Exhibit 10(a)
NOTE PURCHASE AND LOAN AGREEMENT
for
SEVEN SEAS PETROLEUM INC.,
a Cayman Islands exempted company limited by shares
July 9, 2001
COMMERCIAL LAW GROUP, P.C.
ATTORNEYS AND COUNSELORS
2725 Oklahoma Tower o 210 Park Avenue o Oklahoma City, Oklahoma 73102-5604
Telephone (405) 232-3001 o Telecopier (405) 232-5553
TABLE OF CONTENTS
1. Purchase; Authorization...........................................1
2. Closing...........................................................1
3. Corporation's Representations and Warranties. ...................1
3.1 Organization and Standing................................2
3.2 Subsidiaries.............................................2
3.3 Corporate Power..........................................2
3.4 Investments..............................................3
3.5 Minute Books.............................................3
3.6 Capitalization...........................................3
3.7 Subsidiary Capitalization................................4
3.8 No Violation.............................................5
3.9 Validity.................................................5
3.10 SEC Documents............................................6
3.11 Financial Statements.....................................6
3.12 Absence of Undisclosed Liabilities.......................6
3.13 Absence of Certain Changes...............................7
3.14 Contracts, Leases, and Other Agreements..................7
3.15 ERISA....................................................8
3.16 Arrangements with Related Parties........................8
3.17 Taxes....................................................9
3.18 Insurance. .............................................9
3.19 Litigation...............................................9
3.20 Consents................................................10
3.21 Title to Properties; Liens and Encumbrances.............10
3.22 Compliance with Law and Other Instruments...............10
3.23 Registration Rights.....................................11
3.24 Federal Reserve Regulations.............................11
3.25 Reserve Information.....................................11
3.26 Securities Classes......................................11
3.27 Solicitation............................................12
3.28 Registration Requirements...............................12
3.29 Certificates............................................12
3.30 Full Disclosure.........................................12
3.31 Acknowledgment..........................................12
4. Lender's Representations and Warranties..........................12
4.1 Authorization; Power....................................13
4.2 Investment Representations..............................13
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4.2.1 Economic Risk..................................13
4.2.2 Acquisition for Own Account....................13
4.2.3 Protection.....................................13
4.2.4 Corporation Information........................13
4.2.5 Residence......................................14
5. Lender's Conditions..............................................14
5.1 Representations and Warranties Correct..................14
5.2 Performance.............................................14
5.3 Compliance Certificate..................................14
5.4 Omnibus Certificate.....................................14
5.5 Adverse Events..........................................15
5.6 Legal Opinion...........................................15
5.7 Comfort Letter..........................................20
5.8 Legal Investment........................................20
5.9 Qualifications..........................................20
5.10 Due Diligence...........................................20
5.11 Expenses................................................20
5.12 Purchase of Series B Notes..............................20
5.13 Proceedings and Documents...............................20
5.14 Collateral Perfection and Put Option....................21
5.15 Amendments of Articles..................................21
6. Corporation's Conditions.........................................21
6.1 Representations and Warranties True.....................21
6.2 Performance of Obligations..............................21
6.3 Payment.................................................21
6.4 Consents, Permits and Waivers...........................21
6.5 Fairness Opinion........................................21
6.6 Certain Collateral Agreements...........................21
7. Affirmative Covenants............................................22
7.1 Financial Statements and Information....................22
7.1.1 SEC Filings....................................22
7.1.2 Compliance Certificate.........................22
7.1.3 Budget.........................................22
7.1.4 Auditors Reports...............................22
7.1.5 Third Party Information........................23
7.1.6 Litigation.....................................23
7.1.7 Material Adverse Developments..................23
7.1.8 Other Information..............................24
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7.2 Accounting..............................................24
7.3 Insurance...............................................24
7.4 Payment of Taxes........................................24
7.5 Compliance With Laws....................................24
7.6 Corporate Existence; Property and Operations............24
7.7 Inspection and Other Rights.............................25
7.8 Use of Proceeds. ......................................25
7.9 Escrow of Interest Payment..............................25
7.10 Charter Amendments......................................25
7.11 Exemption Maintenance...................................26
7.12 Pipeline Operation......................................26
7.13 Dormant Subsidiaries....................................26
7.14 Production Proceeds.....................................26
8. Corporation's Negative Covenants.................................26
8.1 Dividends...............................................26
8.2 Redemptions.............................................27
8.3 Mergers.................................................27
8.4 Sale of Assets..........................................27
8.5 Liquidations............................................27
8.6 Charter Amendments......................................27
8.7 Affiliate Transactions..................................27
8.8 Investments.............................................27
8.9 Capital Expenditures....................................28
8.10 Loans...................................................28
8.11 Other Business..........................................28
8.12 Subsidiaries............................................28
8.13 Indebtedness............................................28
8.14 Related Agreements. ...................................28
8.15 Restrictive Agreements..................................28
8.16 Liens...................................................29
8.17 Transactions............................................29
8.18 Participating Preferred Stock...........................29
8.19 Debt Prepayment.........................................29
8.20 No Excess Working Capital to Subsidiaries...............29
9. Related Agreements...............................................29
10. Payment or Exchange of Series B Notes............................29
11. Default..........................................................29
11.1 Nonpayment of CEC Note..................................30
11.2 Breach of Agreement.....................................30
11.3 Representations and Warranties..........................30
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11.4 Material Agreements.....................................30
11.5 Indebtedness............................................30
11.6 Insolvency..............................................30
11.7 Bankruptcy..............................................30
11.8 Receivership............................................31
11.9 Judgment................................................31
11.10 Concession Contracts....................................31
11.11 Indentures..............................................31
11.12 Change of Control.......................................31
11.13 Opportunity to Cure.....................................32
12. Remedies.........................................................32
12.1 Exercise Remedy.........................................32
12.2 Selective Enforcement...................................32
12.3 Waiver of Default.......................................32
13. Agent Appointment; Jurisdiction..................................32
14. Indemnification..................................................33
14.1 Procedure...............................................34
14.2 Environmental and Governmental. .......................34
14.3 Other Remedies..........................................34
15. Effectiveness of Agreement and Termination.......................34
16. Miscellaneous....................................................35
16.1 Fees and Expenses.......................................35
16.2 Consent to Amendments; Waivers..........................35
16.3 Representations and Warranties..........................36
16.4 Successors and Assigns..................................36
16.5 Severability............................................36
16.6 Construction; Currency..................................36
16.7 Notices.................................................36
16.8 Governing Law...........................................36
16.9 Exhibits and Schedules..................................36
16.10 Exchange of Certificates................................37
16.11 Confidentiality.........................................37
16.12 Public Announcements....................................37
16.13 Final Agreement.........................................37
16.14 Execution in Counterparts...............................38
16.15 ACKNOWLEDGMENTS AND ADMISSIONS..........................38
16.16 JOINT ACKNOWLEDGMENT....................................38
16.17 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC.............38
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SEVEN SEAS PETROLEUM INC.
NOTE PURCHASE AND LOAN AGREEMENT
THIS AGREEMENT is entered into effective July 9, 2001, between SEVEN SEAS
PETROLEUM INC., a Cayman Islands exempted company limited by shares (the
"Corporation") and all of the Subsidiaries of the Corporation (as defined in
paragraph 3.2) and CHESAPEAKE ENERGY CORPORATION, an Oklahoma corporation (the
"Lender").
R E C I T A L S
A. In order to raise additional funds to implement the Corporation's
business plan, the Corporation desires to: (i) issue the Corporation's 12%
Senior Secured Note due 2004 in the amount of TWENTY-TWO MILLION FIVE HUNDRED
THOUSAND DOLLARS ($22,500,000.00) (the "CEC Note") coupled with detachable
Warrants to purchase twelve million six hundred twelve thousand one hundred
forty (12,612,140) shares (the "Warrants") of the Corporation's ordinary shares,
par value $0.001 per share (the "Common Stock"); and (ii) issue the
Corporation's 12% Series B Senior Secured Notes due on the earlier of
consummation of the Rights Offering (as hereinafter defined) or November 7, 2004
in the amount of TWENTY TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($22,500,000.00) (the "Series B Notes").
B. The Lender desires to purchase from the Corporation and the Corporation
desires to issue and sell to the Lender: (a) the CEC Note in the principal
amount of TWENTY-TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($22,500,000.00); and
(b) Warrants to purchase twelve million six hundred twelve thousand one hundred
forty (12,612,140) shares (as adjusted) of Common Stock, for an aggregate
purchase price of TWENTY-TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($22,500,000.00).
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Purchase; Authorization. Subject to the terms and conditions set forth
herein, the Lender agrees to purchase from the Corporation and the Corporation
hereby agrees to issue and sell to the Lender, the CEC Note in the principal
amount of Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000.00) and
the Warrants for an aggregate purchase price of Twenty-Two Million Five Hundred
Thousand Dollars ($22,500,000.00). Prior to the Closing (as hereinafter
defined), the Corporation will: (a) duly authorize the issuance of the CEC Note
and the Warrants to the Lender; and (b) duly authorize and reserve the shares of
Common Stock to be issued on the exercise of the Warrants (the "Warrant
Shares").
2. Closing. The consummation of the purchase and sale of the CEC Note and the
Warrants to the Lender and the sale of the Series B Notes (the "Closing") will
be held at the offices of Commercial Law Group, P.C., 210 Park Avenue, Suite
2725, Oklahoma City, Oklahoma 73102, on the earlier of: (a) the date all of the
conditions precedent set forth in paragraph 5 of this Agreement have been
performed to the reasonable satisfaction of the Lender or waived in writing by
the Lender; and (b) July 23, 2001, at 10:00 a.m. local time, or at such other
time, date and place as may be agreed to by the Corporation and the Lender (the
"Closing Date"). At the Closing, the Corporation will deliver to the Lender: (y)
the CEC Note in substantially the form at Exhibit "A" attached as a part hereof;
and (z) the Warrants in substantially the form at Exhibit "B" attached as a part
hereof, both duly executed and registered in the name of the Lender or the
Lender's nominee. The Lender will deliver to the Corporation in immediately
available funds the purchase price for the CEC Note and the Warrants to be
acquired by the Lender.
3. Corporation's Representations and Warranties. As an inducement to the Lender
to enter into and perform this Agreement, the Corporation and each of the
Subsidiaries hereby severally represent and warrant to and covenant with the
Lender as follows:
3.1 Organization and Standing. The Corporation is an exempted company
limited by shares duly organized, validly existing and in good
standing under the laws of the Cayman Islands and continues in the
Cayman Islands with all of the legal and contractual rights and
interests the Corporation held as a Yukon, Canada corporation. The
Corporation has the requisite power and authority to own all of the
Corporation's properties, to conduct the Corporation's business as
presently being conducted and to conduct the Corporation's business as
it is proposed to be conducted. The Corporation is duly qualified to
do business in those jurisdictions listed in Schedule "3.1." The
Corporation does not and will not have any material properties or
operations elsewhere and the Corporation is not and will not be
subject to any material liability or disability in conducting business
by reason of any failure to obtain any qualification to do business in
any other jurisdiction. The Corporation conducts no business in any
jurisdiction except through the Subsidiaries.
3.2 Subsidiaries. Except for the subsidiaries set forth on Schedule "3.2"
attached as a part hereof in which the Corporation directly owns one
hundred percent (100%) of the legal and beneficial capital equity (the
"Subsidiaries"), the Corporation does not directly or indirectly or
through any entity or person own any voting power or capital of any
corporation, association, partnership, limited liability company or
other business entity. Each Subsidiary is a corporation or other
entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization listed on Schedule "3.2"
and has the requisite power and authority to own all of such
Subsidiary's properties, to conduct such Subsidiary's business as
presently being conducted and to conduct such Subsidiary's business as
it is proposed to be conducted. Each Subsidiary is duly qualified to
do business in those jurisdictions listed in Schedule "3.2." No
Subsidiary has or will have any material properties or operations in
any jurisdiction not listed on Schedule "3.2" and each Subsidiary is
not and will not be subject to any material liability or disability in
conducting business by reason of failure to obtain any qualification
to do any business in any other jurisdiction. As of the Closing Date
and until the CEC Note is paid in full, the Subsidiaries listed on
Schedule "3.2" as dormant or inactive will remain dormant and inactive
and no business will be conducted directly or indirectly by, through
or under any such Subsidiaries.
3.3 Corporate Power. The Corporation has all requisite power and authority
to: (a) enter into this Agreement and each of the agreements and
instruments to be executed in connection herewith; (b) issue and sell
the CEC Note and the Warrants; (c) issue the Warrant Shares; and (d)
carry out and perform its obligations under the terms of this
Agreement and any other document to be executed in connection herewith
including, without implied limitation, that certain Pledge and
Security Agreement, those certain Deed of Mortgage over Shares (or
Charge Over Shares to the extent agreed to by the parties) and other
collateral documents, each dated on or about the Closing Date between
the Corporation and the Lender, as collateral agent, at Exhibit "C"
attached as a part hereof (collectively, the "Pledge Agreement"), that
certain Shareholder's Rights Agreement dated on or about the Closing
Date between the Corporation and the Lender at Exhibit "D" attached as
a part hereof (the "Shareholder's Rights Agreement") and that certain
Registration Rights Agreement dated on or about the Closing Date
between the Corporation and the Lender at Exhibit "E" attached as a
part hereof (the "Registration Agreement") and the Collateral Sharing
and Agency Agreement dated on or about the Closing Date between Lender
and the trustee for the New Indenture at Exhibit "F" attached as a
part hereof (the "Collateral Sharing Agreement" and together with the
Pledge Agreement, the Shareholder's Rights Agreement, the Registration
Agreement and any and all other documents and instruments executed and
delivered in connection therewith, the "Related Agreements"). The
Corporation has taken all actions necessary to authorize the
execution, delivery and performance of this Agreement and the Related
Agreements, the consummation of the transactions contemplated hereby
and thereby and the issuance and delivery of the CEC Note, the
Warrants and the Warrant Shares. This Agreement and the Related
Agreements are legal, valid and binding obligations of the
Corporation, enforceable against the Corporation in accordance with
their terms except as the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally.
3.4 Investments. Neither the Corporation nor the Subsidiaries own of
record or beneficially any Investment (as hereafter defined) other
than Investments in the Subsidiaries and Investments of the type
permitted under paragraph 8.8 of this Agreement and Investments
disclosed in the Corporation's most recent 10-Q filed with the SEC.
For purposes of this Agreement the term "Investment" means: (a) all
investments in the form of loans, advances or capital contributions;
(b) all guarantees of indebtedness or other obligations of any other
person or entity; (c) all purchases (or other acquisitions for
consideration) of capitalized assets, indebtedness, capital stock or
other securities of any other person or entity; and (d) all other
items that would be classified as investments (including, without
limitation, purchases of assets outside the ordinary course of
business) or advances on a balance sheet prepared in accordance with
generally accepted accounting principles in the United States
("GAAP").
3.5 Minute Books. The minute books of the Corporation contain a complete
and correct summary in all material respects of all meetings of the
Corporation's Board of Directors (the "Board") and the Corporation's
shareholders since the inception of the Corporation. The minute books
of each Subsidiary contain a complete and correct summary in all
material respects of all meetings of the board of directors of such
Subsidiary and such Subsidiary's shareholders since the inception of
such Subsidiary. The originals or true and correct copies of such
minute books have been made available to the Lender.
3.6 Capitalization. As of the Closing, the Corporation's authorized
capital stock will consist of two hundred million (200,000,000)
shares, par value $0.001 per share, of which one hundred fifty million
(150,000,000) shares are designated as ordinary shares and fifty
million (50,000,000) are shares which may be designated by the Board.
After consummation of the transactions contemplated by this Agreement
and the Rights Offering, the only shares of capital stock issued and
outstanding will be 37,836,420 shares of fully paid and non-assessable
Common Stock, there will be no shares of any other class of capital
stock or equity issued or outstanding and the only shares of Common
Stock reserved for issuance or committed to be issued will be: (a)
shares issuable upon the exercise of stock options under the
Corporation's 1995, 1996 and 1997 stock option plans under which
options to purchase 4,686,934 shares of Common Stock have been granted
at exercise prices reflected in Schedule "3.6" attached hereto and
made a part hereof and 669,954 shares are available for option grants;
(b) 12,612,140 shares issuable upon the exercise of the Warrants; and
(c) 12,612,140 shares issuable upon the exercise of warrants (the "RO
Warrant Shares") to be issued in connection with the Rights Offering
(the "RO Warrants"). As of the Closing, there will be no declared but
unpaid dividends or undeclared dividend arrearage on any shares of
capital stock of the Corporation. In addition, as of the Closing,
except as set forth in this paragraph, there will not exist any stock
appreciation rights, phantom stock plans, preemptive rights,
conversion rights, options, warrants or agreements granted, issued by
or binding on the Corporation for the purchase or acquisition of any
shares of its capital stock other than those issued, reserved or
committed to be issued pursuant to this Agreement, the Related
Agreements and pursuant to that certain rights offering to be made to
the Common Stock holders of the Corporation pursuant to which the
shareholders of the Corporation will be granted the right to purchase
an approximate pro rata share of the Corporation's Series A Senior
Secured Notes due 2004 in the aggregate principal amount of Twenty-Two
Million Five Hundred Thousand Dollars ($22,500,000.00) (the "Series A
Notes") coupled with detachable RO Warrants (the "Rights Offering")
all on terms substantially similar to the terms of this Agreement with
the proceeds to be used exclusively to refinance the Series B Notes.
All outstanding securities of the Corporation were issued in
compliance with all Cayman Islands and United States federal and state
securities laws.
3.7 Subsidiary Capitalization. Each Subsidiary's authorized, issued and
outstanding capital stock or other equity interests is as set forth on
Schedule "3.7" attached as a part hereof. The issued and outstanding
shares of capital stock or other equity interests of each Subsidiary
are as set forth on Schedule "3.7" are owned of record one hundred
percent (100%) by the Corporation legally and beneficially. As of the
Closing, there will be no declared but unpaid dividends or undeclared
dividend arrearage on any shares of capital stock or other equity
interests of any of the Subsidiaries. As of the Closing there will not
exist any stock appreciation rights, phantom stock plans, preemptive
rights, conversion rights, options, warrants or agreements granted,
issued by or binding on any Subsidiary for the purchase or acquisition
of any shares of such Subsidiary's capital stock or other equity
interests. All outstanding securities of each Subsidiary were issued
in compliance with all laws of the jurisdiction under which such
Subsidiary was formed and United States federal and state securities
laws.
3.8 No Violation. The execution, delivery, consummation and performance of
this Agreement, the CEC Note, the Warrants and the Related Agreements
and the transactions contemplated thereby will not (with or without
notice, the passage of time or both): (a) conflict with or result in a
breach of any provision of the Memorandum of Association or Articles
of Association of the Corporation or the formation or governing
documents of any Subsidiary; (b) result in a default, give rise in any
third party of the right to exercise any termination, cancellation,
acceleration or any other remedy, or require any consent or approval
under the terms, conditions or provisions of any note, bond, mortgage,
indenture, loan, hedging arrangement, license, agreement, lease or
other instrument or obligation which is binding on the Corporation,
any Subsidiary or any of their assets and is material to the
Corporation and the Subsidiaries taken as a whole; (c) violate any
law, judgment, order, writ, injunction, decree, statute, rule or
regulation of any court, administrative agency, bureau, board,
commission, office, authority, department or other governmental entity
applicable to the Corporation, any Subsidiary or any of their assets
which, singly or in the aggregate, would have a Material Adverse
Effect (as hereinafter defined); (d) violate the listing rules of the
American Stock Exchange ("AMEX") or adversely impact the Corporation's
listing agreement with AMEX; or (e) require the Corporation or any of
the Subsidiaries to guarantee any indebtedness or grant a lien or
encumbrance on any of their respective assets except as provided
herein to secure the obligations hereunder. Neither the Corporation
nor any of the Subsidiaries has violated any foreign, federal, state
or local law or regulation relating to the protection of human health
and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants, any provisions of the Employee
Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules or regulations
promulgated thereunder, except for such violations which, singly or in
the aggregate, would not have a Material Adverse Effect.
