-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NRCpFs+37pAyc675vQ2ZP/3A0cs3tIaDUAH4wjP1rOsCC4OVzWGmQ8Ot86Z23LQe 9nzSnFkeefm5qJOgdlzMjg== 0000950129-04-001704.txt : 20040330 0000950129-04-001704.hdr.sgml : 20040330 20040330172344 ACCESSION NUMBER: 0000950129-04-001704 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 39 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENDEAVOUR INTERNATIONAL CORP CENTRAL INDEX KEY: 0001112412 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 880448389 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-33439 FILM NUMBER: 04702673 BUSINESS ADDRESS: STREET 1: 1001 FANNIN STREET 2: SUITE 1700 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 713-307-8700 MAIL ADDRESS: STREET 1: 1001 FANNIN STREET 2: SUITE 1700 CITY: HOUSTON STATE: TX ZIP: 77002 FORMER COMPANY: FORMER CONFORMED NAME: CONTINENTAL SOUTHERN RESOURCES INC DATE OF NAME CHANGE: 20020816 FORMER COMPANY: FORMER CONFORMED NAME: EXPRESSIONS GRAPHICS INC DATE OF NAME CHANGE: 20000419 10KSB 1 h13916e10ksb.txt ENDEAVOUR INTERNATIONAL CORP. 12/31/2003 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO ___________ COMMISSION FILE NUMBER: 1-13463 ENDEAVOUR INTERNATIONAL CORPORATION (Name of small business issuer as specified in its charter) Nevada 88-0448389 ------------------------------ ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1001 FANNIN, SUITE 1700, HOUSTON, TEXAS 77002 (Address of principal executive offices) (Zip code) (713) 307-8700 (Issuer's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: Common Stock, $0.001 par value per share Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this form 10-KSB. [X} The issuer's revenues for the fiscal year ended December 31, 2003, were $27,305. The aggregate market value of the voting common equity held by non-affiliates (persons other than officers, directors or holders of more than 5% of the outstanding stock) of the issuer based on the closing sale price of the registrant's common stock as reported on the OTC Bulletin Board on March 29, 2004 was $184,503,000. As of March 29, 2004, 69,127,070 shares of the issuer's common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: None. Transitional Small Business Disclosure Formats (check one) Yes [ ] No [X] =============================================================================== TABLE OF CONTENTS
Forward-Looking Statements....................................................................................... 1 Part I........................................................................................................... 1 Item 1. Description of Business............................................................................... 1 Business Development....................................................................................... 1 Subsequent Events - The Offering, Merger and Restructuring................................................. 1 The Offering............................................................................................... 2 The Merger................................................................................................. 2 Corporate Restructuring.................................................................................... 3 Retained Properties........................................................................................ 4 Business Strategy.......................................................................................... 4 Competition................................................................................................ 8 Regulation................................................................................................. 8 Environmental.............................................................................................. 9 Operational Hazards and Insurance..........................................................................10 Employees..................................................................................................10 Risk Factors...............................................................................................10 Item 2. Description of Property..............................................................................19 Item 3. Legal Proceedings....................................................................................25 Item 4. Submission of Matters to a Vote of Security Holders..................................................26 Part II..........................................................................................................26 Item 5. Market for Common Equity and Related Stockholder Matters.............................................26 Item 6. Management's Discussion and Analysis or Plan of Operations...........................................28 Item 7. Financial Statements.................................................................................32 Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.................32 Item 8a. Controls and Procedures.............................................................................32 Part III.........................................................................................................33 Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(A) of the Exchange Act.............................................................33 Item 10. Executive Compensation..............................................................................38 Item 11. Security Ownership of Certain Beneficial Owners and Management......................................40 Item 12. Certain Relationships and Related Transactions.......................................................43 Item 13. Exhibits and Reports On Form 8-K.....................................................................48 Item 14. Principal Accountant Fees and Services...............................................................49 Index to Financial Statements...................................................................................F-1
(i) FORWARD-LOOKING STATEMENTS The information contained in this Annual Report on Form 10-KSB and in other public statements by the Company and Company officers or directors includes or may contain certain forward-looking statements. The words "may," "will," "expect," "anticipate," "believe," "continue," "estimate," "project," "intend," and similar expressions used in this Report are intended to identify forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. You should not place undue reliance on these forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. You should also know that such statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions. Many of these risks and uncertainties are set forth under the caption "RISK FACTORS" in Item 1 of this report. Should any of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may differ materially from those included within the forward-looking statements. PART I ITEM 1. DESCRIPTION OF BUSINESS BUSINESS DEVELOPMENT Endeavour International Corporation, formerly known as Continental Southern Resources, Inc. and Expression Graphics, Inc., is a Nevada corporation formed on January 13, 2000. Our principal executive offices are located at 1001 Fannin, Suite 1700, Houston, TX 77002, and our telephone number is (713) 307-8700. Unless the context otherwise requires, references to the "Company", "Endeavour", "we", "us" or "our", mean Endeavour International Corporation or any of our consolidated subsidiaries. From the date of our formation through February 2002, we were engaged in the business of marketing and selling graphics media products, such as symbols, logos, pictures, signs and business advertisements, over the Internet. In February, 2002, we experienced a change in management and began to implement a new business plan. We are presently engaged in the business of acquiring, exploring, and developing natural gas and oil properties. SUBSEQUENT EVENTS - THE OFFERING, MERGER AND RESTRUCTURING On February 29, 2004, we announced that we had completed a series of mutually interdependent transactions that will significantly expand our scope and objectives under the leadership of a new 1 management team. The expanded organization was renamed "Endeavour International Corporation." THE OFFERING In an offering of common stock (the "Offering") that closed February 26, 2004, we issued 25 million shares of common stock at $2.00 per share in a private placement. The estimated net proceeds of the Offering were $46,000,000, after deduction of placement agent commissions of $2,500,000, financial advisory fees of $1,250,000 and offering expenses, estimated to be $250,000. In addition, warrants to purchase 700,000 shares of common stock at $2.00 per share were issued to the placement agent. The net proceeds were used for the purchase of approximately 14.1 million shares of common stock and 103,500.07 shares of our Series B Preferred Stock for $5.3 million and for $1.5 million for repayment of the principal amount of certain outstanding convertible notes, with the remainder of the net proceeds to be used for general corporate purposes, including potential acquisitions. THE MERGER Concurrent with the closing of the Offering, we acquired NSNV, Inc. ("NSNV"), through a merger (the "Merger") of NSNV into a newly created Delaware corporate subsidiary of the Company. The newly created subsidiary was the survivor of the Merger and is a wholly-owned subsidiary of the Company that was renamed Endeavour Operating Corporation. NSNV was a private company owned by William L. Transier, John N. Seitz and PGS Exploration (UK) Limited ("PGS"), a United Kingdom corporation that is a provider of geophysical services. The former shareholders of NSNV received an aggregate of 12.5 million of our common stock in the Merger, representing approximately 18.9% of our outstanding common stock immediately after the closing of the Merger. The Merger is intended to provide us with the following competitive advantages: (i) a pre-eminent seismic and geological database of the North Sea region and (ii) a proven and experienced management team comprised of Messrs. Transier and Seitz and certain other former executives of Ocean Energy, Inc. ("Ocean Energy") and Anadarko Petroleum Corporation ("Anadarko"). The