Final Execution Copy
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SECURITIES PURCHASE AGREEMENT
by and between
CARPATSKY PETROLEUM INC.
an Alberta corporation
(the "Company")
and
BELLWETHER EXPLORATION COMPANY
a Delaware corporation
("Purchaser")
Concerning the
purchase of convertible preferred shares and
warrants to purchase common shares
December 30, 1999
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TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS.................................................1
Section 1.1 Definitions........................................1
ARTICLE II. PURCHASE AND SALE OF SECURITIES..................................4
Section 2.1 Sale and Issuance Purchase Shares..................4
Section 2.2 Sale and Issuance of Warrants......................5
Section 2.3 Legend.............................................5
Section 2.4 Purchase; Purchase Price...........................5
ARTICLE III. CLOSING DATE; DELIVERY..........................................5
Section 3.1 Closing Date.......................................5
Section 3.2 Payment; Delivery..................................5
ARTICLE IV. REPRESENTATIONS AND WARRANTIES...................................6
Section 4.1 Representations and Warranties of the Company......6
(a) Organization and Standing; Articles and By-Laws....6
(b) Corporate Power; Authority.........................6
(c) Purchase Shares and Warrants.......................6
(d) Capitalization.....................................7
(e) Subsidiaries.......................................7
(f) No Conflicts or Consents...........................7
(g) Corporate Documents. .............................8
(h) ASC Documents; Financial Statements; Liabilities...8
(i) Oil and Gas Properties.............................9
(j) Investment Company................................10
(k) Public Utility Company............................10
(l) Environmental Matters.............................11
(m) Tax Matters.......................................13
(n) Litigation........................................15
(o) Broker's and Finder's Fee.........................15
(p) Absence of Sensitive Payments.....................15
(q) Compliance with Law...............................15
(r) Contracts.........................................16
(s) Employment Plans/Employment Agreements............17
(t) Absence of Certain Changes or Events..............17
(u) The Company's Assets..............................18
(v) Registration Rights...............................18
Section 4.2 Representations and Warranties of Purchaser.......18
(a) Investment Intent.................................18
(i)
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(b) Accredited Investor...............................21
(c) Corporate Power; Authority........................21
Section 4.3 Acknowledgments of the Purchaser..................21
ARTICLE V. CONDITIONS TO CLOSING............................................22
Section 5.1 Purchaser's Conditions............................22
(a) Representations and Warranties Correct............22
(b) Covenants.........................................22
(c) Compliance Certificate............................22
(d) No Material Adverse Change........................23
(e) Consents..........................................23
(f) Registration Rights Agreement.....................23
(g) Opinion of Company's Counsel......................23
(h) Pease Merger Agreement............................23
(i) Due Diligence.....................................23
Section 5.2 Company's Conditions..............................23
(a) Representations...................................23
(b) Consents..........................................23
(c) Pease Merger Agreement............................23
ARTICLE VI. AFFIRMATIVE COVENANTS OF THE COMPANY............................24
Section 6.1 Financial Information.............................24
(a) ASC Reports.......................................24
(b) Other Reports.....................................24
Section 6.2 Access............................................24
Section 6.3 Rule 144 Reporting................................24
Section 6.4 Shareholder Approval..............................25
Section 6.5 Conduct of Business by the Company Pending the
Closing ..........................................25
Section 6.6 Stock Exchange Listing............................26
Section 6.7 Additional Agreements.............................26
Section 6.8 No Shop...........................................27
Section 6.9 Advice of Changes.................................27
Section 6.10 Pease Merger......................................27
Section 6.11 Board Nominees....................................28
Section 6.12 Use of Proceeds...................................28
ARTICLE VII. MISCELLANEOUS..................................................29
Section 7.1 Governing Law.....................................29
Section 7.2 Survival..........................................29
Section 7.3 Successors and Assigns............................29
Section 7.4 Entire Agreement, Amendment.......................29
Section 7.5 Notices, etc......................................29
Section 7.6 Delays or Omissions...............................29
(ii)
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Section 7.7 Counterparts.....................................30
Section 7.8 Severability.....................................30
Section 7.9 Titles and Subtitles.............................30
Section 7.10 Specific Performance.............................30
Articles of Amendment Exhibit A
Warrant Exhibit B
First Amendment to Registration Rights Agreement Exhibit C
Form of Legal Opinion Exhibit D
Amendment to the Pease Merger Agreement Exhibit E
Company's Articles of Incorporation and By-Laws Schedule 4.1(a)
Company's Capitalization Schedule 4.1(d)
Company's Subsidiaries Schedule 4.1(e)
Required Consents Schedule 4.1(f)
Material Adverse Changes Schedule 4.1(h)
Changes to Reserves Schedule 4.1(i)(ii)
Environmental and Safety Matters Schedule 4.1(l)
Taxes Schedule 4.1(m)
Litigation Schedule 4.1(n)
Contracts Schedule 4.1(r)
Registration Rights Schedule 4.1(v)
(iii)
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made and
entered into as of December 30, 1999 by and between Carpatsky Petroleum Inc., an
Alberta corporation (the "Company"), and Bellwether Exploration Company, a
Delaware corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, Purchaser desires to purchase 95,450,000 million Preferred
Shares, and Warrants to purchase 12,500,000 Common Shares, and the Company
desires to issue and sell to Purchaser the Preferred Shares and the Warrants,
for an aggregate consideration of U.S.$4,000,000, all on the terms and
conditions described herein.
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises herein contained, as well as for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, contract and agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the following terms
when capitalized have the meanings indicated.
"Affiliate" shall have the meaning ascribed by the Business
Corporations Act (Alberta).
"Agreement" shall mean this Agreement, including the Schedules and
Exhibits hereto, all as amended or otherwise modified from time to time.
"Alternative Proposal" has the meaning set forth in Section 6.8.
"Amendment to the Pease Merger Agreement" means the amendment to the
Pease Merger Agreement described in Exhibit F.
"Ancillary Agreements" means, collectively, the First Amendment to
Registration Rights Agreement and the Amendment to the Pease Merger Agreement.
"Articles" has the meaning set forth in Section 2.1.
"Articles of Amendment" means the articles of amendment with respect to
the Preferred Shares in the form attached as Exhibit A.
"ASC" means the Alberta Securities Commission.
"ASC Documents" has the meaning set forth in Section 4.1(h)(i).
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"Audited Financial Statements" shall mean the audited balance sheets,
and the related statements of earnings, shareholders' equity and cash flows, and
the related notes thereto of Company as of and for the years ended December 31,
1998.
"CDNX" means the Canadian Venture Exchange.
"Closing" shall have the meaning ascribed to it in Section 3.1.
"Closing Date" has the meaning provided for in Section3.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Shares" has the meaning set forth in Section 2.1.
"Company" has the meaning set forth in the introductory paragraph.
"Environmental Laws" has the meaning set forth in Section 4.1(l)(xi).
"Environmental Liability" has the meaning set forth in Section 4.1(l)
(xiii).
"ERISA" has the meaning provided for in Section 4.1(s).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Financial Statements" shall mean the Audited Financial Statements and
the Interim Financial Statements.
"First Amendment to Registration Rights Agreement" means the agreement
set forth in Exhibit C.
"Governmental Authority" means the government of any nation, state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing (including,
without limitation, a government controlled oil company).
"Hazardous Materials" has the meaning set forth in Section 4.1(l)(xii).
"Holder" means the Purchaser and any subsequent direct or indirect
transferee of the Purchase Shares, Warrants, Shares or Warrant Shares, other
than a transferee, (i) who has acquired the Purchase Shares, Warrants, Shares or
Warrant Shares that have been the subject of a distribution registered under the
Securities Act or (ii) in the case of Shares or Warrant Shares, who has acquired
such Common Shares after such shares have been the subject of a distribution
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to the public pursuant to Rule 144 under the Securities Act or otherwise
distributed under circumstances not requiring a legend as described in Section
2.3.
"Interim Financial Statements" shall mean the unaudited balance sheet,
and the related unaudited statements of earnings and cash flows of the Company
as of and for the nine months ended September 30, 1999.
"Latest Balance Sheet" shall mean the balance sheet included in the
Interim Financial Statements.
"Liens" shall mean pledges, liens, defects, leases, licenses, equities,
conditional sales contracts, charges, claims, encumbrances, security interests,
easements, restrictions, chattel mortgages, mortgages or deeds of trust, of any
kind or nature whatsoever.
"Material Adverse Change" is a change which had or is reasonably likely
to have a Material Adverse Effect.
"Material Adverse Effect" shall mean with respect to any Person, a
material adverse effect on the financial condition, results of operations,
business or prospects of such Person and, in the case of the Company, its
consolidated subsidiaries taken as a whole.
"Other Securities" has the meaning provided for in the Articles of
Amendment or the Warrant.
"Payment" has the meaning set forth in Section 4.1(p).
"Pease" means Pease Oil and Gas Company, a Nevada corporation.
"Pease Merger Agreement" means the Agreement and Plan of Merger between
the Company and Pease, dated September 1, 1999.
"Person" shall mean an individual, firm, corporation, general or
limited partnership, limited liability company, limited liability partnership,
joint venture, trust, Governmental Authority or body, association,
unincorporated organization or other entity.
"Preferred Shares" has the meaning set forth in Section 2.1.
"Purchase Price" has the meaning set forth in Section 2.4.
"Purchase Shares" has the meaning set forth in Section 2.1.
"Purchaser" has the meaning set forth in the introductory paragraph.
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"Reserve Engineer" has the meaning set forth in Section 4.1(i)(ii).
"Reserve Report" has the meaning set forth in Section 4.1(i)(ii).
"Returns" shall mean all returns, reports, estimates, declarations and
statements of any nature regarding Taxes for periods required to be filed by the
taxpayer relating to its income, properties or operations.
"SEC" means the U.S. Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Securities Act" means the U.S. Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, and shall include any
replacement statute and rules and regulations thereunder.
"Securities Act (Alberta)" means the Securities Act (Alberta), as
amended, and the rules, regulations, policy statements, notices and other
requirements promulgated thereunder.
"Shareholder Consent" means the consent to the private placement
contemplated by this Agreement.
"Shares" has the meaning set forth in Section 2.1.
"Securities Laws" has the meaning set forth in Section 4.1(c).
"Taxes" shall mean any taxes imposed by any government or entity
empowered with taxing authority by a government, including, without limitation,
national, federal, provincial, state, regional, local or other taxes (including,
without limitation, income, value-added, alternative minimum, franchise,
property, sales, use, lease, excise, premium, payroll, wage, employment or
withholding taxes), fees, duties, assessments, withholdings or governmental
charges of any kind whatsoever (including interest, penalties and additions to
tax).
"Warrants" means the warrants in the form of Exhibit B.
"Warrant Shares" has the meaning set forth in Section 2.2.
ARTICLE II. PURCHASE AND SALE OF SECURITIES
Section 2.1 Sale and Issuance Purchase Shares. The Company shall issue
and sell to Purchaser at the Closing (as hereinafter defined) 94,450,000 shares
(the "Purchase Shares") of its convertible preferred shares ("Preferred
Shares"), initially convertible into 50,000,000 common shares ("Common Shares")
of the Company, representing, as of the date hereof, 31.66% of the Common Shares
on a fully diluted basis. The Purchase Shares have the characteristics set forth
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in the Articles of Amendment. The Purchase Shares and the Shares (as hereinafter
defined) issuable upon conversion of the Purchase Shares shall be entitled to
all of the rights, privileges and preferences provided therein and in the
Company's Articles of Incorporation, as amended by the Articles of Amendment,
included in Schedule 4.1(a) ("Articles"). The Common Shares or Other Securities
to be received upon conversion of the Purchase Shares are referred to herein as
the "Shares."
Section 2.2 Sale and Issuance of Warrants. The Company shall issue and
sell to Purchaser at the Closing (as hereinafter defined) Warrants to purchase
12,500,000 Common Shares, representing, as of the date hereof, 7.91% of the
Common Shares on a fully diluted basis. All Warrant Shares (as hereinafter
defined) to be purchased pursuant to the Warrants shall have the rights,
privileges and preferences as set forth in the Articles. The Common Shares or
Other Securities for which the Warrants shall be exercisable upon payment of the
exercise price set forth in the Warrant are referred to herein as the "Warrant
Shares."
Section 2.3 Legend. The Purchase Shares, Warrants, any Shares issued
upon conversion of the Purchase Shares, and any Warrant Shares issued upon
exercise of the Warrants will not be registered under the Securities Act, and
will bear a restrictive legend as set forth in Section 4.2(a)(vii).
Section 2.4 Purchase; Purchase Price. Subject to the terms and
conditions set forth herein, for and in consideration of the sale and issuance
of the Purchase Shares and Warrants, Purchaser hereby agrees to pay to the
Company at the Closing U.S.$4,000,000 in cash ("Purchase Price").
ARTICLE III. CLOSING DATE; DELIVERY
Section 3.1 Closing Date. The closing ("Closing") of the purchase and
sale of the Purchase Shares and Warrants hereunder shall be held at 10:00 A.M.
Houston, Texas time, on December 30, 1999 ("Closing Date"), at the offices of
Haynes & Boone L.L.P., 1000 Louisiana, Suite 4300, Houston, Texas 77002.
Section 3.2 Payment; Delivery. At the Closing, the Company will deliver
to Purchaser duly executed certificates representing the Purchase Shares
registered in the name of Purchaser, against payment of the Purchase Price
therefor, by wire transfer of immediately available funds per the Company's
instructions, together with delivery by the Company of such other documents,
certificates and opinions of counsel as may be required to be delivered by the
Company to Purchaser as a condition to Purchaser's consummation of this
Agreement, including, without limitation, the Ancillary Agreements.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Company. In order to
induce Purchaser to enter into this Agreement, the Company hereby represents and
warrants to Purchaser, as follows:
(a) Organization and Standing; Articles and By-Laws. The
Company is a corporation legally incorporated, duly organized, validly
existing and in good standing under the laws of the province of
Alberta, Canada, has full corporate power and authority and all
necessary licenses and permits to own, lease, produce and operate the
properties used in its business and to carry on its business as now
being conducted. The Company is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the
character of the properties owned, leased or produced by it or the
nature of the businesses transacted by it requires it to be so
qualified. Schedule 4.1(a) is a true, correct and complete copy of the
Company's Articles and By-Laws, containing all amendments through the
date hereof.
(b) Corporate Power; Authority. The Company has full corporate
power and authority to enter into this Agreement and each of the
Ancillary Agreements and to perform its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement,
and the Ancillary Agreements, the issuance of the Purchase Shares and
Warrants, the issuance upon conversion of the Purchase Shares of the
Shares, the issuance upon exercise of the Warrants of the Warrant
Shares, and the consummation of the transactions contemplated hereby
and thereby have been duly authorized and approved by the Board of
Directors of the Company and, subject to the receipt of approval of the
Company's shareholders as contemplated by Section 6.4, no other
corporate proceeding on the part of the Company is necessary to
authorize and approve this Agreement and the Ancillary Agreements and
the transactions contemplated hereby and thereby. This Agreement has
been, and at the Closing each Ancillary Agreement will be, duly
executed and delivered by, and constitutes or will constitute a valid
and binding obligation of, the Company, enforceable against the Company
in accordance with its terms (except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies).
(c) Purchase Shares and Warrants. The Purchase Shares and
Warrants, when issued in accordance with this Agreement, will be
validly issued, fully paid and non-assessable and will have the rights,
preferences and privileges set forth in the Articles of Amendment or
Warrant (as the case may be). The Shares and Warrant Shares have been
duly and validly reserved and, when issued in compliance with the
provisions of this Agreement and the Articles of Amendment or Warrant
(as the case may be), will be validly issued, fully paid and
non-assessable and will have the rights, preferences and privileges set
forth in the Articles. Upon issuance upon conversion of the Purchase
Shares or upon exercise of the Warrants, the Shares or Warrant Shares
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(as the case may be) will be free of any Liens created by the Company;
provided, however, that the Shares and Warrant Shares will be subject
to restrictions on transfer under the Securities Act or any applicable
United States or Canadian state and provincial securities laws and
rules of the ASC (collectively, "Securities Laws"). The Shares and
Warrant Shares are not subject to any preemptive rights or rights of
first refusal.