3.9 Validity. The Warrants and the Warrant Shares when issued in
accordance with the terms of this Agreement and the Related
Agreements, will be duly and validly issued, fully paid,
non-assessable and free and clear of all liens, claims and
encumbrances. The CEC Note, the Warrants, this Agreement and the
Related Agreements have been duly authorized and, on the Closing Date,
will have been validly executed and delivered by the Corporation and
this Agreement has been duly authorized, executed and delivered by
each of the Subsidiaries. The CEC Note, the Warrants, this Agreement
and the Related Agreements will be valid and binding obligations and
agreements of the Corporation enforceable against the Corporation in
accordance with their respective terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally. This Agreement will be a valid
and binding obligation and agreement of each of the Subsidiaries
enforceable against each Subsidiary in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally. On
the Closing Date, to the extent applicable thereto, the CEC Note, the
Warrants, this Agreement and the Related Agreements will conform in
all material respects to the rules and regulations of the Securities
and Exchange Commission (the "SEC").
3.10 SEC Documents. The Lender has had or will have available to the Lender
a true, correct and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by the
Corporation with the SEC since December 31, 1997 and prior to the
Closing Date (the "SEC Documents"), which are all the documents (other
than preliminary material) that the Corporation was or will be
required to file with the SEC since December 31, 1997. Except as set
forth in Schedule "3.10" attached hereto as a part hereof, as of their
respective dates, the SEC Documents complied or will comply in all
material respects with the requirements of the Securities Act of 1933,
as amended (the "Securities Act"), or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as the case may be, and the
rules and regulations of the SEC thereunder applicable to such SEC
Documents, and none of the SEC Documents contained as of their
respective dates any untrue statement of a material fact or omitted or
will omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.11 Financial Statements. The financial statements of the Corporation
included in the SEC Documents (the "Financial Statements") have been
prepared in accordance with the applicable published rules and
regulations of the SEC with respect thereto and in accordance with
GAAP applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Rule 10-01 of Regulation S-X of the SEC)
and fairly present in all material respects, in accordance with
applicable requirements of GAAP (in the case of unaudited statements,
subject to normal, recurring adjustments), the consolidated financial
position of the Corporation and the Subsidiaries as of their
respective dates and the consolidated results of operations and the
consolidated cash flows of the Corporation and the Subsidiaries for
the periods presented therein. The unaudited financials statements of
each of the Subsidiaries which have been provided to the Lender are
correct and complete and fairly reflect the financial condition of
each of the Subsidiaries as of the date thereof and have been prepared
in conformity with accounting principles applied on a basis consistent
with that of preceding periods.
3.12 Absence of Undisclosed Liabilities. As of the Closing, the Corporation
and each Subsidiary will not have any material debt, liability or
obligation of any nature (whether accrued, absolute, contingent,
direct, indirect, perfected, inchoate, unliquidated, due or to become
due) arising out of any transactions, series of transactions, action
or inaction or facts or conditions existing on or prior to the Closing
(regardless of when such liability or obligation is asserted) except:
(a) as listed on Schedule "3.12" attached as a part hereof or
disclosed in the Corporation's most recent 10-Q filed with the SEC; or
(b) clearly and accurately disclosed in and accounted for in the
Financial Statements. Except for the foregoing, the Corporation and
its officers and directors do not know, and have no reasonable grounds
to know, of any basis for the assertion against the Corporation or any
Subsidiary of any material liabilities or obligations not clearly and
adequately reflected, reserved and disclosed in the Financial
Statements or the SEC Documents.
3.13 Absence of Certain Changes. As of the Closing there will not have
occurred since the Corporation's Annual Report on Form 10-K for the
year ended December 31, 2000: (a) any change, occurrence, condition or
development that will or is likely to have a Material Adverse Effect;
(b) any dividend, distribution, recapitalization, combination,
redemption, subdivision or purchase with respect to any shares of the
capital stock of the Corporation or any Subsidiary, except between and
among the Corporation and the Subsidiaries; (c) any new indebtedness
for borrowed money incurred by the Corporation or any Subsidiary,
except between and among the Corporation and the Subsidiaries; (d) any
sale, transfer or lease of any of the assets of the Corporation or any
Subsidiary, except in the ordinary course of business or as set forth
in Schedule "3.13" attached hereto and made a part hereof; (e) any
mortgage or pledge of, grant of security interest in or other lien or
encumbrance against any of the assets of the Corporation or any
Subsidiary; (f) any cancellation, compromise, release or waiver of any
material claims, indebtedness or obligations owing to the Corporation
or any Subsidiary except (whether pursuant to a contract agreement or
otherwise) as a result of payments of such obligations in the ordinary
course of business consistent with past practices; (g) any material
increase or change, (or offer or promise whether or not legally
binding) in any salary, compensation or employee benefits with respect
to any employee of the Corporation or any Subsidiary outside the
ordinary course; (h) any physical damage, destruction or loss (whether
or not covered by insurance) with respect to the properties, business
or prospects of the Corporation which will or is likely to have a
Material Adverse Effect; (i) any changes in the accounting principles,
methods or practices utilized by the Corporation or any of its
Subsidiaries (including depreciation or amortization policies or
rates); (j) any actual or threatened cancellation, default,
termination or dispute under any production sharing contract,
Concession Agreements (as hereinafter defined), exploration agreement,
transportation license or similar agreement with the government of
Colombia or Empresa Colombiana de Petroleos ("Ecopetrol") or under any
other material agreement, contract or relationship which is binding on
the Corporation, any Subsidiary or their assets which would have a
Material Adverse Effect; or (k) any action taken by the Corporation or
its Subsidiaries with respect to the foregoing.
3.14 Contracts, Leases, and Other Agreements. Except as set forth in
Schedule "3.14" or Schedule "3.15" attached as a part hereof and in
the Corporation's most recent 10-K or 10-Q filed with the SEC and
except for this Agreement, the Existing Indenture and the New
Indenture, the Corporation and the Subsidiaries are not parties to or
bound by any material contract, lease, agreement, plan, license,
arrangement, obligation or commitment (collectively, the "Contracts"):
(a) which is a requirement or output contract; (b) relating to any
indebtedness, guaranty, surety or indemnification by or for the
Corporation or any Subsidiary; (c) prohibiting the Corporation or any
Subsidiary from freely engaging in any business or competing anywhere
in the world; or (d) that is otherwise material to the business of the
Corporation or any of its Subsidiaries. All Contracts to which the
Corporation or any Subsidiary is a party or by which any of their
assets are bound are listed in Schedule "3.14" and all Contracts
including, without limitation, the Dindal Association Contract issued
by Ecopetrol in March1993, the Rio Seco Association Contract issued by
Ecopetrol in August 1995, the Rosablanca Association Contract issued
by Ecopetrol in February 1998, the Deep Dindal Association Contract
issued by Ecopetrol in April 2001 and the Cristales Association
Contract issued by Ecopetrol in April 2001 (the "Concession
Agreements"), are valid, binding and in full force and effect. There
is no material breach, default, or event which, (with notice, lapse of
time or both) would constitute a material breach or default by the
Corporation, any Subsidiary or any other party to any of the
Contracts. Neither the Corporation nor any of its Subsidiaries has
received any notice of breach, cancellation, termination or
non-renewal of any Contract.
3.15 ERISA. Except as set forth in Schedule "3.15" attached as a part
hereof, neither the Corporation nor any Subsidiary has maintained,
sponsored, adopted, made contributions to, obligated itself to make
contributions to, agreed to pay any benefits under, or granted rights
under or with respect to any employee benefit plan ("Employee Benefit
Plan") which includes, without implied limitation, any retirement
plan, deferred compensation plan, medical plan, life insurance plan,
long-term disability plan, dental plan, personnel policy (including,
but not limited to, vacation time, holiday pay, bonus programs, moving
expense reimbursement programs and sick leave), excess benefit plan,
bonus or incentive plan (including, but not limited to, stock options,
restricted stock, stock bonus and deferred bonus plans), salary
reduction agreement, change-of-control agreement, employment
agreement, consulting agreement, workers compensation law,
unemployment compensation law, social security law or any other
benefit, program or contract, (whether written, oral, voluntary or
pursuant to a collective bargaining agreement), which could give rise
to or result in the Corporation or any Subsidiary having any debt,
liability, claim or obligation of any kind or nature, whether accrued,
absolute, contingent, direct, indirect, known or unknown, perfected or
inchoate or otherwise and whether or not due or to become due. Correct
and complete copies (or descriptions, if oral) of all Employee Benefit
Plans have been furnished to the Lender.
3.16 Arrangements with Related Parties. Except as set forth on Schedule
"3.16" attached as a part hereof and in the Corporation's most recent
10-K or 10-Q filed with the SEC and except for the Series B Notes, the
Rights Offering and related documents, there are no direct or indirect
contracts, arrangements or proposed transactions between the
Corporation or any Subsidiary and any Affiliate (as hereafter defined)
of the Corporation or any Subsidiary. For purposes of this Agreement
the term "Affiliate" means as to any person or entity, any other
person or entity controlling, controlled by or under common control
with that person or entity (whether such control is direct or
indirect). Each executive officer and director of the Corporation or
any Subsidiary (together with their immediate family members) is
automatically deemed to be an Affiliate of the Corporation and each
Subsidiary.
3.17 Taxes. All foreign (including, without limitation, Canadian, Cayman
Islands, Panama and Colombian), and United States federal and state,
income, sales, employment and other tax returns and reports (the "Tax
Returns") of the Corporation and each Subsidiary required by law to be
filed have been timely filed or valid extensions have been obtained.
The Tax Returns which have been filed comply with all applicable laws,
accurately reflect the results of the Corporation's operations and are
true and correct in all respects. All taxes (including, without
limitation, all fees, penalties, interest and other governmental
charges, the "Taxes") which are due and payable have been timely paid
and properly recorded in the appropriate accounting records in a
manner consistent with the applicable laws and the Corporation's past
practices. There is no pending or known threatened audit of or claim
against the Corporation or any Subsidiary which might result in the
assessment or payment of additional Taxes in excess of the amounts
reflected on the Financial Statements or Tax Returns. The Corporation
and the Subsidiaries have not executed any waiver of any statute of
limitations related to any assessment of Taxes, filed or joined in any
Tax Returns on a unitary, combined or consolidated basis, been
required to pay any Taxes attributable to any other member of any
group or affiliated corporations that file consolidated returns for
federal income tax purposes by reason of Treasury Regulation
ss.1.1502-6 or any comparable provision of state or local law that
provides for joint or several liability, in whole or in part agreed to
and are not required to make any adjustments under ss. 481(a) of the
Internal Revenue Code by reason of a change in accounting method or
otherwise consented to have the provisions of ss. 341(f)(2) of the
Internal Revenue Code apply to any sale of its capital stock or become
parties to any tax sharing agreements.
3.18 Insurance. Schedule "3.18" attached as a part hereof is a true,
correct and complete list and description (including policy numbers)
of all insurance policies owned by the Corporation and each Subsidiary
or otherwise pertaining to their business. The insurance policies are
in full force and effect, no default has occurred under any policy and
no notice of cancellation, intent to cancel, notice of premium
increase or any other notice regarding such notices has been received
by the Corporation or any Subsidiary. The insurance policies insure
the Corporation and the Subsidiaries against all risks and liabilities
normally insured against by companies similarly situated to the
Corporation and the Subsidiaries. Schedule "3.18" also contains a list
of all pending claims with respect to any insurance policy and any
instances of a denial, limitation or reservation of coverage by any
insurance company.
3.19 Litigation. Except as set forth on Schedule "3.19" attached as a part
hereof, there have been no actions, suits, proceedings or
investigations pending or threatened against or affecting the
Corporation or any Subsidiary during the last two (2) years before or
by any foreign, federal, state, municipal or other governmental court,
department, commission, board, agency or instrumentality. None of the
matters listed in Schedule "3.19" could reasonably be expected to,
alone or in the aggregate, have a material adverse effect on the
business, assets, prospects, operations, employee relations, rights,
business, prospects, results of operations or condition, financial or
otherwise, of the Corporation and the Subsidiaries, taken as a whole
(a "Material Adverse Effect"). The Corporation and the Subsidiaries:
(a) are not operating under, subject to or in default with respect to
any material order, writ, injunction or decree of any court or
foreign, federal, state, municipal or other governmental department,
commission, board, agency or instrumentality, foreign or domestic; (b)
are not charged or threatened with a violation, or under investigation
with respect to possible violation, of any material provision of any
foreign, federal, state or local law or administrative ruling or
regulation relating to any of them or their business, affairs, assets,
prospects, operations, employee relations or condition, financial or
otherwise; and (c) have not received any material complaint from any
supplier, customer, client, vendor, well participant, royalty owner,
licensor, employee or contractor.
3.20 Consents. All consents, approvals, qualifications, orders,
authorizations or filings with respect to or required in connection
with the Corporation's execution, delivery and performance of the CEC
Note, the Warrants, this Agreement and the Related Agreements have
been obtained and evidence thereof provided to the Lender.
3.21 Title to Properties; Liens and Encumbrances. The Corporation and each
Subsidiary have defensible title to all of their properties and assets
free and clear of all mortgages, liens and encumbrances, except liens
for current taxes not yet due and minor liens and encumbrances which
do not materially impair the operations of the Corporation and the
Subsidiaries. With respect to properties and assets they hold under
the Concession Agreements or leases, the Corporation and the
Subsidiaries are in compliance with such agreements and leases and
hold a valid license or leasehold interest thereunder free of all
liens, claims or encumbrances, and to the best knowledge of the
Corporation, all other parties to the Concession Agreements and leases
are in compliance with the material terms thereof. The Corporation's
and the Subsidiaries' properties and assets are in good condition and
repair in all material aspects. The Corporation and each of the
Subsidiaries have defensible title to and the right to use all assets
necessary to conduct their businesses as presently conducted or as
proposed to be conducted free and clear of any liens, claims and
encumbrances.
3.22 Compliance with Law and Other Instruments. The Corporation and the
Subsidiaries: (a) are in full compliance (and not in violation of) any
applicable articles or certificate of incorporation, bylaws, mortgage,
indenture, contract, agreement, instrument, judgment, decree, order,
statute, rule or regulation, except to the extent such failure to
comply or violation would not have a Material Adverse Effect; (b) have
or can reasonably be expected to obtain all material franchises,
permits, licenses and approvals necessary to conduct their business as
presently conducted and as proposed to be conducted; and (c) have no
knowledge of any change to any law, statute, rule or regulation which
could adversely affect the Corporation, any Subsidiary or their
business as presently conducted or as proposed to be conducted.
3.23 Registration Rights. Except pursuant to the Registration Agreement,
the RO Warrants to be issued in the Rights Offering and the other
agreements listed in Schedule "3.23" attached hereto as a part hereof,
there are no contracts, agreements or understandings between the
Corporation and any person granting such person the right to require
the Corporation to file a registration statement under the Securities
Act with respect to any securities of the Corporation or to require
the Corporation to include such securities with the Warrant Shares to
be registered pursuant to the Registration Agreement.
3.24 Federal Reserve Regulations. Neither the Corporation nor any of the
Subsidiaries nor any agent thereof acting on the behalf of any of them
has taken, and none of them will take, any action that might cause
this Agreement or the issuance or sale of the CEC Note and Warrants to
violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R.
Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12
C.F.R. Part 224) of the Board of Governors of the Federal Reserve
System.
3.25 Reserve Information. The information which was supplied by the
Corporation to Ryder Scott Company Petroleum Consultants (the "Reserve
Engineer"), being independent petroleum engineers, for purposes of
evaluating the oil and gas reserves of the Corporation and the
Subsidiaries as of December 31, 2000, including, without limitation,
production, costs of operation and development, current prices for
production, agreements relating to current and future operations and
sales of production, was true and correct in all material respects on
the dates such estimates were made and such information was supplied
and was prepared in accordance with customary industry practices, as
indicated in the letter of the Reserve Engineer dated February 21,
2001 (the "Reserve Letter"). The Reserve Engineer was, as of the date
of the Reserve Letter and is, as of the date hereof, independent with
respect to the Corporation and the Subsidiaries. Other than normal
production of the reserves and product price fluctuations and except
as set forth in Schedule "3.25" attached hereto as a part hereof, the
Corporation is not aware of any facts or circumstances that would
result in a material adverse change in the reserves, or the present
value of future net cash flows therefrom, as reflected in the Reserve
Letter and the reserve reports referenced therein. Estimates of such
reserves and present values as described in the Reserve Letter and the
reserve reports referenced therein comply in all material respects to
the applicable requirements of Regulation S-X and Industry Guide 2
under the Securities Act.
3.26 Securities Classes. When the CEC Note is issued and delivered pursuant
to this Agreement, the CEC Note will not be of the same class (within
the meaning of Rule 144A under the Securities Act) as any security of
the Corporation or the Subsidiaries that is listed on a national
securities exchange registered under Section 6 of the Exchange Act or
that is quoted in a United States automated inter-dealer quotation
system.
3.27 Solicitation. No form of general solicitation or general advertising
(as defined in Regulation D under the Securities Act) was used by the
Corporation, the Subsidiaries or any of their respective
representatives in connection with the offer and sale of the CEC Note
or the Warrants including, without limitation, articles, notices or
other communications published in any newspaper, magazine or similar
medium or broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general solicitation
or general advertising. No securities of the same class as the CEC
Note have been issued and sold by the Corporation within the six (6)
month period immediately prior to the date hereof.
3.28 Registration Requirements. Assuming the accuracy of the Lender's
representations and agreements set forth in this Agreement, no
registration under the Securities Act of the CEC Note or the Warrants
is required for the sale of the CEC Note and the Warrants to the
Lender as contemplated by this Agreement.
3.29 Certificates. Each certificate signed by any officer of the
Corporation or any Subsidiary and delivered to any of the Lender or
counsel for the Lender will be deemed to be a representation and
warranty by the Corporation and the Subsidiaries to the Lender as to
the matters covered thereby.
3.30 Full Disclosure. This Agreement, the Related Agreements and any
schedule referenced in or attached to this Agreement or any of the
Related Agreements, any document furnished to the Lender under this
Agreement and any certification furnished to the Lender under this
Agreement or any of the Related Agreements do not contain any untrue
statement of a material fact and do not omit to state a material fact
necessary to make the statements made, in the circumstances under
which they were made, not misleading. All of the representations,
warranties and covenants in this Agreement and in the Related
Agreements are true and correct as of the date made, will be true and
correct as of the Closing and will survive and not be waived,
discharged, released, modified, terminated or affected by the Closing
or any due diligence by the Lender.
3.31 Acknowledgment. The Corporation acknowledges that the Lender and, for
purposes of the opinions to be delivered to the Lender pursuant to
this Agreement, counsel to the Corporation and the Subsidiaries and
counsel to the Lender will rely upon the accuracy and truth of the
foregoing representations and the Corporation hereby consents to such
reliance.