strategy of the new management team is to acquire, explore, and develop primarily international natural gas and oil properties, with an initial focus on the North Sea region. On December 16, 2003, NSNV and PGS Exploration (UK) Limited ("PGS"), a United Kingdom corporation that is a provider of geophysical services, entered into an agreement where, in exchange for certain consideration including, among other things, cash and 18.5% of the outstanding stock of NSNV, PGS granted NSNV a license to use 79,200 square kilometers of 3-D seismic and related data in the North Sea region, including the 3D Mega Merge and North Sea Digital Atlas databases. Under the agreement, NSNV is required to purchase products and services from PGS or certain of its affiliates that have an aggregate invoice value over three years of at least $4.5 million, in exchange for certain consideration including, among other 2 things, cash and 18.5% of the outstanding stock of NSNV and a three-year product and service commitment,. PGS has also agreed to provide NSNV with product discounts and certain consultancy services during the term of the agreement. Upon consummation of the Merger, our sole officer, Stephen P. Harrington, and directors Humbert Powell, Thomas Michael Curran and Gary Krupp resigned and William L. Transier and John N. Seitz became the Co-Chief Executive Officers of the Company, pursuant to three-year employment agreements, and two of our four then incumbent directors. In addition to Messrs. Transier and Seitz, we have hired several additional former executives of Ocean Energy and Anadarko. CORPORATE RESTRUCTURING Simultaneous with the consummation of the Merger and the Offering, we restructured various financial and stockholder related items (the "Restructuring"). Specifically, we completed the following: o Repaid $1,500,000 principal amount of our outstanding convertible notes; o Issued 1,026,624 shares of our common stock upon conversion of the $1,550,000 principal balance and accrued interest due under certain convertible notes at a conversion price of $1.75; o Issued 375,000 shares of our common stock upon conversion of the $600,000 principal balance and accrued interest due under a convertible note at a conversion price of $1.60; o Issued 2,808,824 shares of our common stock upon conversion of all of the outstanding Series C Preferred Stock, at a conversion price of $1.70 per share; o Purchased all outstanding shares of Series A Preferred Stock and 20,212.86 shares of Series B Preferred Stock in exchange for certain of our non-core assets (see "Sale of Non-Core Assets" below); and o Purchased 14.1 million shares of common stock and 103,500.07 shares of Series B Preferred Stock from RAM Trading, Ltd. for $5,330,948 in cash (see "Purchase of Securities from Ram Trading Ltd." below). SALE OF NON-CORE ASSETS As part of the Restructuring, we sold the following non-core assets to the holders of the Series A Preferred Stock and certain holders of the Series B Preferred Stock: o 100% of our ownership interest in BWP Gas, LLC ("BWP"); o 864,560 shares of restricted common stock of BPK Resources, Inc.; o 400,000 shares of common stock of Trimedia Group, Inc.; o Note receivable due from CSR Hackberry, LLC with a principal balance of $25,000; 3 o Note receivable due from Snipes, LLC in the principal amount of $122,500; o Subscription receivable due from FEQ Investments, Inc. in the principal amount of $175,000; o Subscription receivable due from GWR Trust in the principal amount of $250,000; and o Note receivable due from BPK Resources, Inc. with a principal balance of $670,000. After completing the Merger, we sold our entire limited partnership interest in Knox Miss. Partners, L.P., a Delaware limited partnership that owns a 50% interest in certain oil and gas leases located in Mississippi, as well as our related interest in Knox Miss., LLC, the 1% sole general partner of Knox Miss. Partners, L.P., for $5.0 million. The $5.0 million was payable $500,000 in cash and by the issuance of a $4.5 million short-term note that is secured by a pledge of the limited partnership interest. PURCHASE OF SECURITIES FROM RAM TRADING, LTD. On December 16, 2003, RAM Trading Ltd. ("RAM") entered into an agreement with Lancer Offshore, Inc. and Lancer Partners, L.P. to purchase 14,097,672 shares of common stock and 103,500.07 shares of our Series B Preferred Stock (collectively, the "Lancer Shares") for $5,280,948. Concurrent with the execution of the foregoing agreement, we entered into an agreement with RAM to purchase the Lancer Shares for $5,330,948, subject to RAM completing the purchase of the Lancer Shares. Both the RAM purchase of the Lancer Shares and our purchase of the Lancer Shares from RAM were consummated on February 26, 2004. RETAINED PROPERTIES We retained interests in the following oil and gas properties: o 95% interest in PHT Partners, L.P., which has a minority interest in APICO, LLC, a limited liability company whose primary business is certain concessions in the Phu Horm Gas Field Project located in the Kingdom of Thailand; and o 24% limited partnership interest in Louisiana Shelf Partners, L.P. ("LSP"), a Delaware limited partnership that owns leasehold interests in Cameron Parish, Louisiana, and certain seismic data related thereto in offshore continental shelf properties. BUSINESS STRATEGY NORTH SEA OPPORTUNITY The North Sea has been a major producer of hydrocarbons for 30 years and offers significant potential for production growth through the application of new seismic technologies and 4 innovative geologic and engineering concepts. There is increasing recognition in the energy industry that the North Sea offers the same financial and development opportunities that the Gulf of Mexico offered in the 1980s. The major integrated energy companies are restructuring their portfolios and refocusing their resources into other parts of the world, providing an opportunity for smaller independent companies to profitably exploit remaining potential in the North Sea. While the United Kingdom ("UK") sector of the North Sea has peaked in terms of daily production, there are many areas where the application of new exploration and production techniques are increasing production rates and extending producing field lives and existing reserves. Norway is far less mature and offers greater reserve potential. Both sectors contain a large installed infrastructure base that includes wells, platforms, facilities, pipelines, shore bases, and a highly experienced technical workforce. Other than the Atlantic Margin and the deeper portions of the Norwegian Sea, the North Sea is primarily a shallow water environment with most existing production located in less than 300 feet of water and accessible using proven conventional technology. The UK currently has an attractive financial environment for oil and gas production, and it has indicated a willingness to consider measures to further induce producers to explore and develop. Indicators are favorable that Norway will, in the face of the expected decline of indigenous production and increasing worldwide competition for European and North American gas markets, likely adopt fiscal and regulatory terms more favorable than those that currently exist. NORTH SEA STRATEGY Our strategy is to take advantage of the shift of the majors away from the North Sea, the significant contraction of the independent sector, and the opportunities these changes create for new independent companies. We intend to leverage vertical alliances with companies that offer capabilities or technologies that will enhance our future exploratory and developmental efforts. Our most significant agreement to date is the acquisition of license rights to an extensive 3-D seismic dataset offered by PGS, the UK subsidiary of a Norwegian-based, technologically focused oilfield service company providing seismic and reservoir services. To the best of our knowledge, no other firm currently has access to comparable seismic data of this size and quality in the North Sea. We have the right to use the recently compiled 3D Mega Merge dataset that covers approximately 79,200 square kilometers of the United Kingdom Continental Shelf and the Norwegian Continental Shelf. PGS overcame major technological challenges to bring together, for the first time, open-file, brokeraged and PGS multi-client 3D seismic data into one format. Also, included in the agreement is access to the North Sea Digital Atlas, a dataset consisting of a multitude of regional maps on key horizons, interpreted from 110,000 kilometers of 2D data tied to over 1,200 wells. We believe the use of the 3D Mega Merge and the North Sea Digital Atlas, coupled with over 20 man-years of associated interpretation from PGS, will enable proprietary mapping for purposes of identifying development and exploration opportunities not yet exploited by the energy industry in the North Sea. We believe this data gives us a period of competitive advantage over 5 current operators and other niche independent exploration and production companies entering the North Sea. Our efforts to establish a leadership role in the area will be supported by the analysis of key geophysical data. We will use advanced technologies to better understand and manage risk and improve the probability of early, profitable results. We believe that this combination of the most comprehensive seismic data available to the industry in this region with advanced geologic concepts will result in the discovery and/or exploitation of new energy resources in the North Sea. Such opportunities were recently demonstrated by the industry's discovery of Buzzard, a significant new oil field in the UK sector with reportedly more than 400 million barrels of oil recoverable from a stratigraphic trap. The industry previously considered this form of trapping mechanism to be less significant to the North Sea, with only 8% of the province's existing reserves exhibiting this characteristic, in comparison to 33% globally. NORWAY OPPORTUNITY The exploration potential of Norway is also of particular interest to us. Norway is immature from a historical drilling activity and well density perspective. While the UK offered initiatives and incentives to encourage exploration and production activities, historic