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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 000 Xxxx Xxxxxx x Xxxxxxxx Xxxx, Xxxxxxxx 00000-0000
Telephone (000) 000-0000 o Telecopier (000) 000-0000
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TABLE OF CONTENTS
Page
1. Purchase; Authorization..................................................................................1
2. Closing..................................................................................................1
3. Corporation's Representations and Warranties. ..........................................................2
3.1 Organization and Standing.......................................................................2
3.2 Subsidiaries....................................................................................2
3.3 Corporate Power.................................................................................3
3.4 Investments.....................................................................................3
3.5 Minute Books....................................................................................4
3.6 Capitalization..................................................................................4
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..............................................................7
3.13 Absence of Certain Changes......................................................................7
3.14 Contracts, Leases, and Other Agreements.........................................................8
3.15 ERISA...........................................................................................8
3.16 Arrangements with Related Parties...............................................................9
3.17 Taxes...........................................................................................9
3.18 Insurance. ....................................................................................9
3.19 Litigation.....................................................................................10
3.20 Consents.......................................................................................10
3.21 Title to Properties; Liens and Encumbrances....................................................10
3.22 Compliance with Law and Other Instruments......................................................11
3.23 Registration Rights............................................................................11
3.24 Federal Reserve Regulations....................................................................11
3.25 Reserve Information............................................................................11
3.26 Securities Classes.............................................................................12
3.27 Solicitation...................................................................................12
3.28 Registration Requirements......................................................................12
3.29 Certificates...................................................................................12
3.30 Full Disclosure................................................................................12
3.31 Acknowledgment.................................................................................13
4. Lender's Representations and Warranties.................................................................13
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............................................................................14
4.2.4 Corporation Information...............................................................14
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.........................................................................15
5.4 Omnibus Certificate............................................................................15
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.....................................................................21
5.13 Proceedings and Documents......................................................................21
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..................................................................22
6.5 Fairness Opinion...............................................................................22
6.6 Certain Collateral Agreements..................................................................22
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......................................................................23
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...................................................25
7.7 Inspection and Other Rights....................................................................25
7.8 Use of Proceeds. .............................................................................25
7.9 Escrow of Interest Payment.....................................................................25
7.10 Charter Amendments.............................................................................26
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........................................................................27
8.1 Dividends......................................................................................27
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....................................................................................28
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.........................................................................29
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.................................................................................................30
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.....................................................................................31
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.................................................................................35
15. Effectiveness of Agreement and Termination..............................................................35
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.........................................................................37
16.10 Exchange of Certificates.......................................................................37
16.11 Confidentiality................................................................................37
16.12 Public Announcements...........................................................................37
16.13 Final Agreement................................................................................38
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").
RECITALS
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., 000 Xxxx Xxxxxx, Xxxxx
0000, Xxxxxxxx Xxxx, Xxxxxxxx 00000, 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;
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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.
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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").
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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 xxxxx x xxxx 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.
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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 (11) 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 March 1993, 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 Xxxxxxxxx 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,
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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,
Xxxxxx Xxxxxxx, Xxxxxx xxx Xxxxxxxxx), xxx Xxxxxx Xxxxxx
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 Section 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
Section 481(a) of the Internal Revenue Code by reason of a
change in accounting method or otherwise consented to have the
provisions of Section 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
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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 Xxxxx Xxxxx 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
SEVEN SEAS PETROLEUM, INC.
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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.
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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.
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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 (40 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.
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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 & Xxxx 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:
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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,
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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.
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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 Xxxxxx Xxxxxxxx
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.
SEVEN SEAS PETROLEUM, INC.
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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 Xxxxxx
X. Xxxxxx III ("Xxxxxx") up to an amount of the principal
balance of the CEC Note and a pro-rata share of the Warrants
sufficient to cause Xxxxxx'x 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.
SEVEN SEAS PETROLEUM, INC.
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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
SEVEN SEAS PETROLEUM, INC.