4. Lender's Representations and Warranties. The Lender represents and warrants
to the Corporation as follows:
4.1 Authorization; Power. The Lender has all requisite legal power and
authority to execute, deliver and perform this Agreement and the
Related Agreements to which it is a party. The Lender has taken all
necessary action for the authorization, execution, delivery and
performance of this Agreement and the Related Agreements and the
consummation of the transactions contemplated thereby. This Agreement
and the Related Agreements are legal, valid and binding obligations of
the Lender, which are enforceable against the Lender in accordance
with their terms.
4.2 Investment Representations. The Lender understands that the CEC Note,
the Warrants and the Warrant Shares are not registered under the
Securities Act. The Lender also understands that the CEC Note and
Warrants are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon the
Lender's representations contained in this Agreement. The Lender
hereby represents and warrants as follows:
4.2.1 Economic Risk. The Lender has substantial experience in
evaluating and investing in private placement transactions
of securities in companies similar to the Corporation so the
Lender is capable of evaluating the merits and risks of an
investment in the Corporation. The Lender understands that:
(a) the investment contemplated by this Agreement involves a
substantial degree of risk; (b) the Lender must bear the
economic risk of this investment indefinitely unless the CEC
Note, the Warrants or the Warrant Shares are registered
pursuant to the Securities Act, or an exemption from
registration is available; and (c) the Corporation has no
present intention of registering the CEC Note, the Warrants
or the Warrant Shares. The Lender also understands that
there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if
available, such exemption may not allow the Lender to
transfer all or any portion of the CEC Note, the Warrants or
the Warrant Shares.
4.2.2 Acquisition for Own Account. The Lender is acquiring the CEC
Note, the Warrants and the Warrant Shares for the Lender's
own account for investment purposes only, and does not
intend to distribute the CEC Note, the Warrants or the
Warrant Shares.
4.2.3 Protection. The Lender represents that the Lender: (a) is an
accredited investor within the meaning of Regulation D
promulgated under the Securities Act; (b) has the capacity
to protect its own interests in connection with the
transactions contemplated in this Agreement and the Related
Agreements; and (c) is aware of no publication of any
advertisement in connection with the transactions
contemplated in this Agreement.
4.2.4 Corporation Information. The Lender has: (a) received and
read all information that the Lender has requested regarding
the Corporation's business, management and financial
affairs; (b) had the opportunity to discuss such matters
with directors, officers and management of the Corporation;
(c) had the opportunity to review the Corporation's
operations and facilities; and (d) had the opportunity to
ask questions of and receive answers from the Corporation
and its management regarding the terms and conditions of
this investment.
4.2.5 Residence. The office or offices of the Lender in which its
investment decision was made is located at the address or
addresses of the Lender set forth on the signature page
hereto. The Lender represents that no offer to purchase
securities of the Corporation was made outside such
jurisdiction.
5. Lender's Conditions. The obligation of the Lender to purchase the CEC Note
and the Warrants at the Closing is subject to the fulfillment to the Lender's
satisfaction of each of the following conditions:
5.1 Representations and Warranties Correct. The representations and
warranties made by the Corporation in paragraph 3 of this Agreement
will be true and correct when made and will be true and correct in all
material respects as of the Closing, with the same force and effect as
if made on and as of the date of Closing.
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement and the Related Agreements to be performed by the
Corporation or the Subsidiaries at or prior to the Closing will have
been performed and each of the Related Agreements will be satisfactory
to the Lender and the Lender's counsel in form and content. The
foregoing includes the execution and delivery of this Agreement, the
CEC Note, the Warrants, the Related Agreements and the documents
required thereby and any other instrument, agreement or document
reasonably requested by the Lender including, without limitation,
security documents in form and substance satisfactory to the Lender
and its counsel which may include (a) a requirement that the shares of
the Subsidiaries be registered in the name of the Lender or a nominee
or agent for the Lender and the trustee for the holders of the Series
B Notes and the Series A Notes to be issued in the Rights Offering,
and (b) the issuance of other instruments to protect the Lender's
interests.
5.3 Compliance Certificate. The Corporation will have delivered to the
Lender a certificate of the Corporation, executed by its President
dated the date of Closing truthfully certifying to the fulfillment of
the conditions specified in this paragraph 5, that there has not been
a material adverse change in the Corporation, any Subsidiary or the
assets and businesses of the foregoing since the date of the
Corporation's Annual Report on Form 10-K for the year ended December
31, 2000 such other matters as the Lender may reasonably request.
5.4 Omnibus Certificate. The Corporation will have delivered to the Lender
copies of each of the following in form and substance satisfactory to
the Lender and certified by the Secretary of the Corporation to be in
full force and effect on the date of the Closing: (a) the certificate
of incorporation (or other formation documents as applicable) of the
Corporation and each Subsidiary certified by the jurisdiction of
formation as of a date not earlier than May 21, 2001; (b) good
standing certificates with respect to the Corporation and each
Subsidiary certified by the jurisdiction of formation as of a date not
more than twenty-one (21) days prior to the Closing; (c) good standing
certificates with respect to the Corporation and each Subsidiary
certified by the jurisdictions in which the conduct of their
businesses require them to be in good standing, in each case as of a
date not more than twenty-one (21) days prior to the Closing; (d) the
bylaws (or equivalent documents) of the Corporation and each
Subsidiary; and (e) resolutions of the Board and each Subsidiary
authorizing the (i) the execution, delivery and performance of this
Agreement, the CEC Note, the Warrants and the Related Agreements, and
(ii) the transactions contemplated thereby including the issuance and
sale of the CEC Note, the Warrants and the Warrant Shares to the
Lender.
5.5 Adverse Events. As of the Closing there will not have occurred since
the date of the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2000: (a) any downgrading, suspension or withdrawal
of, nor shall any notice have been given of any potential or intended
downgrading, suspension or withdrawal of, or of any review (or of any
potential or intended review) for a possible change that does not
indicate the direction of the possible change in, any rating of the
Corporation or any securities of the Corporation (including, without
limitation, the placing of any of the foregoing ratings on credit
watch with negative or developing implications or under review with an
uncertain direction) by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; or (b) any change, nor shall any notice have
been given of any potential or intended change, in the outlook for any
rating of the Corporation or any securities of the Corporation by any
such rating organization.
5.6 Legal Opinion. The Corporation will have delivered to the Lender the
opinion of McAfee & Taft A Professional Corporation, counsel to the
Corporation, and Cayman Islands, Panamanian and Colombian counsel
dated the date of Closing, addressed to the Lender covering all of the
following matters in form and content reasonably satisfactory to the
Lender and its counsel:
5.6.1 The Corporation is duly formed, validly existing and in good
standing under the laws of the Cayman Islands and each of
the Subsidiaries is duly formed, validly existing and in
good standing under the laws of the jurisdiction of its
formation. The Corporation and each of the Subsidiaries have
all requisite corporate, partnership or limited liability
company power and authority to own or lease and operate
their respective properties and to conduct their respective
businesses.
5.6.2 The Corporation has the authorized capitalization set forth
in this Agreement. All of the outstanding shares of capital
stock of the Corporation and each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and
non-assessable and were not issued in violation of or
subject to any preemptive rights. To the knowledge of such
counsel, there are no: (a) outstanding securities of the
Corporation or any of the Subsidiaries convertible into or
evidencing the right to purchase or subscribe for any shares
of capital stock of the Corporation or any of the
Subsidiaries; (b) outstanding or authorized options,
warrants, subscriptions, rights, commitments or any other
agreements of any character obligating the Corporation to
issue any shares of its capital stock or any securities
convertible into or evidencing the right to purchase or
subscribe for any shares of such stock; or (c) agreements
with respect to the voting, sale or transfer of any shares
of capital stock of the Corporation to which the Corporation
is a party, except as disclosed in this Agreement, the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000, or the Corporation's Quarterly Report on
Form 10-Q for the quarter ending March 31, 2001.
5.6.3 The CEC Note has been duly and validly authorized, and when
executed, issued and delivered, will constitute a valid and
binding obligation of the Corporation, enforceable against
the Corporation in accordance with its terms, except insofar
as such enforcement may be subject to (a) applicable
bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws now or hereafter
in effect relating to creditors' rights and remedies
generally and (b) general principles of equity (whether
enforcement is sought in a proceeding at law or in equity).
5.6.4 This Agreement, the Warrants and the Related Agreements have
been duly and validly authorized, executed and delivered by
the Corporation and this Agreement has been duly and validly
authorized, executed and delivered by the Subsidiaries. This
Agreement is a valid and binding agreement of the
Corporation and the Subsidiaries enforceable against each of
them in accordance with the terms hereof, and each of the
Warrants and the Related Agreements is a valid and binding
agreement of the Corporation enforceable against the
Corporation in accordance with the terms thereof, except
insofar as (a) such enforcement may be subject to (i)
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws now or hereafter
in effect relating to creditors' rights and remedies
generally and (ii) general principles of equity (whether
enforcement is sought in a proceeding at law or in equity)
and (b) rights to indemnification and contribution contained
therein may be limited by federal or state securities laws
or public policy relating thereto.
5.6.5 The execution, delivery and performance by the Corporation
of this Agreement, the CEC Note, the Warrants and the
Related Agreements and the execution, delivery and
performance by the Subsidiaries of this Agreement and the
consummation of the transactions contemplated hereby and
thereby, including the issuance, sale and delivery of the
CEC Note and the Warrants will not: (a) to the knowledge of
such counsel, conflict with or result in a breach of any of
the terms and provisions of, or constitute a default (or an
event which with notice or lapse of time, or both, would
constitute a default) or require consent under, or result in
the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Corporation
or any of the Subsidiaries pursuant to the terms of any
agreement, instrument, franchise, license or permit to which
the Corporation or any of the Subsidiaries is a party or by
which any of their respective properties or assets may be
bound and that is listed on the Corporation's Annual Report
on Form 10-K for the year ended December 31, 2000 (other
than those as to which the requisite waivers or consents
have been obtained); or (b) violate or conflict with any
provision of the certificate of incorporation or other
formation documents, as applicable, or the by-laws or
equivalent documents or other organizational documents of
the Corporation or any of the Subsidiaries or, to the
knowledge of such counsel, any judgment, decree, order,
statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having
jurisdiction over the Corporation, any of the Subsidiaries
or any of their respective properties or assets. No consent,
approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any
public, governmental or regulatory agency or body having
jurisdiction over the Corporation or any of the Subsidiaries
or any of their respective properties or assets is required
for the execution, delivery and performance of this
Agreement, the CEC Note, the Warrants or the Related
Agreements, and the consummation of the transactions
contemplated hereby and thereby, except for (i) such
consents, approvals, authorizations, orders, registrations,
filings, qualifications, licenses and permits as may be
required under the state securities or Blue Sky laws in
connection with the Rights Offering and the purchase of the
CEC Note by the Lender and the performance of the
Corporation's obligations under the Registration Agreement
and (ii) such other consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses and
permits as have been obtained and delivered to the Lender.
5.6.6 The Corporation is not an "investment company" or a company
"controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
5.6.7 Assuming (a) the accuracy of the representations and
warranties of the Corporation and the Subsidiaries contained
in paragraphs 3.26 and 3.29 and (b) the accuracy of the
Lender's representations and warranties contained in
paragraph 4, the issuance and sale of the CEC Note and the
Warrants to the Lender in the manner contemplated by this
Agreement should be held to be exempt from the registration
requirements of the Securities Act.
5.6.8 The Subsidiaries have full corporate power and authority to
execute and deliver this Agreement and the Related
Agreements to which any of the Subsidiaries is a party. This
Agreement and the Related Agreements to which any of the
Subsidiaries is a party have been duly authorized, executed,
issued and delivered by the Subsidiaries and constitute
valid and legally binding obligations of the Subsidiaries,
enforceable against the Subsidiaries in accordance with
their respective terms, except insofar as such enforcement
may be subject to (a) applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and
similar laws now or hereafter in effect relating to
creditors' rights generally and (b) general principles of
equity (whether enforcement is sought in a proceeding at law
or in equity).
5.6.9 The CEC Note, when issued, will not be of the same class
(within the meaning of Rule 144A under the Securities Act)
as any other securities of the Corporation that are listed
on a national securities exchange registered under Section 6
of the Exchange Act, or quoted in a U.S. automated
interdealer quotation system of a registered national
securities association.
5.6.10 Neither the Corporation nor any of the Subsidiaries is in
violation of their respective charter or by-laws.
5.6.11 To such counsel's knowledge, except pursuant to the
Registration Agreement and in connection with the Rights
Offering, there are no contracts, agreements or
understandings between the Corporation or any of the
Subsidiaries and any person granting such person the right
to require the Corporation of any Subsidiary to file a
registration statement under the Securities Act with respect
to any securities of the Corporation or to require the
Corporation or any Subsidiary to include such securities
with the Warrant Shares to be registered pursuant to the
Registration Agreement.
5.6.12 To such counsel's knowledge, neither the Corporation nor any
of the Subsidiaries is in default in the performance of any
obligation, agreement, covenant or condition contained in
any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Corporation
or the Subsidiaries and which was included or incorporated
by reference in the Corporation's Annual Report on Form 10-K
for the year ended December 31, 2000, taken as a whole, to
which the Corporation or any of the Subsidiaries is a party
or by which the Corporation or any of the Subsidiaries or
their respective property or assets is bound.
5.6.13 The Pledge Agreement and the collateral documents executed
in connection with the Pledge Agreement create and properly
perfect in favor of the Lender for the benefit of the
Lender, the trustee under the New Indenture and the holders
of the Series A Notes and the Series B Notes a first
priority lien and security interest in and to all of the
capital stock and equity of each of the Subsidiaries and all
dividends, distributions, rights and claims with respect
thereto, all accounts receivable, promissory notes and other
instruments owing by any Subsidiary to the Corporation or
any other Subsidiary and all proceeds and products therefrom
and such liens and security interests have been properly and
adequately perfected in all jurisdictions where such
perfection is reasonably necessary in accordance with the
applicable laws of each such jurisdiction. The exercise of
remedies under the Pledge Agreement after an event of
Default including, without limitation, a change in control
of the Subsidiaries, will not cause or create a breach or
default under any of the Concession Agreements or give rise
to any termination right by Ecopetrol thereunder or the
right by Ecopetrol to exercise any other remedies under any
of the Concession Agreements.
5.6.14 The submission by the Corporation and the Subsidiaries to
the jurisdiction of the state and federal courts sitting in
the State of Oklahoma and the other provisions of paragraph
13 of this Agreement are valid, binding and enforceable in
accordance with the terms thereof.
5.6.15 Except as disclosed in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 2000, such counsel
does not know of any legal or governmental proceedings
pending or threatened to which the Corporation or any of the
Subsidiaries is or could be a party or to which any of their
respective property is or could be subject, which might
result, singly or in the aggregate, in a Material Adverse
Effect.
5.6.16 Neither the Corporation nor any of the Subsidiaries has
violated any Environmental Law or any provisions of ERISA or
the rules and regulations promulgated thereunder or the
environmental or employment laws of any foreign
jurisdiction, except for such violations which, singly or in
the aggregate, would not have a Material Adverse Effect.
5.6.17 Each of the Corporation and the Subsidiaries has such
permits, licenses, consents, exemptions, franchises,
authorizations and other approvals (each an "Authorization")
of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals including,
without limitation, under any applicable Environmental Laws,
as are necessary to own, lease, license and operate their
respective properties and to conduct their respective
businesses, except where the failure to have any such
Authorization or to make any such filing or notice would
not, singly or in the aggregate, have a Material Adverse
Effect. Each such Authorization is valid and in full force
and effect and each of the Corporation and the Subsidiaries
is in compliance with all the terms and conditions thereof
and with the rules and regulations of the authorities and
governing bodies having jurisdiction with respect thereto;
and no event has occurred (including the receipt of any
notice from any authority or governing body) which allows
or, after notice or lapse of time or both, would allow,
revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time
or both, would result in any other impairment of the rights
of the holder of any such Authorization; and such
Authorizations contain no restrictions that are burdensome
to the Corporation or any of the Subsidiaries.
5.7 Comfort Letter. The Lender shall have received, at the time this
Agreement is executed and at the Closing, letters dated the date
hereof and the Closing Date, in form and substance reasonably
satisfactory to the Lender from Arthur Andersen LLP, independent
public accountants, containing the information and statements of the
type ordinarily included in accountants' "comfort letters" to the
Lender with respect to the financial statements of the Corporation.
5.8 Legal Investment. As of the Closing, the purchase of the CEC Note and
Warrants by the Lender hereunder will be legally permitted by all laws
and regulations to which the Lender and the Corporation are subject.
5.9 Qualifications. As of the Closing, all authorizations, approval,
consents, permits and waivers which are necessary or appropriate for
purposes of this Agreement, the CEC Note, the Warrants and the Related
Agreements, as determined in the sole discretion of counsel to the
Lender, will have been obtained.
5.10 Due Diligence. The Lender and its advisers, including legal counsel,
will have completed a due diligence review of the Corporation, each
Subsidiary and their businesses including, without limitation, the
Concession Agreements, with results satisfactory to the Lender in the
Lender's sole discretion. There will not have occurred a material
adverse change in the Corporation, any Subsidiary or in the business,
assets or prospects of the foregoing since December 31, 2000.
5.11 Expenses. At the Closing, the Corporation will have paid or reimbursed
the Lender for the Lender's reasonable expenses and out-of-pocket
costs incurred in connection with the negotiation of this Agreement
and the Related Agreements, documentation of the transactions
contemplated hereunder and thereunder and closing costs.
5.12 Purchase of Series B Notes. All of the Series B Notes will have been
purchased and paid for in immediately available funds in the principal
amount of not less than Twenty-Two Million Five Hundred Thousand
Dollars ($22,500,000.00) on terms substantially similar to the terms
of the CEC Note.
5.13 Proceedings and Documents. As of the Closing, all corporate and other
proceedings in connection with the transactions contemplated hereby
and by the Related Agreements, and all documents and instruments
incident to such transactions, will be in form and substance
reasonably satisfactory to the Lender.
5.14 Collateral Perfection and Put Option. The Lender and the Lender's
counsel will be satisfied: (a) as to the validity and enforceability
of the liens, security interests and other encumbrances covering all
of the assets of the Corporation including, without limitation, all of
the capital stock of each of the Subsidiaries, all funds to be held in
escrow pursuant to the terms of this Agreement, all accounts, general
intangibles and other tangible and intangible property and assets of
the Corporation; and (b) as to the form, content and enforceability of
the Lender's right within fifteen (15) days after the completion of
the Rights Offering to put to Robert A. Hefner III ("Hefner") up to an
amount of the principal balance of the CEC Note and a pro-rata share
of the Warrants sufficient to cause Hefner's aggregate investment in
the CEC Notes and the Series A Notes to be at least Ten Million
Dollars ($10,000,000.00) in substantially the form at Exhibit "G"
attached as a part hereof.
5.15 Amendments of Articles. The articles of incorporation and other
formation and governance documents for each of the Subsidiaries will
have been amended in form and substance reasonably satisfactory to the
Lender and its counsel.
6. Corporation's Conditions. The Corporation's obligation to issue and sell the
CEC Note and the Warrants is subject to the satisfaction, on or prior to the
Closing, as applicable, of the following conditions:
6.1 Representations and Warranties True. The representations and
warranties made by the Lender in paragraph 4 of this Agreement will be
true and correct in all material respects when made and will be true
and correct in all material respects as of the Closing, with the same
force and effect as if made on and as of said date.