regulatory and fiscal policies in Norway controlled the pace and scope of exploration activities and prevented drilling and development from all but the very largest of fields. The dynamics of world oil and gas supply and demand, global competition, and the increasing need to support the government's social policies have caused the Norwegian government to reconsider its current regulations and fiscal regime. As a result, Norway has begun to take proactive steps to promote more exploration and development and retain its position as a premier supplier of oil and, particularly, natural gas to the UK and Europe. Without such changes, the nation risks being unable to meet growing energy demand and losing markets to competitors such as Russia, the Middle East and Africa. The recent signing of a framework agreement with the UK to encourage, among other things, the construction of additional natural gas pipeline infrastructure between the two countries exemplifies Norway's commitment to expanding its energy industry. We intend to position ourselves to capture the opportunities that these new policies may provide. ACQUISITION STRATEGY Our acquisition strategy will focus on asset management processes of other companies and corporate opportunities that are identified and prioritized by utilizing our extensive regional datasets. The overriding objective will be to gain a level of production and cash flow that will support a strong exploration effort and provide investment funding for exploitation opportunities we identify in acquired assets. 6 Through the use of the North Sea Digital Atlas, existing extensive regional and local maps and proprietary interpretation of the 3D Mega Merge, we intend to identify specific targets for investment. These will primarily include: o the acquisition of oil and gas producing properties, o the rights to explore, evaluate and exploit "fallow blocks" in the UK sector ("fallow" refers to blocks on which initial exploratory terms or follow-up appraisal requirements have expired, thereby initiating the UK's recently established mandatory relinquishment process), and o the rights to leaseholds available in future licensing rounds in both the UK and Norway with a particular focus on "promote" license rounds. (The UK government introduced "promote" licenses in 2003 to increase oil and gas activity in the North Sea by reducing the initial leasing fees, and eliminating work commitment and licensee operational requirements). We intend to develop an asset portfolio balanced between exploration and exploitation, gas and oil, leverage and equity, with the ultimate objective of funding continued growth and building long-term value for our stockholders. Our value creation capabilities will rely heavily on the extensive industry contact base of our executive team and the development of innovative transaction models. The most desirable targets for investment are natural gas projects with long life production profiles and oil-producing assets that provide near term cash flow, as well as upside from further drilling. Low risk exploration with significant option value in upside potential should provide expanded growth opportunities. Corporate acquisitions with quality assets that are undervalued will be pursued. TECHNICAL STRATEGY Our technical strategy is founded on a philosophy that regional petroleum systems analyses improve competitive advantage, reduce exploration risk and optimize value creation. This process consists of understanding source rock maturation, hydrocarbon migration pathways, trap and seal integrity, and reservoir distribution to the fullest extent possible. In contrast, most technical activity in basins with existing production is focused exclusively on the identification of structural traps. This system has been successfully employed by our new management team in their past experiences to identify and commercialize reserves in basins worldwide. Technical teams are initially focusing their efforts in the regions of the North Sea that offer large reserve potential, proven play concepts and undeveloped oil and gas resources. A number of opportunities are currently available due to asset divestitures, mandated relinquishment of fallow acreage (including unexploited discoveries) and introduction of promote licenses. We are assembling a London-based team of experienced technical and commercial professionals for the specific purpose of evaluating and developing opportunities in the region. Senior management and a small staff located at corporate headquarters in Houston provide strategic direction and guidance and oversee administrative, legal and financial support. Information technology support is outsourced and the workstation environment is server- and or/high-end personal computer- based. 7 COMPETITION The petroleum and natural gas industry is highly competitive. Numerous independent oil and gas companies, oil and gas syndicates and major oil and gas companies actively seek out and bid for oil and gas properties as well as for the services of third party providers, such as drilling companies, upon which we rely. A substantial number of our competitors have longer operating histories in this region and substantially greater financial and personnel resources than we do. Many of these companies not only explore for, produce and market petroleum and natural gas, but also carry out refining operations and market the resultant products on a worldwide basis. Such larger or vertically integrated competitors may be in a position to outbid us for particular prospect rights. The petroleum and natural gas producers also compete with other suppliers of energy and fuel to industrial, commercial and individual customers. Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the governments and/or agencies thereof and other factors out of our control including, international political conditions, overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources. REGULATION The exploration, production and sale of oil and gas are extensively regulated at both the national and local levels. Applicable legislation is under constant review for amendment or expansion. These efforts frequently result in an increase in the regulatory burden on companies in our industry and consequently an increase in the cost of doing business and decrease in profitability. Numerous governmental departments and agencies are authorized to, and have issued rules and regulations imposing additional burdens on the oil and gas industry that often are costly to comply with and carry substantial penalties for failure to comply. Production operations are affected by changing tax and other laws relating to the petroleum industry, by constantly changing administrative regulations and possible interruptions or termination by government authorities. Oil and gas mineral rights may be held by individuals or corporations and by governments having jurisdiction over the area in which such mineral rights are located. As a general rule, parties holding such mineral rights grant licenses or leases to third parties to facilitate the exploration and development of these mineral rights. The terms of the leases and licenses are generally established to require timely development. Notwithstanding the ownership of mineral rights, the government of the jurisdiction in which mineral rights are located generally retains authority over the manner of development of those rights. Local regulatory authorities have established rules and regulations requiring permits for drilling operations, drilling bonds and reports concerning operations. The areas in which we operate have statutes and regulations governing various environmental and conservation matters, 8 including the unitization or pooling of oil and gas properties and establishment of maximum rates of production from oil and gas wells. Many authorities may also restrict production to the market demand for oil and gas. Such statutes and regulations may limit the rate at which oil and gas could otherwise be produced from our properties. In addition to royalties paid, a production or severance tax may be imposed with respect to production and sale of crude oil, natural gas and natural gas liquids within their respective jurisdictions. For the most part, production taxes are applied as a percentage of production or sales. ENVIRONMENTAL Our operations are also subject to a variety of constantly changing federal, local and international laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Significant fines and penalties may be imposed for the failure to comply with environmental laws and regulations. Some environmental laws provide for joint and several strict liability for remediation of releases of hazardous substances, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, such as oil and gas related products or for other reasons. Some environmental protection laws and regulations may expose us to liability arising out of the conduct of operations or conditions caused by others, or for acts which were in compliance with all applicable laws at the time the acts were performed. Changes in the environmental laws and regulations, or claims for damages to persons, property, natural resources or the environment, could result in substantial costs and liabilities to us. These laws and regulations may substantially increase the cost of exploring for, developing, producing or processing oil and gas and may prevent or delay the commencement or continuation of a given project and thus generally could have a material adverse effect upon our capital expenditures, earnings, or competitive position. We believe that we are in substantial compliance with current applicable environmental laws and regulations, and the cost of compliance with such laws and regulations has not been material and is not expected to be material during the next fiscal year. Nevertheless, changes in existing environmental laws and regulations or in the interpretations thereof could have a significant impact on us and the oil and gas industry in general. Water discharge regulations and waste discharge permitting requirements have been adopted or are expected in the future to prohibit the discharge of produced water and sand and some other substances related to the oil and gas industry. Although the costs to comply with such mandates under applicable laws may be significant, the entire industry will experience similar costs, and we do not believe that these costs will have a material adverse impact on our financial condition and operations. 