market Price" per share shall mean, on any date specified
herein for the determination thereof, (a) the average daily Market Price of the
Common Stock for those days during the period of 20 days, ending on such date,
which are Trading Days, and (b) if the Common Stock is not then listed or
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admitted to trading on any national securities exchange or quoted in the
over-the-counter market, the Market Price on such date.
"Junior Stock" shall mean any capital stock of the Corporation ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Preferred Stock including, without limitation, the Common Stock.
"Liquidation Amount" with respect to a share of Preferred Stock shall
mean the sum of (a) all declared and unpaid dividends on such Preferred Stock,
and (b) the sum of $10.00 divided by the number of shares of Preferred Stock
outstanding on the applicable date.
"Market Price" shall mean, per share of Common Stock on any date
specified herein: (a) the closing price per share of the Common Stock on the
Alberta Stock Exchange or other principal Canadian stock exchange on which the
Common Stock is traded, stated in U.S. dollars at the then current exchange
ratio of Canadian dollars into U.S. dollars or (b) if there shall have been no
trading on such date or if the Common Stock is not so designated, the average of
the reported closing bid and asked prices of the Common Stock on such date as
shown by any reputable dealer in Common Stock as selected by the Board of
Directors of the Corporation. If none of (a) or (b) is applicable, Market Price
shall mean a market price per share determined at the Corporation's expense by
an appraiser chosen by the holders of a majority of the shares of Preferred
Stock or, if no such appraiser is so chosen more than twenty business days after
notice of the necessity of such calculation shall have been delivered by the
Corporation to the holders of Preferred Stock, then by an appraiser chosen by
the Corporation.
"Person" shall mean any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, limited liability company,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind, and shall include any
successor (by merger) of such entity.
"Purchase Agreement" shall mean the Securities Purchase Agreement,
dated December 30, 1999, between the Corporation and Bellwether Exploration
Company.
"Trading Day" shall mean a day on which the national securities
exchanges are open for trading.
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IN WITNESS WHEREOF, PEASE OIL AND GAS COMPANY has caused this
Certificate to be duly executed in its corporate name on this [ ]th day of [ ],
2000.
[PEASE OIL AND GAS COMPANY]
By
---------------------------------------
Name:
Title: President
ATTEST:
By
-------------------------------------
Name:
Title: Secretary
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Amended Exhibit A
to
Agreement and Plan of Merger
dated August 31, 1999
[PEASE LETTERHEAD]
August __, 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.
A. 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.
B. The Company and Carpatsky have entered into a Agreement and Plan of
Merger dated as of August __, 1999, of which this Letter Agreement is Exhibit A
(the "Merger Agreement").
C. 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 the time of closing of the Merger Agreement.
D. 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").
<PAGE>
E. 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:
1. Merger Agreement. The Company and Carpatsky shall diligently pursue
the closing of the Merger Agreement and completion of the transactions described
therein (the "Closing").
2. 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.
3. 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.
4. 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.
5. 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.
2
<PAGE>
6. 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.
7. 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>
8. 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
4
<PAGE>
EXHIBIT A
Shares of
Company Common Stock
to be Issued and
Shares of Exchange for
Name of Holder Series B Preferred Held Series B Preferred
-------------- ----------------------- ------------------
Arbco Associates, L.P. 16,000 1,340,388
Kayne Anderson Non-Traditional
Investments, L.P. 18,000 1,507,936
Offense Group Associates, L.P. 19,503 1,633,850
Opportunity Associates, L.P. 6,000 502,646
Marine Crew & Co. 14,000 1,172,840
Sandpiper & Co. 26,000 2,178,131
Howard Amster IRA 1,000 83,774
The Madav IX Foundation 2,000 167,549
Ramat securities, Ltd. 325 27,227
Tamar Securities, Inc. 3,000 251,323
--------- ----------
Total: 105,828 8,865,664
======== ==========
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