(d) Capitalization. The authorized capital stock of the
Company consists of unlimited number of Common Shares, of which
77,778,263 shares are issued and outstanding as of the date of the
hereof. The outstanding shares have been duly authorized and validly
issued, and are fully paid and nonassessable. All outstanding
securities of the Company were issued in compliance with applicable
Securities Laws. The Company has reserved 50,000,000 and 12,500,000
Common Shares for issuance upon conversion of the Preferred Shares and
exercise of the Warrants, respectively. Other than the Common Shares
and except as specifically described on Schedule 4.1(d), the Company
does not have any outstanding capital stock or securities convertible
into or exchangeable for any shares of its capital stock, or any
outstanding rights (either preemptive or other) to subscribe for or to
purchase, or any outstanding rights or options for the purchase of, or
any agreements providing for the issuance (contingent or otherwise) of,
or any outstanding calls, commitments or claims of any character
relating to, any capital stock or any stock or securities convertible
into or exchangeable for any capital stock of the Company. The Company
is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital
stock or any convertible securities, rights or options of the type
described in the preceding sentence. The Company is not a party to any
agreement (except as contemplated by this Agreement) restricting the
transfer of any shares of the Company's capital stock.
(e) Subsidiaries. Except as listed on Schedule 4.1(e), the
Company has no subsidiaries and does not otherwise own or control,
directly or indirectly, any equity interest in any corporation,
association, business entity or other Person. Each such subsidiary is a
corporation legally incorporated, duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority and all necessary
licenses and permits to own, lease, produce and operate the properties
used in its business and to carry on its business as now being
conducted. Each subsidiary is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the
character of the properties owned or leased by it or the nature of the
businesses transacted by it requires it to be so qualified except where
the failure to be so qualified would not have a Material Adverse
Effect.
(f) No Conflicts or Consents.
(i) Neither the execution, delivery or performance
of this Agreement nor the Ancillary Agreements by the Company
nor the consummation of the transactions contemplated hereby
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or thereby will (1) violate, conflict with, or result in a
breach of any provision of, constitute a material default (or
an event that, with notice or lapse of time or both, would
constitute a material default) under, result in the
termination of, or accelerate the performance required by, or
result in the creation of any material adverse claim against
any of the material properties or assets of the Company or its
subsidiaries under, (A) the Articles, by-laws or any other
organizational documents of the Company or its subsidiaries,
or (B) any material note, bond, mortgage, indenture, deed of
trust, lease, license, agreement, production sharing contract,
concession or other instrument or obligation to which the
Company or any of its subsidiaries is a party, or by which the
Company or any of its subsidiaries or any of their respective
assets are bound, or (2) violate any order, writ, injunction,
decree, judgment, statute, rule or regulation of any
Governmental Authority to which the Company or any subsidiary
is subject or by which the Company or any of its subsidiaries
or any of their respective assets are bound in any material
respect.
(ii) Except as set forth on Schedule 4.1(f), no
consent, approval, order, permit or authorization of, or
registration, declaration or filing with, any Person or of any
Governmental Authority is required for the execution, delivery
and performance by the Company of this Agreement and the
Ancillary Agreements and the covenants and transactions
contemplated hereby or thereby.
(g) Corporate Documents. The minute books of the Company and
its subsidiaries contain reasonably complete and accurate required
records of all corporate actions of the equity owners of the various
entities and of the boards of directors or other governing bodies,
including committees of such boards or governing bodies. The share
transfer records of the Company are maintained by its transfer agent
and registrar and, to the knowledge of the Company, contain complete
and accurate records of all issuances and redemptions of shares by the
Company.
(h) ASC Documents; Financial Statements; Liabilities.
(i) Since January 1, 1997, the Company has filed all
reports, forms, statements and other documents required under
the Securities Act (Alberta) to be filed with the ASC (the
"ASC Documents") other than annual audited financial
statements for the year ended June 30, 1999 and unaudited
interim financial statements for the three months ended
September 30, 1999. The ASC Documents, and any such reports,
forms and documents filed by the Company with the ASC after
the date hereof, as amended, complied, or will comply, as to
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form in all material respects with the requirements of the
Securities Act (Alberta), as the case may be, applicable to
such ASC Documents, and none of the ASC Documents contained,
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(ii) The Financial Statements included in the ASC
Documents have been audited by Garrett Power, Chartered
Accountants (in the case of the Audited Financial Statements)
in accordance with Canadian generally accepted auditing
standards, have been prepared in accordance with Canadian
generally accepted accounting principles applied on a basis
consistent with prior periods, and present fairly the
consolidated financial position of the Company at such dates
and the results of operations and cash flows for the periods
then ended, except, in the case of the Interim Financial
Statements, as permitted by the Securities Act (Alberta). The
Interim Financial Statements reflect all adjustments
(consisting only of normal, recurring adjustments) that are
necessary for a fair statement of the results for the interim
periods presented therein. Except as set forth on Schedule
4.1(h), or in the Latest Balance Sheet and the notes thereto,
there has not been any Material Adverse Change in the
consolidated financial condition of the Company since December
31, 1998.
(iii) The Latest Balance Sheet includes appropriate
reserves for all Taxes and other liabilities incurred as of
such date but not yet payable.
(iv) Since the date of the Latest Balance Sheet,
there has been no change that has had or is likely to have a
Material Adverse Effect on the Company.
(i) Oil and Gas Properties.
(i) Except for Liens arising in the ordinary course
of business after the date of the Latest Balance Sheet and
assets disposed of in the ordinary course of business after
the date of the Latest Balance Sheet, each of the Company and
its subsidiaries has good and marketable title, free and clear
of all Liens which would have a Material Adverse Effect on the
Company and its subsidiaries on a consolidated basis, to the
all their material properties and assets, whether tangible or
intangible, real, personal or mixed, reflected in the Latest
Balance Sheet as being owned by the Company and its
subsidiaries as of the date thereof or purported to be owned
on the date thereof, including without limitation, the oil and
gas interests reported upon in the Reserve Report. All
buildings, and all fixtures, equipment and other property and
assets which are material to its business on a consolidated
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basis, held under leases by the Company and its subsidiaries
are held under valid instruments enforceable by each of them
in accordance with their respective terms. Substantially all
of the Company's and its subsidiaries' equipment in regular
use has been reasonably well maintained and is generally in
good and serviceable condition, reasonable wear and tear
excepted.
(ii) The Company has delivered to the Purchaser a
copy of the reserve report ("Reserve Report") dated as of
December 31, 1998, prepared by Ryder Scott Company Petroleum
Engineers, independent reserve engineers ("Reserve Engineers")
relating to the oil and gas reserves of the Company. The
factual information underlying the estimates of the reserves
of the Company, which was supplied by the Company to the
Reserve Engineers for the purpose of preparing the Reserve
Report, including, without limitation, production, volumes,
sales prices for production, contractual pricing provisions
under oil or gas sales or marketing contracts under hedging
arrangements, costs of operations and development, and working
interest and net revenue information relating to the Company's
ownership interests in properties, was true and correct in all
material respects on the date of such Reserve Report; the
estimates of future capital expenditures and other future
exploration and development costs supplied to the Reserve
Engineers were prepared in good faith and with a reasonable
basis; the information provided to the Reserve Engineers for
purposes of preparing the Reserve Reports were prepared in
accordance with customary industry practices; each of the
Reserve Engineers were, as of the date of any Reserve Report
prepared by it, and are, as of the date hereof, independent
petroleum engineers with respect to the Company; other than
normal production of the reserves and intervening oil and gas
price fluctuations set forth in Schedule 4.1(i)(ii), the
Company is not, as of the date hereof, aware of any facts or
circumstances that would result in a materially adverse change
in the reserves in the aggregate, or the aggregate present
value of future net cash flows therefrom, as described in the
Reserve Reports; estimates of such reserves and the present
value of the future net cash flows therefrom in the Reserve
Report comply in all material respects to the applicable
requirements of Regulation S-X under the Securities Act;
(j) Investment Company. Neither the Company nor any of its
subsidiaries is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(k) Public Utility Company. Neither the Company nor any of its
subsidiaries is a "public utility," a "holding company" or a subsidiary
or "affiliate" of a public utility within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
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(l) Environmental Matters. Except as set forth on Schedule
4.1(l), and except for matters that would not result individually in
liability to the Company or any of its subsidiaries in excess of (a)
$10,000 in the case of matters known to the Company or, in the
aggregate with all other such matters, in liability to the Company or
any of its subsidiaries in excess of $25,000, or (b) $25,000 in the
case of matters not known to the Company or, in the aggregate with all
other such matters, in liability to the Company or any of its
subsidiaries in excess of $50,000, to the best knowledge of the
Company:
(i) the properties, operations and activities of the
Company or any of its subsidiaries are in compliance in all
material respects with all applicable Environmental Laws and
there are no circumstances which could reasonably be expected
to prevent or interfere with their continued compliance with
applicable Environmental Laws;
(ii) each of the Company and its subsidiaries and the
properties and operations of the Company and its subsidiaries
(including, without limitation, properties located in the
Ukraine) are not subject to any existing, pending, or, to the
Company's knowledge, threatened civil, criminal or
administrative action, suit, claim, notice of violation,
investigation, notice of potential liability, request for
information, inquiry, demand or proceeding under applicable
Environmental Laws;
(iii) neither the Company nor any of its subsidiaries
has agreed, whether by contract or by consent agreement with
Governmental Authorities or private persons, to undertake any
environmental investigation, clean up, or remedial activities;
(iv) all notices, permits, licenses, or similar
authorizations required to be obtained or filed by the Company
or its subsidiaries under any Environmental Law in connection
with any aspect of the business of the Company or its
subsidiaries, including without limitation those relating to
the treatment, storage, disposal or discharge of Hazardous
Materials, have been duly obtained or filed, and the Company
and its subsidiaries are in compliance with the terms and
conditions of all such notices, permits, licenses and similar
authorizations.
(v) the Company and each of its subsidiaries has
satisfied and is currently in compliance with all financial
responsibility requirements applicable to their operations and
imposed by any Governmental Authority under Environmental
Laws, and the Company has not received any notice of
noncompliance with respect to any such financial
responsibility requirements;
(vi) there are no physical or environmental
conditions existing on any property of the Company or any of
its subsidiaries or resulting from the Company's or any of its
subsidiaries' operations or activities, past or present, at
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any location, including, without limitation, releases and
disposal of Hazardous Materials, that would give rise to any
on-site or off-site investigation, reporting, or remedial
obligations or other Environmental Liability;
(vii) to the extent required by applicable
Environmental Laws, all Hazardous Materials generated by the
Company and its subsidiaries have been transported only by
persons authorized under applicable Environmental Laws to
transport such materials, and disposed of only at treatment,
storage and disposal facilities authorized under applicable
Environmental Laws to treat, store or dispose of such
Hazardous materials;
(viii) there has been no exposure of any person or
property to Hazardous Materials or any release of Hazardous
Materials into the environment by the Company and its
subsidiaries or in connection with their present or prior
properties or operations that could reasonably by expected to
give rise to any Environmental Liability;
(ix) no release or clean up of Hazardous Materials
has occurred at the Company's and its subsidiaries' properties
which could reasonably be expected to result in the assertion
or creation of any Lien on the properties by any Governmental
Authority with respect thereto, nor has any such lien been
asserted or made by any Governmental Authority with respect
thereto; and
(x) the operations of each third party operator of
any of the Company's and its subsidiaries' properties are in
compliance with the terms of this Section.
The Company has made available to the Purchaser all material internal
and external environmental audits, studies, documents and
correspondence on environmental matters in the possession of the
Company relating to any of the present or prior properties or
operations of the Company and its subsidiaries.
In this Section,
(xi) "Environmental Laws" shall mean any and all
laws, statutes, ordinances, rules, regulations or orders of
any Governmental Authority pertaining to pollution, health,
safety, or the environment, including, without limitation, the
laws of the Ukraine on Environmental Protection (VVR (Visnyk
Verkhovnoi Rady [Herald of the Supreme Rada]) 1991, #41. p.
5546), the Clean Air Act, the Comprehensive Environmental,
Response, Compensation, and Liability Act, the Clean Water
Act, the Occupational Safety and Health Act, the Resource
Conservation and Recovery Act, the Solid Waste Disposal Act,
the Emergency Planning and Community Right-To-Know Act, the
Safe Drinking Water Act, the Toxic Substances Control Act, the
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Hazardous Materials Transportation Act, the Oil Pollution
Act, all as amended, any state laws implementing the
foregoing federal laws, any state laws pertaining to, health,
safety and waste management including, without limitation,
the handling of asbestos, medical waste or disposable
products, hydrocarbon products, PCBs or other Hazardous
Materials or processing or disposing of wastes or the use,
maintenance and closure of pits and impoundments, all other
federal, provincial, state or local environmental
conservation or protection and health and safety laws,
domestic and foreign, and any common law creating liability
for environmental conditions. Environmental Laws shall
include, without limitation, all restrictions, conditions,
standards, limitations, prohibitions, requirements,
guidelines, obligations, schedules and timetables contained
in Environmental Laws or contained in any regulation, plan,
code, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder.
(xii) "Hazardous Materials" shall mean any materials
that are regulated by or form the basis or liability under
Environmental Laws, and include, without limitation, asbestos,
wastes, including, without limitation, medical wastes or
disposable products, hazardous substances, pollutants or
contaminants, hazardous or solid wastes, hazardous
constituents, hazardous materials, toxic substances,
petroleum, including crude oil or any fraction thereof,
natural gas, natural gas liquids, liquefied natural gas or
synthetic gas usable for fuel (or mixtures of natural gas and
such synthetic gas).
(xiii) "Environmental Liability" shall mean
liabilities, fines, penalties, obligations, consequential
damages, responsibilities, response costs, natural resource
damages, corrective action costs, reclamation costs, and costs
and expenses, known or unknown, absolute or contingent, past,
present or future, resulting from any requirement, claim or
demand under Environmental Laws or contract.
(m) Tax Matters.
(i) Each of the following is true with respect to
each of the Company and its subsidiaries to the extent
applicable to such member:
(1) all Returns that are or were required to
be filed by or with respect to the Company and its
subsidiaries have been or will be timely filed by
each of the Company and its subsidiaries when due in
accordance with all applicable laws; all Taxes shown
on the Returns have been or will be timely paid when
due; the Returns have been properly completed in
compliance with all applicable laws and regulations
and completely and accurately reflect the facts
regarding the income, expenses, properties, business
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and operations required to be shown thereon; the
Returns are not subject to penalties under Section
6662 of the Code (or any corresponding provision of
state, local or foreign tax law);
(2) except as set forth on Schedule 4.1(m),
each member of the Company and its subsidiaries has
paid all Taxes required to be paid by it (whether or
not shown on a Return) or for which it could be
liable (provided that it shall not be considered a
breach of this representation if it is ultimately
determined that additional tax payments are due but
such assessment is based on an adjustment to a Return
or position, if such member has a reasonable basis
for the position taken with respect to such Taxes),
whether to taxing authorities or to other Persons
under tax allocation agreements or otherwise, and the
charges, accruals, and reserves for Taxes due, or
accrued but not yet due, relating to its income,
properties, transactions or operations for any period
as reflected on its books (including, without
limitation, the Latest Balance Sheet) are adequate to
cover such Taxes;
(3) there are no ongoing or scheduled
audits, agreements or consents currently in effect
for the extension or waiver of the time (A) to file
any Return or (B) for assessment or collection of any
Taxes relating to the income, properties or
operations of any of the Company and its subsidiaries
for any period, and neither the Company nor any
subsidiary has been requested to enter into any such
agreement or consent;
(4) there are no Liens for Taxes (other than
for current Taxes not yet due and payable and Taxes
set forth on Schedule 4.1(m) ) upon the assets of any
of the Company nor its subsidiaries;
(5) the Company and its subsidiaries have
not received notice of any Tax deficiency
outstanding, proposed or assessed against or
allocable to the Company or its subsidiaries or their
assets (other than for Taxes set forth on Schedule
4.1(m);
(6) to the knowledge of the Company, each of
the Company and its subsidiaries has complied in all
material respects with all applicable tax laws (other
than for Taxes set forth on Schedule 4.1(m); and
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(7) all Taxes that the Company and its
subsidiaries are or were required by applicable law
to withhold or collect have been duly withheld,
collected and paid.