6.2 Performance of Obligations. The Lender will have performed and
complied with all agreements and conditions herein required to be
performed or complied with by the Lender on or before the Closing.
6.3 Payment. The Lender will have paid the purchase price for the CEC Note
and the Warrants and all of the purchasers of the Series B Notes will
have paid the full purchase price for the Series B Notes in
immediately available funds.
6.4 Consents, Permits and Waivers. The Corporation will have obtained any
and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement and
the Related Agreements.
6.5 Fairness Opinion. The Corporation will have received an opinion of
CIBC World Markets Corp. that the transactions contemplated by this
Agreement, the sale of the Series B Notes and the Rights Offering are
fair from a financial point of view to the Corporation.
6.6 Certain Collateral Agreements. The Deed of Mortgage Over Shares (or
Charge Over Shares to the extent agreed to by the parties), the
Registration Agreement, the Pledge Agreement and the Collateral
Sharing Agreement will be in form and content reasonably satisfactory
to the Corporation and its counsel.
7. Affirmative Covenants. The Corporation and the Subsidiaries hereby severally
covenant and agree with the Lender to perform or cause to be performed each of
the following obligations set forth in this paragraph 7 during the period (the
"Covenant Period") commencing on the Closing and continuing as long as the CEC
Note is outstanding:
7.1 Financial Statements and Information. The Corporation will deliver to
the Lender the following:
7.1.1 SEC Filings. As promptly as practicable after the filing
thereof with the SEC, the Corporation will deliver copies of
all annual, quarterly and interim reports and all other
filings made by the Corporation or any of the Subsidiaries
with the SEC together with all exhibits and attachments
thereto.
7.1.2 Compliance Certificate. Within ten (10) days after the end
of each fiscal quarter commencing with the quarter ending
September 30, 2001, a certificate executed by the Chief
Executive Officer and the Chief Financial Officer of the
Corporation stating that: (a) the Corporation and the
Subsidiaries are in compliance in all respects with this
Agreement, the Related Agreements, the Memorandum of
Association or Articles of Association or other formation or
governing documents for the Corporation and the
Subsidiaries; (b) except as fully disclosed in such
certificate, there has not occurred a Default (as
hereinafter defined) by the Corporation or any Subsidiary
under this Agreement or the Related Agreements; (c) the
Corporation and the Subsidiaries are in compliance with all
material agreements including, without limitation, the
Concession Agreements and any instruments evidencing any
indebtedness of the Corporation or any Subsidiary; and (d)
there has not occurred a material adverse change in the
Corporation, any Subsidiary or their businesses.
7.1.3 Budget. Not less than sixty (60) days prior to the
commencement of each fiscal year an annual business plan
(the "Budget"), updates thereto not less frequently than
quarterly on the last day of each fiscal quarter and any
material revisions thereto within ten (10) days after such
revisions become effective. The Budget will include a
written narrative together with financial projections,
balance sheets, statements of operations and changes in
financial position for the Corporation and the Subsidiaries,
all prepared on a detailed monthly basis in form reasonably
acceptable to Lender.
7.1.4 Auditors Reports. Promptly upon receipt thereof, copies of
all other reports, if any, submitted to the Corporation by
independent public accountants in connection with any annual
or interim audit or review of the books of the Corporation
and its Subsidiaries including, without implied limitation,
any management letters, internal control evaluations and
alerts.
7.1.5 Third Party Information. Within ten (10) days after
issuance, a copy of each financial statement, report, notice
or communication (the "TP Information") that the Corporation
or any Subsidiary delivers to or receives from: (a) the
Board, any committee of the Board, any lender or trustee;
(b) any securities exchange, the National Association of
Securities Dealers, any credit rating agency or any other
industry association; or (c) any governmental official,
authority or agency, but only if the TP Information relates
to a matter or matters that might reasonably be expected to
have a Material Adverse Effect.
7.1.6 Litigation. Promptly upon the Corporation's learning
thereof, notice of any litigation, suit or administrative
proceeding that could reasonably be expected to have a
Material Adverse Effect on the Corporation or any Subsidiary
or their business, affairs, assets, prospects, operations,
employee relations or condition (financial or otherwise)
whether or not the claim is covered by insurance.
7.1.7 Material Adverse Developments. Promptly upon the occurrence
thereof (but in no event later than five (5) days after
discovery thereof) notice of: (a) any default or breach of,
or default under this Agreement, the Related Agreements or
any other material agreement or arrangement to which the
Corporation or any of its Subsidiaries is a party or by
which any of them is bound including, without limitation,
the Concession Agreements, the Indenture covering the
Borrower's $110,000,000 12.5% Senior Notes due 2005 (the
"Existing Indenture") and the Indenture covering the Series
A Notes due 2004 (the "New Indenture"); (b) any event which
has or could reasonably be expected to have, a Material
Adverse Effect on the business, affairs, assets, prospects,
operations, employee relations or condition, (financial or
otherwise) of the Corporation or any Subsidiary including,
but not limited to, the institution or threat of any
material litigation or investigation with respect to the
Corporation or any Subsidiary or any material disputes with
co-interest owners or customers; (c) any event which has or
could reasonably be expected to result in any material
adverse change in any law, regulation, rule or policy of the
Colombian government with respect to oil and/or gas
operations in Colombia or the currency or tax regime with
respect thereto; and (d) any event which has or could
reasonably be expected to create any lien, claim or
encumbrance on any of the assets of the Corporation or any
of the Subsidiaries or creates any obligation on the part of
the Corporation or any of the Subsidiaries to grant any lien
or encumbrance or to guarantee any indebtedness other than
indebtedness under clause 8.13(e) of this Agreement or liens
granted pursuant to this Agreement.
7.1.8 Other Information. With reasonable promptness, such other
data and information as from time to time may be reasonably
requested by the Lender the disclosure of which will not
violate any law, rule, regulation or agreement of the
Corporation.
7.2 Accounting. The Corporation will maintain and will cause each
Subsidiary to maintain a system of accounting, book records and system
of internal control to be established and administered in accordance
with GAAP consistently applied. The Corporation and the Subsidiaries
will cause complete entries to be made in such books and records and
establish appropriate procedures and policies so that the books and
records will accurately reflect all transactions entered into by the
Corporation and the Subsidiaries, proper reserves and accurately
reflect the financial position of the Corporations and the
Subsidiaries.
7.3 Insurance. The Corporation agrees to maintain or cause to be
maintained with financially sound and reputable insurers rated A or
above by A.M. Best, insurance with respect to its assets and business
and the assets and business of its Subsidiaries against loss or damage
of the kinds customarily insured against by similarly situated
entities of established reputation engaged in the same or similar
businesses, in adequate amounts. At the request of the Lender, the
Corporation will furnish the Lender with evidence of the same.
7.4 Payment of Taxes. The Corporation and each of the Subsidiaries agrees
to promptly pay or cause to be paid all taxes, assessments and other
governmental charges levied or assessed on the Corporation or such
Subsidiary, franchises, businesses, income or profits, other than
those taxes being contested in good faith, by appropriate actions
promptly initiated and diligently conducted if: (a) the appropriate
provision is made therefor; and (b) such contest does not and will not
have a Material Adverse Effect on the financial condition or
operations of the Corporation or any Subsidiary.
7.5 Compliance With Laws. The Corporation agrees to use reasonable efforts
to comply and cause each Subsidiary to comply with all laws, rules,
regulations, judgments, orders and decrees of any governmental or
regulatory authority applicable to the Corporation, any Subsidiary or
their respective assets and businesses, the violation of which could
have a Material Adverse Effect.
7.6 Corporate Existence; Property and Operations. The Corporation and each
Subsidiary agrees to preserve, protect and maintain: (a) its corporate
existence;(b) the Concession Agreements; and (c) all rights,
franchises, accreditations, privileges, and properties the failure of
which to preserve, protect, and maintain would have a Material Adverse
Effect. The Corporation and each Subsidiary will comply with all their
respective material agreements, obligations and contracts, including,
but not limited to, all leases, any agreements relating to
indebtedness, the Existing Indenture, the New Indenture, this
Agreement and the Related Agreements.
7.7 Inspection and Other Rights. Subject to the confidentiality provisions
of paragraph 16.11, the Lender will have the right to examine the
books, records, other documents and data of the Corporation and the
Subsidiaries during normal business hours after reasonable notice.
Without limitation of the foregoing, the Lender will have the right to
discuss and consult during normal business hours with the officers,
directors and accountants of the Corporation and the Subsidiaries
regarding the operations and financial affairs of the Corporation and
any Subsidiary.
7.8 Use of Proceeds. The Corporation will use the proceeds from the sale
of the CEC Note hereunder and the sale of the Series B Notes for: (a)
payment of all fees and expenses incurred by the Lender in connection
with the transactions contemplated by this Agreement and the Related
Agreements; (b) funding the Corporation's and the Subsidiaries' share
of the costs and expenses of building the Guaduas La Dorada pipeline
and production facilities (the "Pipeline"); (c) funding the
Corporation's and the Subsidiaries' costs and expenses in preparing,
drilling, testing and completing well to test the Corporation's
sub-thrust prospect under the "Deep Dindal Contract" (the "Sub-Thrust
Test Well"); (d) funding the payoff of the Corporation's indebtedness
to Stillwater National Bank in the principal amount of up to
$10,000,000.00; and (e) working capital and other general corporate
purposes. The amounts necessary to fund the Corporation's obligations
under subpart (c) hereof, estimated to be Fifteen Million Dollars
($15,000,000.00) will be: (i) funded prior to the other amounts to be
funded pursuant to this paragraph; (ii) placed in escrow with an
escrow agent reasonably satisfactory to the Lender (the "Escrow
Agent") and on terms and conditions satisfactory to the Lender and the
Corporation; and (iii) pledged to the Lender to secure the CEC Note,
the Series A Notes and the Series B Notes. If the Sub-Thrust Test Well
is not spudded prior to February 28, 2002, all funds remaining in
escrow will be used to make a prepayment on the CEC Note and the
Series A Notes or the Series B Notes on a pro rata basis. Funds
remaining in escrow after the drilling and testing of the Sub-Thrust
Test Well will be distributed to the Corporation to be used as working
capital.
7.9 Escrow of Interest Payment. So long as the CEC Note is outstanding,
the Corporation will, commencing on the Closing Date and continuing on
or before the tenth (10th) day of each succeeding month thereafter
through July, 2003, escrow with the Escrow Agent an amount equal to
one-sixth (1/6th) of the next semi-annual interest payment due on the
senior notes issued under the Existing Indenture. The arrangement with
the Escrow Agent will provide for: (a) a pledge of the escrow account
to the Lender as collateral agent for itself and the trustee under the
New Indenture; (b) notice to the Lender in the event any required
deposit is not made when due; and (c) so long as no event of Default
has occurred or is continuing, the release escrow funds on each
November 15 and May 15 to the trustee under the Existing Indenture for
payments of interest due thereunder.
7.10 Charter Amendments. On written request of the Lender, the Corporation
and each of the Subsidiaries agree to amend their respective corporate
governance documents in such manner as the Lender reasonably
determines in order to effectuate the covenants set forth in this
Agreement and in the Related Agreements.
7.11 Exemption Maintenance. The Corporation and each of the Subsidiaries
will continuously maintain their respective status as of the Closing
Date under the Colombian currency and tax regime applicable to oil and
gas companies operating in Colombia.
7.12 Pipeline Operation. The Corporation and the Subsidiaries will
continuously operate and maintain the Pipeline in good repair and in
accordance with all applicable laws, regulations, rules and policies
of the Colombian government, the Concession Agreements and any other
contracts relating thereto.
7.13 Dormant Subsidiaries. All of the Subsidiaries except for Seven Seas
Petroleum Colombia Inc., Petrolinson SA, GHK Company Colombia and
Seven Seas Petroleum USA Inc., will be continuously maintained in an
inactive status and the Corporation will not conduct, and will not
permit to be conducted, any business or operations in any such
Subsidiaries.
7.14 Production Proceeds. The Corporation and each of the Subsidiaries will
cause all amounts due from the sale, production or processing of oil,
gas or other petroleum products (including any amounts under the
Concession Agreements) to be deposited: (a) directly into one or more
deposit accounts of the Corporation that are at all times subject to a
first priority perfected lien under the Pledge Agreement or similar
arrangement, all in form and substance satisfactory to the Lender; or
(b) to the extent that such amounts are required to remain in the
Subsidiaries to fund reasonably anticipated working capital needs of
the Subsidiaries or remain under Columbia's jurisdiction, directly
into a deposit account that permits withdrawals by the Subsidiaries
prior to a Default but prohibits withdrawals post Default without the
prior written consent of the Lender (all in form and substance
satisfactory to the Lender). It is anticipated that the amounts
deposited under the foregoing clause (a) will be accounted for by the
Corporation as dividends from the Subsidiaries to the Corporation and
will include all proceeds in United States Dollars from the sale,
production or processing of oil, gas or other petroleum products. In
any event the failure of the Corporation or Subsidiaries to make such
deposits of all amounts attributable to the sale, production or
processing of oil, gas or other petroleum products as provided in this
paragraph for any reason will constitute a Default.
8. Corporation's Negative Covenants. The Corporation and each of the
Subsidiaries hereby severally covenants and agrees with the Lender that during
the Covenant Period, unless the Lender otherwise consents in writing, neither
the Corporation nor any Subsidiary will directly or indirectly:
8.1 Dividends. Declare or pay, or permit any Subsidiary which is not a
wholly owned Subsidiary to declare or pay to anyone other than the
Corporation or a wholly owned Subsidiary of the Corporation, any
dividends or distributions on any of the equity securities of the
Corporation or any Subsidiary.
8.2 Redemptions. Redeem, purchase or otherwise acquire, or permit any
Subsidiary to directly or indirectly redeem, purchase or otherwise
acquire, any of the Corporation's or any Subsidiary's equity
securities except as contemplated by this Agreement, the Related
Agreements and the Rights Offering.
8.3 Mergers. Merge or consolidate with any person or permit any Subsidiary
to merge or consolidate with any person (other than, in the case of a
wholly-owned Subsidiary, with or into the Corporation or any other
wholly-owned Subsidiary) or undertake any share exchange of any of the
capital stock of the Corporation or any Subsidiary.
8.4 Sale of Assets. Except for the sale of oil, gas or other hydrocarbons
in the ordinary course of business and the sale of obsolete equipment,
sell, lease or otherwise dispose of, or permit any Subsidiary to sell,
lease or otherwise dispose of, any assets in one or a series of
related transactions that represent five percent (5%) or more of the
greater of the Corporation's consolidated assets or income. In
addition, neither the Corporation or any Subsidiary will sell, grant
or enter into any production payment or similar arrangement whether
volumetric or dollar denominated.
8.5 Liquidations. Liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction, except by merger or
consolidation not prohibited under paragraph 8.3 of this Agreement.
8.6 Charter Amendments. Except as provided in paragraph 7.10, make any
amendment to the Corporation's or any Subsidiary's corporate
governance documents including, but not limited to, an amendment
increasing or decreasing the number of directors constituting the
Board or changing its corporate domicile.
8.7 Affiliate Transactions. Directly or indirectly enter into or permit
any Subsidiary to enter into or permit to exist any transaction or
series of related transactions (including the purchase, sale, lease,
exchange, transfer or disposition of property or assets, the rendering
of any service, or any contract, agreement, understanding, loan,
advance or guarantee) with, or for the benefit of, any Affiliate of
the Corporation or any Subsidiary, except: (a) normal employment
arrangements and benefit programs on reasonable terms; (b) affiliate
transactions entered into in accordance with Section 4.16 of the
Existing Indenture; or (c) as otherwise permitted by this Agreement
and the Related Agreements.
8.8 Investments. Make or permit to exist, or permit any Subsidiary to make
or permit to exist, any Investment other than Investments permitted
under subparts (ii), (viii), (ix) and (xi) of the definition of
Permitted Investments in the Existing Indenture and Investments in the
oil and gas business in the Magdelana Valley area of Colombia.
8.9 Capital Expenditures. Make, or permit any Subsidiary to make, any
capital expenditures exceeding, in the aggregate, on a consolidated
basis, the amounts set forth in the Budget as revised from time to
time and approved by the Board.
8.10 Loans. Make, or permit any Subsidiary to make, any loans or advances
to, or guarantees for the benefit of, any person or entity, other than
travel advances and similar loans to employees not to exceed
$500,000.00 at any one time in the aggregate and except for loans and
advances between and among the Corporation and the Subsidiaries
evidenced by promissory notes pledged to the Lender pursuant to the
Pledge Agreement.
8.11 Other Business. Enter into (directly or indirectly through a new
subsidiary), or permit any Subsidiary to enter into, the ownership,
management or operation of any business other than the businesses
conducted by the Corporation and the Subsidiaries as of the date of
Closing or contemplated by the written business plan provided to the
Lender prior to Closing.
8.12 Subsidiaries. Establish or acquire any new subsidiaries including,
without limitation, any interest in any corporation, limited liability
company, partnership, trust, association or other entity. The
Subsidiaries will not issue any capital stock, equity interests or any
instrument convertible, exercisable or exchangeable into the foregoing
except as shown on Schedule "3.7" of this Agreement.
8.13 Indebtedness. Create, incur, assume or suffer to exist, or permit the
Corporation and its Subsidiaries, taken as a whole, to create, incur,
assume or suffer to exist, indebtedness in an aggregate amount
exceeding One Million Dollars ($1,000,000.00) at any time outstanding,
other than: (a) indebtedness to the holders of the Corporation's 12
1/2% Senior Notes due 2005; (b) the CEC Note; (c) the Series A Notes;
(d) the Series B Notes; and (e) unsecured trade debt in the ordinary
course of business not more than sixty (60) days past due or
indebtedness in respect of taxes, assessments, levies or other
governmental charges which are not past due.
8.14 Related Agreements. Amend, modify or waive any provision of any of the
Related Agreements or fail to perform the provisions of any of the
Related Agreements in any material respect.
8.15 Restrictive Agreements. Enter into, become a party to or become
subject to, or permit any of its Subsidiaries to enter into, become a
party to or become subject to, any agreement or instrument, which by
its terms would (under any circumstance): (a) restrict the
Corporation's or any Subsidiary's right to perform any of its
obligations pursuant to the terms of this Agreement, the Related
Agreements, the Existing Indenture or the New Indenture; (b) grant,
provide or issue registration rights for any security which are equal
to or more favorable than those granted under the Registration
Agreement (except any such rights granted in connection with the
Rights Offering); or (c) give rise to any default, termination right
or the loss of any benefit upon the exercise of any remedy by the
Lender (except for the Existing Indenture and the New Indenture).
8.16 Liens. Grant, create, assume or permit to continue in existence, or
permit any Subsidiary to grant, create, assume or permit to continue
in existence, any lien, security interest or encumbrance on any asset
of the Corporation or any Subsidiary other than liens for taxes not
yet due and payable, involuntary liens for obligations not yet due or
contested in good faith and similar encumbrances.
8.17 Transactions. Enter into, assume or perform, or permit any Subsidiary
to enter into, assume or perform, any material agreement, lease, sale,
exchange, contract or transaction which: (a) violates this Agreement,
the Related Agreements, the Existing Indenture or the New Indenture;
or (b) is not in the Corporation's ordinary course of business based
on historical practices.
8.18 Participating Preferred Stock. Neither the Corporation nor any of the
Subsidiaries will issue any capital stock (other than Common Stock of
the Corporation) or shares of any class preferred as to dividends or
as to the distribution of assets on voluntary or involuntary
liquidation, dissolution or winding up.