9 OPERATIONAL HAZARDS AND INSURANCE Our operations are subject to particular hazards incident to the drilling and production of oil and gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires and pollution and other environmental risks. These hazards can cause personal injury or death, damage or destruction of property and equipment, pollution or environmental damage and suspension of operation. In the projects that we own a non-operating interest directly or own an equity interest in a limited partnership which owns a non-operating interest, the operator for the prospect maintains insurance of various types to cover our operations with policy limits and retention liability customary in the industry. We believe the coverage and types of insurance are adequate. The occurrence of a significant adverse event, the risks of which are not fully covered by insurance, could have a material adverse effect on our ownership interests and thereby financial condition and results of operations. EMPLOYEES As of March 29, 2004, we have 13 full-time employees. We utilize the services of various consultants who provide us, among other things, technical support and accounting services. RISK FACTORS The following material risk factors, among others, may affect the Company's financial condition and results of operations. WE HAVE HAD OPERATING LOSSES AND LIMITED REVENUES TO DATE AND DO NOT EXPECT TO BE PROFITABLE IN THE FORESEEABLE FUTURE. We have been operating at a loss each year since our inception, and we expect to continue to incur substantial losses for the foreseeable future. Net loss applicable to common stockholders for the years ended December 31, 2003 and 2002 was $37.2 million and $8.7 million, respectively. We also have had limited revenues to date. Revenues for the years ended December 31, 2003 and 2002 were $27,305 and $16,142, respectively. Further, we may not be able to generate significant revenues in the future. In addition, we expect to incur substantial operating expenses in connection with our gas and oil exploration activities. As a result, we expect to continue to experience negative cash flow for the foreseeable future and cannot predict when, or if, we might become profitable. 10 IF WE ARE UNABLE TO GENERATE ADDITIONAL FINANCING, WE WILL NOT BE ABLE TO ADEQUATELY FUND OUR EXISTING DEVELOPMENT AND EXPLORATION PROJECTS, ACQUIRE ADDITIONAL OIL AND GAS INTERESTS, OR MAINTAIN OUR RIGHTS IN SUCH PROJECTS. We may not have an adequate amount of financial resources to adequately fund our development and exploration projects on a long-term basis. We believe, however, that we have sufficient funding to continue to execute our business plan for at least 24 months. Since we currently are not a majority owner or operator of any of our projects, we cannot control the timing or amount of expenditures associated with a particular project. In the past, we have relied on the sale of our debt and equity securities to fund the acquisition, exploration and development of our petroleum properties. To continue funding these projects and to have the ability to fund additional projects, we will need to raise additional capital. We cannot assure you that additional funding will be available to us for exploration and development of our projects or to fulfill our obligations under any agreements. We also cannot assure you that we will be able to generate sufficient operating cash flow or obtain adequate financing in the future or that the terms of any such financing will be favorable. Failure to generate such additional operating cash flow or obtain such additional financing could result in delay, postponement or cancellation of further exploration and development of our projects or the loss of our interest in such properties. ACQUIRING INTERESTS IN PROPERTIES FOR OIL AND NATURAL GAS EXPLORATION IS SPECULATIVE IN NATURE AND MAY NOT EVER RESULT IN OPERATING REVENUES OR PROFITS. We cannot assure you that we will discover oil and gas in commercial quantities in any of our current properties or properties we acquire in the future. Our success depends upon our ability to acquire working and revenue interests in properties upon which gas and oil reserves are ultimately discovered. We expect to ultimately derive the cash flow necessary to fund our operations from the oil and gas produced from our producing properties and/or the sale of our properties. As of the date hereof, none of our properties have generated significant operating revenues. WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO ACQUIRE LEASEHOLD INTERESTS OR ENTER INTO LICENSING ARRANGEMENTS ON TERMS THAT WILL PERMIT US TO EXPLOIT THE NORTH SEA SEISMIC DATA. One of our primary assets is certain seismic data from the North Sea. We do not own any leasehold or other interests in any of the properties to which the seismic data relates. In order to exploit such data, we will either have to acquire interests in such properties or license the use of the data to persons who have such rights. We cannot assure you that we will be able to acquire such rights, if at all, on economic terms that will permit us to realize earnings or that we will be able to successfully license such data. 11 IN THE EVENT WE ARE UNABLE TO IDENTIFY ADDITIONAL GAS AND OIL PROSPECTS IN WHICH WE CAN ACQUIRE AN INTEREST AT AN AFFORDABLE PRICE, WE MAY NOT BE ABLE TO SUSTAIN OUR GROWTH RATE AND ABILITY TO SPREAD RISK. One element of our strategy is to continue to grow and spread risk through selected acquisitions of leasehold or other ownership interests in gas and oil prospects. If we are unable to execute this aspect of our strategy in a timely manner, we may not be able to manage our risks and our operations may be adversely affected. We cannot assure you that: o we will be able to identify desirable gas and oil prospects and acquire leasehold or other ownership interests in such prospects at a desirable price; o any of our completed, currently planned, or future acquisitions of ownership interests in gas and oil prospects will include prospects that contain proven gas or oil reserves; o we will have the ability to develop prospects which contain proven gas or oil reserves to the point of production; o we will have the financial ability to consummate additional acquisitions of ownership interests in gas and oil prospects or to develop the prospects which we acquire to the point of production; or o that we will be able to consummate such additional acquisitions on terms favorable to us. MARKET FLUCTUATIONS IN THE PRICES OF OIL AND GAS COULD ADVERSELY AFFECT THE PRICE AT WHICH WE CAN SELL GAS OR OIL DISCOVERED ON OUR LEASED PROPERTIES. Market fluctuations in the prices of oil and gas can adversely affect the price that we can sell gas and oil discovered on our leased properties. In recent decades, there have been periods of both worldwide over-production and underproduction of hydrocarbons and periods of both increased and relaxed energy conservation efforts. These conditions have resulted in periods of excess supply of, and reduced demand for, crude oil on a worldwide basis and for natural gas on a domestic basis. These periods have been followed by periods of short supply of, and increased demand for, crude oil and, to a lesser extent, natural gas. The excess or short supply of natural gas and crude oil has placed pressures on prices and has resulted in dramatic price fluctuations, even during relatively short periods of seasonal market demand. We cannot predict with any degree of certainty future oil and natural gas prices. Changes in oil and natural gas prices significantly affect our revenues, operating results, profitability and the value of our oil and gas reserves. We do not currently engage in any hedging program to mitigate our exposure to fluctuation in oil and gas prices. 12 THE OIL AND GAS EXPLORATION INDUSTRY IS EXTREMELY COMPETITIVE, WHICH MAY ADVERSELY AFFECT OUR PROFITABILITY. The oil and gas industry is intensely competitive and we compete with other companies that have longer operating histories and greater financial and other resources than we do. Many of these companies not only explore for and produce crude oil and natural gas but also carry on refining operations and market petroleum and other products on a worldwide basis. These competitors can sustain longer periods of reduced prices of gas and oil and may also be in a better position to outbid us to purchase particular interests in oil and gas properties. See also "Description of Business - Competition" above. OUR ABILITY TO PRODUCE SUFFICIENT QUANTITIES OF OIL AND GAS FROM OUR PROPERTIES MAY BE ADVERSELY AFFECTED BY A NUMBER OF FACTORS OUTSIDE OF OUR CONTROL. IF WE ARE UNABLE TO PRODUCE OIL AND/OR GAS FROM OUR PROPERTIES IN COMMERCIAL QUANTITIES, OUR OPERATIONS WILL BE SEVERELY AFFECTED. Our business of exploring for and producing oil and gas involves a substantial risk of investment loss. Drilling oil and gas wells involves the risk that the wells may be unproductive or that the wells, although productive, do not produce oil and/or gas in economic quantities. Other hazards, such as unusual or unexpected geological formations, pressures, fires, blowouts, loss of circulation of drilling fluids, or other conditions may substantially delay or prevent completion of any well. This could result in a total loss of our investment in a particular property. Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic if water or other deleterious substances are encountered, which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. As with any petroleum property, there can be no assurance that oil and gas will be produced from the properties in which we have interests. In addition, the marketability of oil and gas which may be acquired or discovered, is affected by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. We cannot predict how these factors will adversely affect our business. WE INTEND TO OPERATE IN FOREIGN COUNTRIES AND WILL BE SUBJECT TO POLITICAL, ECONOMIC AND OTHER UNCERTAINTIES. Through our subsidiary PHT Partners, L.P. we currently have working interests in the Kingdom of Thailand. We also intend to commence significant operations in the North Sea and we may expand international operations to other countries or regions in the future. International operations are subject to political, economic and other uncertainties, including: 13 o the risk of war, acts of terrorism, revolution, border disputes, expropriation, renegotiation or modification of existing contracts, import, export and transportation regulations and tariffs; o taxation policies, including royalty and tax increases and retroactive tax claims; o exchange controls, currency fluctuations and other uncertainties arising out of foreign government sovereignty over our international operations; o laws and policies of the U.S. affecting foreign trade, taxation and investment; and o the possibility of having to be subject to the exclusive jurisdiction of foreign courts in connection with legal disputes and the possible inability to subject foreign persons to the jurisdiction of courts in the United States. Foreign countries have occasionally asserted rights to land, including oil and gas properties, through border disputes. If a country claims superior rights to oil and gas leases or concessions granted to us by another country, our interests could be lost or decreased in value. Various regions of the world have a history of political and economic instability. This instability could result in new governments or the adoption of new policies that might assume a substantially more hostile attitude toward foreign investment. In an extreme case, such a change could result in termination of contract rights and expropriation of foreign-owned assets. This could adversely affect our interests. We will seek to manage these risks by, among other things, concentrating international exploration efforts in areas where the Company believes that the existing government is favorably disposed towards United States exploration and production companies. WE DO NOT ALWAYS RETAIN LEGAL COUNSEL TO EXAMINE TITLE. WE DEPEND ON THE JUDGMENT OF OIL AND GAS LEASE BROKERS AND THE OPERATORS OF WELLS TO ENSURE THAT THERE ARE NO MATERIAL TITLE DEFICIENCIES IN THE PROPERTIES WE LEASE. TITLE DEFICIENCIES COULD RENDER A LEASE WORTHLESS WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATIONS. We purchase working and revenue interests in oil and gas leasehold interests. The existence of a material title deficiency can render a lease worthless and can result in a large expense to our business. It is our practice in acquiring oil and gas leases or undivided interests in oil and gas leases not to undergo the expense of retaining lawyers to examine the title to the mineral interest to be placed under lease or already placed under lease. Rather, we rely upon the judgment of oil and gas lease brokers or landmen who perform the field work in examining records in the appropriate governmental office before attempting to place under lease a specific mineral interest. This is customary practice in the oil and gas industry. Prior to the drilling of an oil and gas well, however, it is the normal practice in the oil and gas industry for the person or company acting as the operator of the well to obtain a preliminary title review of the spacing unit within which the proposed oil and gas well is to be drilled to ensure there are no obvious deficiencies in title to the well. We do not anticipate that we, or the person or company acting as operator of the wells located on the properties which we intend to lease, will obtain counsel to examine title to such spacing unit until the well is about to be drilled. As a result of such examinations, certain curative work may have to be performed to correct deficiencies in the marketability of the title, 14 and such curative work entails expense. The work might include obtaining affidavits of heirship or causing an estate to be administered. Occasionally, the examination made by the title lawyers reveals that the oil and gas leases are worthless, having been purchased in error from a person who is not the owner of the mineral interest desired. In such instances, the amount paid for such oil and gas lease or leases is generally lost. If we were to lose the amount paid for any such oil and gas lease, such loss would have a material adverse effect on our business. Since we do not intend to retain title lawyers in connection with our acquisitions, the risk of such losses in our operations is increased. IF THE OPERATOR OF A PROSPECT IN WHICH WE PARTICIPATE DOES NOT MAINTAIN OR FAILS TO OBTAIN ADEQUATE INSURANCE, OUR INTEREST IN SUCH PROSPECT COULD BE MATERIALLY AND ADVERSELY AFFECTED. Oil and gas operations are subject to particular hazards incident to the drilling and production of oil and gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires and pollution and other environmental risks. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operation. We are not currently an operator of oil and gas properties. In the projects in which we own a non-operating interest directly or own an equity interest in a limited partnership which in turn owns a non-operating interest, the operator for the prospect maintains insurance of various types to cover our operations with policy limits and retention liability customary in the industry. We believe the coverage and types of insurance are adequate. The occurrence of a significant adverse event that is not fully covered by insurance could result in the loss of our total investment in a particular prospect which could have a material adverse effect on our financial condition and results of operations. See also "Description of Business - Operational Hazards and Insurance" above. THE COST OF DECOMMISSIONING IS UNCERTAIN. As a result of our business strategy, we may incur obligations to decommission certain structures in the North Sea. To date there is little experience of removing oil and gas structures in the North Sea. Fewer than 10% of the 400 structures have been removed and these were small steel structures and sub sea installations in the shallower waters of the Southern North Sea. In addition, certain groups have been set up to study issues relating to decommissioning and how the costs will be borne. Because the experience is limited, it is difficult to predict the costs of any future decommissions for which we might become obligated. 15 OUR FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD RESULT IN SIGNIFICANT FINES AND/OR PENALTIES AND OUR COST OF COMPLIANCE WITH SUCH REGULATIONS COULD RESULT IN LARGE EXPENSES, EITHER OF WHICH WOULD ADVERSELY AFFECT OUR OPERATIONS. Our operations are subject to a variety of federal, state, local, and international laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Significant fines and penalties may be imposed for the failure to comply with environmental laws and regulations. Some environmental laws provide for joint and several strict liability for remediation of releases of hazardous substances, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances such as oil and gas related products. Some environmental protection laws and regulations may expose us to liability arising out of the conduct of operations or conditions caused by others, or for acts which were in compliance with all applicable laws at the time the acts were performed. Changes in the environmental laws and regulations, or claims for damages to persons, property, natural resources or the environment, could result in substantial costs and liabilities to us. Therefore, we may incur significant environmental compliance costs in the future. See also "Description of Business - - Environmental" above. OUR FAILURE TO COMPLY WITH VARIOUS LEVELS OF GOVERNMENTAL REGULATIONS TO WHICH WE ARE SUBJECT COULD RESULT IN SIGNIFICANT FINES AND/OR PENALTIES AND OUR COST OF COMPLIANCE WITH SUCH REGULATIONS COULD RESULT IN LARGE EXPENSES, EITHER OF WHICH WOULD ADVERSELY AFFECT OUR OPERATIONS. Oil and gas exploration, development and production are subject to various types of regulation by local, state and federal agencies. Legislation affecting the oil and gas industry is under constant review for amendment and expansion. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue and have issued rules and regulations binding on the oil and gas industry and its individual members, some of which carry substantial penalties for failure to comply. The regulatory burden on the oil and gas industry increases our cost of doing business and, consequently, adversely affects its profitability. See also "Description of Business - Regulation" above. WE ARE DEPENDENT ON OUR EXECUTIVE OFFICERS AND NEED TO ATTRACT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL. Our future success depends in large part on the service of William L. Transier and John N. Seitz, both of whom have substantial experience in the oil and gas industry. If either were to resign it could have a material adverse effect on our business, operating results and financial condition. While we have employment agreements with each of Mr. Transier and Mr. Seitz, there can be no assurance that such agreements will be enforceable in all circumstances, that we will have the 16 resources to enforce such agreements or that we will have the ability to retain their services due to resignation or otherwise. Further, we do not intend to maintain key-person life insurance on either Mr. Transier or Mr. Seitz. Our future success also depends upon our ability to attract, assimilate and retain highly qualified technical and other management personnel. There can be no assurance that we will continue to attract, assimilate and retain key personnel, and the failure to do so will have a material adverse effect on our business, operating results and financial condition. YOU MAY EXPERIENCE DILUTION OF YOUR OWNERSHIP INTERESTS DUE TO THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK. We may in the future issue our previously authorized and unissued securities which will result in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue 150,000,000 shares of common stock and 11,500,000 shares of preferred stock with such designations, preferences and rights as determined by our board of directors. As March 