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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
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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.
SEVEN SEAS PETROLEUM, INC.
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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
SEVEN SEAS PETROLEUM, INC.
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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
SEVEN SEAS PETROLEUM, INC.
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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
SEVEN SEAS PETROLEUM, INC.
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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 121/2% 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.
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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
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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
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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
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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)
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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
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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.
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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
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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
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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
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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43
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,
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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44
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.
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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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 /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
(the "Corporation")
SEVEN SEAS PETROLEUM HOLDINGS INC., a
Cayman Islands exempted company limited by shares
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
SEVEN SEAS PETROLEUM TURKEY INC., a
British Columbia corporation
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
SEVEN SEAS RESOURCES AUSTRALIA INC., a
British Columbia corporation
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
SEVEN SEAS PETROLEUM USA INC., a Delaware
corporation
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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46
SEVEN SEAS PETROLEUM AUSTRALIA INC., a
Cayman Islands exempted company limited by shares
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
SEVEN SEAS PETROLEUM PNG INC., a Cayman
Islands exempted company limited by shares
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
SEVEN SEAS PETROLEUM ARGENTINA INC., a
Cayman Islands exempted company limited by shares
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
SEVEN SEAS PETROLEUM MEDITERRANEAN
INC., a Cayman Islands exempted company limited
by shares
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
SEVEN SEAS PETROLEUM TURKEY, INC., a
Cayman Islands exempted company limited by shares
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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47
SEVEN SEAS PETROLEUM COLOMBIA INC., a
Cayman Islands exempted company limited by shares
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
PETROLINSON S.A.., a Panamanian corporation
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
GHK COMPANY COLOMBIA, an Oklahoma corporation
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
GUADUAS PIPELINE COMPANY, a Cayman
Islands exempted company limited by shares
By /s/ XXXXX X. XXX
------------------------------------------------
Xxxxx X. Xxx, President
(the "Subsidiaries")
Notice Addresses:
Seven Seas Petroleum, Inc.
Attention: Xxxxx X. Xxx, President
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Telefacsimile: (000) 000-0000
and
McAfee & Xxxx
Attention: Xxxx Xxxxxx
000 Xxxxx Xxxxxxxx
00xx Xxxxx
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Telefacsimile: (000) 000-0000
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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48
CHESAPEAKE ENERGY CORPORATION,
an Oklahoma corporation
By /s/ XXXXXX X. XXXXXXXXX
------------------------------------------------
Xxxxxx X. XxXxxxxxx, Chief Executive Officer
(the "Lender")
Notice Addresses:
Chesapeake Energy Corporation
Attention: Xxxxxx X. Xxxxxxx
0000 Xxxxx Xxxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Telefacsimile: (000) 000-0000
and
Commercial Law Group, P.C.
Attention: Xxx Xxxx
2725 Oklahoma Tower
000 Xxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Telefacsimile: (000) 000-0000
SEVEN SEAS PETROLEUM, INC.
NOTE PURCHASE AND LOAN AGREEMENT
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49
EXHIBIT "A"
(CEC Note)
TO BE PREPARED AND APPROVED BY THE PARTIES
SUBSEQUENT TO EXECUTION
50
Exhibit B - Warrant No. 1
Deliberately omitted; incorporated by reference to Exhibit 4(B) hereof.
51
EXHIBIT "C"
(Pledge and Security Agreement
Deed of Mortgage Over Shares
Collateral Agreement)
TO BE PREPARED AND APPROVED BY THE PARTIES
SUBSEQUENT TO EXECUTION.
52
Exhibit D - Shareholder's Rights Agreement
Deliberately omitted; incorporated by reference to Exhibit 4(C) hereof.
53
EXHIBIT "E"
(Registration Rights Agreement)
TO BE PREPARED AND APPROVED BY THE PARTIES
SUBSEQUENT TO EXECUTION.