(n) Litigation. Except as disclosed on Schedule 4.1(n), there
are no actions, suits, proceedings, arbitrations or investigations
pending or, to the knowledge of the Company, threatened before any
court, any Governmental Authority, governmental instrumentality or any
arbitration panel, against or affecting any of the Company or its
subsidiaries. To the knowledge of the Company, no facts or
circumstances exist that would be reasonably likely to result in the
filing of any such action that would have a Material Adverse Effect on
the Company. Except as disclosed on Schedule 4.1(n), neither the
Company nor its subsidiaries is subject to any currently pending
judgment, order or decree entered in any lawsuit or proceeding.
(o) Broker's and Finder's Fee. No agent, broker, Person or
firm acting on behalf of the Company is or will be entitled to any
commission or broker's or finder's fee from the Company or its
subsidiaries in connection with any of the transactions contemplated
herein.
(p) Absence of Sensitive Payments. Except as disclosed to
Purchaser, neither the Company, any subsidiary nor any Affiliate
thereof nor any officer or director of any of them acting alone or
together, has performed any of the following acts: (i) the making of
any contribution, payment, remuneration, gift or other form of economic
benefit (a "Payment") to or for the private use of any governmental
official, employee or agent where the Payment or the purpose of the
Payment was illegal under the laws of the United States, Canada or the
Ukraine or the jurisdiction in which such payment was made, (ii) the
establishment or maintenance of any unrecorded fund, asset or liability
for any purpose or the making of any false or artificial entries on its
books, (iii) the making of any Payment or the receipt of any Payment
with the intention or understanding that any part of the Payment was to
be used for any purpose other than that described in the documents
supporting the Payment, or (iv) the giving of any Payment to, or the
receipt of any Payment from, any person who was or could have been in a
position to help or hinder the business of the Company and its
subsidiaries (or assist any of the Company or its subsidiaries in
connection with any actual or proposed transaction) which (A) would
reasonably have been expected to subject any of the Company or its
subsidiaries to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (B) if not given in the past,
would have had a Material Adverse Effect on the Company or (C) if not
continued in the future, would have a Material Adverse Effect on the
Company.
(q) Compliance with Law. Neither the Company nor any
subsidiary is in violation of any statute, law, ordinance, regulation,
rule or order of any foreign, United States, Canadian or Ukranian
federal, state, provincial or local Governmental Authority or any
judgment, decree or order of any court, except where any such violation
15
<PAGE>
would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. Each of the Company and its subsidiaries has
all permits, approvals, licenses and franchises from Governmental
Authorities required to conduct its business as now being conducted,
except for such permits, approvals, licenses and franchises the
absence of which would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
(r) Contracts.
(i) Schedule 4.1(r) sets forth, as of the date
hereof, a list of all of the following material contracts and
other agreements to which the Company or its subsidiaries is a
party or by which any of them or any material portion of their
properties or assets are bound or subject (other than those
set forth on any other Schedule): (1) contracts, severance
agreements and other agreements with any current or former
officer, director, employee, consultant, agent or other
representative; (2) contracts and other agreements with any
labor union or association representing any employee of the
Company and its subsidiaries; (3) contracts, agreements or
other agreements relating to the Company and its subsidiaries
between the Company and its subsidiaries, on the one hand, and
any shareholder or any of his, her or its Affiliates on the
other hand; (4) joint venture agreements, concessions,
licenses or production sharing contracts; (5) contracts and
other agreements under which the Company or any of its
subsidiaries agrees to indemnify any party; (6) contracts and
other agreements relating to the borrowing of money; or (7)
any other material contract or other agreement whether or not
made in the ordinary course of business. There have been
delivered or made available to the Purchaser true and complete
copies of all such contracts and other agreements set forth on
Schedule 4.1(r).
(ii) All contracts, agreements and understandings set
forth on Schedule 4.1(r) are valid and binding and are in full
force and effect and enforceable in accordance with their
respective terms other than contracts, agreements or
understandings which are by their terms no longer in force or
effect. Except as set forth on Schedule 4.1(r) (or on another
Schedule), (1) no approval or consent of, or notice to, any
Person is needed in order that such contract, agreement or
understanding shall continue in full force and effect in
accordance with its terms without penalty, acceleration or
rights of early termination following the consummation of the
transactions contemplated by this Agreement, and (2) neither
the Company nor any of its subsidiaries is in violation or
breach of or default under any such contract, agreement or
understanding nor to the knowledge of the Company is any other
party to any such contract, agreement or understanding.
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<PAGE>
(s) Employment Plans/Employment Agreements
(i) Neither the Company nor its subsidiaries has
sponsored, maintained or contributed to or for the benefit of
the current or former employees, officers or directors of the
Company or its subsidiaries or has been so sponsored,
maintained or contributed to within six years prior to the
Closing Date:
(1) any "employee benefit plan," as such
term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA") (including, but not limited to, employee
benefit plans, such as foreign plans, which are not
subject to the provisions of ERISA); and
(2) any personnel policy, option plan,
collective bargaining agreement, bonus plan or
arrangement, incentive award plan or arrangement,
vacation policy, severance pay plan, policy or
agreement, deferred compensation agreement or
arrangement, executive compensation or supplemental
income arrangement, consulting agreement, employment
agreement and each other employee benefit plan,
agreement, arrangement, program, practice or
understanding.
(ii) Neither the Company nor its subsidiaries
contributes to or has an obligation to contribute to, and has
not at any time within six years prior to the Closing Date
contributed to or had an obligation to contribute to or any
liability with respect to (a) a multiemployer plan within the
meaning of Section 3(37) of ERISA or (b) a plan subject to
Title IV of ERISA, Section 302 of ERISA or Section 412 of the
Code. No Plan is funded through a trust that is intended to be
exempt from federal income taxation pursuant to Section
501(c)(9) of the Code.
(iii) the Company does not have a 401(k) Plan or any
health benefit plans.
(t) Absence of Certain Changes or Events. Since the date of
the Latest Balance Sheet, each of the Company and its subsidiaries has
conducted its business only in the ordinary course, and has not:
(i) amended its articles of incorporation,
bylaws or similar organizational documents;
(ii) merged or consolidated with another entity
(other than a subsidiary) or acquired or agreed to acquire any
business or any corporation, partnership or other business
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organization, or sold, leased, transferred or otherwise
disposed of any material portion of its assets except for
fair value in the ordinary course of business;
(iii) suffered any damage, destruction or loss
(whether or not covered by insurance) which has had or could
have a Material Adverse Effect on the Company;
(iv) suffered the termination, suspension or
revocation of any license or permit necessary for the
operation of its business;
(v) entered into any transaction other than on an
arm's-length basis;
(vi) declared or paid any dividend or made any
distribution with respect to any of its equity interests, or
redeemed, purchased or otherwise acquired any of its equity
interests, or issued, sold or granted any option, warrant or
other right to purchase or acquire any equity interest; or
(vii) agreed, whether or not in writing, to do any of
the foregoing (other than as contemplated by the Pease Merger
Agreement).
(u) The Company's Assets. The assets of the Company and of its
subsidiaries consist solely of (i) reserves of oil, rights to reserves
of oil and associated exploration and production assets with a fair
market value not exceeding $500 million and (ii) other assets with a
fair market value not exceeding $15 million. For purposes of this
Section 4.1(u), the term "associated exploration and production assets"
shall have the meaning ascribed thereto in Section 802.3 of the Rules
promulgated pursuant to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 ("HSR Act").
(v) Registration Rights. The Company is not under any
obligation to register (as defined in the First Amendment to
Registration Rights Agreement) any of its presently outstanding
securities or any of its securities which may hereafter be issued,
except as described on Schedule 4.1(v).
Section 4.2 Representations and Warranties of Purchaser.
Purchaser hereby represents and warrants to the Company as follows:
(a) Investment Intent. Purchaser:
(i) is acquiring the Purchase Shares, the Warrants, the
Shares and the Warrant Shares for investment for its own
account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution
thereof except pursuant to the First Amendment to
Registration Rights Agreement;
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<PAGE>
(ii) understands and acknowledges that the Purchase
Shares, the Warrants, the Shares and the Warrant Shares have
not been and will not be registered under any applicable
Securities Laws, and that the issuance contemplated hereby
is being made in reliance on a private placement exemption
to "accredited investors" as defined in Regulation D under
the Securities Act and similar exemptions under state law
and applicable exemptions under the Securities Act
(Alberta);
(iii) has had access to such information concerning the
Company as it has considered necessary in connection with
its investment decision to invest in the Purchase Shares,
the Warrants, the Shares and the Warrant Shares, including
an opportunity to meet with members of management of the
Company and to ask and receive answers to questions
regarding the Company, its business, financial condition,
prospects and the terms of this offering;
(iv) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits
and risks of its investment in the Purchase Shares,
Warrants, Shares and Warrant Shares and is able to bear the
economic risks of such investment;
(v) acknowledges that it has not purchased the Purchase
Shares, the Warrants, the Shares and the Warrant Shares as a
result of any general solicitation or general advertising,
including advertisements, articles, notices or other
communications published in any newspaper, magazine or
similar media or broadcast over the internet, radio or
television, or any seminar or meeting whose attendees have
been invited by general solicitation or general advertising;
(vi) agrees that if it decides to offer, sell or
otherwise transfer any of the Purchase Shares, the Warrants,
the Shares or the Warrant Shares, it will not offer, sell or
otherwise transfer any of such Purchase Shares, Warrants,
Shares or Warrant Shares, directly or indirectly, unless:
A. the sale is to the Company or registered under
applicable Securities Laws; or
B. the sale is made outside the United States in a
transaction meeting the requirements of Rule 904 of
Regulation S (or such successor rule or regulation as then
in effect);
C. the sale is made pursuant to the exemption from the
registration requirements under the Securities Act provided
by Rule 144 thereunder, if available, and in accordance with
any applicable state securities laws; or
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<PAGE>
D. the sale is made in a transaction that otherwise
does not require registration under applicable Securities
Laws governing the offer and sale of the Purchase Shares,
Warrants, Shares and Warrant Shares;
(vii) understands and acknowledges that upon issuance
thereof and until such time as is no longer required under
requirements of the applicable Securities Laws, all
certificates representing the Purchase Shares, the Warrants,
the Shares and the Warrant Shares (and all certificates
issued in exchange therefor or in substitution thereof),
shall bear, in addition to any legend(s) required by
applicable Securities Laws and policies, the following
legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF, BY PURCHASING
SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (A) TO THE COMPANY, (B) OUTSIDE THE UNITED
STATES IN ACCORDANCE WITH REGULATION S UNDER THE 1933 ACT, IF
APPLICABLE (OR SUCH SUCCESSOR RULE OR REGULATION AS THEN IN
EFFECT), (C) INSIDE THE UNITED STATES (1) PURSUANT TO
REGISTRATION UNDER THE 1933 ACT AND APPLICABLE STATE LAWS, OR
(2) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE 1933
ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (3) IN A
TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE 1933
ACT OR ANY APPLICABLE STATE SECURITIES LAWS, AND THE HOLDER
HAS PRIOR TO SUCH SALE FURNISHED TO THE COMPANY AN OPINION OF
COUNSEL OF RECOGNIZED STANDING, REASONABLY SATISFACTORY TO THE
COMPANY, TO THE EFFECT THAT NO SUCH REGISTRATION IS REQUIRED.
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD
DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN
CANADA.
and understands that the certificate representing the Purchase
Shares, Warrants, Shares and Warrant Shares will bear the
following additional legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD
UNLESS (A) A PERIOD OF AT LEAST 12 MONTHS HAS ELAPSED FROM THE
DATE OF ORIGINAL ISSUE, (B) NO UNUSUAL EFFORT IS MADE TO
PREPARE THE MARKET OR TO CREATE A DEMAND FOR THE SECURITIES
MAKING UP THE DISTRIBUTION, (C) NO EXTRAORDINARY COMMISSION OR
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<PAGE>
CONSIDERATION IS PAID TO A PERSON OR COMPANY OTHER THAN THE
VENDOR OF THE SECURITIES IN RESPECT OF THE TRADE, AND (D)
THE FIRST TRADE IS NOT FROM THE HOLDINGS OF A CONTROL
PERSON. ("UNUSUAL EFFORT," "EXTRAORDINARY COMMISSION" AND
"CONTROL PERSON" HAVE THE MEANINGS SET OUT IN THE SECURITIES
ACT (ALBERTA) AND THE RULES THEREUNDER.)
(viii) consents to the Company making a notation on its
records or giving instructions to any transfer agent of the
Purchase Shares, the Warrants, the Shares and the Warrant
Shares in order to implement the restrictions on transfer
set forth and described herein; and
(ix) will not sell all or any of the Purchase Shares,
the Warrants, the Shares and the Warrant Shares except in
compliance with applicable Securities Laws.
(b) Accredited Investor. The Purchaser is an
"accredited investor" as such term is defined in Regulation D under the
Securities Act.
(c) Corporate Power; Authority. The Purchaser has
full corporate power and authority to enter into this Agreement and the
Ancillary Agreements and to perform its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement,
and the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and approved
by the Board of Directors of the Purchaser and no other corporate
proceeding on the part of the Purchaser is necessary to authorize and
approve this Agreement and the Ancillary Agreements and the
transactions contemplated hereby and thereby. This Agreement has been,
and at the Closing, each Ancillary Agreement will be, duly executed and
delivered by, and constitutes or will constitute a valid and binding
obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies).
Section 4.3 Acknowledgments of the Purchaser. In connection with the
issuance of the Purchase Shares and the Warrants, Purchaser certifies that it is
not a resident of Alberta and hereby acknowledges to the Company as follows:
(a) Purchaser understands that no securities commission or
similar regulatory authority has reviewed or passed on the merits of
the Purchase Shares or the Warrants,
(b) there is no government or other insurance covering
the Purchase Shares or the Warrants,
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<PAGE>
(c) there are risks associated with the purchase of the
Purchase Shares and the Warrants,
(d) there are restrictions on the Purchaser's ability to
resell the Purchase Shares and the Warrants (and the Shares and Warrant
Shares) and it is the responsibility of the Purchaser to find out what
those restrictions are and to comply with them before selling the
Purchase Shares Warrants (and the Shares and Warrant Shares), and
(e) the Company has advised the Purchaser that the Company is
relying on an exemption from the requirements to provide the Purchaser
with a prospectus and to sell the Purchase Shares and Warrants through
a person or company registered to sell securities under the Securities
Act (Alberta) and, as a consequence of acquiring the Purchase Shares
and the Warrants pursuant to this exemption, certain protections,
rights and remedies provided by the Securities Act (Alberta), including
statutory rights of rescission or damages, will not be available to the
Purchaser.
ARTICLE V. CONDITIONS TO CLOSING
Section 5.1 Purchaser's Conditions. Purchaser's obligations to purchase
the Purchase Shares and the Warrants at the Closing are subject to the
fulfillment of the following conditions, the waiver of which shall not be
effective against Purchaser unless specifically consented to in writing:
(a) Representations and Warranties Correct. The
representations and warranties made by the Company in Section 4.1
hereof shall be true and correct when made, and shall be true and
correct on the Closing Date except to the extent such representations
and warranties specifically relate to an earlier date, in which case
such representations and warranties shall be true and correct as of
such earlier date.
(b) Covenants. All covenants, agreements and conditions
contained in this Agreement to be performed by the Company on or prior
to the Closing Date shall have been performed or complied with in all
respects.
(c) Compliance Certificate. The Company shall have delivered
to Purchaser a certificate of the Company, executed by the President
and Secretary of the Company, dated the Closing Date, and certifying,
that all representations and warranties of the Company contained in the
Agreement are true and correct on the Closing Date as if made on such
date, that all conditions to the obligations of Purchaser to close the
transactions contemplated by this Agreement have been satisfied or
waived in writing by Purchaser and that the Company has complied with
all covenants or obligations set forth in this Agreement.
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<PAGE>
(d) No Material Adverse Change. There shall have been no
Material Adverse Change with respect to the Company since the date of
the Interim Financial Statements.
(e) Consents. The shareholders of the Company shall have
approved the issuance of the Purchase Shares and Warrants as
contemplated by Section 6.4. Any consent, approval, authorization or
order of any court, Governmental Authority or administrative body
required for the consummation of the transactions contemplated by this
Agreement, shall have been obtained and shall be in effect on the
Closing Date.