29, 2004, we have issued 69,127,670 shares of common stock, and outstanding options and warrants to purchase an additional 6,622,500 shares of our common stock. We also have additional shares available for grant under the Company's recently adopted Incentive Plan, which plan will be presented for stockholder approval at our 2004 annual meeting of stockholders. Issuance of these shares of common stock may substantially dilute the ownership interests of our existing stockholders. The potential issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock that in turn will require us to issue additional shares to raise funds through sales of our securities. We may also issue additional shares of our stock in connection with the hiring of personnel, future acquisitions, future private placements of our securities for capital raising purposes, or for other business purposes. This would further dilute the interests of our existing stockholders. WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE. We have never declared or paid a dividend on our common stock. We intend to retain earnings, if any, for use in the operation and expansion of our business and therefore do not anticipate paying any dividends in the foreseeable future. APPLICABLE SEC RULES GOVERNING THE TRADING OF "PENNY STOCKS" LIMIT THE LIQUIDITY OF OUR COMMON STOCK WHICH MAY AFFECT THE TRADING PRICE OF OUR COMMON STOCK. Our common stock currently trades on the OTC Bulletin Board. Since our common stock continues to trade below $5.00 per share, our common stock is considered a penny stock and is subject to SEC rules and regulations that impose limitations upon the manner in which our shares can be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability 17 determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. These regulations have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock. THE TRADING PRICE OF OUR COMMON STOCK MAY BE VOLATILE. The trading price of our shares has from time to time fluctuated widely and in the future may be subject to similar fluctuations. The trading price may be affected by a number of factors, including the risk factors set forth herein, as well as our operating results, financial condition, announcements or drilling activities, general conditions in the oil and gas exploration and development industry, and other events or factors. In addition, we agreed to file a registration statement to permit the public resale of the shares sold in our 25 million share private placement that was consummated in February 2004 and certain other of our outstanding securities. The influx of such a substantial number of shares into the public market could have a significant negative effect on the trading price of our common stock. In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular, have experienced substantial price fluctuations. In a volatile market, we may experience wide fluctuations in the market price of our common stock. These fluctuations may have an extremely negative effect on the market price of our common stock. THERE IS NO SIGNIFICANT MARKET FOR OUR COMMON STOCK. Our common stock is not eligible for trading on any national or regional securities exchange or the Nasdaq Stock Market. Our common stock is trading on the OTC Bulletin Board. This market tends to be substantially more illiquid than national securities exchanges or the Nasdaq Stock Market. There is not an active trading market for our common stock. We are not certain that an active trading market in our common stock will develop, or if such a market develops, that it will be sustained. IF WE ARE UNABLE TO DRILL AND COMPLETE PRODUCING WELLS ON CERTAIN OF OUR LEASEHOLD ACREAGE, WE WILL LOSE SUCH LEASEHOLD RIGHTS WHICH WILL RESULT IN THE LOSS OF OUR ENTIRE INVESTMENT IN SUCH LEASE. Our ability to retain certain of our leasehold acreage depends on our ability to drill and complete wells as producers. Leases that are held past the primary term of such lease are held "by operations". In order to maintain rights in leases held by operations, a leaseholder must drill and complete wells which are capable of production. We cannot assure you that we or the other participants in the projects will have the financial ability to fund these potential commitments. If the other owners of the working interests do not fulfill their share of such expenses, we may be precluded from continuing the drilling or be required to provide funding in excess of our proportionate share to protect our interest. 18 OUR OPERATIONS ARE EXTREMELY DEPENDENT ON OTHER COMPANIES AND OTHER SERVICE PROVIDERS OVER WHICH WE HAVE NO CONTROL. While we have exploration and development personnel, we may also rely upon the services of geologists, geophysicists, chemists, engineers and other scientists to assist in the exploration and analysis of our prospects to determine a method in which the prospects may be developed in a cost-effective manner. In addition, we rely upon the owners and operators of oil rigs and drilling equipment to drill and develop our prospects to production. Although we have developed relationships with a number of third party service providers, we cannot assure that we will be able to continue to rely on such persons. If any of these relationships with third party service providers are terminated or are unavailable on terms that are favorable to us, then we will not be able to execute our business plan. ITEM 2. DESCRIPTION OF PROPERTY THAILAND - KHORAT PLATEAU The Company operates in the Kingdom of Thailand through PHT Partners, L.P., a limited partnership with PHT Holding GP, LLC, as general partner. PHT Partners, L.P. acquired 883 of the 4,100 outstanding membership interests in APICO, LLC ("APICO"). APICO's primary business is to acquire property interests in Thailand and other rights in any concessions, to participate in exploring these concessions, and to develop and operate oil and gas wells. APICO has a 40% interest in the Phu Horm Gas Field Project operated by Amerada Hess (Thailand) Limited. During 2003, the Phu Horm 3 well was redrilled and the 45-day test of the well established that the well was capable of production in excess of 30,000 Mcf per day. The Phu Horm 4 and Phu Horm 5 wells are scheduled to be drilled in 2004. In September, 2003, one of the partners in APICO, NuCoastal Thailand Limited, was granted the status of concessionaire under Thai law and awarded Onshore Exploration Block Nos. L15/43 and L27/43, covering an area of 7,649 square kilometers. APICO has a 100% interest in these blocks. One of the partners in the Phu Horm Gas Field Project, ExxonMobil, has elected to back-in for a 10% interest in the Phu Horm Gas Field Project and pay their share of costs previously incurred. APICO' interest in the project will be reduced to 35%. PHT PARTNERS, L.P. We were initially the sole limited partner and currently have a 94.9% limited partnership interest in PHT Partners, L.P. We have made capital contributions to PHT Partners, L.P. in the aggregate amount of $1,721,607. Distribution of any profits of PHT are allocated 99% to the limited partners and 1% to the general partner until all capital has been returned to the partners. Thereafter, such distributions are allocated 80% to the limited partners and 20% to the general partners. PHT Partners, L.P. are subject to capital calls in connection with its investment in APICO. If PHT Partners, L.P. fail to meet any such capital call, we may lose all or part of our interest in APICO. 19 MISSISSIPPI On March 23, 2002, the Company formed Knox Miss. Partners, L.P. ("Knox Miss"), a Delaware limited partnership, to acquire interests in gas, oil and mineral leases of properties located in Mississippi. Knox Miss acquired certain seismic data and 50% working interests in leases covering approximately 34,800 net mineral acres within the Livingston Transform Area, Longview and Osborn prospects which cover several counties in Mississippi. During 2003, Knox Miss continued leasing activity in the Black Warrior Basin under our agreement with an industry participant to explore and develop an area of mutual interest in the Black Warrior Basin of Mississippi, targeting the Deep Knox and Pennsylvania formations. KNOX MISS. PARTNERS, L.P. As of December 31, 2003, the Company had contributed an aggregate of $5,544,500 and the general partner contributed a total of $27,325 to the limited partnership. Knox Miss. LLC, a Delaware limited liability company, which is the general partner of Knox Miss. Partners, L.P., was formed in March 2002. Under the Knox Miss., LLC's operating agreement, the Company was designated as the managing member of Knox Miss., LLC and given the authority to make all decisions on behalf of Knox Miss., LLC. Under the Knox Miss. Partners, L.P. partnership agreement, the Company, as the sole limited partner, is entitled to receive 99% of all cash generated by Knox Miss. Partners, L.P. from its operations or received from the disposition of its assets until such time as the Company as the sole limited partner has recovered its capital contributions to the partnership. Subsequent to recovering its capital contribution, the Company as the sole limited partner is entitled to receive 75% of all cash generated by Knox Miss. Partners, L.P. from its operations or received from the disposition of its assets. During 2002, Knox Miss entered into exploration agreements with SK Exploration, Inc., SKH Energy Partners II, LP and Clayton Williams Energy, Inc. ("Clayton") to jointly cooperate and participate in the exploration and development of oil, gas and leases in the Livingston Transform Area, Longview and Osborn prospects. Knox Miss acquired certain seismic data and 50% working interests in leases covering approximately 34,800 net mineral acres within these prospects for an aggregate purchase price of $4,214,950. Through December 31, 2003, Knox Miss has acquired additional mineral leases for $1,218,867 and incurred $848,139 of exploration expenses. Knox Miss is currently in legal proceedings in relation to these leases (See "Legal Proceedings"). Upon any joint sale by the parties of any ownership interests in the Livingston Transform Area prospect, Knox Miss will be entitled to receive the first $850,000 of the proceeds. 