54
EXHIBIT "F"
(Collateral Sharing Agreement)
TO BE PREPARED AND APPROVED BY THE PARTIES
SUBSEQUENT TO EXECUTION.
55
EXHIBIT "G"
(Put Agreement)
TO BE PREPARED AND APPROVED BY THE PARTIES
SUBSEQUENT TO EXECUTION.
56
SCHEDULE 3.1
List of jurisdictions in which the Corporation is duly qualified to do
business.
Seven Seas Petroleum Inc.
Registered: Cayman Islands as of March 1, 2001
57
SCHEDULE 3.2
List of subsidiaries that the Corporation directly owns 100% of the
legal and beneficial capital equity and the jurisdictions in
which the subsidiaries are organized and qualified to do
business
OTHER JURISDICTIONS
IN WHICH
JURISDICTION OF QUALIFIED TO DO
NO. SUBSIDIARY INCORPORATION BUSINESS
-------- ----------------------------------------------------- ------------------------------------- ----------------------
1 Seven Seas Petroleum Holdings Inc. Cayman Islands (Dormant)
2 Seven Seas Petroleum Turkey Inc. British Colombia (Dormant)
3 Seven Seas Resources Australia Inc. British Colombia (Dormant)
4 Seven Seas Petroleum USA Inc. Delaware Texas
5 Seven Seas Petroleum Australia Inc. Cayman Islands (Dormant)
6 Seven Seas Petroleum PNG Inc. Cayman Island (Dormant)
7 Seven Seas Petroleum Argentina Inc. Cayman Islands (Dormant)
8 Seven Seas Petroleum Mediterranean Inc. Cayman Islands (Dormant)
9 Seven Seas Petroleum Turkey Inc. Cayman Islands (Dormant)
10 Seven Seas Petroleum Colombia Inc. Cayman Island Colombia
11 Petrolinson SA Panama Colombia
12 GHK Company Colombia Oklahoma Xxxxxxxx
00 Xxxxxxx Pipeline Company Cayman Islands (Dormant)
58
SCHEDULE 3.6
Options Issued Under Corporation's Stock Option Plan
As of July 6, 2001
GRANTED
EXERCISE PRICE OUTSTANDING OPTIONS
RANGE (NUMBER OF SHARES)
--------------------------------------- -----------------------------
$1.06 - 1.94 317,134
2.00 - 2.94 760,912
3.00 - 3.94 727,105
4.22 - 4.81 375,000
6.16 - 7.13 10,000
8.06 - 8.63 175,000
9.00 1,008,500
10.70 - 10.90 629,000
14.09 18,000
18.55 - 18.75 530,000
Undetermined(1) 136,283
-----------------------------
TOTAL GRANTED 4,686,934
=============================
AVAILABLE FOR GRANT 669,954
-----------------------------
TOTAL OPTIONS 5,356,888
=============================
(1) Certain options were granted to the Corporation's directors and officers
that vest periodically during the course of the year. The exercise price of the
option is the average between the high and low trading prices of the
Corporation's stock on the day of vesting.
59
SCHEDULE 3.7
List of each subsidiary's authorized, issued and
outstanding capital stock or other equity
interests along with the ownership of such
issued and outstanding shares.