(f) Registration Rights Agreement. The Company shall
have executed the First Amendment to Registration Rights Agreement.
(g) Opinion of Company's Counsel. Purchaser shall have
received from McManus Thompson a favorable opinion dated the Closing
Date, in form and substance satisfactory to Purchaser, in the form of
Exhibit D.
(h) Pease Merger Agreement. The Pease Merger Agreement shall
have been amended as contemplated by Section 6.10 and the form and
substance of such amendment shall be satisfactory to the Purchaser,
acting reasonably.
(i) Due Diligence. The Purchaser shall have completed its due
diligence investigation of the Company, its subsidiaries and their
respective assets, operations and prospects, and the Company shall be
satisfied in its sole and absolute discretion with the results of that
investigation. Such due diligence shall include, without limitation,
receipt of such opinions and certificates regarding the operations,
properties and prospects of the Company from Ukranian counsel to
Purchaser as purchaser shall request.
Section 5.2 Company's Conditions. The Company's obligation to sell and
issue the Purchase Shares and Warrants at the Closing is, at the option of the
Company, subject to the fulfillment as of the Closing Date of the following
conditions:
(a) Representations. The representations made by Purchaser in
Sections 4.2 and 4.3 hereof shall be true and correct when made, and
shall be true and correct on the Closing Date.
(b) Consents. The shareholders of the Company shall have
approved the issuance of the Purchase Shares and Warrants as
contemplated by Section 6.4. Any other consent, approval, authorization
or order of any court, Governmental Authority or administrative body
required for the consummation of the transactions contemplated by this
Agreement, shall have been obtained and shall be in effect on the
Closing Date.
(c) Pease Merger Agreement. The Pease Merger Agreement shall
have been amended as contemplated by Section 6.10.
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ARTICLE VI. AFFIRMATIVE COVENANTS OF THE COMPANY
Section 6.1 Financial Information. The Company will mail to each
Holder of any of the Purchase Shares, Warrants, Shares or Warrant Shares the
following:
(a) ASC Reports. The Company shall promptly mail copies of all
quarterly and annual reports and of the information, documents and
other reports which the Company is required to file with the ASC or the
SEC, exclusive of any exhibits to such reports and exclusive of
registration statements on Form S-8.
(b) Other Reports. If the Company is not required to file
reports with the ASC or the SEC, the Company shall mail within five
days after it would have been required to file with the SEC, financial
statements, including notes thereto (and with respect to annual
financial statements, an auditor's report by a firm of established
national reputation), and a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" both comparable to that
which the Company would have been required to include in such annual or
quarterly reports, information, documents or other reports if the
Company were subject to the requirements of Section 13 or 15(d) of the
Exchange Act.
Section 6.2 Access. The Company will allow, and will cause its
subsidiaries to allow, any Holder of Purchase Shares, Warrants, Shares or
Warrant Shares or proposed assignee of Purchase Shares, Warrants, Shares or
Warrant Shares designated by such Holder, and their respective representatives,
upon two Business Days prior telephonic notice, to visit and inspect any of its
property, to examine its books of record and account, and to discuss its
affairs, finances and accounts with its officers, provided, (i) the Holder of
Purchase Shares, Warrants, Shares or Warrant Shares, proposed assignee or
representative signs a customary confidentiality agreement if requested by the
Company and (ii) the examination will not unreasonably disrupt, in any material
manner, the operations of the Company.
Section 6.3 Rule 144 Reporting. The Company agrees that from and after
the date it registers any class of its securities under Section 12(b) or 12(g)
of the Exchange Act, it shall:
(a) Make and keep "adequate public information" available, as
those terms are understood and defined in Rule 144 under the Securities
Act, at all times from and after the date hereof;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the
Exchange Act; and
(c) So long as Purchaser owns any Purchase Shares or Common
Shares, furnish to Purchaser promptly upon request a written statement
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by the Company as to its compliance with the reporting requirements (i)
necessary to cause "adequate public information" to be available under
Rule 144, and (ii) of the Securities Act and Exchange Act.
Section 6.4 Shareholder Approval. The Company will take all action
necessary to obtain the approval of the shareholders of the Company in
accordance with the requirements of the CDNX by obtaining Shareholder Consents
from holders of a majority of its Common Shares, excluding the Purchaser and
Torch Energy Advisors Incorporated, with respect to the transactions
contemplated hereby. The Board of Directors of the Company shall recommend such
approval and shall each take all lawful action to solicit such approval;
provided, however, that such recommendation is subject to any action required by
the fiduciary duties of the Board of Directors of the Company under applicable
law.
Section 6.5 Conduct of Business by the Company Pending the Closing.
Prior to the Closing, unless Purchaser shall otherwise agree in writing or
except as otherwise required by this Agreement:
(i) the Company shall, and shall cause its subsidiaries to,
carry on their respective businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, and
shall, and shall cause its subsidiaries to, use their reasonable
efforts to preserve intact their present business organizations and
preserve their relationships with customers, suppliers and others
having business dealings with them to the end that their goodwill and
on-going businesses shall be unimpaired at the Closing. The Company
shall, and shall cause its subsidiaries to, (a) maintain insurance
coverages and its books, accounts and records in the usual manner
consistent with past practice; (b) comply in all material respects with
all laws, ordinances and regulations of Governmental Authorities
applicable to the Company and its subsidiaries; (c) maintain and keep
its material properties and equipment in good repair, working order and
condition, ordinary wear and tear excepted; (d) maintain its material
concessions in full force and effect and not take any action or fail to
take any action which would constitute a material breach or default
thereunder; and (e) perform in all material respects its obligations
under all material contracts and commitments to which it is a party or
by which it is bound;
(ii) the Company shall not, and shall not propose or agree to,
nor shall it permit any of its subsidiaries to, or propose or agree to,
(a) sell or pledge or agree to sell or pledge any capital stock owned
by it in any of their respective subsidiaries, (b) amend their
respective articles or by-laws, (c) split, combine or reclassify their
outstanding stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for such
shares of stock, or declare, set aside, authorize or pay any dividend
or other distribution payable in cash, stock or property, or (d)
directly or indirectly redeem, purchase or otherwise acquire or agree
to redeem, purchase or otherwise acquire any shares of stock;
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(iii) the Company shall not, nor shall it permit any of its
subsidiaries to, (A) issue, deliver or sell or agree to issue, deliver
or sell any additional shares of, or rights of any kind to acquire any
shares of, its respective stock of any class, any indebtedness having
the right to vote on any matter on which the Company's shareholders may
vote or any option, rights or warrants to acquire, or securities
convertible into, exercisable for or exchangeable for, shares of stock
other than issuances, deliveries or sales of securities pursuant to
obligations outstanding as of the date of this Agreement; (B) acquire,
lease or dispose or agree to acquire, lease or dispose of any capital
assets or any other assets other than in the ordinary course of
business; (C) incur additional indebtedness or encumber or grant a
security interest in any asset or enter into any other material
transaction other than in each case in the ordinary course of business;
(D) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in, or by any other manner,
any business or any corporation, partnership, association or other
business organization or division thereof; or (E) enter into any
contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(iv) the Company shall not, nor shall it permit any of its
subsidiaries to, except as required to comply with applicable law,
enter into any new (or amend any existing) employment, severance or
consulting agreement, grant any general increase in the compensation of
current or former directors, officers or employees (including any such
increase pursuant to any bonus, pension, profit-sharing or other plan
or commitment) or grant any increase in the compensation payable or to
become payable to any director, officer or employee, except in any of
the foregoing cases in accordance with pre-existing contractual
provisions or in the ordinary course of business consistent with past
practice; and
(v) the Company shall not, nor shall it permit any of its
subsidiaries to, amend, modify, terminate, waive or permit to lapse any
material right of first refusal, preferential right, right of first
offer, or any other material right of the Company or any of its
subsidiaries.
Section 6.6 Stock Exchange Listing. The Company shall use its best
efforts to list on the CDNX, the Shares and Warrant Shares, to be issued
pursuant to the Purchase Shares and Warrants.
Section 6.7 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using all commercially reasonable
efforts to obtain all necessary waivers, consents and approvals, to effect all
necessary registrations and filings and to lift any injunction to the
transactions contemplated hereby (and, in such case, to proceed with such
transactions as expeditiously as possible).
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Section 6.8 No Shop. The Company agrees (a) that neither it nor any of
its subsidiaries shall, and it shall direct and use its best efforts to cause
its officers, directors, employees, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by it
or any of its subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its shareholders)
with respect to a merger, stock or asset acquisition, consolidation or similar
transaction, involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Company or its subsidiaries, taken as a
whole (any such proposal or offer being hereinafter referred to as an
"Alternative Proposal"), or engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
Person relating to an Alternative Proposal, or release any third party from any
obligations under any existing standstill agreement or arrangement, or enter
into any agreement with respect to an Alternative Proposal, or otherwise
facilitate any effort or attempt to make or implement an Alternative Proposal;
(b) that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing, and it will take the necessary steps to
inform the individuals or entities referred to above of the obligations
undertaken in this Section 6.8; and (c) that it will notify the Purchaser
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it. Notwithstanding the foregoing, the
Company may, directly or indirectly, furnish information and access to, and may
participate in discussions and negotiate with, any Person, if such Person has
submitted a written proposal to its Board of Directors relating to an
Alternative Proposal which the Board of Directors believes is superior from a
financial point of view to the transactions contemplated hereby and is
reasonably likely to be consummated and the Company's Board of Directors, having
received a written opinion of legal counsel relating thereto, determines in its
good faith judgment that failing to take such action would constitute a breach
of the Board of Directors' fiduciary duty to its shareholders imposed by law.
The Board of Directors shall provide a copy of any such written proposal to the
Purchaser immediately after receipt thereof and thereafter keep the other party
promptly advised of any development with respect thereto and any revision of the
terms of such Alternative Proposal.
Section 6.9 Advice of Changes. The Company shall confer on a regular
basis with Purchaser on operational matters. The Company shall promptly advise
the Purchaser orally and in writing of any change or event that has had, or
could reasonably be expected to have, a Material Adverse Effect. The Company
shall promptly provide the Purchaser (or their respective counsel) copies of all
filings made by such party with the CDNX or any other Governmental Authority in
connection with this Agreement and the transactions contemplated hereby.
Section 6.10 Pease Merger. The Company is currently party to the Pease
Merger Agreement. Contemporaneously with the execution of this Agreement, Pease
and the Company have amended the Pease Merger Agreement as contemplated by
Exhibit E. Purchaser agrees to vote all Common Shares which it owns or controls
and all of the Preferred Shares in favor of the Pease Merger Agreement (as
amended as contemplated by Exhibit E), including the approval and adoption of
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<PAGE>
the Redomestication (as defined in the Pease Merger Agreement) and the Merger
(as defined in the Pease Merger Agreement); provided however, Purchaser shall
not be required to vote or cause the voting of Common Shares or Preferred Shares
unless:
(i) The conditions to consummation of the Redomesticatioin and the
Merger set forth in Section 7.01(a) and (c) of the Pease Merger Agreement shall
have been satisfied as of the date of the vote of shareholders or waived by
Purchaser.
(ii) The conditions to the consummation of the Redomestication and
Merger set forth in Section 7.02(a) through 7.02(j) of the Pease Merger
Agreement shall have been satisfied as of the date of the vote of shareholders
or waived by Purchaser, except that
(A) the certificates of the President and Chief Financial
Officer of Pease described in Section 7.02(a), 7.02(b) and 7.02(c) of
the Pease Merger Agreement shall be delivered and addressed to
Purchaser and shall be dated the date of the shareholder vote;
(B) the "reasonable business judgement of Carpatsky" set forth
in Section 7.02(d) of the Pease Merger Agreement shall be the
"reasonable business judgement of Bellwether Exploration Company";
(C) Purchaser shall have been advised orally that the
requirements of the second sentence of clause (iii) below are
anticipated to be satisfied at the closing.
(iii) Purchaser shall have received drafts of the opinions set forth in
Section 7.02(e) and (f) of the Pease Merger Agreement, and such opinion shall be
in form and substance acceptable to Purchaser, acting reasonably. Each of the
opinions described in Section 7.02(e) and (f) of the Pease Merger Agreement
shall be addressed and delivered to Purchaser at the Closing.
(iv) The Company will not waive the conditions in Section 7.02(i) or
(j) of the Pease Merger Agreement without the prior written consent of
Purchaser.
Section 6.11 Board Nominees. At or prior to the Closing, the Company shall
cause J.P. Bryan to be appointed as Chief Executive Officer of the Company, and
shall cause the board to be increased by two members, Mr. Burges, Mr. Braun and
Mr. Richards to resign as directors, and Mr. Bryan, Dr. Jack Birks, Mr. Timothy
Robson, Mr. Don Boykiw and Mr. John Kousinioris to be appointed as directors of
the Company.
Section 6.12 Use of Proceeds. The Company shall pay $1.0 million of the
net proceeds of the issuance of the Preferred Shares and Warrants to the joint
activity account created pursuant to the Joint Activity Agreement, dated
September 14, 1995, between Poltavanaftogaz and the Company, as amended.
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ARTICLE VII. MISCELLANEOUS
Section 7.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS
BY THE INTERNAL LAWS OF THE STATE OF TEXAS.
Section 7.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Purchaser and the
closing of the transactions contemplated hereby.
Section 7.3 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
Section 7.4 Entire Agreement, Amendment. This Agreement and the other
documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
Section 7.5 Notices, etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to Purchaser, at: Bellwether Exploration Company, 1331 Lamar,
Suite 1450, Houston, Texas 77010, Attn: Roland E. Sledge, Esq. with a copy to
Haynes and Boone, LLP, 1000 Louisiana, Suite 4300, Houston, Texas 77002,
Attention: Guy Young, or at such other address as Purchaser shall have furnished
to the Company in writing, or (b) if to any other Holder of any Purchase Shares,
Warrants, Shares or Warrant Shares, at such address as such Holder shall have
furnished the Company in writing, or, until any such Holder so furnishes an
address to the Company, then to and at the address of the last Holder of such
Purchase Shares, Warrants, Shares or Warrant Shares who has so furnished an
address to the Company, or (c) if to the Company, to its address set forth on
the signature page of this Agreement and addressed to the attention of the
Corporate Secretary, or at such other address as the Company shall have
furnished to Purchaser, with a copy to McManus Thomson, 1210, 606-4th Street
S.W., Calgary, Alberta T2P 1T1, Attention: James D. Thomson.
Section 7.6 Delays or Omissions. Except as expressly provided herein,
no delay or omission to exercise any right, power or remedy accruing to any
Holder of any Purchase Shares, Warrants, Warrant Shares or Shares , upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such Holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
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<PAGE>
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any Holder of any breach or default under
this Agreement, or any waiver on the part of any Holder of any provisions or
conditions of this agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any Holder, shall be
cumulative and not alternative.
Section 7.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which together
shall constitute one agreement.
Section 7.8 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
Section 7.9 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
Section 7.10 Specific Performance. The Company acknowledges that any
breaches of the agreements and covenants contained in of this Agreement would
cause irreparable injury to Purchaser for which Purchaser would have no adequate
remedy at law. In addition to any other remedy that Purchaser may be entitled
to, the parties agree that Purchaser shall be entitled to the remedy of specific
performance.
[Signatures on the following page]
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The foregoing Agreement is hereby executed as of the date first above
written.
"COMPANY"
Address: 6671 Southwest Freeway, Suite 303 CARPATSKY PETROLEUM INC.
Houston, Texas 77074
Fax: (713) 981-8670
By
---------------------------------
David A. Melman,
Chief Corporate Officer
"PURCHASER"
BELLWETHER EXPLORATION COMPANY
By
---------------------------------
J.P. Bryan,
Chief Executive Officer
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<PAGE>
Exhibit A Final Execution Copy
to
Securities Purchase Agreement
dated December 30, 1999
FORM 4 BUSINESS CORPORATIONS ACT
(SECTIONS 27 OR 171)
Alberta ARTICLES OF AMENDMENT
------------------------------------- -----------------------------------------
1. NAME OF CORPORATION 2. CORPORATE ACCESS NUMBER
Carpatsky Petroleum Inc. J06545923
------------------------------------ -----------------------------------------
------------------------------------ -----------------------------------------
3. ITEM NO. __ OF THE ARTICLES OF THE ABOVE NAMED CORPORATION ARE AMENDED
IN ACCORDANCE WITH SECTION ______ OF THE BUSINESS CORPORATIONS ACT.