8.19 Debt Prepayment. Neither the Corporation nor any of the Subsidiaries
will prepay, redeem, defease, exchange or purchase or materially alter
the payment terms of any of: (a) the securities issued under the
Existing Indenture; (b) the Series A Notes; or (c) the Series B Notes
(except pursuant to the Rights Offering).
8.20 No Excess Working Capital to Subsidiaries. The Corporation will not
fund or provide its Subsidiaries with funds in excess of their
reasonably anticipated working capital needs.
9. Related Agreements. The Corporation hereby grants to the Lender all of the
rights, benefits and privileges set forth in each of the Related Agreements.
10. Payment or Exchange of Series B Notes. The Corporation and the Lender
acknowledge and agree that to the extent the Series A Notes and RO Warrants are
purchased under the Rights Offering the proceeds raised by the Corporation
therefrom will be used to pay the Series B Notes on a pro rata basis unless
another allocation of such proceeds among the holders of the Series B Notes is
otherwise agreed to in writing by the all of the holders of the Series B Notes.
After consummation of the issuance of the Series A Notes and RO Warrants under
the Rights Offering, any remaining unissued Series A Notes and RO Warrants will
be issued by the Corporation to the Series B Notes purchasers in exchange for
the Series B Notes plus an amount equal to accrued unpaid interest on the Series
A Notes to be exchanged. Such exchange will take place within twenty (20) days
after closing of the Rights Offering.
11. Default. The Corporation will be in default under this Agreement if any of
the following events occur (a "Default"):
11.1 Nonpayment of CEC Note. A default in payment when due of any interest
on or principal of the CEC Note or a default in payment when due of
any other amount payable to the Lender under the terms of this
Agreement or the Related Agreements; or
11.2 Breach of Agreement. Default in the performance or observance of any
covenant contained in this Agreement, the CEC Note, the Related
Agreements or any other agreement between the Corporation and the
Lender entered into in connection with this Agreement, the CEC Note or
the Related Agreements including, without implied limitation, the
failure of the Corporation to pay or satisfy any redemption, payment,
purchase or other obligation with respect to the CEC Note, the
Warrants or the Warrant Shares even if such failure results from any
restriction or prohibition on the ability of the Corporation to
satisfy such obligations; or
11.3 Representations and Warranties. Any representation, statement,
certificate, schedule or report made or furnished to the Lender by or
on behalf of the Corporation or any Subsidiary proves to be false or
erroneous in any material respect or any warranty ceases to be
complied with in any material respect; or
11.4 Material Agreements. The Corporation or any Subsidiary defaults under
or fails to duly observe, perform or comply with any term or condition
of the Existing Indenture, the New Indenture, the Concession
Agreements or any other contract, instrument or agreement with any
person if such contract, instrument or agreement is material to the
Corporation or any Subsidiary or such default or failure can
reasonably be expected to materially and adversely effect the
Corporation, any Subsidiary or their respective businesses or assets;
or
11.5 Indebtedness. The default by the Corporation or any Subsidiary in the
payment of any interest, principal or other amount on any indebtedness
for borrowed money owing to any person which is not cured in the time
permitted by the documents governing such indebtedness or the maturity
or acceleration of any such indebtedness; or
11.6 Insolvency. The Corporation or any Subsidiary admits the inability to
pay its debts as such debts mature; or
11.7 Bankruptcy. The institution of bankruptcy, reorganization,
readjustment of any debt, liquidation or receivership proceedings by
or against the Corporation or any Subsidiary under the Bankruptcy
Code, as amended, any part thereof, or under any other laws, whether
state, federal or foreign, for the relief of debtors, now or hereafter
existing (which in the case of an involuntary filing, is not removed
or dismissed in sixty [60] days); or
11.8 Receivership. The appointment of a receiver or trustee for the
Corporation, any Subsidiary or any substantial part of their assets or
businesses or the discontinuance of business by the Corporation or any
Subsidiary; or
11.9 Judgment. Entry by any court of a final judgment against the
Corporation or any Subsidiary in an amount greater than Two Hundred
Fifty Thousand Dollars ($250,000.00) or an attachment of any of the
assets of the Corporation or any Subsidiary by any means, including,
without limitation, levy, distraint, replevin, or self-help, which is
not discharged or stayed within thirty (30) days thereof; or
11.10 Concession Contracts. The expiration, termination or material breach
of any of the Concession Agreements of the Corporation or the
Subsidiaries which would have a Material Adverse Effect or the
seizure, nationalization or forfeiture of any assets of the
Corporation or the Subsidiaries; or
11.11 Indentures. The occurrence of an event of default under the Existing
Indenture or the New Indenture which is not cured or waived in strict
compliance with the terms thereof; or
11.12 Change of Control. The occurrence of any of the following events: (a)
any person other than the Corporation or one of the Subsidiaries
acquires or holds any legal or beneficial ownership of any Subsidiary
whether now or hereafter existing; (b) any Person or two or more
Persons acting as a group acquires beneficial ownership (within the
meaning of Rule 13d-3 of the SEC under the Securities Exchange Act of
1934, as amended, without consideration of the sixty (60) day period,
and including holding proxies to vote for the election of directors
other than proxies held by the Corporation's management or their
designees to be voted in favor of persons nominated by the
Corporation's Board) of fifty percent (50%) or more of the outstanding
voting securities of the Corporation, measured by voting power
(including both common stock and any preferred stock or other equity
securities entitling the holders thereof to vote with the holders of
common stock in elections for directors of the Corporation); (c)
one-third or more of the directors of the Corporation consists of
persons not nominated by the Corporation's Board (not including as
Board nominees any directors which the Board is obligated to nominate
pursuant to shareholders agreements, voting trust arrangements or
similar arrangements); or (d) the merger or consolidation of the
Corporation with or into another person or entity or the merger or
consolidation of another person or entity into the Corporation, or the
sale of all or substantially all of the assets of the Corporation or
any Subsidiary to another person or entity (other than a person or
entity that is wholly controlled by the Corporation or one or more of
the Subsidiaries), and, in the case of any such merger or
consolidation, the securities of the Corporation that are outstanding
immediately prior to such transaction and which represent one hundred
percent (100%) of the aggregate voting power of the voting stock of
the Corporation are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are
changed into or exchanged for, in addition to any other consideration,
securities of the surviving corporation that represent immediately
after such transaction, at least a majority of the aggregate voting
power of the voting securities of the surviving corporation.
11.13 Opportunity to Cure. In the event the Corporation cures or causes to
be cured such Default within twenty (20) days after receipt of written
notice thereof, the parties will be restored to their respective
rights and obligations under this Agreement as if no Default had
occurred, except that no right to cure or notice of Default will be
given as to events of Default in paragraphs 11.1, 11.5, 11.6, 11.7,
11.8, 11.9, 11.10, 11.11 or 11.12. The Borrower's opportunity to cure
will be applicable as herein set forth notwithstanding any contrary
provisions contained in any of the Related Agreements.
12. Remedies. On the occurrence of a Default the Lender may elect to do any of
the following:
12.1 Exercise Remedy. The Lender may exercise any remedy at law or in
equity or any remedy provided by this Agreement or the Related
Agreements.
12.2 Selective Enforcement. In the event the Lender elects to selectively
and successively enforce the Lender's rights under any one or more of
this Agreement or the Related Agreements, such action will not be
deemed a waiver or discharge of any other right or remedy until such
time as all of the Corporation's obligations thereunder have been
satisfied.
12.3 Waiver of Default. By an instrument or instruments in writing, signed
by the Lender, waive any Default which occurs and any of the
consequences of such Default, and, in such event, the Lender, the
Corporation and the Subsidiaries will be restored to their respective
former positions, rights and obligations hereunder. Any default so
waived will, for all purposes of this Agreement, be deemed to have
been cured and not to be continuing, but no such waiver will extend to
any subsequent or other Default or impair any consequence of such
subsequent or other Default.
13. Agent Appointment; Jurisdiction. The Corporation and each of the
Subsidiaries hereby appoints CT Corporation, located in Oklahoma City, Oklahoma,
or such other person as may be designated by the Corporation and approved by the
Lender, in writing, as the Corporation's and the Subsidiaries' agent (the
"Agent") for the purpose of accepting notices and service of process until the
payment in full of the CEC Note and so long as the Lender owns any of the
Warrants or the Warrant Shares. Neither the Corporation nor any of the
Subsidiaries will remove or terminate the Agent unless prior thereto: (a) the
Lender has consented to such removal or termination in writing; and (b) a
substitute Agent acceptable to the Lender has been appointed by the Corporation
and each of the Subsidiaries. Any notice or service of process delivered to the
Agent will be deemed to be served on the Corporation and the Subsidiaries for
purposes of this Agreement and the Related Agreements. EACH OF THE CORPORATION
AND THE SUBSIDIARIES HEREBY IRREVOCABLY SUBMITS ITSELF TO THE JURISDICTION OF
THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF OKLAHOMA AND AGREES AND
CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON THE CORPORATION AND THE
SUBSIDIARIES BY SERVICE ON THE AGENT IN ANY LEGAL PROCEEDING RELATING TO THIS
AGREEMENT OR THE RELATED AGREEMENTS BY ANY MEANS ALLOWED UNDER OKLAHOMA OR
FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT OR ANY OF THE RELATED AGREEMENTS WILL BE BROUGHT AND LITIGATED
EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF
OKLAHOMA, TO THE EXTENT IT HAS SUBJECT MATTER JURISDICTION, AND OTHERWISE IN THE
OKLAHOMA DISTRICT COURT SITTING IN OKLAHOMA COUNTY, OKLAHOMA. THE PARTIES HERETO
HEREBY WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR
OTHERWISE, THAT ANY SUCH PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT
THE VENUE THEREOF IS IMPROPER, AND FURTHER AGREE TO A TRANSFER OF ANY SUCH
PROCEEDING TO A FEDERAL COURT SITTING IN THE OKLAHOMA CITY, OKLAHOMA TO THE
EXTENT THAT IT HAS SUBJECT MATTER JURISDICTION, AND OTHERWISE TO A STATE COURT
IN OKLAHOMA COUNTY, OKLAHOMA. IN FURTHERANCE THEREOF, THE CORPORATION, THE
SUBSIDIARIES AND THE LENDER EACH HEREBY ACKNOWLEDGE AND AGREE THAT IT WAS NOT
INCONVENIENT FOR THEM TO NEGOTIATE AND RECEIVE FUNDING OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT IN SUCH COUNTY AND THAT IT WILL BE NEITHER
INCONVENIENT NOR UNFAIR TO LITIGATE OR OTHERWISE RESOLVE ANY DISPUTES OR CLAIMS
IN A COURT SITTING IN SUCH COUNTY.
14. Indemnification. The Corporation agrees to indemnify, pay and hold the
Lender and its Affiliates and any subsequent holder of the CEC Note, and each
such person's officers, directors, employees and agents and each person, if any,
who controls the Lender within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act (collectively called the "Indemnified
Parties"), harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses
and disbursements of any kind or nature whatsoever including, but not limited
to, the fees and disbursements of counsel for such Indemnified Parties, in
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnified Parties will be designated a party thereto,
which may be imposed on, incurred by, or asserted against such Indemnified
Party, in any manner relating to or arising out of the transactions contemplated
by this Agreement, the Related Agreements or the ownership of any of the CEC
Note, Warrants or Warrant Shares or caused by any untrue statement or alleged
untrue statement of a material fact contained in the Rights Offering (or any
amendment or supplement thereto), any preliminary offering memorandum or any
Rule 144A Information provided by the Corporation or any Subsidiary to any
holder or prospective purchaser of the Series A Notes or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading (a "Claim"),
except that the Corporation will have no obligation hereunder to an Indemnified
Party with respect to any such liabilities arising directly out of the gross
negligence or willful misconduct of such Indemnified Party or with respect to
any Claim caused by any untrue statement or omission or alleged untrue statement
or omission based upon information relating to such Indemnified Party furnished
in writing to the Corporation by such Indemnified Party as determined by a
final, non-appealable judgment of a court of competent jurisdiction. If any
indemnity provided for in the preceding sentence is not available solely because
it is found to be contrary to public policy or otherwise unlawful, then the
Corporation and the Indemnified Parties will contribute to the amount payable in
such proportion as is appropriate to reflect the relative faults and benefits
and any other relevant equitable considerations provided, however, that no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
14.1 Procedure. If any Claim or alleged Claim is brought against any
Indemnified Party in respect of which such Indemnified Party may be
indemnified under this paragraph 14.1 by the Corporation, such
Indemnified Party will promptly notify the Corporation in writing. The
Corporation at its option may assume the defense of any action in
respect of which it has acknowledged its obligation to indemnify such
Indemnified Party under this paragraph 14.1. If the Corporation
assumes the defense of any action, the Indemnified Party will not be
liable for any settlement thereof without its consent (but such
consent will not be unreasonably withheld). If the Corporation assumes
the defense of any such action, such Indemnified Party will have the
right to employ separate counsel in such action and to participate in
the defense thereof, but the fees and expenses of such counsel will be
paid by such Indemnified Party unless in the reasonable opinion of
such Indemnified Party there may be a conflict between the positions
of the Corporation and of such Indemnified Party in conducting the
defense of such action or that there may be legal defenses available
to such Indemnified Party different from or in addition to those which
counsel to the Corporation would be able to raise, in which event the
fees and expenses of such counsel will be paid by the Corporation.
14.2 Environmental and Governmental. Without limiting the generality of the
indemnity set out in this paragraph 14, the Corporation will defend,
protect, indemnify and hold harmless the Lender and all other
Indemnified Parties from and against any and all actions, causes of
action, suits, losses, liabilities, damages, injuries, penalties,
fees, costs, expenses and claims of any and every kind whatsoever
paid, incurred or suffered by, or asserted against, the Lender or any
other Indemnified Parties pursuant to environmental laws with respect
to the past, present or future operations or facilities of the
Corporation, any Subsidiary or any predecessors, successors, or
Affiliates thereof. The Corporation also agrees to pay all
governmental assessments, charges or taxes (except income taxes),
including any interest or penalties thereon, at any time payable or
ruled to be payable in respect of the existence, execution, delivery
or performance of this Agreement and the Related Agreements or the
issuance or existence of the CEC Note, the Warrants or the Warrant
Shares, by reason of an existing or hereafter enacted federal, state
or local statute, and to indemnify and hold the Lender, and each and
every holder of the CEC Note, the Warrants or the Warrant Shares,
harmless against liability in connection with any such assessments,
charges or taxes.
14.3 Other Remedies. The remedies provided for in this paragraph 14 are not
exclusive and will not limit any rights or remedies which may
otherwise be available to any Indemnified Party at law or in equity.
15. Effectiveness of Agreement and Termination. This Agreement shall become
effective upon the execution and delivery of this Agreement by the parties
hereto. This Agreement may be terminated at any time on or prior to the Closing
Date by the Lender by written notice to the Corporation if any of the following
has occurred: (a) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change which in the Lender's judgment, is
material and adverse and, in the Lender's judgment, makes it impracticable to
market the Series A Notes on the terms and in the manner contemplated in the
Rights Offering, (b) the suspension or material limitation of trading in
securities or other instruments on the New York Stock Exchange, the American
Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Chicago Board of Trade or the Nasdaq Market or limitation on
prices for securities or other instruments on any such exchange or the Nasdaq
National Market unless such suspension or limitation is removed prior to the
Closing Date, (c) the suspension of trading of any securities of the Corporation
on any exchange or in the over-the-counter market unless such suspension is
removed prior to the Closing Date, (d) the enactment, publication, decree or
other promulgation of any foreign, federal or state statute, regulation, rule or
order of any court or other governmental authority which in the Lender's
reasonable opinion materially and adversely affects, or will materially and
adversely affect, the business, prospects, financial condition or results of
operations of the Corporation and its Subsidiaries, taken as a whole, or (e) the
declaration of a banking moratorium by foreign, federal or state authorities.
16. Miscellaneous. The parties further agree as follows:
16.1 Fees and Expenses. The Corporation agrees to pay on demand the
following amounts: (a) all of the Corporation's costs and expenses of
compliance with all agreements and conditions contained in this
Agreement and in the Related Agreements; (b) attorney fees, expenses
and disbursements of counsel to the Lender in connection with the
preparation, negotiation and execution of this Agreement and the
Related Agreements; (c) all other out-of-pocket expenses incurred by
the Lender in connection with their due diligence investigation of the
Corporation and the performance of this Agreement and the Related
Agreements by the Lender; and (d) all costs and expenses (including
attorney's fees and costs) incurred by the Lender or any holders of
the CEC Note, the Warrants or the Warrant Shares arising out of or in
connection with the administration, enforcement or preservation of any
rights under this Agreement or the Related Agreements including,
without limitation, the collection or enforcement of this Agreement,
the CEC Note, and the Related Agreements by judicial proceedings,
proceedings under Chapter 7 or 11 of the Bankruptcy Code or any
successor statute thereto, or otherwise.
16.2 Consent to Amendments; Waivers. The provisions of this Agreement may
be amended or waived at any time only by the written agreement of the
Corporation, the Subsidiaries and the Lender. Any waiver, permit,
consent or approval of any kind or character on the part of the Lender
of any provisions or conditions of this Agreement must be made in
writing and will be effective only to the extent specifically set
forth in such writing. No course of dealing between the Corporation
and the Lender and no delay in exercising any right, remedy, or power
conferred hereby, by the Related Agreements, or now or hereafter
existing at law or under equity, by statute or otherwise, will operate
as a waiver of or otherwise prejudice any such right, power or remedy.
16.3 Representations and Warranties. All representations, warranties and
covenants contained herein or made in writing by any party in
connection herewith will survive the execution and delivery of this
Agreement and any investigation made at any time, or knowledge
obtained or capable of being obtained at any time, by or on behalf of
the Lender or any other holder of the CEC Note.
16.4 Successors and Assigns. Except as otherwise expressly provided herein,
all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto,
whether so expressed or not. In addition, and whether or not any
express assignment has been made, the provisions of this Agreement
which are for the benefit of the Lender are also for the benefit of,
and enforceable by, any subsequent holder of the CEC Note.
16.5 Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of this Agreement.
16.6 Construction; Currency. The descriptive headings of this Agreement are
inserted for convenience of reference only and do not constitute a
part of and will not be utilized in interpreting this Agreement.
Except as expressly provided herein, all currency amounts are in
United States Dollars and any and all payments are to be made in
United States Dollars.
16.7 Notices. Any notice, demand or communication required or permitted to
be given by any provision of this Agreement will be in writing and
will be deemed to have been given and received when delivered
personally or by telefacsimile to the party designated to receive such
notice, or on the date following the day sent by overnight courier, or
on the third (3rd) business day after the same is sent by certified
mail, postage and charges prepaid, directed to the addresses of the
parties set forth on the signature pages hereto or to such other or
additional addresses as any party might designate by written notice to
the other parties.
16.8 Governing Law. All questions concerning the construction, validity and
interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, will be governed by the laws of
the State of Oklahoma applicable to contracts made and wholly to be
performed in that state.
16.9 Exhibits and Schedules. All exhibits and schedules hereto are an
integral part of this Agreement.
16.10 Exchange of Certificates. Upon surrender by any holder to the
Corporation of any Warrants or certificates evidencing any Warrant
Shares, the Corporation, at its expense, will issue in exchange
therefor, and deliver to such holder, a new certificate or
certificates representing such shares of stock of the Corporation, in
such denomination or denominations as may be requested by such holder.