CAPITAL STOCK
-----------------------------------------------
SUBSIDIARY OWNER (100%) AUTHORIZED ISSUED OUTSTANDING
-------------------------------------------- ------------------------- --------------- ----------- -------------------
Seven Seas Petroleum Holdings Inc. (Cayman) Seven Seas Petroleum Inc. 50,000 1 1
Seven Seas Petroleum Turkey Inc. (B.C.) Seven Seas Petroleum Inc. 10,000 1 1
Seven Seas Resources Australia Inc. (B.C) Seven Seas Petroleum Inc. 10,000 1 1
Seven Seas Petroleum USA Inc. Seven Seas Petroleum Inc. 1,000 100 100
Seven Seas Petroleum Australia Inc. Seven Seas Petroleum Inc. 50,000 1 1
(Cayman)
Seven Seas Petroleum PNG Inc. Seven Seas Petroleum Inc. 50,000 1 1
(Cayman)
Seven Seas Petroleum Argentina Inc. Seven Seas Petroleum Inc. 50,000 1 1
(Cayman)
Seven Seas Petroleum Mediterranean Inc. Seven Seas Petroleum Inc. 50,000 1 1
(Cayman)
Seven Seas Petroleum Turkey, Inc. (Cayman) Seven Seas Petroleum Inc. 50,000 1 1
Seven Seas Petroleum Colombia Inc. (Cayman) Seven Seas Petroleum Inc. 50,000 1 1
Petrolinson S.A. Seven Seas Petroleum Inc. 5,000 5,000 5,000
(Panama)
GHK Company Colombia Seven Seas Petroleum Inc. 100,000 1,000 1,000
(Oklahoma)
Guaduas Pipeline Company Seven Seas Petroleum Inc. 50,000 1 1
(Cayman)
60
SCHEDULE 3.10
LIST OF SEC DOCUMENTS THAT DO NOT COMPLY WITH THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED, AND THE EXCHANGE
ACT OF 1934, AS AMENDED
NONE
61
SCHEDULE 3.12
List of Debts, Liabilities or Obligations by the Company or its Subsidiaries
1) Accounts Payable - General expenditures - Estimate of $263,000
as of 7/3/01
2) Accounts Payable related to Dindal and Rio Seco contract areas
(includes El Segundo 5-S well) - Estimate of $1,810,610 as of
7/3/01
3) Accounts Payable related to Guaduas--La Dorada Pipeline -
Estimate of $816,000 as of 7/3/01
4) Association contract obligations - Dindal, Rio Seco,
Rosablanca, Deep Dindal, and Xxxxxxxxx
5) Any obligation of the Company or its subsidiaries under the
contracts listed as exhibits to the Company's Form 10-K for
the year ended December 31, 2001.
62
SCHEDULE 3.13
List of a Sale, Transfer, or Lease of any of Company's Assets since
December 31, 2000
1) Termination of Seven Seas interest in Tapir Association Contract
2) Reorganization of the Company's subsidiaries, converting all second and
third tier subsidiaries to first tier subsidiaries.
63
SCHEDULE 3.14
List of Contracts, Leases, Agreements, Plans, Licenses, Arrangements,
Obligations or Commitments
1) Dindal Association Contract, effective March 1993 as amended per the
agreement attached hereto
2) Rio Seco Association Contract, effective August 1995
3) Rosablanca Association Contract, effective February 1998
4) Deep Dindal Association Contract, effective April 2001
5) Xxxxxxxxx Association Contract, effective April 2001
6) Joint Operating Agreements related to the Dindal and Rio Seco
association contracts, signed March 1996 with January 2001 amendments
7) Lease for Corporate Headquarters office space in the Marathon Oil Tower
in Houston, signed in April 1998 and amended in April 2001
8) Lease agreements for Colombian operations office in the Teleport office
tower in Bogota, Colombia. Currently eight agreements are in place,
each with a year-long duration and a six-month advance notice of
termination clause.