Pursuant to Section 27(5) of the Business Corporations Act (Alberta),
the share capital of the Corporation is hereby amended to create a
series of Preferred Shares to be designated "Convertible Preferred
Shares, Series A" (the "Convertible Preferred Shares"), consisting of
500,000,000 Convertible Preferred Shares. Each such Convertible
Preferred Share shall have attached thereto the rights, privileges,
restrictions and conditions described in the electronic attachment.
4. DATE SIGNATURE TITLE
December 30, 1999
----------------------------- ----------------------- -------------------
<PAGE>
CARPATSKY PETROLEUM INC.
ELECTRONIC ATTACHMENT TO ARTICLES OF AMENDMENT
SETTING FORTH THE POWERS, PREFERENCES,
RIGHTS, QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS OF THE CORPORATION'S
CONVERTIBLE PREFERRED SHARES, SERIES A
Section 1. Designation and Number.
(a) The series of Preferred Shares shall be designated as "Convertible
Preferred Shares, Series A" ("Preferred Shares"). The number of shares initially
constituting the Preferred Shares shall be 500,000,000. Such number may not be
decreased below the number of then outstanding shares of such series of
Preferred Shares.
(b) The Preferred Shares shall, with respect to rights on liquidation,
dissolution or winding up, rank prior to all other classes and series of Junior
Shares of the Corporation now or hereafter authorized including, without
limitation, the Common Shares.
(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 Shares, then the Board of Directors shall declare, and the
holder of each Preferred Share 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 Common Shares for which such Preferred Shares are convertible on the record
date for such dividend. Any such amount shall be paid to the holders of
Preferred Shares at the same time such dividend is made to holders of Common
Shares.
The holders Preferred Shares 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 Preferred
Shares shall have the following voting rights:
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(a) Except as otherwise required by applicable law and so long as the
Preferred Shares are outstanding, each Preferred Share shall entitle the holder
thereof to vote, in person or by proxy or written consent, at a special or
annual meeting of shareholders or in connection with any shareholder action
taken in lieu of a meeting of shareholders, on all matters voted on by holders
of Common Shares, 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 Preferred Share shall entitle the holder thereof to cast one
vote for each Preferred Share standing in his or her name on the transfer books
of the Corporation as of the record date for determining the shareholders 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 Preferred Shares, voting separately as a single class, in
person or by proxy, at a special or annual meeting of shareholders called for
the purpose, shall be necessary to (i) authorize, adopt or approve an amendment
to the Articles that would alter or change the powers, preferences or special
rights of the Preferred Shares, (ii) amend, alter or repeal the Shares so as to
affect the Preferred Shares 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
Preferred Shares except under Section 9.
(c) For so long as the Preferred Shares 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 Shares and (ii) Preferred Shares issued pursuant to Section 9.
Section 4. Redemption.
The Corporation shall not have any right to redeem any Preferred
Shares.
Section 5. Reacquired Shares.
Any Preferred Shares converted, exchanged, purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such Preferred Shares
shall upon their cancellation become authorized but unissued preferred shares.
Section 6. Liquidation, Dissolution or Winding Up.
(a) In the event of the liquidation, dissolution or winding-up of the
Corporation or other distribution of the assets of the Corporation among its
shareholders for the purpose of winding-up its affairs, the holders of the
Preferred Shares shall be entitled to receive the Liquidation Amount prior to
any payment being made or any property of the Corporation being distributed to
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<PAGE>
the holders of the Common Shares or the holders of any Junior Shares. After
payment to the holders of the Preferred Shares of the Liquidation Amount, the
holders of the Preferred Shares shall be entitled to receive (rateably with the
holders of the Common Shares) for each Preferred Share held, the amount which
would have been received by the Holder of such Preferred Shares if on the record
date for such distribution, the holder of such Preferred Shares had converted
such Preferred Shares into the number of Common Shares into which such Preferred
Shares were 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
Preferred Share shall be convertible into a number of fully paid and
non-assessable Common Shares as is equal, subject to Section 7(g), to a
fraction, the numerator of which shall be the Common Share Conversion Number and
the denominator of which shall be the number of Preferred Shares issued and
outstanding on the date of conversion. The Common Share 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 Preferred Shares surrendering certificates
("Surrendered Certificates") representing a majority of the outstanding
Preferred Shares 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 Preferred Shares elect
to convert such shares and specifying the name or names (with address) in which
a certificate or certificates for Common Shares 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
Preferred Shares shall automatically be converted into Common Shares as provided
in this Section. Notwithstanding the foregoing provisions or anything set forth
herein or in the Articles of the Corporation, any Preferred Shares remaining
outstanding on December 28, 2004 shall be and be deemed to have been converted
into Common Shares at the Conversion Number then in effect.
(b) As promptly as practicable after the surrender, as herein
provided, of Preferred Shares for conversion pursuant to Section 7(a), the
Corporation shall deliver to all holders of Preferred Shares a written notice
informing such holders (i) that the holders of a majority of the outstanding
Preferred Shares 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 Shares have been converted into the right to receive
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<PAGE>
Common Shares and (iii) of the Common Share Conversion Number and instructing
such holders to surrender the certificates representing their Preferred Shares
to the Corporation in the manner specified in Section 7(a) above in order to
receive certificates representing the Common Shares deliverable upon the
conversion of their Preferred Shares. As promptly as practicable after the
surrender of any certificates representing Preferred Shares 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 Common
Shares into which such Preferred Shares 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 Preferred Shares shall have been surrendered in satisfactory form for
conversion, and the Person or Persons entitled to receive the Common Shares
deliverable upon conversion of such Preferred Shares shall be treated for all
purposes as having become the record holder or holders of such Common Shares at
such appropriate time, and such conversion shall be based on the Common Share
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 Shares deliverable upon such conversion as the record holder or holders
of such Common Shares 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
Shares 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 Share Conversion Number in effect at, such
time on such next succeeding day.
(c) To the extent permitted by law, when Preferred Shares are
converted, all dividends declared and unpaid on the Preferred Shares so
converted to the date of conversion shall be immediately due and payable and
must accompany the Common Shares issued upon such conversion.
(d) The Common Share 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
Common Shares 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 Common Shares
into a larger number of shares, (C) combine the outstanding Common
Shares into a smaller number of shares, or (D) issue any shares of its
capital stock in a reclassification of the Common Shares then, and in
each such case, the Common Share Conversion Number in effect
immediately prior to such event shall be adjusted to equal the Common
Share Conversion Number in effect immediately prior to such action
4
<PAGE>
multiplied by a fraction, the numerator of which is the number of
Common Shares outstanding after the action described in clauses (A)
through (D) and the denominator of which is the number Common Shares
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 Shares 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 Common Shares (or securities convertible into or
exchangeable for Common Shares, or any options, warrants or other
rights to acquire Common Shares) for a consideration per share less
than the Current Market Price per Common Share 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
Shares as equal to (A) the sum of the price for such security
convertible, exchangeable or exercisable into Common Shares plus any
additional consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of such security
into Common Shares divided by (B) the number of Common Shares initially
underlying such convertible, exchangeable or exercisable security),
then, and in each such case, the Common Share Conversion Number in
effect shall be adjusted by multiplying the Common Share 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 Common
Shares outstanding on the Date plus the number of additional Common
Shares 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 Common Shares outstanding on the Date plus the number of
Common Shares which the aggregate consideration for the total number of
such additional Common Shares (or securities convertible into or
exchangeable for Common Shares, or any options, warrants or other
rights to acquire Common Shares) 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 Shares would purchase at the Current
Market Price per Common Share 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 shareholders of the Corporation, as such, on the record date for the
determination of shareholders entitled to receive such shares,
securities, options, warrants or other rights and (ii) in all other
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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 Share
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 Common Shares corresponding to such
convertible or exchangeable securities, options, warrants or other
rights as shall have expired or terminated, (y) treating the
additional Common Shares, 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 Share 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 Share 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 Shares 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 Share Conversion
Number as a result of such action, then, and in each such case, the
Common Share 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 Shares).
(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
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<PAGE>
upon the issuance of Common Shares upon exercise of such options if
the exercise price thereof was not less than the Market Price of the
Common Shares on the date such options were granted.
(e) If the Corporation shall take a record of the holders of its Common
Shares for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to shareholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Common Share 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 Share Conversion
Number, then, and in each such case, the Corporation promptly shall deliver to
each registered holder of Preferred Shares 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
Share 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 Preferred Shares. If more than one
Preferred Share shall be surrendered for conversion at one time by the same
holder, the number of full Common Shares issuable upon conversion thereof shall
be computed on the basis of the aggregate number of Preferred Shares so
surrendered. If the conversion of any Preferred Share of Preferred Shares
results in a fraction, an amount equal to such fraction multiplied by the
Current Market Price of the Common Shares 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 Common Shares, or in case of any consolidation or merger
of the Corporation with or into another Person (other than (i) a consolidation
or merger in which the resulting entity is obligated and bound by this Article
of Amendment, the Articles of the resulting entity contain identical terms in
such Articles regarding the Common Shares of the resulting entity and which does
not result in any reclassification or change of outstanding Common Shares or
(ii) a transaction described in Section 7(d)(i)), 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 Shares at least 10 Business Days prior to
effecting any of the foregoing Transactions a certificate that the holder of
each Preferred Share then outstanding shall have the right thereafter to convert
such Preferred Share into the kind and amount of shares 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 Common Shares into
which such Preferred Shares could have been converted immediately prior to such
Transaction. Such certificate shall provide for adjustments which shall be as
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<PAGE>
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 Shares includes shares or
other securities of a Person other than the resulting entity or purchasing
Person and other than the Corporation, which controls or is controlled by the
resulting entity or purchasing Person or which, in connection with such
Transaction, issues Other Securities, other property or cash to holders of
Common Shares, 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 Shares
upon conversion of the Preferred Shares 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 Shares, such number of its
authorized but unissued Common Shares as will from time to time be sufficient to
permit the conversion of all outstanding Preferred Shares, and shall take all
action required to increase the authorized number of Common Shares if at any
time there shall be insufficient authorized but unissued Common Shares to permit
such reservation or to permit the conversion of all outstanding Preferred
Shares.
(j) The issuance or delivery of certificates for Common Shares upon the
conversion of Preferred Shares shall be made without charge to the converting
holder of Preferred Shares 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 Preferred Shares 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 Preferred Shares 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 Shares and the offer must,
by reason of applicable securities legislation or the requirements of a stock
exchange on which the Common Shares are listed, be made to all or substantially
all holders of Common Shares located in a province of Canada in which the
requirement applies, the holders of Preferred Shares shall be given the
opportunity to participate in the offer through conversion of the Preferred
Shares into Common Shares; 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 Shares, which
8
<PAGE>
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 Shares; or
(ii) less than 50% of the Common Shares outstanding
immediately prior to the offer, other than Common Shares 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 Shares shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this Article
of Amendment and to enforce specifically the terms and provisions of this
Article of Amendment 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 Preferred Shares.
While any Preferred Shares are outstanding, the Corporation shall not
issue any additional Common Shares or convertible securities, rights, warrants,
options or other commitments to issue Common Shares unless, prior to such
issuance, the Corporation declares and pays a dividend on the Preferred Shares
of a number of Preferred Shares equal to the number of Common Shares being
issued or the maximum number of Common Shares 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 Preferred
Shares in connection with the issuance of Common Shares pursuant to agreements
described in a Schedule to the Purchase Agreement.
Section 10. Definitions.
For the purposes of this Article of Amendment, 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 Shares" shall mean and include the Common Shares 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 shares are reclassified or reconstituted.
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<PAGE>
"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 Shares for those days during the period of 20 days, ending on such date,
which are Trading Days, and (b) if the Common Shares are 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 Shares" shall mean any capital stock of the Corporation ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Preferred Shares including, without limitation, the Common Shares.
"Liquidation Amount" with respect to a Preferred Share shall mean the
sum of (a) all declared and unpaid dividends on such Preferred Share, and (b)
the sum of $10.00 divided by the number of Preferred Shares outstanding on the
applicable date.
"Market Price" shall mean, per Common Share on any date specified
herein: (a) the closing price per Common Share on the Canadian Venture Exchange
or other principal Canadian stock exchange on which the Common Shares are
traded, stated in U.S. dollars at the then current noon buying rate for Canadian
dollars as certified by the New York Federal Reserve Bank or (b) if there shall
have been no trading on such date or if the Common Shares are not so designated,
the average of the reported closing bid and asked prices of the Common Shares on
such date as shown by any reputable dealer in Common Shares 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 Preferred
Shares 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 Shares, 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 29, 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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Exhibit B Final Execution Copy
to
Securities Purchase Agreement
dated December 30, 1999
WARRANT
CARPATSKY PETROLEUM INC.
an Alberta Corporation
(the "Company")
To Purchase up to 12,500,000
of the Company's Common Shares
issued to
Bellwether Exploration Company
a Delaware corporation
("Warrantholder")
December 30, 1999
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THE
HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE
COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (A) TO THE COMPANY (B) OUTSIDE THE UNITED STATES IN ACCORDANCE
WITH REGULATION S UNDER THE 1933 ACT, IF APPLICABLE (OR SUCH SUCCESSOR RULE OR
REGULATION AS THEN IN EFFECT), (C) INSIDE THE UNITED STATES (1) PURSUANT TO THE
EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT PROVIDED BY RULE 144 THEREUNDER,
IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (2) IN
A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE 1933 ACT OR ANY
APPLICABLE STATE SECURITIES LAWS, AND IN THE CASE OF A TRANSFER UNDER CLAUSE C,
THE HOLDER HAS PRIOR TO SUCH SALE FURNISHED TO THE COMPANY AN OPINION OF COUNSEL
OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY. DELIVERY OF THIS
CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON
STOCK EXCHANGES IN CANADA. UPON RECEIPT OF A CERTIFICATE OF THE HOLDER IN FORM
SATISFACTORY TO THE COMPANY, INDICATING THE HOLDER WILL COMPLY WITH THE
REQUIREMENTS OF REGULATION S IN CONNECTION WITH THE SALE OF THE SECURITIES THE
COMPANY WILL DIRECT THE TRANSFER AGENT TO REMOVE THIS LEGEND TO PERMIT GOOD
DELIVERY OF THE SECURITIES. IN ADDITION, THE SECURITIES REPRESENTED HEREBY MAY
NOT BE TRANSFERRED UNTIL DECEMBER 29, 2000, EXCEPT PURSUANT TO AN EXEMPTION FROM
THE PROSPECTUS REQUIREMENTS OF THE SECURITIES ACT (ALBERTA).
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. EXERCISE OF WARRANT...............................................1
Section 1.1. Manner of Exercise.................................1
Section 1.2. When Exercise Effective............................1
Section 1.3. Delivery of Share Certificates, etc................2
(a) Certificates.......................................2
(b) Partial Exercise...................................2
ARTICLE II. ADJUSTMENT OF COMMON SHARES ISSUABLE UPON EXERCISE................2
Section 2.1. General; Warrant Price.............................2
Section 2.2. Share Dividends....................................2
Section 2.3. Rights, Options and Warrants.......................3
Section 2.4. Subdivisions.......................................3
Section 2.5. Certain Non-Cash Distributions.....................4
Section 2.6. Certain Cash Distributions.........................4
Section 2.7. Certain Tender Offers..............................5
Section 2.8. Reclassification...................................6
Section 2.9. Certain Calculations...............................6
Section 2.10. Size of Adjustments................................6
Section 2.11. Permitted Increases................................7
Section 2.12. Notice of Adjustments of Warrant Price.............7
Section 2.13. Notice of Certain Corporate Action.................7
Section 2.14. Company to Reserve Common Shares...................8
Section 2.15. Taxes on Conversions...............................8
Section 2.16. Covenant as to Common Shares.......................8
ARTICLE III. CONSOLIDATION, MERGER, ETC......................................8
Section 3.1. Consolidation, Merger, Sale of Assets,
Reorganization, etc................................9
Section 3.2. Assumption of Obligations..........................9
ARTICLE IV. OTHER PROVISIONS CONCERNING DILUTION.............................9
Section 4.1. No Dilution or Impairment..........................9
Section 4.2. Registration of Common Shares.....................10
Section 4.3. Availability of Information.......................10
Section 4.4. Reservation of Shares, etc........................10
ARTICLE V. RESTRICTIONS ON TRANSFER.........................................11
Section 5.1. Restrictive Legends...............................11
Section 5.2. Notice of Proposed Transfer; Opinions of Counsel..12
Section 5.3. Termination of Restrictions.......................12
(i)
<PAGE>
ARTICLE VI. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS.................13
Section 6.1. Ownership of Warrants.............................13
Section 6.2. Office, Transfer and Exchange of Warrants.........13
(a) Office............................................13
(b) New Warrant.......................................13
Section 6.3. Replacement of Warrants...........................13
ARTICLE VII. DEFINITIONS....................................................14
ARTICLE VIII. MISCELLANEOUS..................................................15
Section 8.1. Remedies..........................................15
Section 8.2. No Rights or Liabilities as Shareholder...........15
Section 8.3. Notices...........................................16
Section 8.5. Miscellaneous.....................................16
(ii)
<PAGE>
CARPATSKY PETROLEUM INC.