20 In February 2004, we sold our 99% limited partnership interest in Knox Miss. Partners, L.P. and our interest in Knox Miss., LLC for $5,000,000, consisting of $500,000 in cash and a short-term note receivable of $4,500,000 secured by a pledge of the limited partnership interest. CAMERON PARISH, LOUISIANA On December 31, 2002, we purchased a 24% limited partnership interest in Louisiana Shelf Partners, L.P., a Delaware limited partnership ("Louisiana Shelf"), for which LS Gas, LLC serves as the general partner. As of December 31, 2003, Louisiana Shelf has acquired various geological and geophysical data and interests in oil, gas and mineral leases located in Cameron Parish, Louisiana for an aggregate purchase price of $4,740,039. Louisiana Shelf owns a leasehold interest in 1,130 acres in East Cameron Block 4, Cameron Parish, Louisiana and certain seismic data related thereto in offshore oil fields. Louisiana Coastal, Inc. serves as the operator of this project. Louisiana Shelf also owns three (3) leases in State Waters, in East Cameron Blocks 4, 18, and 22. In August, 2003, Louisiana Shelf commenced drilling on the exploration project located on Louisiana State Lease No. 17742, 17743, 17744 and 17666 in Cameron Parish offshore Louisiana. The initial test well on Lease No. 17743 and 17744 was determined to be a dry hole. As a result, all the drilling costs incurred on this well in the amount of $3,366,597 were written off during the third and fourth quarters of 2003. Management has decided not to pursue additional exploration within State Lease No. 17743 and 17744. Consequently, these leases will be allowed to lapse in March 2004. We have recorded impairment charges of $991,138 in the fourth quarter of 2003 consisting of all the lease acquisition costs related to these leases. On October 8, 2003, Louisiana Shelf entered into a limited partnership agreement with PHT Gas, LLC and formed PHT Vicksburg Partners, LP ("PHT Vicksburg") of which Louisiana Shelf is a limited partner with an approximate 15% interest and PHT Gas, LLC is the general partner. As of December 31, 2003, Louisiana Shelf contributed $112,800 to PHT Vicksburg. Pursuant to the partnership agreement, Louisiana Shelf and other PHT Vicksburg members will be called upon from time to time for additional contributions to meet the reasonable capital requirements of PHT Vicksburg. In October 2003 and subsequently in January 2004, PHT Vicksburg acquired various oil, gas and mineral leases located in the East Coastal Filed Prospect in Starr and Hidalgo counties, Texas for an aggregate purchase price of approximately $518,000. LOUISIANA SHELF PARTNERS, L.P. The Company contributed $240,000 to Louisiana Shelf in 2002 and $2,032,500 in 2003. Distribution of any profits of Louisiana Shelf are allocated 99% to the limited partners and 1% to the general partner until all capital has been returned to the partners. Thereafter, such distributions are allocated 60% to the limited partners and 40% to the general partner. We are subject to capital calls to meet the reasonable capital requirements of Louisiana Shelf. 21 OKLAHOMA On May 20, 2003, we entered into a Membership Purchase Agreement with BWP Gas, LLC ("BWP") whereby the Company acquired all of the Class B membership interest of BWP from HBA Gas, Inc. ("HBA") (the "BWP Acquisition"). BWP's sole asset at the time of the BWP Acquisition was a 4.5% working interest in the Mary #2-34Well ("Mary Well") in the Potato Hills Deep Prospect ("Potato Hills") located in Latimer and Pushmataha Counties, Oklahoma. After the BWP Acquisition, BWP invested $276,277 to acquire a 5% working interest in Indian Prospect located in Roger Mills County, Oklahoma, with GHK Company, LLC ("GHK") as the operator. The Company has not received assignment of these leases from GHK as of this date. During 2003, two wells were drilled on the prospects. One of the wells began producing in 2003, while the other well was still in progress at December 31, 2003. As part of the Restructuring, we sold all of our interests in BWP in February 2004. BWP GAS, LLC The Company became the sole Class B member and the managing member with a 99% interest in BWP. Oklahoma Hills Gas, LLC ("Oklahoma Hills") is the Class A member with a 1% interest. HBA is the managing member of Oklahoma Hills and Ernest Bartlett is the president of HBA and also the president of FEQ Investments, Inc. FEQ Investments, Inc. was a principal holder of our Series A and Series B Preferred stock as well as interests in certain entities which serve as the general partner of certain oil and gas limited partnerships in which the Company has interests. The total purchase price of the BWP Acquisition amounted to $11,318,500, consisting of 3,300,000 shares of our common stock, warrants to purchase an additional 1,650,000 common shares at an exercise price of $2.00 per share expiring in May 2006 and a contribution of $2,500,000 to BWP in order for BWP to complete its funding commitment under the exploration agreement. Subsequent to the BWP Acquisition, the Company contributed an additional $974,000 to BWP. In February 2003, BWP entered into an exploration agreement ("Exploration Agreement") with GHK Company, LLC ("GHK") and its affiliate, which was amended in May 2003, to jointly cooperate and participate in the exploration and development of certain oil and gas leases in the Potato Hills area. Under the Exploration Agreement, BWP also has the right to participate in a 4.5% interest of all additional wells drilled in Potato Hills and the right to purchase up to a 10% interest in all wells identified by GHK in the future. In the event that the total costs for the drilling of the Mary No. 2-34 Well as reflected in the AFE exceed one hundred and ten percent (110%) of the budgeted amount, BWP is obligated to pay its proportionate share of such costs. BWP's working interest in Potato Hills is subject to various terms and specifications including restrictions, overriding royalty interests, specific drilling depths, future wells, specific locations, and other parties with priority in recovering their costs in certain net profits in the interests. We have legal proceedings with GHK relating to performance of the parties under the Exploration Agreement. See "Legal Proceedings." 22 BWP's share of drilling cost in the Potato Hills Prospect was $60,637 as of December 31, 2003. BWP's share of drilling cost in the India Prospect was $403,372 as of December 31, 2003. We recognized a non-cash charge on producing properties during the years 2003 and 2002 of $10,117,867 and $0, respectively, for those properties whose carrying values exceeded the undiscounted future net cash flows. EGI LOUISIANA, INC. - HELL HOLE BAYOU PROSPECT From February through August 2002, we acquired various working interests in the leases underlying the North Hell Hole Prospect (the "Prospect"). The purpose of the Prospect was to explore, develop and produce certain oil and gas interests it possesses in a contracted area known as Hell Hole Bayou located in Vermillion Parish, Louisiana. The Company acquired these interests from various leaseholders, including Touchstone Resources USA, Inc. ("Touchstone USA"). The Company's various interests were subject to various terms and specifications including restrictions, overriding royalty interests, specific drilling depths, future wells, specific locations, and other parties with priority in recovering their costs in certain net profits in the interests. As of December 31, 2003, the Company owned an aggregate working interest of 37.9% and an additional 10% back-in interest. In December 2002, our outside engineer and operator determined that the initial hole was dry. Drilling on a sidetrack project in 2003 was a dry hole also. Two leases required the Company to commence new exploration within 90 days of the determination of the dry hole. Management decided not to pursue additional exploration within these lease areas. Consequently, these leases were allowed to lapse. Management also decided not to pursue additional exploration within the remaining three leases. Consequently, these three leases were also allowed to lapse. Impairments aggregating $15,019,588 were recorded during 2002 and 2003, which comprised all drilling costs incurred to date plus 100% of the lease acquisition costs for the entire Hell Hole Prospect. PLANNED EXPLORATION AND DEVELOPMENT EXPENDITURES We anticipate exploration and development expenditures in 2004 to be $11.6 million. These expenditures include $4.5 million in Phu Horm, $6.2 million for seismic expenses and exploration and development related general and administrative expenses primarily in the North Sea and the remainder for corporate capital expenditures. We may increase or decrease our planned activities for 2004, depending upon drilling results, potential acquisition candidates, product prices, the availability of capital resources, and other factors affecting the economic viability of such activities. 23 RESERVES At December 31, 2003, we had proved reserves of 52 million cubic feet of gas, all related to the Oklahoma properties of BWP. As of March 29, 2004, we have no proved reserves as BWP was sold as part of the Restructuring. Although the Phu Horm 3 well tested in excess of 30,000 Mcf/day, the well has not yet been classified as a commercial well by the Thai government and is not included in proved reserves. EXPLORATION AND DEVELOPMENT ACTIVITIES Our oil and gas exploratory activities are as follows for the year ended December 31, 2003. A well is considered productive for purposes of the following table if it justifies the installation of permanent equipment for the production of oil or gas. The term "gross wells" means the total number of wells in which we own an interest, while the term "net wells" means the sum of the fractional working interests we own in gross wells. The information should not be considered indicative of future performance, nor should it be assumed that there is necessarily any correlation between the number of productive wells drilled, quantities of reserves found or economic value. Wells classified as "in progress" at year-end represent wells where drilling activity is ongoing, wells awaiting installation of permanent equipment and wells awaiting the drilling of additional delineation wells.