9) Trust Indenture governing $110 million of senior subordinated notes,
dated May 1998
10) Exploration Agreement with Guaduas Oil Field partners, signed January
2001
11) Agreement with CIBC World Markets Corp. for service as the Company's
financial advisor, dated March 2001
12) Any contract, lease, agreement, obligation or commitment of the Company
or its subsidiaries listed as an exhibit to the Company's Form 10-K as
of 12/31/01
13) Any and all contracts contemplated by this Agreement or in that certain
term sheet dated April 20, 2001, specifically:
a) Pledge and Security Agreement
b) Deed of Charge over Shares Agreement (Colombian shares)
64
c) Collateral Agreement (Panamanian shares)
d) Collateral Sharing Agreement
e) Shareholders Rights Agreement
f) Registration Rights Agreement
g) Escrow Agreement - Subthrust Dindal Well Funds
h) Escrow Agreement - Senior Subordinated Notes Interest Payments
i) Series B Note Purchase Agreement
j) Trust Indenture for Series A and B Notes
k) Parent Guaranty Agreement
l) Master Warrant Agreement
m) Subscription Agreement
65
SCHEDULE 3.15
List of Employee Benefit Plans or Related Policies
1) Employment contract with Xxxxx X. Xxx, effective June 1997
2) Employment contract with Xxxx Xxxxxxxxx, effective date December 1998
(attached)
3) Employment contract with Xxxx XxXxxxxxx, effective date October 1998
(attached)
4) Employment contract with Xxxxxxx X. Xxxx, effective November 1999
through November 2000 (contract will continue month to month until
either party terminates contract)
5) Change of Control contracts with certain Seven Seas employees,
including X. Xxxxxxx (June 2001), X. Xxxxxxxxxx (February 2001), X.
Xxxxxxx (February 2001), X. Xxxxxxx (February 2001) (standard form
attached)
6) Self funded Dental reimbursement policy for Company employees and their
eligible dependents - The Company has an unwritten policy of
reimbursing Houston-based and expatriate employees for all dental
expenses, excluding strictly cosmetic procedures.
7) Health insurance policies for Company employees - Insurer: The
Principal Financial Group
Summary of Benefits
HEALTH INSURANCE - Seven Seas Petroleum Inc. participates in a
Preferred Provider Organization (PPO) network established and
administered by Principal Financial Group. All members and their
dependents are eligible for coverage in the PPO plan. Member means any
person who is an eligible employee of the policyholder. If any member
or dependent is sick or injured, they are eligible for comprehensive
medical and prescription drugs under the terms of the PPO network. This
policy also covers vision expenses.
8) Life insurance policies for Company employees - Insurer: The Principal
Financial Group
Summary of Benefits
MEMBER LIFE INSURANCE - To be eligible for insurance one must be a
Member. A member is any person who is employed by the Policyholder on
other than a temporary or part-time basis, and regularly scheduled to
work for the Policyholder for at least 30 hours a week. The schedule of
benefits for Member Life Insurance is equal to two (2) times the
covered person's annual compensation. If the covered person shall die
while insured for Member Life Insurance, the company will pay the
covered person's beneficiary the Scheduled Benefit in force on the date
of the covered person's death. If the beneficiary does not survive the
covered person, the company will pay the estate, spouse, children,
parents or other persons as provided in the group policy. The maximum
schedule of benefit amount will not exceed
66
$600,000 or be less than $10,000. If the covered person is age 70 but
less than 75, the Company will pay 65% of the scheduled benefit. If the
covered person is age 75 and over, the Company will pay 45% of the
scheduled benefits.
In the case of Accidental Death and Dismemberment Insurance, the
Company will pay a percentage of the injured person's Scheduled
Benefit. Payment for loss of life will be to the injured person's
beneficiary. Payment for any other loss will be to the injured person.
9) Long Term Disability Insurance - Insurer: Fortis Benefits Insurance
Company
Summary of Benefits
GROUP LONG TERM DISABILITY INSURANCE - The policy pays a monthly
benefit designed to partly replace income lost during periods of
disability that result from injury, sickness, or pregnancy.
A covered person who remains disabled during the qualifying period may
become eligible to receive a monthly benefit based on monthly pay.
These benefits are payable while the disability continues, or until the
Maximum Benefit Period ends.
If a disabled person receives benefits from other sources, we may
reduce the benefits payable under the policy. There are also certain
disabilities for which benefits are not paid or are limited.
The policy includes a conversion privilege. If a covered person's Long
Term Disability Insurance ends, it may be possible to convert to a
conversion policy with no health exam.