Warrant
No. W-2 December 30, 1999
Carpatsky Petroleum Inc., an Alberta corporation (the "Company"), for
value received, hereby certifies that, subject to Section 8.6, Bellwether
Exploration Company, a Delaware corporation ("Bellwether"), or registered
assigns, is entitled to purchase from the Company up to 12,500,000 duly
authorized, validly issued, fully paid and non-assessable common shares (the
"Common Shares") at any time or from time to time prior to 5:00 p.m., Houston,
Texas time, on the Expiration Date, all subject to terms, conditions and
adjustments set forth in this Warrant.
Certain capitalized terms used in this Warrant are defined in Article
VII; unless otherwise specified, references to an "Exhibit" mean one of the
exhibits attached to this Warrant, references to an "Article" mean one of the
articles in this Warrant and references to a "Section" mean one of the sections
of this Warrant.
ARTICLE I. EXERCISE OF WARRANT
Section 1.1. Manner of Exercise. This Warrant may be exercised by the
holder hereof, in whole or in part, from time to time, during normal business
hours on any Business Day, by surrender of this Warrant to the Company at its
office maintained pursuant to subsection (a) of Section 6.2, accompanied by a
subscription in substantially the form attached to this Warrant (or a reasonable
facsimile thereof) duly executed by such holder and accompanied by payment, in
cash or by certified or official bank check payable to the order of the Company
in the amount obtained by multiplying (a) the number of Common Shares (without
giving effect to any adjustment thereof) designated in such subscription by (b)
U.S. $0.20, and such holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully paid and non-assessable Common Shares (or
Other Securities) determined as provided in Articles II through IV.
Section 1.2. When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1, and at such time the Person or Persons in
whose name or names any certificate or certificates for Common Shares (or Other
Securities) shall be issuable upon such exercise as provided in Section 1.3
shall be deemed to have become the holder or holders of record thereof.
Section 1.3. Delivery of Share Certificates, etc. As soon as
practicable after each exercise of this Warrant, in whole or in part, and in any
event within five Business Days thereafter, the Company, at its expense
(including the payment by it of any applicable issue taxes), will cause to be
issued in the name of and delivered to the holder hereof, subject to Article V,
as such holder (upon payment by such holder of any applicable transfer taxes)
may direct, the following:
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(a) Certificates. A certificate or certificates for the number
of duly authorized, validly issued, fully paid and non-assessable
Common Shares (or Other Securities) to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the market price per share on the Business Day
next preceding the date of such exercise.
(b) Partial Exercise. In case such exercise is in part only, a
new Warrant or Warrants of like tenor dated the date hereof, calling in
the aggregate on the face or faces thereof for the number of Common
Shares equal (without giving effect to any adjustment thereof) to the
number of such shares called for on the face of this Warrant minus the
number of such shares designated by the holder upon such exercise as
provided in Section 1.1.
ARTICLE II. ADJUSTMENT OF COMMON SHARES ISSUABLE UPON EXERCISE
Section 2.1. General; Warrant Price. The number of Common Shares which
the holder of this Warrant shall be entitled to receive upon each exercise
hereof shall be determined by multiplying the number of Common Shares which
would be issuable upon such exercise, as designated by the holder hereof
pursuant to Section 1.1, by a fraction (a) the numerator of which is U.S. $0.20
and (b) the denominator of which is the Warrant Price in effect at the effective
time of such exercise (as provided in Section 1.2). The "Warrant Price" shall
initially be U.S. $0.20, shall be adjusted and readjusted from time to time as
provided in this Article II and, as so adjusted or readjusted, shall remain in
effect until a further adjustment or readjustment thereof is required by this
Article II.
Section 2.2. Share Dividends. In case the Company shall pay or make a
dividend or other distribution on any class of capital stock of the Company
payable in Common Shares, the Warrant Price in effect at the opening of business
on the day following the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution shall be reduced by
multiplying such Warrant Price by a fraction of which the numerator shall be the
number of Common Shares outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such increase to become effective immediately after the opening of
business on the day following the date fixed for such determination. For the
purposes of this Section 2.2, the number of Common Shares at any time
outstanding shall not include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of Common Shares. The Company will not pay any dividend or make any
distribution on Common Shares held in the treasury of the Company.
Section 2.3. Rights, Options and Warrants. In case the Company shall
issue rights, options or warrants to all holders of its Common Shares entitling
them to subscribe for or purchase Common Shares at a price per share less than
the current market price per Common Share (determined as provided in Section
2.9) on the date fixed for the determination of shareholders entitled to receive
such rights, options or warrants, the Warrant Price in effect at the opening of
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<PAGE>
business on the day following the date fixed for such determination shall be
reduced by multiplying such Warrant Price by a fraction of which the numerator
shall be the number of Common Shares outstanding at the close of business on the
date fixed for such determination plus the number of Common Shares which the
aggregate of the offering price of the total number of Common Shares so offered
for subscription or purchase would purchase at such current market price and the
denominator shall be the number of Common Shares outstanding at the close of
business on the date fixed for such determination plus the number of Common
Shares so offered for subscription or purchase, such reduction to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this Section 2.3, the
number of Common Shares at any time outstanding shall not include shares held in
the treasury of the Company but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of Common Shares. The Company
will not issue any rights, options or warrants in respect of Common Shares held
in the treasury of the Company. To the extent that any rights, options or
warrants are not so issued or any such rights, options or warrants are not
exercised prior to the expiration thereof, the Warrant Price shall then be
readjusted to the Warrant Price which would then be in effect based upon the
number of Common Shares actually issued upon the exercise of such rights, option
or warrants.
Section 2.4. Subdivisions. In case outstanding Common Shares shall be
subdivided into a greater number of Common Shares, the Warrant Price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and, conversely,
in case outstanding Common Shares shall each be combined into a smaller number
of Common Shares, the Warrant Price in effect at the opening of business on the
day following the day upon which such combination becomes effective shall be
proportionately increased, such increase or reduction, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
Section 2.5. Certain Non-Cash Distributions. In case the Company shall,
by dividend or otherwise, distribute to all holders of its Common Shares
evidences of its indebtedness, shares of any class of capital stock, or other
property (including cash and securities, but excluding (i) any rights, options
or warrants referred to in Section 2.3, and (ii) any dividend or distribution
referred to in Section 2.2), the Warrant Price shall be reduced so that the same
shall equal the rate determined by multiplying the Warrant Price in effect
immediately prior to the close of business on the date fixed for the
determination of shareholders entitled to receive such distribution by a
fraction of which the numerator shall be the current market price per Common
Share (determined as provided in Section 2.9) on the date fixed for such
determination (the "Reference Date") less the then fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in an certificate delivered to the holders) on the Reference Date
of the portion of the assets, shares or evidences of indebtedness so distributed
applicable to one Common Share and the denominator shall be the current market
price per Common Share on the Reference Date, such adjustment to become
effective immediately prior to the opening of business on the day following the
Reference Date.
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Section 2.6. Certain Cash Distributions. In case the Company shall, by
dividend or otherwise, distribute to all holders of its Common Shares cash
(excluding any cash that is distributed as part of a distribution referred to in
Section 2.5) in an aggregate amount that, combined together with (i) the
aggregate amount of any other cash distributions to all holders of its Common
Shares made exclusively in cash within the 12 months preceding the date of
payment of such distribution and in respect of which no adjustment pursuant to
this Section 2.6 has been made and (ii) the aggregate of any cash plus the fair
market value (as determined by the Board of Directors, whose determination shall
be conclusive and described in a resolution of the Board) of consideration
payable in respect of any tender offer by the Company or any of its subsidiaries
for all or any portion of the Common Shares concluded within the 12 months
preceding the date of payment of such distribution and in respect of which no
adjustment pursuant to Section 2.7 has been made (the "combined cash and tender
amount"), exceeds 15% of the product of the current market price per share
(determined as provided in Section 2.9) of the Common Shares on the date for the
determination of holders of Common Shares entitled to receive such distribution
times the number of Common Shares outstanding on such date (the "aggregate
current market price"), then, and in each such case, immediately after the close
of business on such date for determination, the Warrant Price shall be reduced
so that the same shall equal the rate determined by multiplying the Warrant
Price in effect immediately prior to the close of business on the date fixed for
determination of the shareholders entitled to receive such distribution by a
fraction (i) the numerator of which shall be equal to the current market price
per Common Share (determined as provided in Section 2.9) on the date fixed for
such determination less an amount equal to the quotient of (x) the excess of
such combined cash and tender amount over 15% of such aggregate current market
price divided by (y) the number of Common Shares outstanding on such date for
determination and (ii) the denominator of which shall be equal to the current
market price per Common Share (determined as provided in Section 2.9) on such
date for determination.
Section 2.7. Certain Tender Offers. In case a tender offer made by the
Company or any Subsidiary for all or any portion of the Common Shares shall
expire and such tender offer or exchange (as amended upon the expiration
thereof) shall require the payment to shareholders (based on the acceptance (up
to any maximum specified in the terms of the tender offer) of Purchased Shares
(as defined below)) of an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Board of Directors) that combined together
with (i) the aggregate of the cash plus the fair market value (as determined by
the Board of Directors, whose determination shall be conclusive and described in
a Board Resolution), as of the expiration of such tender or exchange offer, of
consideration payable in respect of any other tender or exchange offer by the
Company or any Subsidiary for all or any portion of the Common Shares expiring
within the 12 months preceding the expiration of such tender or exchange offer
and in respect of which no adjustment pursuant to this Section 2.7 has been made
and (ii) the aggregate amount of any cash distributions to all holders of the
Company's Common Shares within 12 months preceding the expiration of such tender
or exchange offer and in respect of which no adjustment pursuant to Section 2.6
has been made (the "combined tender and cash amount") exceeds 15% of the product
of the current market price per Common Share (determined as provided in Section
2.9) as of the last time (the "Expiration Time") tenders or exchanges could have
been made
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pursuant to such tender or exchange offer (as it may be amended) times the
number of Common Shares outstanding (including any tendered or exchanged shares)
as of the Expiration Time, then, and in each such case, immediately prior to the
opening of business on the day after the date of the Expiration Time, the
Warrant Price shall be reduced so that the same shall equal the rate determined
by multiplying the Warrant Price immediately prior to close of business on the
date of the Expiration Time by a fraction (i) the numerator of which shall be
equal to (A) the product of (i) the current market price per Common Share
(determined as provided in this Section 2.9 on the date of the Expiration Time
multiplied by (ii) the number of Common Shares outstanding (including any
tendered or exchanged shares) on the date of the Expiration Time less (B) the
combined tender and cash amount, and (ii) the denominator of which shall be
equal to the product of (A) the current market price per Common Share
(determined as provided in Section 2.9) as of the Expiration Time multiplied by
(B) the number of Common Shares outstanding (including any tendered or exchanged
shares) as of the Expiration Time less the number of all shares validly tendered
or exchanged and not withdrawn as of the Expiration Time (the shares deemed so
accepted up to any such maximum, being referred to as the "Purchased Shares").
Section 2.8. Reclassification. The reclassification of Common Shares
into securities other than Common Shares shall be deemed to involve (a) a
distribution of such securities other than Common Shares to all holders of
Common Shares (and the effective date of such reclassification shall be deemed
to be "the date fixed for the determination of shareholders entitled to receive
such distribution" and "the date fixed for such determination" within the
meaning of Section 2.5), and (b) a subdivision or combination, as the case may
be, of the number Common Shares outstanding immediately prior to such
reclassification into the number Common Shares outstanding immediately
thereafter (and the effective date of such reclassification shall be deemed to
be "the day upon which such subdivision becomes effective" or "the day upon
which such combination becomes effective", as the case may be, and "the day upon
which such subdivision or combination becomes effective" within the meaning of
Section 2.4).
Section 2.9. Certain Calculations. For the purpose of any computation
under Sections 2.3, 2.5, 2.6 or 2.7, the current market price per Common Share
on any date shall be calculated by the Company and be deemed to be the average
of the daily closing prices per share for the five consecutive Trading Days
selected by the Company commencing not more than 10 Trading Days before, and
ending not later than, the earlier of the day in question and the day before the
"ex" date with respect to the issuance or distribution requiring such
computation. For purposes of this paragraph, the term "'ex' date", when used
with respect to any issuance or distribution, means the first date on which the
Common Shares trade regular way in the applicable securities market or on the
applicable securities exchange without the right to receive such issuance or
distribution.
Section 2.10. Size of Adjustments. No adjustment in the Warrant Price
shall be required unless such adjustment (plus any adjustments not previously
made by reason of this Section 2.10) would require an increase or decrease of at
least one percent in such rate; provided, however, that any adjustments which by
reason of this Section 2.10 are not required to be made shall be carried
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forward and taken into account in any subsequent adjustment. All calculations
under this Section shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
Section 2.11. Permitted Increases. The Company may make such increases
in the Warrant Price, for the remaining term of the Securities or any shorter
term, in addition to those required herein, as it considers to be advisable in
order to avoid or diminish any income tax to any holders of Common Shares
resulting from any dividend or distribution of shares or issuance of rights or
warrants to purchase or subscribe for shares or from any event treated as such
for income tax purposes.
Section 2.12. Notice of Adjustments of Warrant Price. Whenever the
Warrant Price is adjusted as herein provided the Company shall compute the
adjusted Warrant Price in accordance with this Article and shall prepare a
certificate signed by the principal accounting or financial officer of the
Company setting forth the adjusted Warrant Price and showing in reasonable
detail the facts upon which such adjustment is based, and such certificate shall
promptly be sent to the Lender.
Section 2.13. Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Shares payable (i) otherwise than
exclusively in cash or (ii) exclusively in cash in an amount that would
require any adjustment pursuant to Section 2.3 through 2.8; or
(b) the Company shall authorize the granting to the holders of
its Common Shares generally of rights, options or warrants to subscribe
for or purchase any shares of capital stock of any class or of any
other rights; or
(c) of any reclassification of the Common Shares of the
Company, or of any consolidation, merger or share exchange to which the
Company is a party and for which approval of any shareholders of the
Company is required, or of the conveyance, sale, transfer or lease of
all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender
offer for all or a portion of the Company's outstanding Common Shares
(or shall amend any such tender offer);
then the Company shall deliver to the holder of this Warrant at least 20 days
(or 10 days in any case specified in clause (a) or (b) above) prior to the
applicable record, expiration or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights, options or warrants, or, if a record is not to
be taken, the date as of which the holders of Common Shares of record to be
entitled to such dividend, distribution, rights, options or warrants are to be
determined, (y) the date on which the right to make tenders under such tender
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<PAGE>
offer expires or (z) the date on which such reclassification, consolidation,
merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding
up is expected to become effective, and the date as of which it is expected that
holders of Common Shares of record shall be entitled to exchange their Common
Shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, sale, lease,
dissolution, liquidation or winding up. Neither the failure to give such notice
or the notice referred to in the following paragraph nor any defect therein
shall affect the legality or validity of the proceedings described in clauses
(a) through (e) of this Section 2.13.