Upon receipt of evidence satisfactory to the Corporation of the loss,
theft, destruction or mutilation of any certificate representing any
Warrants or Warrant Shares, and in case of any such mutilation, upon
surrender and cancellation of such certificate, the Corporation at its
expense will issue and deliver to any such holder a new certificate
evidencing such warrants or shares of stock of the Corporation of like
tenor, in lieu of such lost, stolen, destroyed or mutilated
certificate.
16.11 Confidentiality. The Lender recognizes that the Corporation may
provide the Lender access to information which is of a confidential
and proprietary nature. Except as may be required in the opinion of
counsel to the Lender in connection with any litigation discovery, the
SEC or any other governmental agency or under other applicable law,
the Lender agrees not to disclose to any person, other than the
Lender's officers, employees, financial institutions or consultants or
legal counsel who are subject to a general obligation of
confidentiality, nor use for any purpose, other than in connection
with this Agreement and the Related Agreements, any information, data
or material (regardless of form) which is clearly marked confidential
and delivered to the Lender by the Corporation pursuant to the
provisions of this Agreement (the "Confidential Information"). The
term "Confidential Information" will not include any information
which: (a) at the time of disclosure to the Lender is already in the
Lender's possession on a non-confidential basis or thereafter is
generally available to the public; (b) was available to the Lender on
a non-confidential basis from a source other than the Corporation; or
(c) has been independently acquired or developed by the Lender without
violating the Lender's obligations under this paragraph 16.11.
16.12 Public Announcements. Prior to Closing and at all times during the
term of this Agreement, the Corporation and the Subsidiaries will
consult with the Lender before issuing any press release or otherwise
making any public statements with respect to the transactions
contemplated by this Agreement and will not issue any press release or
make any such public statement relating to this Agreement prior to
obtaining the written approval of the Lender; provided, however, that
such approval will not be required where such release or announcement
is required by applicable law rule or regulation; and provided
further, that the Corporation may respond to inquiries by the press or
others regarding the transactions contemplated by this Agreement, so
long as such responses are consistent with previously issued press
releases.
16.13 Final Agreement. This Agreement, together with the Related Agreements
constitutes the complete and final agreement of the parties concerning
the matters referred to herein, and supersedes all prior agreements
and understandings.
16.14 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered
will be deemed an original, and such counterparts together will
constitute one instrument. The parties hereto have executed this
Agreement on the date first set forth above.
16.15 ACKNOWLEDGMENTS AND ADMISSIONS. EACH OF THE CORPORATION AND THE
SUBSIDIARIES HEREBY REPRESENTS, WARRANTS, ACKNOWLEDGES AND ADMITS THAT
(A) EACH OF THE CORPORATION AND THE SUBSIDIARIES HAS MADE AN
INDEPENDENT DECISION TO ENTER INTO THIS AGREEMENT, WITHOUT RELIANCE ON
ANY REPRESENTATION, WARRANTY, COVENANT OR UNDERTAKING BY THE LENDER,
WHETHER WRITTEN, ORAL OR IMPLICIT, OTHER THAN AS EXPRESSLY SET OUT IN
THIS AGREEMENT OR IN ANOTHER DOCUMENT EXECUTED BY THE LENDER AND
DELIVERED AFTER THE DATE HEREOF, (B) THERE ARE NO REPRESENTATIONS,
WARRANTIES, COVENANTS, UNDERTAKINGS OR AGREEMENTS BY THE LENDER AS TO
THE PURCHASE OF THE CEC NOTE EXCEPT AS EXPRESSLY SET OUT IN THIS
AGREEMENT, (C) THE LENDER HAS NO FIDUCIARY OBLIGATION TOWARD THE
CORPORATION OR THE SUBSIDIARIES WITH RESPECT TO THIS AGREEMENT, THE
RELATED AGREEMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY,
AND (D) THE LENDER HAS RELIED UPON THE TRUTHFULNESS OF THE
ACKNOWLEDGMENTS IN THIS PARAGRAPH 16.14 IN DECIDING TO EXECUTE AND
DELIVER THIS AGREEMENT AND TO BECOME OBLIGATED HEREUNDER.
16.16 JOINT ACKNOWLEDGMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
16.17 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH OF THE LENDER, THE
CORPORATION AND THE SUBSIDIARIES HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY AND IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY A JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT
ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH, (B)
WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY
HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES,"
AS DEFINED BELOW, (C) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED HEREBY BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS PARAGRAPH. AS USED
IN THIS PARAGRAPH, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL,
CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES (REGARDLESS OF HOW
NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY
HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY
HERETO.
IN WITNESS WHEREOF, the Corporation, the Subsidiaries and the Lender have
executed this Agreement as of the date first above written.
SEVEN SEAS PETROLEUM INC., a Cayman
Islands exempted company limited by shares
By LARRY A. RAY
Larry A. Ray, President
(the "Corporation")
SEVEN SEAS PETROLEUM HOLDINGS INC., a
Cayman Islands exempted company limited by
shares
By LARRY A. RAY
Larry A. Ray, President
SEVEN SEAS PETROLEUM TURKEY INC., a
British Columbia corporation
By LARRY A. RAY
Larry A. Ray, President
SEVEN SEAS RESOURCES AUSTRALIA INC., a
British Columbia corporation
By LARRY A. RAY
Larry A. Ray, President
SEVEN SEAS PETROLEUM USA INC., a Delaware
corporation
By LARRY A. RAY
Larry A. Ray, President
SEVEN SEAS PETROLEUM AUSTRALIA INC., a
Cayman Islands exempted company limited by
shares
By LARRY A. RAY
Larry A. Ray, President
SEVEN SEAS PETROLEUM PNG INC., a Cayman
Islands exempted company limited by shares
By LARRY A. RAY
Larry A. Ray, President
SEVEN SEAS PETROLEUM ARGENTINA INC., a
Cayman Islands exempted company limited by
shares
By LARRY A. RAY
Larry A. Ray, President
SEVEN SEAS PETROLEUM MEDITERRANEAN
INC., a Cayman Islands exempted company limited
by shares
By LARRY A. RAY
Larry A. Ray, President
SEVEN SEAS PETROLEUM TURKEY, INC., a
Cayman Islands exempted company limited by
shares
By LARRY A. RAY
Larry A. Ray, President
SEVEN SEAS PETROLEUM COLOMBIA INC., a
Cayman Islands exempted company limited by
shares
By LARRY A. RAY
Larry A. Ray, President
PETROLINSON S.A.., a Panamanian corporation
By LARRY A. RAY
Larry A. Ray, President
GHK COMPANY COLOMBIA, an Oklahoma
corporation
By LARRY A. RAY
Larry A. Ray, President
GUADUAS PIPELINE COMPANY, a Cayman
Islands exempted company limited by shares
By LARRY A. RAY
Larry A. Ray, President
(the "Subsidiaries")
Notice Addresses:
Seven Seas Petroleum, Inc.
Attention: Larry A. Ray, President
5555 San Felipe, Suite 1700
Houston, Texas 77056
Telefacsimile: (713) 621-9770
and
McAfee & Taft
Attention: Gary Fuller
211 North Robinson
10th Floor
Oklahoma City, Oklahoma 73102
Telefacsimile: (405) 235-4439
CHESAPEAKE ENERGY CORPORATION,
an Oklahoma corporation
By AUBREY K. MCCLENDON
Aubrey K. McClendon, Chief Executive Officer
(the "Lender")
Notice Addresses:
Chesapeake Energy Corporation
Attention: Marcus C. Rowland
6100 North Western
Oklahoma City, Oklahoma 73118
Telefacsimile: (405) 879-9580
and
Commercial Law Group, P.C.
Attention: Ray Lees
2725 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102
Telefacsimile: (405) 232-5553
Exhibit "B"
THE WARRANTS AND THE ORDINARY SHARES TO BE ISSUED PURSUANT TO THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER ANY FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF ABSENT REGISTRATION UNDER
THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAWS UNLESS AND
UNTIL THE HOLDER HEREOF PROVIDES (i) INFORMATION REASONABLY NECESSARY TO CONFIRM
THAT SUCH REGISTRATION IS NOT REQUIRED OR (ii) AN OPINION OF COUNSEL TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT NO. 1
July 23, 2001 For the Purchase of 12,612,140 Ordinary Shares
of Seven Seas Petroleum, Inc.
FOR VALUE RECEIVED, SEVEN SEAS PETROLEUM, INC., a Cayman Islands exempted
company limited by shares (the "Corporation"), hereby grants to CHESAPEAKE
ENERGY CORPORATION, an Oklahoma corporation, or its registered assigns
(collectively the "Holder"), the right (the "Warrants") to purchase at any time
before the Expiration Date (as hereafter defined) twelve million six hundred
twelve thousand one hundred forth (12,612,140) duly authorized, validly issued,
fully paid and non-assessable shares (the "Warrant Shares") of the Corporation's
ordinary shares, $.0001 par value (the "Ordinary Shares"), at the Exercise Price
(as hereafter defined) and on the terms and conditions herein set forth. The
number of Warrant Shares and the Exercise Price will be subject to adjustment as
provided in this Warrant. This Warrant is issued subject to the following terms
and conditions:
1. Exercise of Warrant. The Warrants are exercisable at the option of the Holder
in whole or in part at any time prior to the Expiration Date by the delivery to
the Corporation of written notice of the exercise of the Warrants specifying the
number of Warrant Shares to be acquired, surrender of this Warrant to the
Corporation and satisfaction of the Exercise Price for the Warrant Shares to be
acquired through such exercise. The Warrants will be deemed exercised
immediately prior to the close of business on the day that all of the foregoing
requirements for the exercise of the Warrants are completed and the person
entitled to receive the Warrant Shares will be treated for all purposes as the
holder of record of such Warrant Shares at such time including, without implied
limitation, the right to vote, receive dividends and to receive distributions
for which the record date falls on or after such date. As promptly as possible
after such date (in any event within five (5) business days) the Corporation
will deliver to the Holder a stock certificate evidencing the Warrant Shares
covered by the exercise. In the case of an exercise for less than all the
Warrant Shares the Corporation will cancel this Warrant on the surrender hereof
and will execute and deliver a new Warrant of like tenor for the balance of the
unexercised Warrant Shares within such five (5) day period. If an exercise of
all or part of the Warrants is to be made in connection with a registered public
offering or a transaction described in paragraph 10 of this Warrant, the
exercise of the Warrants may, at the election of the Holder, be conditioned on
the consummation of the public offering or other transaction under paragraph 10
of this Warrant. In that case the exercise will not be deemed to be effective
until the consummation of the specified condition.
2. Term. The Warrants may be exercised in full or in part at any time after
September 30, 2001 and on or before 11:59 p.m. Oklahoma City, Oklahoma, time on,
June 30, 2008 (the "Expiration Date"). To the extent not exercised prior to the
Expiration Date, the Warrants and all of the rights of the Holder hereunder will
expire and terminate on such date without any action or notice by the
Corporation.
3. Exercise Price. On the exercise of the Warrants, the Holder agrees to pay to
the Corporation for the Warrant Shares purchased by the Holder pursuant to the
terms of this Warrant an amount (the "Exercise Price") multiplied by the number
of Warrant Shares at the time of determination. The initial Exercise Price per
Warrant Share is equal to the Aggregate Consideration (as hereafter defined)
divided by twelve million six hundred twelve thousand one hundred forty
(12,612,140), but is subject to adjustment pursuant to the terms of this
Warrant. In no event will the aggregate Exercise Price for all of the Warrant
Shares to be acquired under this Warrant, whether as a result of a change in the
par value of the Ordinary Shares or a change in the number of Warrant Shares,
exceed an amount (the "Aggregate Consideration") equal to Twenty-Two Million
Five Hundred Thousand Dollars United States Dollars ($22,500,000.00). The
Exercise Price may be paid as follows, at the election of the Holder: (a) in
lawful money of the United States of America; (b) by the Holder crediting
against unpaid interest and principal due and owing under the Note (as hereafter
defined) an amount equal to the Exercise Price; (c) by the Holder surrendering
or assigning to the Corporation the Warrants under this Warrant with an
aggregate Equity Value (as hereafter defined) equal to the Exercise Price; or
(d) by the Holder surrendering or assigning to the Corporation Ordinary Shares
having a Current Market Price (as hereafter defined) equal to the Exercise
Price. For purposes of this Warrant the term: (y) "Equity Value" means the
difference between the Current Market Price for one Ordinary Share and the
Exercise Price for one Warrant Share; and (z) "Note" means that certain
promissory note of even date herewith executed by the Corporation in favor of
the Holder in the original principal amount of Twenty-Two Million Five Hundred
Thousand United States Dollars ($22,500,000.00).
4. Representations, Warranties and Covenants. The Corporation represents to and
warrants, covenants and agrees with the Holder as follows:
4.1 Reservation of Shares. At all times while the Warrants are outstanding
the Corporation will reserve out of the Corporation's authorized but
unissued Ordinary Shares, free from preemptive rights and solely for
the purpose of effecting the exercise of the Warrants, a sufficient
number of Ordinary Shares to provide for the exercise of the Warrants
and all other options, warrants and convertible securities of the
Corporation. The Corporation will take all such actions necessary to
assure that all such Warrant Shares may be issued without violation of
any applicable law, governmental regulation or requirements of any
domestic securities exchange or automated quotation system on which
the Ordinary Shares are listed or quoted (except for official notice
of issuance, which will be immediately delivered by the Corporation
upon each such issuance). The Corporation will take all necessary
actions to assure that all of the Warrant Shares are authorized,
approved for and listed on any national securities exchange or
quotation system on which the Corporation's Ordinary Shares are listed
or quoted. The Corporation will not take any action which would cause
the number of authorized but unissued Ordinary Shares to be less than
the number of Ordinary Shares required to be reserved for issuance on
exercise of the Warrants.
4.2 Valid Issuance. All Warrant Shares that may be issued on exercise of
the Warrants will be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens, charges and encumbrances
on issuance by the Corporation. The Corporation will not take any
action or fail to take any action which will cause a contrary result
(including, without limitation, any action that would cause the
Exercise Price then in effect to be less than the par value, if any,
of the Ordinary Shares).
4.3 Cooperation. The Corporation will: (a) not close its books against the
transfer of the Warrants or of any Warrant Shares in any manner which
interferes with the timely exercise of the Warrants; (b) assist and
cooperate with the Holder should the Holder be required to make any
governmental filings or obtain any governmental approvals prior to or
in connection with any exercise of the Warrants (including, without
limitation, making any filings required to be made by the
Corporation).
4.4 Authority. The Corporation has taken all necessary action to authorize
the execution and delivery of this Warrant and the issuance of the
Warrant Shares on the exercise of the Warrants. This Warrant is a
valid, binding and enforceable obligation of the Corporation subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
moratorium and similar laws now or hereafter in effect relating to
creditors' rights and remedies generally. The execution, delivery and
performance of this Warrant will not violate: (a) any provision of the
organizational documents or charter of the Corporation; (b) any order,
writ, injunction or decree of any court, administrative agency or
governmental body applicable to the Corporation or the Ordinary
Shares; or (c) any contract, lease, note, bond, mortgage or other
agreement to which the Corporation is a party, by which the
Corporation is bound or to which any of the Corporation's assets are
subject.
4.5 Capitalization. As of the date of this Warrant: the Corporation's
authorized capital stock consists of one hundred fifty million
(150,000,000) Ordinary Shares and fifty million (50,000,000) shares of
which may be designated by the board of directors of the Corporation,
none of which preferred shares have been designated or issued. As of
the date of this Warrant the only shares of capital stock issued and
outstanding, reserved for issuance or committed to be issued are: (a)
thirty-seven million eight hundred thirty-six thousand four hundred
twenty (37,836,420) fully paid and non- assessable Ordinary Shares
duly issued and outstanding; (b) twelve million six hundred twelve
thousand one hundred forty (12,612,140) Ordinary Shares reserved for
issuance as a result of the proposed issuance of warrants (the "Series
A Warrants") in connection with the sale by the Corporation of
Twenty-two million Five Hundred Thousand Dollars ($22,500,000.00) of
12% Senior Secured Series A Notes due 2004; (c) twelve million six
hundred twelve thousand one hundred forty (12,612,140) Ordinary Shares
reserved for issuance on exercise of the Warrants; and (d) the
remaining unissued Ordinary Shares out of the fifty-one million three
hundred fifty-six thousand eight hundred eighty-eight (51,356,888)
Ordinary Shares originally reserved for issuance under the
Corporation's 1995, 1996 and 1997 stock option plans. The Warrant
Shares reserved for issuance represent now less than twenty percent
(20%) of the Corporation's fully diluted Ordinary Shares which as of
the date of the issuance of this Warrant includes all of the issued
and outstanding Ordinary Shares, any Ordinary Shares issuable under
this Warrant, the maximum number of Ordinary Shares issuable in
connection with the Series A Warrants and any other Options or
Convertible Securities (as hereafter defined) excluding only Ordinary
Shares issuable as a result Options issued under the Corporation's
1995, 1996 and 1997 compensatory stock option plans.
4.6 Office. The Corporation will maintain an office for the purposes
specified in this Warrant (the "Warrant Office"). The Warrant Office
will initially be the Corporation's offices at Suite 1700, 5555 San
Felipe Houston, Texas, 77056 and may subsequently be any other office
of the Corporation or any transfer agent for the Ordinary Shares in
the continental United States as to which written notice has
previously been given to the Holder. The Corporation will maintain at
the Warrant Office a register for the Warrants in which the
Corporation will record the name and address of the person in whose
name this Warrant has been issued. The Holder will be able to take any
action permitted in this Warrant including, without implied
limitation, the exercise or transfer of the Warrants.
4.7 Participating Preferred Stock. At all times that any of the Warrants
are outstanding, the Corporation will not issue any capital stock or
shares of any class preferred as to dividends or as to the
distribution of assets on voluntary or involuntary liquidation,
dissolution or winding up: (a) without the prior written consent of
the holders of sixty percent (60%) of the outstanding Warrants; or (b)
unless such securities are limited to a fixed sum or percentage of par
value in respect of participation in dividends and distributions.
5. Restrictive Legend. The Warrants are being acquired and any Warrant Shares to
be acquired by the Holder pursuant to this Warrant (collectively, "Securities")
will be acquired for investment for the Holder's own account and not with a view
to, or for resale in connection with, any distribution of such Securities within
the meaning of the Securities Act of 1933, as amended (the "Securities Act").
The Securities will not be sold, transferred or otherwise disposed of without
registration under the Securities Act and state securities laws or qualification
for exemptions therefrom. The Holder agrees that each certificate evidencing the
Warrant Shares may be inscribed with a legend to the foregoing effect, which
legend will be as follows:
THE ORDINARY SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
SOLELY FOR INVESTMENT PURPOSES AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL SUCH
SHARES ARE FIRST REGISTERED UNDER THE SECURITIES ACT OF 1933, ALL APPLICABLE
STATE SECURITIES LAWS AND ALL RULES AND REGULATIONS PROMULGATED THEREUNDER OR
UNLESS AND UNTIL THE HOLDER HEREOF PROVIDES (i) INFORMATION REASONABLY NECESSARY
TO CONFIRM THAT SUCH REGISTRATION IS NOT REQUIRED OR (ii) AN OPINION OF COUNSEL
TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
The Holder agrees that the Corporation may place a stop transfer order with the
Corporation's transfer agent, if any, with respect to any noncomplying transfer
of the certificates representing any Warrant Shares, which stop transfer order
will be removed by the Corporation on compliance with the foregoing.