10) Any stock option plans listed as an exhibit to the Company's Form 10-K
for the year ended December 31, 2000
11) Contribution to Texas Workers' Compensation Fund and any other employee
benefit plan as defined in the Agreement that is a state, federal, or
other governmental jurisdiction requirement
12) Retirement Plan: On January 1, 1996, the Company adopted a 401(k) plan
to provide employees with an opportunity to increase their retirement
savings by making tax-deductible contributions from their salaries into
the plan. The Company does not make any contribution to the retirement
plan.
13) Personnel Policy: Seven Seas has not adopted a formal personnel policy
to date. Except as specified in individual employment contracts, the
Company does not have a formal vacation policy.
67
SCHEDULE 3.16
List of Arrangements with Related Parties
1) Seven Seas loan to Xxxxx X. Xxx, President and Chief Operating Officer
of Seven Seas. This principal amount of this loan is $200,000, bears a
6.06% interest rate and is due November 1, 2002.
2) Administrative Services Agreement with The GHK Corporation, a private
company owned by Xxxxxx X. Xxxxxx III, Chairman and Chief Executive
Officer of Seven Seas. Seven Seas recognized expenses related to this
agreement of $21,000, $21,000 and $28,000 in 2000, 1999 and 1998,
respectively. Seven Seas also pays certain miscellaneous costs incurred
by The GHK Corporation on behalf of Seven Seas. The Company reimbursed
GHK $23,000, $31,000 and $0.1 million in 2000, 1999, and 1998,
respectively, for such costs.
3) Executive Aircraft Agreement with The GHK Corporation. Seven Seas has
entered into an agreement with The GHK Corporation for the use of The
GHK Corporation's executive aircraft to transport Seven Seas executives
and employees on certain business travel. Under this agreement, Seven
Seas pays The GHK Corporation the lesser of the cost of a first class
airline ticket or the total actual expenses for each specific flight.
The Company had $24,000, $57,000 and $31,000 in such expenses during
2000, 1999 and 1998, respectively.
4) Stillwater Loan Agreement - Xxxxxx X. Xxxxxx guaranteed this loan and
received $62,500 in remuneration for the guarantee.
5) McAfee & Xxxx, A Professional Corporation, serves as Seven Seas'
corporate counsel. Xxxx X. Xxxxxx is a shareholder of McAfee & Xxxx and
has been a member of Seven Seas' board of directors since 1997. The
Company incurred expenses from McAfee & Xxxx in the amounts of
$499,340, $267,368 and $45,955 in 2000, 1999 and 1998, respectively.
68
SCHEDULE 3.18
LIST OF INSURANCE POLICIES AND PENDING CLAIMS
TYPE OF INSURANCE POLICY NUMBER
-------------------------------------------------------------------- --------------------
Foreign Workers' Compensation CXC037912
Foreign General Liability/Hired / Non-owned Automobile CXC037912
Texas Workers' Compensation TSF-001071312
Commercial General Liability/ Hired /Non-owned Automobile/ Property 35392096PHA
Director & Officers Liability DO978A1A00
Special Contingency Risk OE49375
Energy Package WCE8121
Group Long Term Disability Insurance G 3500348
Principal Financial Group Medical Insurance BC98472 A-1
PENDING CLAIMS
Seven Seas and one of its officers and directors, Xxxxxx X. Xxxxxx III, has been
sued by four former Seven Seas officers and directors in XxXxxx, et al. v. Seven
Seas Petroleum Inc., et al., Cause No. 2000-50498, District Court of Xxxxxx
County, Texas, 133rd Judicial District. Plaintiffs recently dismissed from the
case Xxxxx X. Xxx, a current officer and director, and Xxxxxx X. Xxxx, a former
director. Plaintiffs allege that Seven Seas failed to obtain extensions of time
in which plaintiffs could exercise certain stock options granted to them, and
that the defendants induced them to enter into separation agreements with Seven
Seas that they would not have entered into but for Seven Seas' agreement to
obtain an extension of the time for plaintiffs to exercise their stock options.