Section 2.14. Company to Reserve Common Shares. The Company shall at
all times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Shares, for the purpose of effecting the
conversion of Securities, the full number of Common Shares then issuable upon
the exercise of this Warrant.
Section 2.15. Taxes on Conversions. Except as provided in the next
sentence, the Company will pay any and all taxes and duties that may be payable
in respect of the issue or delivery of Common Shares on exercise of this
Warrant. The Company shall not, however, be required to pay any tax or duty
which may be payable in respect of (i) income of the holder or (ii) any transfer
involved in the issue and delivery of Common Shares in a name other than that of
the holder, and no such issue or delivery shall be made unless and until the
Person requesting such issue has paid to the Company the amount of any such tax
or duty, or has established to the satisfaction of the Company that such tax or
duty has been paid.
Section 2.16. Covenant as to Common Shares. The Company agrees that all
Common Shares which may be delivered upon exercise of this Warrant will be newly
issued shares and, upon such delivery, will have been duly authorized and
validly issued and will be fully paid and nonassessable and, except as provided
in Section 2.15, the Company will pay all taxes, liens and charges with respect
to the issue thereof.
ARTICLE III. CONSOLIDATION, MERGER, ETC.
Section 3.1. Consolidation, Merger, Sale of Assets, Reorganization,
etc. From and after the date hereof, the Company shall not (a) consolidate with
or merge into any other Person if the resulting entity is not bound by and
obligated to comply with the terms of this Warrant, or (b) permit any other
Person to consolidate with or merge into the Company if, in connection with such
consolidation or merger, the Common Shares or Other Securities shall be changed
into or exchanged for shares or other securities of any other Person (unless the
Common Shares or Other Securities are converted into the shares of the resulting
entity and the terms of the articles of incorporation pertaining to the Common
Shares or Other Securities of the resulting entity are identical to the articles
of incorporation of the Company) or cash or any other property, or (c) transfer
all or substantially all of its properties or assets to any other Person, or (d)
effect a capital reorganization or reclassification of the Common Shares or
Other Securities (other than a capital reorganization or reclassification
resulting in adjustment in the Warrant Price is provided in Article II) unless
7
<PAGE>
the Company provides the holder of this Warrant written notice of the proposed
transaction 10 days prior to any record date for notice to shareholders entitled
to vote on such transaction or, if no such vote is taken, 20 days prior to the
effective date or closing of the transaction.
Section 3.2. Assumption of Obligations. If any of the transactions
described in Section 3.1 are consummated, the holder of this Warrant shall be
entitled to receive, following such transaction, the Common Shares or Other
Securities that such holder would have been entitled to receive had such holder
exercised such Warrant immediately prior to the effective time of such
transaction. If the transaction described in Section 3.1 provides that a holder
of Common Shares may elect to receive different forms of consideration, the
holder shall, by notice to the Company, be entitled to elect the type of
consideration to be received and, if the holder fails to make such election, the
Company may make such election acting in good faith. Notwithstanding anything
contained in this Warrant to the contrary, the Company will not effect any of
the transactions described in clauses (a) through (d) of Section 3.1 unless,
prior to the consummation thereof, each Person (other than the Company) which
may be required to deliver any shares, securities, cash or property upon the
exercise of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the holder of this Warrant, (a)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant) and (b) the obligation to deliver to such
holder such shares, securities, cash or property as, in accordance with the
foregoing provisions of this Article III, such holder may be entitled to
receive.
ARTICLE IV. OTHER PROVISIONS CONCERNING DILUTION
Section 4.1. No Dilution or Impairment. The Company will not, by
amendment of its articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable Common Shares on the exercise of the Warrant from time to time
outstanding, and will not take any action which results in any adjustment of the
Warrant Price if the total number of Common Shares (or Other Securities)
issuable after the action upon the exercise of the Warrant would exceed the
total number of Common Shares (or Other Securities) then authorized by the
Company's articles of incorporation and available for the purpose of issuance
upon such exercise.
Section 4.2. Registration of Common Shares. If any Common Shares required
to be reserved for purposes of exercise of this Warrant require registration
with or approval of any governmental authority under any U.S. or Canadian
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<PAGE>
federal, state or provincial law (other than the Securities Act) before such
shares may be issued upon exercise, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered or approved, as the case may be. At any such time as Common Shares
are listed on any securities exchange, the Company will, at its expense, list
the Common Shares issuable upon exercise of the Warrant and maintain the listing
of such shares after their issuance; and the Company will also list on such
securities exchange, [will register under the Exchange Act] and will maintain
such listing of, any Other Securities that at any time are issuable upon
exercise of the Warrants, if and at the time that any securities of the same
class shall be listed on such securities exchange by the Company.
Section 4.3. Availability of Information. The Company will cooperate
with each holder of any Warrant, in supplying such information as may be
reasonably requested by such holder to complete and file any information
reporting forms presently or hereafter required by the Commission or the ASC to
report such holders beneficial ownership of Common Shares or Other Securities or
as a condition to the availability of an exemption from the provisions of the
Securities Act (Alberta) or the Securities Act for the sale of any Restricted
Securities.
Section 4.4. Reservation of Shares, etc. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of Common Shares (or Other Securities) from time to
time issuable upon exercise of the Warrant. All Common Shares (or Other
Securities) issuable upon exercise of the Warrant shall be duly authorized and,
when issued upon such exercise, shall be validly issued and, in the case of
shares, fully paid and non-assessable with no liability on the part of the
holders thereof.
ARTICLE V. RESTRICTIONS ON TRANSFER
Section 5.1. Restrictive Legends. Except as otherwise permitted by this
Article V, this Warrant and any shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933, as amended,
and may not be transferred, sold or otherwise disposed of in the absence of such
registration or an exemption therefrom under such Act. In addition, this Warrant
and any shares acquired upon the exercise of this Warrant may not be transferred
until one year from the date of issuance of Warrant except pursuant to an
exemption from the prospectus requirements of the Securities Act (Alberta). This
Warrant and such Shares may be transferred only in compliance with the
conditions specified in this Warrant.
Each Warrant issued upon the transfer of any Warrant shall be stamped
or otherwise imprinted with a legend containing the foregoing restrictions.
Except as otherwise permitted by this Article V, each certificate for
Common Shares (or Other Securities) issued upon the exercise of any Warrant, and
each certificate issued upon the transfer of any such Common Shares (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES,
AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY
(B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE
1933 ACT, IF APPLICABLE (OR SUCH SUCCESSOR RULE OR REGULATION AS THEN
IN EFFECT), (C) INSIDE THE UNITED STATES (1) PURSUANT TO THE EXEMPTION
FROM REGISTRATION UNDER THE 1933 ACT PROVIDED BY RULE 144 THEREUNDER,
IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS,
OR (2) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE
1933 ACT OR ANY APPLICABLE STATE SECURITIES LAWS, AND IN THE CASE OF A
TRANSFER UNDER CLAUSE C, THE HOLDER HAS PRIOR TO SUCH SALE FURNISHED TO
THE COMPANY AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK
EXCHANGES IN CANADA. UPON RECEIPT OF A CERTIFICATE OF THE HOLDER IN
FORM SATISFACTORY TO THE COMPANY, INDICATING THE HOLDER WILL COMPLY
WITH THE REQUIREMENTS OF REGULATION S IN CONNECTION WITH THE SALE OF
THE SECURITIES THE COMPANY WILL DIRECT THE TRANSFER AGENT TO REMOVE
THIS LEGEND TO PERMIT GOOD DELIVERY OF THE SECURITIES. IN ADDITION, THE
SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNTIL DECEMBER 29,
2000, EXCEPT PURSUANT TO AN EXEMPTION FROM THE PROSPECTUS REQUIREMENTS
OF THE SECURITIES ACT (ALBERTA).
Section 5.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to
any transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act, the holder thereof,
will give written notice to the Company of such holder's intention to effect
such transfer and to comply in all other respects with this Section 5.2. Each
such notice (a) shall describe the manner and circumstances of the proposed
transfer and (b) if requested by the Company, shall include an opinion of legal
counsel addressed to the Company, in form and substance reasonably satisfactory
to the Company, to the effect that such transfer does not violate the Act and
applicable state or provincial securities laws.
Section 5.3. Termination of Restrictions. The restrictions imposed by
this Article V upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities when such securities shall
have been sold pursuant to an effective registration statement under the Act and
a prospectus under the Securities Act (Alberta) or otherwise become freely
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<PAGE>
transferable by the holder thereof. Whenever such restrictions shall cease and
terminate as to any Restricted Securities, the holder thereof shall be entitled
to receive from the Company, without expense (other than applicable transfer
taxes, if any), new certificates representing the securities not bearing the
applicable legends required by Section 5.1.
ARTICLE VI. OWNERSHIP, TRANSFER AND SUBSTITUTION OF
WARRANTS
Section 6.1. Ownership of Warrants. The Company may treat the person in
whose name any Warrant is registered on the register kept at the office of the
Company maintained pursuant to subdivision (a) of Section 6.2 as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary,
except that, if and when any Warrant is properly assigned in blank, the Company
may (but shall not be obligated to) treat the bearer thereof as the owner of
such Warrant for all purposes, notwithstanding any notice to the contrary.
Subject to Article V, a Warrant, if properly assigned, may be exercised by a new
holder without a new Warrant first having been issued.
Section 6.2. Office, Transfer and Exchange of Warrants.
(a) Office. The Company will maintain an office where notices,
presentations and demands in respect of this Warrant may be made upon it. Such
office shall be maintained at 6671 Southwest Freeway, Suite 303, Houston, Texas
77074 until such time as the Company shall notify each holder of the Warrant of
any change of location of such office.
(b) New Warrant. Upon the surrender of any Warrant, properly
endorsed, for registration of transfer or for exchange at the office of the
Company maintained pursuant to subdivision (a) of this Section 6.2, the Company
at its expense will (subject to compliance with Article V, if applicable)
execute and deliver to or upon the order of the holder thereof a new Warrant or
Warrants of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of Common Shares
called for on the face or faces of the Warrant or Warrants so surrendered.
Section 6.3. Replacement of Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon delivery of indemnity reasonably satisfactory to the Company
in form and amount or, in the case of any such mutilation, upon surrender of
such Warrant for cancellation at the office of the Company maintained pursuant
to subdivision (a) of Section 6.2, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
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ARTICLE VII. DEFINITIONS
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
ASC: The Alberta Securities Commission.
Business Day: Any day other than a Saturday or a Sunday or a day on
which commercial banking institutions in the States of Texas or the province of
Alberta are authorized by law to be closed. Any reference to "days" (unless
Business Days are specified) shall mean calendar days.
Commission: The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
Common Shares: As defined in the introduction to this Warrant, such
term to include (i) any shares into which such Common Shares shall have been
changed or any shares resulting from any reclassification of such Common Shares,
(ii) all other shares of any class or classes (however designated) of the
Company the holders of which have the right, without limitation as to amount,
either to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference.
Company: As defined in the introduction to this Warrant, such term to
include any corporation which shall succeed to or assume the obligations of the
Company hereunder in compliance with Article III.
Exchange Act: The Securities Exchange Act of 1934, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Expiration Date: December 31, 2000.
NASD: The National Association of Securities Dealers, Inc.
Other Securities: Any shares (other than Common Shares) and other
securities of the Company or any other Person (corporate or otherwise) which the
holder of the Warrant at any time shall be entitled to receive, or shall have
received upon the exercise of the Warrant, in lieu of or in addition to Common
Shares, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Shares or Other Securities pursuant to
Article III or otherwise.
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Person: Any corporation, association, partnership, joint venture,
trust, estate, organization, business, individual, government or political
subdivision thereof or governmental agency.
Restricted Securities: All of the following: (a) any Warrants bearing
the applicable legend or legends referred to in Section 5.1, (b) any Common
Shares (or Other Securities) which have been issued upon the exercise of
Warrants and which are evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section and (c) unless the
context otherwise requires, any Common Shares (or Other Securities) which are at
the time issuable upon the exercise of Warrants and which, when so issued, will
be evidenced by a certificate or certificates bearing the applicable legend or
legends referred to in such section.
Securities Act: The Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Securities Act (Alberta): The Securities Act (Alberta), as amended, and the
rules, regulations, policy statements, notices and other requirements
promulgated thereunder.
Warrant Price: As defined in Section 2.1 of this Warrant.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Remedies. The Company stipulates that the remedies at law
of the holder of this Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
Section 8.2. No Rights or Liabilities as Shareholder. The holder of
this Warrant and all subsequent holders thereof hereby agree that, except to the
extent set forth in Section 8.4 and elsewhere herein, no provision of this
Warrant shall be construed as conferring upon the holder hereof any rights as a
shareholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
Section 8.3. Notices. All notices and other communications under this
Warrant shall be in writing and shall be mailed by registered or certified mail,
return receipt requested, addressed (a) if to any holder of any Warrant, to the
registered address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if the Company, to the attention of its
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President at its office maintained pursuant to subdivision (a) of Section 6.2,
provided that the exercise of any Warrant shall be effective in the manner
provided in Article I.
Section 8.5. Miscellaneous.
(a) This Warrant may be amended, waived, discharged or terminated and
the Company may take any action herein required to be performed by it, only if
the Company shall have obtained the written consent to such amendment, action or
omission to act, of the holder or holders of Warrants entitling such holders to
purchase 51% or more by number of shares of the total number of Common Shares
issuable under all Warrants at the time outstanding.
(b) THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF
TEXAS.
(c) The section headings in this Warrant are for purposes of
convenience only and shall not constitute a part hereof.
(d) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns. In addition, and whether or not any express assignment shall have been
made, the provisions of this agreement which are for the benefit of the parties
hereto other than the Company shall also be for the benefit of and enforceable
by any subsequent holder of any Registrable Securities.
CARPATSKY PETROLEUM INC.
By:
Name: David A. Melman
Title: Chief Corporate Officer
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[THIS IS A SIGNATURE PAGE TO THE CARPATSKY PETROLEUM INC. WARRANT]
FORM OF SUBSCRIPTION
To Carpatsky Petroleum Inc.:
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases _________* Common Shares
of Carpatsky Petroleum Inc., and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ____________________, whose address is
-----------------------------------.
Dated: (Signature must conform in all respects to name of
holder as specified on the face or Warrant)
(Street Address)
(City) (State) (Zip Code)
---------------------------
*Insert the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
additional Common Shares or any other shares or other securities or property or
cash which, pursuant to the adjustment provisions of this Warrant, may be
delivered upon exercise. In the case of a partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised portion of
the Warrant, to the holder surrendering the Warrant.
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FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto _________________ the right
represented by such Warrant to purchase Common Shares of to which such Warrant
relates, and appoints ______________ his Attorney in fact to make such transfer
on the books of maintained for such purpose, with full power of substitution in
the premises.
Dated: (Signature must conform in all respects to name of
holder as specified on the face or Warrant)
(Street Address)
(City) (State) (Zip Code)
Signed in the presence of:
--------------------------
Instructions:
1. If the Transfer Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a judiciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Company.
2. The signature on the Transfer Form must be guaranteed by a Schedule
"A" major chartered bank/trust company, or a member of an acceptable
Medallion Guarantee program. The Guarantor must affix a stamp bearing
the actual words: "Signature guaranteed". Signature guarantees are not
accepted from treasury branches or credit unions unless they are
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<PAGE>
members of the Stamp Medallion Program. Furthermore, in the United
States, signature guarantees must be done by members of the "Medallion
Signature Guarantee program" only.
3. Warrants shall only be transferable in accordance with applicable laws.
Holders of Special Warrants are directed to consult with their legal
advisors in this regard.
4. Transferees must duly complete the Acknowledgment and Declaration of
Transferee Form Attached.
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ACKNOWLEDGMENT AND DECLARATION OF TRANSFEREE
TO: Carpatsky Petroleum Inc.