6. Registration Rights Agreement. The Holder and any other holder of Warrant
Shares will have the registration rights provided for in that certain
Registration Rights Agreement dated of even date herewith (the "Registration
Rights Agreement"), between the Corporation and the Holder. The Corporation will
maintain copies of the Registration Rights Agreement available for inspection by
the Holder during normal business hours at its office.
7. Anti-Dilution Adjustments. In order to prevent dilution of the rights granted
with respect to the Warrants, the Exercise Price and the number of Warrant
Shares obtainable on the exercise of a Warrant are subject to adjustment from
time to time as follows:
7.1 Issuance of Ordinary Shares. If and whenever on or after the date of
this Warrant the Corporation issues or sells, or in accordance with
paragraph 7.2 of this Warrant is deemed to have issued or sold, any
Ordinary Shares for a consideration per share less than the Exercise
Price in effect immediately prior to such time, then immediately on
such issuance or sale the Exercise Price will be reduced to the new
Exercise Price determined by dividing:
7.1.1 the sum of (a) the product derived by multiplying the Exercise
Price in effect immediately prior to such issue or sale times the
number of Ordinary Shares Deemed Outstanding (as hereafter
defined) immediately prior to such issue or sale, plus (b) the
consideration, if any, received by the Corporation on such
issuance or sale, divided by
7.1.2 the number of Ordinary Shares Deemed Outstanding immediately
after such issuance or sale.
On each such adjustment of the Exercise Price hereunder, the number of
Warrant Shares acquirable on exercise of a Warrant will be adjusted to the
number of shares obtained by dividing the Aggregate Consideration by the
Exercise Price resulting from the foregoing adjustment.
7.2 Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under paragraph 7.1 of this
Warrant, the following will be applicable:
7.2.1 Issuance of Rights or Options. If the Corporation in any manner
grants, issues or sells any Options (as hereafter defined) and
the price per share for which Ordinary Shares are issuable on the
exercise of such Options (or on the conversion or exchange of any
Convertible Securities (as hereafter defined) issuable on the
exercise of such Options) is less than the Exercise Price in
effect immediately prior to the time of the grant, issuance or
sale of such Options, then the total maximum number of shares of
Ordinary Shares issuable on the exercise of such Options (or on
the conversion or exchange of the total maximum amount of such
Convertible Securities issuable on the exercise of such Options)
will be deemed to be outstanding and to have been issued and sold
by the Corporation at the time of the granting or sale of such
Options for such price per share. For purposes of this paragraph,
the "price per share for which Ordinary Shares are issuable on
exercise of such Options or on the conversion or exchange of any
Convertible Securities" is determined by dividing (a) the total
amount, if any, received or receivable by the Corporation as
consideration for the granting or sale of such Options, plus the
minimum aggregate amount of additional consideration payable to
the Corporation on the exercise of all such Options, plus in the
case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any,
payable to the Corporation on the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by
(b) the total maximum number of shares of Ordinary Shares
issuable on exercise of such Options or on the conversion or
exchange of all such Convertible Securities issuable on the
exercise of such Options. No further adjustment of the Exercise
Price will be made on the actual issuance of such Ordinary Shares
or of such Convertible Securities on the exercise of such Options
or on the actual issuance of Ordinary Shares as a result of the
conversion or exchange of such Convertible Securities.
7.2.2 Issuance of Convertible Securities. If the Corporation in any
manner issues or sells any Convertible Securities and the price
per share for which Ordinary Shares are issuable on conversion or
exchange thereof is less than the Exercise Price in effect
immediately prior to the time of such issue or sale, then the
maximum number of shares of Ordinary Shares issuable on
conversion or exchange of such Convertible Securities will be
deemed to be outstanding and to have been issued and sold by the
Corporation at the time of the issue or sale of such Convertible
Securities for such price per share. For the purposes of this
paragraph, the "price per share for which Ordinary Shares are
issuable on conversion or exchange thereof" is determined by
dividing (a) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation on
the conversion or exchange thereof, by (b) the total maximum
number of shares of Ordinary Shares issuable on the conversion or
exchange of all such Convertible Securities. No further
adjustment of the Exercise Price will be made on the actual issue
of such Ordinary Shares on conversion or exchange of such
Convertible Securities, and if any such issue or sale of such
Convertible Securities is made on exercise of any Options for
which adjustments of the Exercise Price had been or are to be
made pursuant to other provisions of this paragraph 7.2, no
further adjustment of the Exercise Price will be made by reason
of such issue or sale.
7.2.3 Change in Option Price or Conversion Rate. If the purchase price
provided for in any Options, the additional consideration, if
any, payable on the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Ordinary
Shares changes at any time, the Exercise Price in effect at the
time of such change will be adjusted immediately to the Exercise
Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for
such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially
granted, issued or sold and the number of shares of Ordinary
Shares issuable hereunder will be correspondingly adjusted. For
purposes of this paragraph 7.2, if the terms of any Option or
Convertible Security which was outstanding as of the date of this
Warrant are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and
the Ordinary Shares deemed issuable on exercise, conversion or
exchange thereof will be deemed to have been issued as of the
date of such change. Notwithstanding the foregoing no such change
will at any time cause the Exercise Price hereunder to be
increased.
7.2.4 Expired Options and Securities. On the expiration of any Option
or the termination of any right to convert or exchange any
Convertible Securities without the exercise of such Option or
right, the Exercise Price then in effect and the number of shares
of Ordinary Shares acquirable hereunder will be adjusted
immediately to the Exercise Price and the number of shares which
would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or
termination, never been issued. For purposes of this paragraph
7.2, the expiration or termination of any Option or Convertible
Security which was outstanding on or before the date of execution
of this Warrant will not cause the Exercise Price hereunder to be
adjusted unless, and only to the extent that, a change in the
terms of such Option or Convertible Security caused it to be
deemed to have been issued after the date of this Warrant.
7.2.5 Calculation of Consideration Received. If any Ordinary Shares,
Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor will be deemed to be the amount received by the
Corporation therefor. In case any Ordinary Shares, Options or
Convertible Securities are issued or sold for consideration other
than cash, the amount of the consideration other than cash
received by the Corporation will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Corporation will be the Current Market Price thereof as of
the date of receipt. In case any Ordinary Shares, Options or
Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Corporation is the surviving entity the amount of consideration
therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is
attributable to such Ordinary Shares, Options or Convertible
Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined at
the reasonable discretion of the board of directors of the
Corporation consistent with the value assigned for generally
accepted accounting principles for purposes of financial
reporting. Notice of such determination will be given to the
Holder. If such valuation is objected to by the holders of more
than twenty-five percent (25%) of the Warrants within ten (10)
days after notice of such valuation, then the valuation will be
determined by a reputable investment bank of national standing
selected by the holders of a majority of the Warrants, subject to
the reasonable approval of the Corporation. The Corporation will
pay the reasonable expense of such valuation.
7.2.6 Integrated Transactions. In case any Option or Convertible
Security is issued in connection with the issue or sale of other
securities of the Corporation, together comprising one integrated
transaction in which no specific consideration is allocated to
such Options or Convertible Security by the parties thereto, the
Options or Convertible Security will be deemed to have been
issued for consideration determined at the reasonable discretion
of the board of directors of the Corporation consistent with the
value assigned for purposes of generally accepted accounting
principles. Notice of such determination will be given to the
Holder. If such determination is objected to by the holders of
more than twenty-five percent (25%) of the Warrants within ten
(10) days after notice of such determination, then the
determination will be made by a reputable investment bank of
national standing selected by the holders of a majority of the
Warrants, subject to the reasonable approval of the Corporation.
The Corporation will pay the reasonable expense of such
determination.
7.2.7 Treasury Shares. The number of shares of Ordinary Shares
outstanding at any given time will not include Ordinary Shares
owned or held by or for the account of the Corporation or any
subsidiary, and any issuance or disposition of any Ordinary
Shares so owned or held will be considered an issuance or sale of
Ordinary Shares.
7.2.8 Record Date. If the Corporation takes a record of the holders of
Ordinary Shares for the purpose of entitling them (a) to receive
a dividend or other distribution payable in Ordinary Shares,
Options or in Convertible Securities or (b) to subscribe for or
purchase Ordinary Shares, Options or Convertible Securities, then
such record date will be deemed to be the date of the issue or
sale of the shares of Ordinary Shares deemed to have been issued
or sold on the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
7.3 Stock Splits and Reverse Splits. In the event that the Corporation at
any time after the date of this Warrant subdivides its outstanding
shares of Ordinary Shares into a greater number of shares (by stock
split, stock dividend, recapitalization or otherwise), the Exercise
Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of Warrant Shares purchasable
on the exercise of the Warrants immediately prior to such subdivision
will be proportionately increased. Conversely, in the event that the
outstanding shares of Ordinary Shares at any time are combined into a
smaller number of shares (by reverse stock split or otherwise), the
Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares purchasable
on the exercise of the Warrants immediately prior to such combination
will be proportionately reduced.
7.4 Certain Events. If any event occurs of the type contemplated by the
provisions of this paragraph 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Corporation's board of directors will make an
appropriate adjustment in the Exercise Price and the number of shares
of Ordinary Shares obtainable on exercise the Warrants so as to
protect the rights of the holders of the Warrants. Notwithstanding
anything herein to the contrary, no such adjustment will increase the
Exercise Price or decrease the number of shares of Ordinary Shares as
otherwise determined pursuant to this paragraph 7.
7.5 Notice of Adjustment. Whenever the Exercise Price or the number of
Warrant Shares issuable on the exercise of the Warrants will be
adjusted as herein provided, or the rights of the Holder hereof will
change by reason of other events specified herein, the Corporation
will compute the adjusted Exercise Price and the adjusted number of
Warrant Shares in accordance with the provisions hereof and will
prepare an Officer's Certificate setting forth the adjusted Exercise
Price and the adjusted number of Warrant Shares issuable on the
exercise of the Warrants or specifying the other shares of stock,
securities or assets receivable as a result of such change in rights,
and showing in reasonable detail the facts and calculations on which
such adjustments or other changes are based. The Corporation will
promptly cause to be mailed to the Holder copies of such Officer's
Certificate together with a notice stating that the Exercise Price and
the number of Warrant Shares purchasable on exercise of the Warrants
have been adjusted and setting forth the adjusted Exercise Price and
the adjusted number of Warrant Shares purchasable on the exercise of
the Warrants.
7.6 Dividends. If the Corporation declares or pays a dividend on Ordinary
Shares payable other than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting
principles, consistently applied), then the Corporation will pay to
the Holder at the time of payment thereof the amount or assets which
would have been paid to the Holder had all of the Warrants been fully
exercised immediately prior to the date on which a record was taken
for such dividend, or, if no record is taken, the date as of which the
record holders of Ordinary Shares entitled to such dividends are
determined.
7.7 Exceptions to Anti-Dilution Adjustment. Notwithstanding anything to
the contrary contained in this Warrant, there will be no adjustment in
the Exercise Price or the number of Warrant Shares obtainable on
exercise of the Warrants as a consequence of the issuance by the
Corporation of: (a) any option, warrant, convertible security or other
right to acquire Ordinary Shares outstanding or in effect as of the
date of this Warrant and not amended after the date of this Warrant;
(b) any options, stock purchase rights or other rights to acquire up
to five million three hundred fifty-six thousand eight hundred
eighty-eight (5,356,888) shares of Ordinary Shares of the Corporation
on exercise of options granted or that may be granted under the
Corporation's compensatory 1995, 1996 and 1997 stock option plans at
an exercise price no less than the current market price on the date of
issuance; (c) up to twelve million six hundred twelve thousand one
hundred forty (12,612,140) of the Series A Warrants to be issued in
connection with the issuance of the Note by the Corporation; or (d)
the issuance of Ordinary Shares as a result of the exercise of any of
the foregoing. The number of Ordinary Shares exempted from the
anti-dilution adjustments under foregoing clause (b) assumes that no
such Options have been exercised and as a result will be reduced for
any Options issued under the Corporation's 1995, 1996 and 1997 stock
option plans which were exercised prior to the date of this Warrant.
7.8 Definitions. For purposes of this Warrant the following terms will
have the designated meanings: (a) "Ordinary Shares Deemed Outstanding"
means at any given time, the number of Ordinary Shares actually
outstanding at such time, plus the number of Ordinary Shares deemed to
be outstanding pursuant to paragraph 7 hereof regardless of whether
the Options or Convertible Securities are actually exercisable at such
time; (b) "Convertible Securities" means any stock or securities
(directly or indirectly) convertible into or exchangeable for Ordinary
Shares; and (c) "Options" means any rights or options to subscribe for
or purchase Ordinary Shares or Convertible Securities.
7.9 Current Market Price. For purposes of this Warrant the "Current Market
Price" means: (a) with respect to a security which is traded on an
organized national exchange or market for which sales price
information for the last transaction is updated contemporaneously, the
average closing prices of the security on the stock exchange or market
where the security is traded or the average last bid prices as quoted
on the applicable exchange or market for the immediately preceding
five (5) trading days; and (b) if the security is not traded on such
an organized exchange or market, the price per share of the security
as determined in good faith by the Corporation's board of directors
and set forth in a notice of such valuation to the Holder. If such
determination is objected to by the holders of more than twenty-five
percent (25%) of the Warrants within ten (10) days after notice of
such determination, then the determination will be made by a reputable
investment bank of national standing selected by the holders of a
majority of the Warrants subject to reasonable approval by the
Corporation. The Corporation will pay the reasonable expense of such
determination.
8. Purchase Rights. If at any time the Corporation grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of Ordinary Shares,
then, in substitution of pre-emptive rights under the shareholder rights
agreement of even date herewith, the Holder may elect to acquire, on the terms
applicable to such purchase rights, the aggregate purchase rights which the
Holder could have acquired if the Holder had held the number of shares of
Ordinary Shares acquirable on complete exercise of the Warrants immediately
before the date on which a record is taken for the grant, issuance or sale of
such purchase rights, or, if no such record is taken, the date as of which the
record holders of Ordinary Shares are to be determined for the grant, issue or
sale of such purchase rights. The rights under this paragraph 8 will: (a) not
apply to the rights offering for the Series A Notes; and (b) terminate on the
transfer of this Warrant by the Holder to an unaffiliated third party.
9. Reorganizations and Asset Sales. If any recapitalization, reorganization or
reclassification of the capital stock of the Corporation, or any consolidation,
merger or share exchange of the Corporation with another person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another person will be effected in such a way that a holder of Ordinary Shares
of the Corporation will be entitled to receive capital stock, securities or
assets with respect to or in exchange for shares of Ordinary Shares, then the
following provisions will apply:
9.1 Replacement Instrument. As a condition of such recapitalization,
reorganization, reclassification, consolidation, merger, share
exchange, sale, transfer or other disposition (except as otherwise
provided below in paragraph 9.2) lawful and adequate provisions in
form and substance reasonably satisfactory to the holders of a
majority of the Warrants will be made whereby the holders of Warrants
will thereafter have the right to purchase and receive on the terms
and conditions specified in this Warrant and in lieu of or addition to
(as the case may be) the Warrant Shares immediately theretofore
receivable on the exercise of the rights represented hereby, such
shares of capital stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of such Ordinary Shares equal to the number of Warrant Shares
immediately theretofore so receivable had such recapitalization,
reorganization, reclassification, consolidation, merger, share
exchange or sale not taken place. In any such case appropriate
provision (in form and substance reasonably satisfactory to the
holders of majority of the Warrants) will be made with respect to the
rights and interests of the holders of the Warrants to the end that
the provisions hereof (including, without limitation, in the case of
any such consolidation, merger or sale in which the successor entity
or purchasing entity is other than the Corporation, an immediate
adjustment of the Exercise Price to the value for the Ordinary Shares
reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of Ordinary
Shares acquirable and receivable on exercise of the Warrants, if the
value so reflected is less than the Exercise Price in effect
immediately prior to such consolidation, merger or sale) will
thereafter be applicable, as nearly as possible, in relation to any
shares of capital stock, securities or assets thereafter deliverable
on the exercise of the Warrants.
9.2 Assumption. The Corporation will not effect any such consolidation,
merger, share exchange, sale, transfer or other disposition unless
prior to or simultaneously with the consummation thereof the successor
person (if other than the Corporation) resulting from such
consolidation, share exchange or merger or the person purchasing or
otherwise acquiring such assets will have assumed by written
instrument executed and mailed or delivered to the Holder hereof at
the last address of the Holder appearing on the books of the
Corporation, (a) the obligation to deliver to the Holder such shares
of capital stock, securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to receive, and (b)
all other liabilities and obligations of the Corporation hereunder.
The foregoing will be performed by issuing a new warrant identical to
the terms of this Warrant revised to reflect the new parties thereto,
a provision indicating the replacement nature of the new warrant and
any modifications in Exercise Price and number of shares of stock or
equity interests obtainable on the exercise of the new warrant as
provided herein.
10. Notices to Holder. If at any time the Corporation proposes to:
10.1 to declare any dividend on its Ordinary Shares payable in capital
stock or make any dividend or other distribution (including cash
dividends) to the holders of the Ordinary Shares;
10.2 to offer for subscription pro rata to all of the holders of the
Ordinary Shares any additional shares of capital stock of any class or
other rights other than the Series A Notes or Series A Warrants;
10.3 to effect any capital reorganization, or reclassification of the
capital stock of the Corporation, or consolidation, merger or share
exchange of the Corporation with another person, or sale, transfer or
other disposition of all or substantially all of its assets; or
10.4 to effect a voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then, as a condition to taking any one or more of the foregoing actions and
in addition to any other obligation under this Warrant, the Corporation
will give the Holder: (a) at least thirty (30) days (but not more than 90
days) prior written notice of the date on which the books of the
Corporation will close or a record will be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of such issuance, recapitalization, reorganization,
reclassification, consolidation, merger, share exchange, sale, transfer,
disposition, dissolution, liquidation or winding up, and (b) in the case of
any such issuance, recapitalization, reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition,
dissolution, liquidation or winding up, at least thirty (30) days (but not
more than 90 days) prior written notice of the date when the same will take
place. Any notice under foregoing clause (a) will specify the date on which
the holders of Ordinary Shares will be entitled to any such dividend,
distribution or subscription rights, and any notice under foregoing clause
(b) will specify the date on which the holders of Ordinary Shares will be
entitled to exchange their Ordinary Shares, as the case may be, for
securities or other property deliverable on such reorganization,
reclassification, consolidation, merger, share exchange, sale, transfer,
disposition, dissolution, liquidation or winding up.
11. Fractional Shares. Fractional shares will not be issued on the exercise of
the Warrants. If the Holder would be entitled to receive a fractional share, the
Corporation will pay to the Holder an amount equal to the fractional share
multiplied by the Current Market Price for one share of Ordinary Shares less the
Exercise Price.
12. Fully Paid Stock; Taxes. The Corporation covenants and agrees that the
shares of stock represented by each and every certificate for its Ordinary
Shares to be delivered on the exercise of the Warrants will be duly authorized,
validly issued and outstanding, fully paid, nonassessable and free from all
taxes, liens, charges and encumbrances. The Corporation agrees to pay when due
and payable any and all federal and state taxes (including, without limitation,
all documentary, stamp, transfer or other transactional taxes but excluding
income taxes) which may be payable in respect of the Warrants, any Warrant
Shares or certificates therefor on the exercise of the Warrants.