The plaintiffs filed the case October 2, 2000, seeking damages in excess of $13
million. The Company has responded, and the case is in the process of discovery.
The Company has filed a counterclaim against two plaintiffs for breaching their
fiduciary duties in connection with certain employment agreements that they
caused the Company to enter into. A trial is scheduled for late August 2001.
Seven Seas intends to vigorously defend the case. There is a claim filed against
the Directors and Officers Liability insurance policy in excess of $100,000.
69
SCHEDULE 3.19
LIST OF ACTIONS, SUITS, PROCEEDINGS OR INVESTIGATIONS PENDING OR
THREATENED AGAINST OR AFFECTING THE COMPANY OR ANY SUBSIDIARIES
DURING THE LAST TWO YEARS
HEIRS OF XXXXXXX XXXXXXX XXXXXX
Two of our subsidiaries, Petrolinson, S.A. and GHK Colombia, along with the
former owner of Petrolinson, S.A., Xxxxxx Xxxxxxxxx and the heirs of Xxxxxx
Xxxxxx Xxxxxxxx, are defendants in a lawsuit that was filed in Santa Fe de
Bogota, Colombia in 1998. The plaintiffs are the heirs of Xxxxxxx Xxxxxxx
Franco. The plaintiffs have two claims. First, they claim that a de facto
company existed between Xxxxxxx Xxxxxxx Xxxxxx and the defendants concerning the
Dindal and Rio Seco association contract areas. Second, they claim that before
the Dindal and Rio Seco association contracts were executed, the de facto
company conducted exploration works in the Dindal and Rio Seco association
contract areas. The plaintiffs claim they have the right to participate in
income earned from the Dindal and Rio Seco association contract areas. None of
the plaintiffs are party to the association contracts. However, they are seeking
50% of the income generated by the de facto company they claim existed. It is
not clear what percentage of the Dindal and Rio Seco association contract areas
are covered by the plaintiffs' claims. Our Colombian counsel, Raisbeck, Lara,
Xxxxxxxxx and Xxxxx, members of the law firm of Xxxxx and XxXxxxxx, believe that
if this claim is litigated the chances of the plaintiffs succeeding are remote.
SURFACE LOCATION
A lawsuit was filed by the landowner of the El Segundo 1 surface location to
cancel the Company's surface lease. The Company responded to this claim on
November 4, 1999, and has vigorously defended this claim. Examinations regarding
the claim were held in September 2000, and the probatory stage of the matter was
closed on March 21, 2001. Final allegations were presented on April 16, 2001.
The Company's Colombian legal counsel, Gamba, Barrera, Xxxxxxx y Asociados, has
advised the Company that, on the basis of the claims asserted, it is unlikely
that it will lose the lawsuit.
NOTEHOLDER CLAIM
A claim has been brought against Seven Seas by one of the noteholders in
connection with the Special Notes issued on August 7, 1997. The claim, which is
against Seven Seas and Yorkton Securities Inc., alleges that the noteholder was
not initially advised of the right of Seven Seas to convert the debentures into
units of common shares and warrants. The claim also alleges that there were
errors in the methodology of effecting conversion pursuant to the indenture
between Seven Seas and Montreal Trust Company of Canada dated August 7, 1997
such that the conversion was not effective. The plaintiff in the claim is
seeking damages against Seven Seas in the amount of $340,000 for negligent
misrepresentation and breach of contract or alternatively, for an order
directing Seven Seas to exchange the units currently held by the plaintiff into
a note in the amount of $340,000 payable on July 24, 2002 with interest payable
thereon at a rate of 6% per annum or directing Seven Seas to reimburse the
plaintiff in the amount of $340,000 for the purchase price of the Special Notes.
Seven Seas believes it has meritorious defenses and intends to take appropriate
steps to defend the action vigorously.