The undersigned transferee of ________________ Warrants of Carpatsky
Petroleum Inc. hereby:
(i) acknowledges that any transfer of the Warrants or the
securities issued on exercise of the Warrants may be subject to resale
restrictions; and
(ii) represents and warrants that [check only one]:
[ ] A. (i) the transferee is not a U.S. Person as
defined in Rule 902 of Regulation S under
the United States Securities Act of 1933,
as amended (the "1933 Act"), and is not
acquiring the Warrants for the account
or benefit of or resale to a U.S. Person;
(ii) no offers to sell the Warrants were made by
any person to the transferee or any
beneficial transferee for whom it is acting
while such persons were in the United
States; and
(iii) the transferee and each beneficial
transferee for whom the transferee is acting
were not in the United States at the time of
the execution and delivery of the document
or instrument or other buy order by which
the transferee and each beneficial
transferee for whom it is acting agreed to
acquire the Warrants; or
[ ] B. the transfer of Warrants is exempt from registration under
the 1933 Act and applicable state securities laws, and the
transferee has provided evidence of the exemption (which the
transferee acknowledges must be satisfactory to Carpatsky
Petroleum Inc.) and may at the option of Carpatsky Petroleum Inc.
be required to include an opinion of counsel; and
(i) expressly waives and releases Carpatsky
Petroleum Inc. to the fullest extent
permitted by law, from all rights of
withdrawal to which it might otherwise be
entitled pursuant to the provisions of
applicable securities legislation.
[SIGNATURES BEGIN ON THE FOLLOWING PAGE]
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DATED the _____ day of __________________, _____.
Name of Transferee
By
-------------------------------------
Name:
Title:
Address:
[THIS IS A SIGNATURE PAGE TO THE ACKNOWLEDGMENT AND DECLARATION OF
TRANSFEREE]
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Exhibit C Final Execution Copy
to
Securities Purchase Agreement
dated December 30, 1999
AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT
This Amendment is made and entered into as of December 30, 1999 by and
between Carpatsky Petroleum Inc., an Alberta corporation ("Company"), and
Bellwether Exploration Company, a Delaware corporation ("Bellwether"), for the
purpose of amending the Registration Rights Agreement, dated October 7, 1999
between the Company and Bellwether ("Agreement").
Section 1. Amendments to the Agreement.
1.1 The Agreement is hereby amended by amending the definition
of "Company Securities" in Section 1.1 to read as follows:
"Company Securities" means any securities of the Company and
includes the Common Stock, the Additional Warrants, the
Warrants (as defined in the Securities Purchase Agreement, the
Shares (as defined in the Securities Purchase Agreement) and
the Warrant Shares (as defined in the Securities Purchase
Agreement).
1.2 The agreement is further amended by adding the following
definition to Section 1.1:
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated December 30, 1999, entered into by and
between the Company and Bellwether.
Section 2. No Other Changes. Except as explicitly amended by this
Amendment, the terms, conditions, rights and obligations under the Agreement
shall remain in full force and effect.
Section 3. Consents. The Company represents and warrants that no
consent, approval, order, or authorization of, or declaration, filing, or
registration with, any party is required to be obtained or made in connection
with the execution, delivery, or performance by the Company of the Agreement, as
amended by this Amendment, or the consummation by it of the transactions
contemplated hereby or thereby, other than those consents that have been
received by the Company as of the date hereof and requisite filings and
registrations with, and orders of, the Alberta Securities Commission or the
United States Securities and Exchange Commission.
Section 4. Counterparts. This Amendment may be executed by the
parties hereto in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same agreement.
- 1 -
<PAGE>
The parties have executed this agreement on the date first written
above.
CARPATSKY PETROLEUM INC.
By:
----------------------------------------
Name: David A. Melman
Title: Chief Corporate Officer
BELLWETHER EXPLORATION COMPANY
By:
----------------------------------------
Name: J. P. Bryan
Title: Chief Executive Officer
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<PAGE>
Schedule 1.05
Directors of Pease (Radiant Energy)
J.P. Bryan
Dr. Jack Burks
David Melman
Leslie Texas
Steve Antry
2 other nominees to be identified by Bellwether in writing prior to the Closing
Directors of Surviving Corporation
J.P. Bryan
David Melman
1 other nominee to be identified by Bellwether in writing prior to the Closing
Officers of Pease (Radiant Energy) and the Surviving Corporation
J.P. Bryan Chief Executive Officer
Leslie Texas President
Robert Bensh Vice President
Additional Officers
David Melman
Patrick Duncan
<PAGE>
Schedule 4.01
C. Carpatsky, through the Joint Activity Agreement No. 410/95 dated
September 15, 1995, revised on October 15, 1996 and amended on December 25, 1997
and again on August 26, 1998, owns an interest for the purpose of investment,
exploration and operation of the Rudovsko- Chervonozavodsky field, located in
the Poltava district of eastern Ukraine (this contract, as amended, is referred
to collectively herein as the "Joint Activity Agreement"). The Joint Activity
Agreement is sometimes referred to as the Carpatsky-Poltavaneftagaz Joint
Activity, which essentially acts as, and is referred to as, a Ukrainian Joint
Venture. Pursuant to the terms of the Joint Activity Agreement, Carpatsky has
the right, not the obligation, to own up to a 45% net revenue interest
(representing a 50% working interest) in the Joint Activity. The net revenue
interest is determined by: a.) dividing Carpatsky's total capital contributions,
as defined in the Joint Activity Agreement, by the total capital contributions
of the Joint Activity; and b.) multiplying this percentage by 90%. The Joint
Activity Agreement is unclear whether or not the working interest decreases
proportionately should Carpatsky's total contributions, as compared to the total
contributions of the Joint Activity, fall below 50%. However, it is Carpatsky's
representation to Pease that the working interest, and corresponding obligations
to the Joint Account, would be proportionately reduced under such circumstances.
As of September 30, 1999, Carpatsky's net revenue interest in the Joint Activity
was 41.68% (representing a presumed working interest of 46.31%). On October 1,
1999, Carpatsky's net revenue interest was effectively reduced to 31.98% when
its Ukrainian partner increased their equity position through an additional
capital contribution to the Joint Account. The Ukrainian partner has advised
Carpatsky that it has until December 31, 1999 to make an additional capital
contribution of approximately $2.9 million. A failure to do so may dilute
Carpatsky's interest in the RC field even further and will preclude Carpatsky
from participating in at least the next two wells that will be drilled.
Carpatsky's rights and obligations are subject to all terms and conditions of
the Joint Activity Agreement, as amended.
<PAGE>
Schedule 4.03(b)(iii)
As discussed in Schedule 4.01 C, Carpatsky's net revenue interest as of
October 1, 1999 in the Carpatsky-Poltavaneftagaz Joint Activity is 31.98%.
Pursuant to the terms of the Joint Activity Agreement, as amended, as of
September 30, 1999, Carpatsky has the right to increase its net revenue interest
percentage to 45% by contributing, or repaying, approximately $2.9 million to
the Joint Account, or its partners. The terms of the Joint Activity Agreement
contemplate that Carpatsky will be a 50/50 partner on all expenditures subject
to the Joint Activity. The Joint Activity Agreement also contemplates that from
time-to-time the respective partners may not contribute at the contemplated
50/50 levels and has certain provisions that deal with these imbalances.
However, it is unclear as to whether or not Carpatsky's right to increase its
net revenue interest percentage to 45% will or can be honored by its partners
indefinitely.
<PAGE>
Schedule 4.03(c)
B. Carpatsky Stock Awards
1. As previously disclosed in Schedule 4.03(b)(i)C, item 5,
Torch Energy Advisors Incorporated will receive 1,200,000 Carpatsky shares in
settlement of a payable due Torch for services performed for $150,000,
2. As previously disclosed in Schedule 4.03(b)(i)C, item 4,
Proteus International has been offered 720,000 Carpatsky shares and warrants to
purchase 435,000 Carpatsky common shares in settlement of a $90,000 claim for
services. As previously disclosed, the warrants will be exercisable at US $0.20
per share and will expire on December 31, 2000.
3. As previously disclosed in Schedule 4.03(b)(i)C, item 6,
David A. Melman will receive 953,333 common shares of Carpatsky and warrants to
purchase 357,000 Carpatsky common shares in connection with financial services
rendered in a US $1,000,000 private placement. As previously disclosed, the
warrants will be exercisable at US $0.20 per share and will expire on December
31, 2000.
4. In connection with the contemplated merger with Pease,
David A. Melman will receive 2.0 million shares of Carpatsky (to be issued prior
to the Effective Time of the merger) as compensation for services rendered.
<PAGE>
Schedule 4.08
As of September 30, 1999, the Carpatsky-Poltavaneftagaz Joint Activity
had incurred a Corporate Profits Liability in UAH of 2,899,558 (US equivalent is
$648,714 using September 30, 1999 exchange rates). This liability is past due
and incurring interest at a annual rate of 45% (the discount rate in UAH of the
National Bank of Ukraine). Using Carpatsky's presumed working interest of 46.31%
at September 30, 1999, our proportionate share is approximately US $300,419,
excluding interest. However, as discussed in Schedule 4.01C, the wording of the
Carpatsky-Poltavaneftagaz Joint Activity Agreement leaves the issue of the
adjustable working interest unclear. Accordingly, if the working interest is
50%, Carpatsky's proportionate share could be as high as US$324,357, excluding
interest.
<PAGE>
Schedule 4.11
B. As disclosed in Schedule 4.08, as of September 30, 1999 the
Carpatsky- Poltavaneftagaz Joint Activity had incurred a Corporate Profits
Liability in UAH of $2,899,558 (US equivalent is $648,714 using September 30,
1999 exchange rates). This liability is past due and incurring interest at an
annual rate of 45% (the discount rate in UAH of the National Bank of Ukraine).
Using Carpatsky's presumed working interest of 46.31% at September 30, 1999, our
proportionate share is approximately US $300,419, excluding interest. However,
because it is unclear whether the working interest could arguably be 50%
Carpatsky proportionate share could be as high as US$324,357, excluding
interest.
<PAGE>
Schedule 4.19
The following are Carpatsky's contractual commitments in excess of
$10,000 over 12 months as of June 30, 1999:
A As discussed in Schedule 4.01 C and disclosed in Schedule
4.03(b)(iii), Carpatsky's working interest as of October 1, 1999 in the
Carpatsky-Poltavaneftagaz Joint Activity is 31.98%. Pursuant to the terms of the
Joint Activity Agreement, as amended, as of September 30, 1999, Carpatsky has
the right to increase its working interest percentage to 50% by contributing, or
repaying, approximately $2.9 million to the Joint Account, or its partners by
December 31, 1999. A failure to do so may dilute Carpatsky's interest in the RC
field even further and will preclude Carpatsky from participating in at least
the next two wells that will be drilled. The terms of the Joint Activity
Agreement contemplate that Carpatsky will be a 50/50 partner on all expenditures
subject to the Joint Activity. The Joint Activity Agreement also contemplates
that from time-to-time the respective partners may not contribute at the
contemplated 50/50 levels and has certain provisions that deal with these
imbalances. However, it is unclear as to whether or not Carpatsky's right to
increase its working interest percentage to 50% will or can be honored by its
partners indefinitely.
<PAGE>
Schedule 4.1(d) to Securities Purchase Agreement
dated December 30, 1999
Common Stock Outstanding 77,728,2631
Stock Options Outstanding 200,000
Stock Purchase Warrants 17,665,4042
Offers Outstanding to Convert:
Calaway Debt - approximately $275,000 @ 12.5(cent) per share RLF Debt
approximately $365,000 @ 12.5(cent) per share
No other securities with equity component.
--------
1 Inclusive of stock option repurchases. 2 All at $.20 US expiring
December 31, 2000.
<PAGE>
Schedule 4.1(e) to Securities Purchase Agreement
dated December 30, 1999
Carpatsky Petroleum Corp., a Delaware corporation
<PAGE>
Schedule 4.1(f) to Securities Purchase Agreement
dated December 30, 1999
Consent of the CDNX.
<PAGE>
Schedule 4.1(h) to Securities Purchase Agreement
dated December 30, 1999
None
<PAGE>
Schedule 4.1(i)(ii) to Securities Purchase Agreement
dated December 30, 1999
Common to the oil and gas industry in foreign countries, Carpatsky does
not own an interest in real property; its rights and obligations are governed by
joint agreements with its Ukrainian partners. Carpatsky's oil and gas assets
consist of interests in the following two fields in the Republic of Ukraine: (1)
Rudovsko-Chervonozavodskoye natural gas and gas condensate field (the "RC"
field) located in the Poltava District of Eastern Ukraine; and (2) the
Bitkov-Babchensky oil field (the "Bitkov field") located in the Ivano-Frankovsk
District of southwest Ukraine. The RC field is governed by the Joint Activity
Agreement No. 410/95 dated September 15, 1995, revised on October 15, 1996 and
amended on December 25, 1997 and again on August 26, 1998. This Joint Activity
Agreement was established for the purpose of investment, exploration and
operation of the RC field. All of Carpatsky's rights and obligations are subject
to all terms and conditions of the Joint Activity Agreement as amended.
The Bitkov field is governed by a Joint Venture Agreement dated April
18, 1995, which establishes Carpatsky's rights and obligations in UkrCarpatoil,
Ltd., a Ukrainian joint venture. UkrCarpatoil was created for the purpose of
production, exploitation and exploration of the Bitkov field. As outlined in the
License Agreement dated July 25, 1995, Carpatsky's rights are limited to the
incremental hydrocarbon production above the "baseline" production as defined in
the License Agreement. The "organizational period" as defined in the license
agreement dated April 18, 1995 has been extended through August 13, 2000 by
amendments executed on August 13, 1999. Carpatsky's rights and obligations are
subject to all of the terms and conditions of the Joint Venture Agreement and
License Agreement as amended.
<PAGE>
Schedule 4.1(i)(ii) to Securities Purchase Agreement
dated December 30, 1999
a) The Reserve Report dated June 30, 1999, prepared by Ryder Scott
Company Petroleum Engineers and entitled, "Carpatsky Petroleum Estimated Future
Reserves and Income Attributable to Certain Leasehold Interests in Ukraine, SEC
Perimeters Full Contractual Interest Case", is subject to all the limitations,
contingencies, uncertainties and estimates that are described in the Discussion
Letter dated June 23, 1999 included in the aforementioned Reserve Report. This
Discussion Letter is incorporated in this document by reference in its entirety.
b) The Development Schedule (or Drilling Plan) that was contemplated
in the aforementioned Reserve Report has not been adhered to principally because
the capital necessary to fund the drilling activity has not been available.
c) The aforementioned Reserve Report contemplated that all of the
natural gas in the RC field would be sold to Unocal beginning October 1, 1999 on
an exported basis. That event did not occur and the natural gas from the RC
field is currently being sold domestically in Ukraine. Historically, Carpatsky
has not received payment for the majority of its natural gas sales in Ukraine
and there can be assurance payment will be received in the future.
d) The sales price used in the Reserve Report for natural gas is $1.50
per Mcf and is held constant throughout the life of the reserves. The actual
selling price for 1999 (through September 30th) has averaged $0.87 per Mcf.
<PAGE>
Schedule 4.1(l) to Securities Purchase Agreement
dated December 30, 1999
None
<PAGE>
Schedule 4.1(m) to Securities Purchase Agreement
dated December 30, 1999
As of September 30, 1999, the Carpatsky Poltavanaftagas, Joint
Activity in the RC field has incurred a corporate profits liability in UAH of
2,899,558 (U.S. equivalent is $648,714 using September 30, 1999 exchange rate).
This liability is past due and incurring interest and penalties at an annual
rate of 45% (the discount rate in UAH of the National Bank of Ukraine).
Carpatsky's properties are subject to a lien to the extent of unpaid taxes.
<PAGE>
Schedule 4.1(n) to Securities Purchase Agreement
dated December 30, 1999
RLG International has threatened litigation.
<PAGE>
Schedule 4.1(r) to Securities Purchase Agreement
dated December 30, 1999
The terms of the Stock Subscription Agreement for the 1999 Private
Placement stated David A. Melman will be appointed as a member of Senior
Management and a member of the Company's Board of Directors.
The following debts are past due as of September 30, 1999:
1) Series 1 Debenture dated August 15, 1998 in favor of James C.
Calaway, principal amount $220,000 plus accrued interest of $55,973.
2) Promissory Note in favor of RLG International, Inc.; principal
amount of $328,914 plus accrued interest of $30,277.
<PAGE>
Schedule 4.1(v) to Securities Purchase Agreement
dated December 30, 1999
The only registration rights agreements that the Company is a party to
are with Bellwether Exploration Company and Torch Energy Advisors Incorporated.