13. Notices. Any notice, demand or communication required or permitted to be
given by any provision of this Warrant will be in writing and will be deemed to
have been given and received when delivered personally or by telefacsimile to
the party designated to receive such notice, or on the date following the day
sent by overnight courier, or on the third (3rd) business day after the same is
sent by certified mail, postage and charges prepaid, directed to the following
addresses or to such other or additional addresses in the continental United
States of America as any party might designate by written notice to the other
parties:
To the Corporation: Mr. Robert Hefner III
Chief Executive Officer
Seven Seas Petroleum, Inc.
Suite 1700, 5555 San Felipe
Houston, Texas 77056
Phone: (713) 622-8218
Fax: (713) 621-9770
To the Holder: Mr. Aubrey K. McClendon
Chief Executive Officer
Chesapeake Energy Corporation
6100 North Western
Oklahoma City, Oklahoma 73118
Phone: (405) 879-9226
Facsimile: (405) 848-8858
14. Assignment. Subject to conditions set forth herein, this Warrant and all
rights hereunder are transferable, in whole or in part, on the books of the
Corporation to be maintained for such purpose, on surrender of this Warrant at
the office of the Corporation maintained for such purpose, together with a
written assignment of this Warrant duly executed by the Holder and payment of
funds sufficient to pay any stock transfer taxes payable on the making of such
transfer. On such surrender and payment, the Corporation will, subject to
conditions set forth herein, execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denominations specified in such
instrument of assignment, and this Warrant will promptly be canceled. The
conditions to transferability specified in this Warrant are intended to ensure
compliance with the provisions of the Securities Act and applicable state
securities laws in respect of the transfer of any Warrant or any Warrant Shares
and are to be strictly construed.
15. Governing Law. This Warrant is being delivered and is intended to be
performed in Oklahoma and will be construed and enforced in accordance with, and
the rights of the parties will be governed by, the law of such state.
16. Agent Appointment; Jurisdiction. The Corporation hereby irrevocably appoints
CT Corporation, located in Oklahoma City, Oklahoma, or such other person as may
be designated by the Corporation and approved by the Holder, in writing, as the
Corporation's agent (the "Service Agent") for the purpose of accepting notices
and service of process so long as the Holder owns any of the Warrants or the
Warrant Shares. Any notice or service of process delivered to the Service Agent
will be deemed to be served on the Corporation for purposes of this Warrant. THE
CORPORATION HEREBY IRREVOCABLY SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF
THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF OKLAHOMA AND AGREES AND
CONSENTS THAT SERVICE OF PROCESS MAY BE MADE ON THE CORPORATION BY SERVICE ON
THE SERVICE AGENT IN ANY LEGAL PROCEEDING RELATING TO THIS WARRANT BY ANY MEANS
ALLOWED UNDER OKLAHOMA OR FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN
ANY WAY RELATED TO THIS WARRANT WILL BE BROUGHT AND LITIGATED EXCLUSIVELY IN THE
UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA, TO THE EXTENT
IT HAS SUBJECT MATTER JURISDICTION, AND OTHERWISE IN THE OKLAHOMA DISTRICT COURT
SITTING IN OKLAHOMA COUNTY, OKLAHOMA. THE PARTIES HERETO HEREBY WAIVE AND AGREE
NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS
IMPROPER, AND FURTHER AGREE TO A TRANSFER OF ANY SUCH PROCEEDING TO A FEDERAL
COURT SITTING IN OKLAHOMA CITY, OKLAHOMA, TO THE EXTENT THAT IT HAS SUBJECT
MATTER JURISDICTION, AND OTHERWISE TO A STATE COURT IN OKLAHOMA COUNTY,
OKLAHOMA. IN FURTHERANCE THEREOF, THE CORPORATION AND THE HOLDER EACH HEREBY
ACKNOWLEDGE AND AGREE THAT IT WAS NOT INCONVENIENT FOR THEM TO NEGOTIATE AND
ENTER INTO THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT IN OKLAHOMA COUNTY,
OKLAHOMA AND THAT IT WILL BE NEITHER INCONVENIENT NOR UNFAIR TO LITIGATE OR
OTHERWISE RESOLVE ANY DISPUTES OR CLAIMS IN A COURT SITTING IN OKLAHOMA COUNTY,
OKLAHOMA.
17. Headings. The headings of the paragraphs of this Warrant are inserted for
convenience only and will not be deemed to constitute a part of this Warrant.
18. Lost, Stolen, Destroyed or Mutilated Warrant. In case this Warrant is
mutilated, lost, stolen or destroyed, the Corporation agrees to issue a new
Warrant of like date, tenor and denomination and deliver the same in exchange
and substitution for and on surrender and cancellation of this mutilated
Warrant, or in lieu of this Warrant being lost, stolen or destroyed, on receipt
of evidence reasonably satisfactory to the Corporation of the loss, theft or
destruction of this Warrant and on receipt of indemnity satisfactory to the
Corporation (provided that in the case of Chesapeake Energy Corporation, any
affiliate of Chesapeake Energy Corporation or an institutional investor, the
investor's own agreement will be deemed satisfactory to the Corporation).
19. Fees and Expenses. The Corporation agrees to pay on demand all costs and
expenses (including attorney's fees and costs) incurred by the Holder arising
out of or in connection with the administration, enforcement or preservation of
any rights under this Warrant including, without limitation, the enforcement of
this Warrant by judicial proceedings, proceedings under Chapter 7 or 11 of the
Bankruptcy Code or any successor statute thereto, or otherwise.
20. Consent to Amendments; Waivers. The provisions of this Warrant may be
amended or waived at any time only by the written agreement of the Corporation
and the Holder. Any waiver, permit, consent or approval of any kind or character
on the part of the Holder of any provisions or conditions of this Warrant must
be made in writing and will be effective only to the extent specifically set
forth in such writing. No course of dealing between the Corporation and the
Holder and no delay in exercising any right, remedy, or power conferred hereby
or now or hereafter existing at law or under equity, by statute or otherwise,
will operate as a waiver of or otherwise prejudice any such right, power or
remedy.
21. Warrant Holder Not Shareholder. This Warrant does not confer on the Holder
hereof any right to vote or to consent as a shareholder of the Corporation, as
such, in respect of any matters whatsoever, or any other rights or liabilities
as a shareholder, prior to the exercise hereof as hereinbefore provided.
22. Severability. Should any part of this Warrant for any reason be declared
invalid, such decision will not affect the validity of any remaining portion,
which remaining portion will remain in full force and effect as if this Warrant
had been executed with the invalid portion thereof eliminated, and it is hereby
declared the intention of the parties hereto that they would have executed and
accepted the remaining portion of this Warrant without including therein any
such part, parts or portion which may, for any reason, be hereafter declared
invalid.
IN WITNESS WHEREOF, this Warrant has been executed effective the ____ day
of ____, 2001.
SEVEN SEAS PETROLEUM, INC., a Cayman Island
exempted company limited by shares
By________________________________________
Name________________________________________
Title ________________________________________
(the "Corporation")
CHESAPEAKE ENERGY CORPORATION, an
Oklahoma corporation
By________________________________________
Name________________________________________
Title________________________________________
(the "Holder")
Exhibit "D"
Seven Seas Petroleum Inc.
Shareholder's Rights Agreement
THIS SHAREHOLDER'S RIGHTS AGREEMENT has been made and entered into this
____ day of ________, 2001, by and between Chesapeake Energy Corporation
("Chesapeake"), an Oklahoma corporation, and Seven Seas Petroleum Inc. ("Seven
Seas" or the "Company"), a Cayman Islands exempted company limited by shares,
with reference to the following circumstances:
A. Chesapeake and Seven Seas have entered into a Note Purchase and Loan
Agreement (the "Purchase Agreement") contemporaneously herewith pursuant to
which Chesapeake will purchase $22,500,000 of principal amount Senior Secured
Notes (the "Notes") of Seven Seas and 12,612,139 Warrants to purchase an equal
number of the Company's voting ordinary shares. Unless otherwise defined or
required by context, words defined in the Purchase Agreement shall have the same
meaning herein.
B. As a condition to Chesapeake's obligation to purchase the Notes and
Warrants, Seven Seas agreed to provide Chesapeake, under the terms and
conditions of this Agreement, the right to (i) designate up to two persons to
serve on Seven Seas board of directors and (ii) participate in future offerings
by Seven Seas.
ACCORDINGLY, premises considered, the parties have entered into this
agreement.
1. Chesapeake's Designation of Directors. In the event Chesapeake elects to
do so in writing, at any time from and after the Closing Date until the
termination of this Agreement, , the Board of the Company will appoint in
accordance with its procedures for the appointment of directors as provided in
its Articles of Association ("By-laws") and applicable law, two persons
designated by Chesapeake who are senior executives of Chesapeake and one of whom
is its chief executive officer (all such persons who, at any time, are or were
designated by Chesapeake for purposes of this agreement are referred to herein
as "Chesapeake Designees"). Chesapeake shall designate the Chesapeake Designees
by written notice to the Company. After appointment of the Chesapeake Designees
as provided herein, at each subsequent annual or special meeting for the
election of directors of the Company, the Company will nominate the Chesapeake
Designees in accordance with its By-laws. The Chesapeake Designees will receive,
at the expense of the Company, the same expense reimbursement with respect to
their services as directors of the Company as other directors of the Company.
Upon termination of this Agreement in accordance with its terms, Chesapeake
shall cause all Chesapeake Designees then serving as directors of Seven Seas to
resign immediately. In the event any Chesapeake Designee shall cease to serve as
a director for any reason other than the termination of this Agreement, the
vacancy resulting thereby shall be filled by the remaining directors of the
Company in accordance with its By-laws and applicable law by a new Chesapeake
Designee who shall thereafter serve until the expiration of the term of the
Chesapeake Designee replaced by the new Chesapeake Designee. Notwithstanding
anything to the contrary contained herein, no Chesapeake Designee may be a
person who previously has been a director of Seven Seas and was properly removed
for cause from the board of directors of the Company or a person who has been
convicted of a felony or a crime involving moral turpitude. At all times during
the term of this Agreement during which no Chesapeake Designees are serving on
the Company's Board, Chesapeake will have the right to designate one
representative of Chesapeake to attend and observe all meetings of the board of
directors of the Company and each of the Subsidiaries and all committees
thereof. The Company will provide such designated observer with all notices and
materials provided to the board or committee members at the same time as such
notices and materials are provided to the directors or committee members. The
Company will promptly pay or reimburse each such designated observer for all
reasonable out-of-pocket expenses incurred in connection with attending board or
committee meetings of the Company or any Subsidiary. The Company will not and
will not permit any of the Subsidiaries to take any board or committee action by
written consent without ten (10) days prior written notice to Chesapeake.
2. Right to Participate in Certain Securities Issuances by Seven Seas.
(a) Definitions. As used herein, the following terms shall have the
meanings indicated:
"New Securities" shall mean any (i) Capital Stock, (ii) debt or
security convertible into Capital Stock and (iii) option, warrant or right
to acquire Capital Stock of the Company, whether or not attached to another
security, except New Securities shall not include (a) shares issued
pursuant to the exercise of the Warrants, (b) compensatory stock options
and shares issued pursuant to the exercise of compensatory options granted
under existing stock option plans of the Company approved by its
shareholders, (c) the Warrants, the Short Term Secured Notes or the Senior
Secured Notes or any securities issued in exchange therefor, including
warrants issued pursuant to the rights offering contemplated by the
Purchase Agreement, (d) shares of Capital Stock issued in connection with
any stock split, stock dividend or recapitalization by the Company, (e)
shares of Capital Stock issued in connection with a merger, consolidation,
combination, share exchange or other acquisition pursuant to which the
Company acquires another entity , (f) shares of Capital Stock issued in
connection with the acquisition of assets by the Company, (g) shares of
Capital Stock issued in connection with the retirement of Company debt and
(h) shares of Capital Stock issued pursuant to a reorganization with the
principal purpose of changing the Company's domicile. At any time the Notes
are outstanding, the exclusions from the definition of New Securities
contained in clauses (e), (f) and (g) above will not apply unless the
transaction is consummated in compliance with the Purchase Agreement.
"Capital Stock" shall mean any class of capital shares authorized to
be issued by the Company under its Memorandum of Association or other
charter documents.
"Short Term Secured Notes" shall mean those certain secured promissory
notes in the aggregate principal amount of $22,500,000 issued to Robert A.
Hefner III and other investors contemporaneously with the sale by the
Company to Chesapeake of $22,500,000 Senior Secured Notes under the
Purchase Agreement.
"Senior Secured Notes" shall mean Seven Seas' 12% Senior Secured Notes
due 2004 issued to Chesapeake by Seven Seas under the Purchase Agreement
and proposed to be issued in connection with a rights offering , as
described in the Purchase Agreement.
"Public Offering" shall mean a firm commitment underwritten public
offering pursuant to a registration statement which has been declared
effective by the United States Securities and Exchange Commission under the
Securities Act of 1933, as amended, or any successor federal statute, as in
effect from time to time.
(b) Issues of New Securities. Seven Seas shall not issue any New
Securities unless it shall have first complied with, in the case of an
issuance other than pursuant to a Public Offering, the provisions of
Section 2 (c) or, in the case of a Public Offering, the provisions of
Section 2 (d).
(c) Issues Not Involving a Public Offering. If Seven Seas determines
to issue New Securities other than in a Public Offering, then Seven Seas
shall provide written notice of such determination to Chesapeake, which
notice shall include all of the terms of the issuance and shall offer to
Chesapeake the right to purchase up to 20% of the New Securities, at the
same price and under the same terms as Seven Seas proposes to issue the New
Securities to others (the "Offer Notice"). If Chesapeake determines to
accept the offer contained in the Offer Notice, Chesapeake shall deliver a
written notice to the Company indicating its acceptance within ten (10)
days after its receipt of the Offer Notice, which notice shall indicate
whether Chesapeake has accepted the offer in whole or in part, and if
accepted in part, the number or amount of New Securities (which shall not
be less than 5% of the New Securities) as to which such offer has been
accepted (an "Acceptance Notice"). Any acceptance of the offer contained in
the Offer Notice by delivery of an Acceptance Notice shall, on consummation
of the issuance of the New Securities in accordance with the Offer Notice,
be irrevocable and shall constitute a commitment by Chesapeake to purchase
from the Company and by the Company to sell to Chesapeake the number or
amount of New Securities covered by such Acceptance Notice upon the terms
contained in the Offer Notice. In the event any of the New Securities
covered by the Offer Notice are sold on different terms, the Company will
provide a new Offer Notice under this paragraph and the initial Offer
Notice will be superceded thereby.
(d) Issues Involving a Public Offering. If the Company proposes to
issue any New Securities in a Public Offering, the Company shall provide
written notice of such determination to Chesapeake no later than the time
that the Company commences the process to make the Public Offering. The
notice shall include the proposed size and other terms of such issuance, to
the extent then known, the name or names of the managing underwriter for
the proposed Public Offering, if then known, and the date when it is
proposed that the Public Offering will be made. The Company shall cause the
underwriters of the Public Offering to offer to Chesapeake, subject to such
conditions as the underwriters may reasonably require, the right to
purchase from the underwriters of the Public Offering, at the Public
Offering price set forth on the cover page of the prospectus or prospectus
supplement for the Public Offering, 5% of the New Securities proposed to be
issued.
3. Representations and Warranties of Seven Seas. Seven Seas represents and
warrants to Chesapeake that (i) Seven Seas is an exempted company limited by
shares (as defined in The Companies Law (2000 Revision) of the Cayman Islands)
duly organized, validly existing and in good standing under the laws of the
Cayman Islands and has the corporate power and authority to enter into this
agreement and to carry out its obligations hereunder, (ii) the execution and
delivery of this agreement by Seven Seas and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Seven Seas and no other corporate proceedings on
the part of the Company are necessary to authorize this agreement or any of the
transactions contemplated hereby, and (iii) this agreement has been duly
executed and delivered by Seven Seas and constitutes a valid and binding
obligation of the Company and, assuming this agreement constitutes a valid and
binding obligation of Chesapeake, is enforceable against Seven Seas in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance and similar laws affecting
creditors' rights generally from time to time and to general principles of
equity.
4. Representations and Warranties of Chesapeake. Chesapeake represents and
warrants to Seven Seas that (i) Chesapeake is a corporation duly organized,
validly existing and in good standing under the laws of the State of Oklahoma
and has the corporate power and authority to enter into this agreement and to
carry out its obligations hereunder, (ii) the execution and delivery of this
agreement by Chesapeake and the consummation by Chesapeake of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Chesapeake and no other corporate proceedings on the part of
Chesapeake are necessary to authorize this agreement or any of the transactions
contemplated hereby, and (iii) this agreement has been duly executed and
delivered by Chesapeake and constitutes a valid and binding obligation of
Chesapeake, and, assuming this agreement constitutes a valid and binding
obligation of Seven Seas, enforceable against Chesapeake in accordance with its
terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium,
fraudulent conveyance and similar laws affecting creditor's rights generally
from time to time and to general principles of equity.
5. Amendment. This Agreement may be amended or waived only by written
instrument duly executed by the parties.
6. Injunctive Relief. Each of the parties hereto hereby acknowledges that
in the event of a breach by any of them of any material provision of this
agreement, the aggrieved party may be without an adequate remedy of law. Each of
the parties therefore agrees that in the event of a breach of any material
provision of this agreement the aggrieved party may elect to institute and
prosecute proceedings in any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach of such provision, as well as to
obtain damages for breach of this agreement. By seeking or obtaining any such
relief, the aggrieved party will not be precluded from seeking or obtaining any
other relief to which it may be entitled in equity or at law.
7. Governing Law. This agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Oklahoma, without regard to the principles of conflicts of law thereof.
8. Termination. This agreement may be terminated (i) by mutual written
consent of the parties hereto; (ii) by Chesapeake at any time by written notice
to Seven Seas and (iii) by Chesapeake or Seven Seas by written notice to the
other if Chesapeake's Senior Secured Note has been paid in full and Chesapeake
shall have become the beneficial owner (for purposes of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of less than 20% of the Warrants or
the Warrant Shares..
9. Notices. All notices, requests, demands or other communications required
or permitted by this agreement shall be in writing and effective when received,
and delivery shall be made personally or by registered or certified mail, return
receipt requested, postage prepaid, or overnight courier or confirmed facsimile
transmission, addressed as follows:
(a) If to Seven Seas:
5555 San Felipe, Suite 1700
Houston, Texas 77056
Attention: Mr. Larry A. Ray, President
Facsimile No.: (713) 621-9770
with a copy to:
Gary F. Fuller, Esq.
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 N. Robinson
Oklahoma City, Oklahoma 73102
Facsimile No.: (405) 235-0439
(b) If to Chesapeake:
Chesapeake Energy Corporation
P.O. Box 18496
Oklahoma City, Oklahoma 73154-0496
Attention: Mr. Aubrey K. McClendon, Chairman & CEO
Facsimile No.: (405) 879-9580
with a copy to:
Shannon Self, Esq.
Commercial Law Group, PLLC
2715 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102
Facsimile No.: (405) 232-5553
10. Severability. If any term or other provision of this agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
11. Entire Agreement. This agreement constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all prior
agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof. This Agreement shall not be
assigned by operation of law or otherwise.
12. Parties in Interest. This agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
agreement.
13. Headings. The descriptive headings contained in this agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this agreement.
14. Counterparts. This agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
EXECUTED as of the day and year first above written.
SEVEN SEAS PETROLEUM INC.
By
Larry A. Ray, President
CHESAPEAKE ENERGY CORPORATION
By
Aubrey K. McClendon, Chairman and CEO