FORMER MANAGEMENT
Seven Seas and one of its officers and directors, Xxxxxx X. Xxxxxx III, has been
sued by four former Seven Seas officers and directors in XxXxxx, et al. v. Seven
Seas Petroleum Inc., et al., Cause No. 2000-50498, District Court of Xxxxxx
County, Texas, 133rd Judicial District. Plaintiffs recently dismissed from the
case Xxxxx X. Xxx, a current officer and director, and Xxxxxx X. Xxxx, a former
director. Plaintiffs allege that Seven Seas failed to obtain extensions of time
in which plaintiffs could exercise certain stock options granted to them, and
that the defendants induced them to enter into separation agreements with Seven
Seas that they would not have entered into but for Seven Seas' agreement to
obtain an extension of the time for plaintiffs to exercise their stock options.
The plaintiffs filed the case October 2, 2000, seeking damages in excess of $13
million. The Company has responded, and the case is in the process of discovery.
The Company has filed a counterclaim against two plaintiffs for breaching their
fiduciary duties in connection with certain employment agreements that they
caused the Company to enter into. A trial is scheduled for late August, 2001.
Seven Seas intends to vigorously defend the case.
70
SCHEDULE 3.19 CONTINUED...
FORMER EMPLOYEE
A lawsuit has been filed against GHK Company Colombia in the Bogota labor court
by a former employee who claims that he incurred $1.6 million in expenses in
connection with a criminal action filed against him in Guaduas. Our Colombian
legal counsel has advised us that it is unlikely that we will lose the lawsuit
due to the fact that, upon his departure from service, the plaintiff
acknowledged that GHK had paid in full all monies owed.
XXXXX XXXXX
Xxxxx Xxxxx filed a labor suit against GHK on September 15, 2000, attempting to
prove the existence of a fixed term employment contract for the period between
September 8, 1998 and September 8, 2001. Consequently his pretensions are the
payment of severance, severance interests, vacations, service premium,
indemnification for unilateral termination of the employment contract and a
penalty for the unearned salaries since the unilateral termination of the
contract. GHK answered the claim opposing the pretensions made, based on the
settlement signed in the USA. The proceeding was closed by the Court during the
first hearing, since the lawyer acting as informal agent for the plaintiff was
not timely ratified. The recommendation is to have a settlement between Xxxxx
and GHK in front of a Colombian Labor Court, in order to prevent future
litigation.
ENVIRONMENTAL PENALTY
On June 8, 1998, the Ministry of Environment required our subsidiary, GHK
Company Colombia, to perform some remedial work on the El Segundo 6-E location
and access road. GHK Company Colombia performed the work, and thereafter
reported to the Ministry of Environment that all the work had been completed. In
various site visits, ministry officials have confirmed that the alleged
violations have been properly remedied. On July 8, 1999, GHK Company Colombia
filed all the documentation, which confirmed total compliance to the
requirements.
In March 2000, we paid a fine of approximately $223,000 to the Ministry of
Environment in connection with a resolution issued against GHK Colombia by the
Ministry of Environment in which it declared GHK Company Colombia to be in
violation of a 1997 decree in connection with the construction of the El Segundo
7-E well location. We have filed an appeal for a reversal of the resolution. We
believe that we have corrected the environmental violations claimed by the
Ministry of Environment; however, the appeal process can take up to two years.
The El Segundo 7-E location has been restored and we currently have no drilling
activities planned at this location.
71
SCHEDULE 3.23
LIST OF FACTS OR CIRCUMSTANCES RESULTING IN A MATERIAL ADVERSE CHANGE
IN DECEMBER 31, 2001 RESERVE ESTIMATES
NONE
72
SCHEDULE 3.25
LIST OF FACTS OR CIRCUMSTANCES RESULTING IN A MATERIAL ADVERSE CHANGE
IN DECEMBER 31, 2001 RESERVE ESTIMATES
NONE