Productive Wells Dry Holes In Progress Wells -------------------- ------------------------- ----------------------- Gross Net Gross Net Gross Net ------- ------- -------- -------- -------- -------- Thailand - - - - 1 0.09 Louisiana - - 2 0.50 - - Oklahoma 1 0.05 - - 1 0.05 ------- ------- -------- -------- -------- -------- Total United States 1 0.05 2 0.50 1 0.05 ------- ------- -------- -------- -------- -------- Total 1 0.05 2 0.50 2 0.14 ======= ======= ======== ======== ======== ========
We do not own any drilling rigs, and all of our drilling activities are conducted by independent drilling contractors. PRODUCTIVE WELL SUMMARY At December 31, 2003, we had one productive well which was included in the BWP sale as part of the Restructuring. Therefore, we have no productive wells as of March 29, 2004, although the Phu Horm 3 tested in excess of 30,000 Mcf/day. 24 UNDEVELOPED ACREAGE The following table sets forth certain information regarding our undeveloped leasehold acreage as of December 31, 2003 in the areas indicated. This table excludes options to acquire leases and acreage in which our interest is limited to royalty, overriding royalty and similar interests.
Area Endeavour Entity Gross Net Owning the Interests -------------------- ------------ ------------ Thailand - Khorat Plateau PHT 1,969,564 201,290 Louisiana - Cameron Parish Louisiana Shelf 3,590 898 Oklahoma BWP 28,408 1,420 Mississippi - Black Warrior Basin Knox Miss 104,211 38,377 ------------ ------------ Total United States 136,209 40,695 ------------ ------------ Total 2,105,773 241,985 ============ ============
The undeveloped leasehold in the Cameron Parish, Louisiana area expires in December 2005 and March 2006 in the absence of production, assuming the rentals are paid timely. As referred to above, our management has decided not to pursue any additional exploration in two of these Cameron Parish leases. The undeveloped leasehold in the Black Warrior Basin, Mississippi, generally expires in 2013 if all options to extend the leases are exercised. All leasehold acres in which Knox Miss Partners, L.P. is entitled to an assignment are included. The properties in Oklahoma and Mississippi were sold in February 2003 as part of the sale of our interests in Knox Miss. Partners, L.P. and BWP Gas, LLC. ITEM 3. LEGAL PROCEEDINGS On or about March 4, 2004, the GHK Company, LLC, GHK/Potato Hills Limited Partnership, and Brian F. Egolf (collectively, "Plaintiffs") commenced an action against Endeavour International Corporation ("Endeavour"), f/k/a Continental Southern Resources, Inc. ("CSOR"), (collectively, "defendants") as well as BWP Gas, L.L.C. ("BWP") and HBA Gas, Inc. ("HBA") in Oklahoma City, Oklahoma. In the petition, Plaintiffs allege that CSOR intended to acquire a majority of the membership interests in BWP and that HBA in turn entered into an agreement to assign Plaintiff 2.5 million common shares of CSOR stock upon compliance by Plaintiffs with certain contractual obligations including but not limited to completion and initial commercial production of the Mary #2-34 well, along with the presentation of a development plan and the commencement of the next exploration or development well in the Potato Hills Deep Prospect. Plaintiffs further allege in their petition that BWP, HBA and Endeavour are alter egos of each other and jointly and severally liable to Plaintiffs for failing to deliver Plaintiffs the CSOR common stock. Plaintiffs seek delivery of the stock as well as a temporary restraining order, a primary and permanent injunction (i) enjoining all dilutions of Plaintiff rights pertaining to CSOR stock; (ii) enjoining Endeavour from all future stock issuances and transfers of assets not in the ordinary course of business and (iii) prohibiting the alienation or encumbrance of the 25 CSOR stock that is allegedly in Plaintiff's possession. Management intends to litigate vigorously and believes it has good and valid defenses. However, the action has just begun and counsel is unable to opine on the outcome of the litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS By unanimous written consent dated December 12, 2003, the holders of all 4,090,713 then outstanding shares of our Series A Preferred Stock approved amendments to the Certificate of Designation of Series A Preferred Stock. The amendments consisted of deleting the defined term "Permitted Repurchases" and all references to "Permitted Repurchases" in the Certificate of Designation and deleting the prohibition against repurchasing or redeeming any shares of preferred stock. The forgoing amendments were necessary to permit us to purchase the shares of series B preferred stock which was a condition to the complete the Merger and the Restructuring. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock currently trades on the OTC Bulletin Board under the symbol "EVOR". Prior to February 27, 2004, our common stock traded on the OTC Bulletin Board under the symbol "CSOR". Prior to December 10, 2001, there was no public trading market for our common stock. On December 10, 2001, the common stock became eligible for quotation in the "Pink Sheets." On February 27, 2002, the common stock became eligible for quotation on the OTC Bulletin Board. The following table sets forth the range of high and low bid prices per share of our common stock for each of the calendar quarters identified below as reported by the OTC Bulletin Board. These quotations represent inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.
2003 2002 ----------------------------- ----------------------------- High Low High Low --------- --------- --------- --------- First Quarter $ 5.25 $ 3.30 $ 3.75 $ 2.90 Second Quarter 3.47 2.63 6.25 3.00 Third Quarter 2.90 1.95 6.40 4.90 Fourth Quarter 2.29 2.10 5.50 4.05
The last reported price of our common stock on the OTC Bulletin Board on March 29, 2004 was $4.06 per share. 26 HOLDERS As of March 29, 2004 the number of holders of record of our common stock was 426. We believe that there are a number of additional beneficial owners of our common stock who hold such shares in street name. DIVIDENDS We have not paid any cash dividends to date, and have no intention of paying any cash dividends on our common stock in the foreseeable future. Our Series B Preferred Stock is subject to a cumulative 8% dividend. Unless the full amount of the foregoing dividends is paid in full, we cannot declare or pay any dividend on our common stock. As of March 29, 2004, no shares of our Series A Preferred Stock or Series C preferred Stock were outstanding. The declaration and payment of dividends is subject to the discretion of our Board of Directors and to certain limitations imposed under Nevada corporate laws. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors. RECENT SALES OF UNREGISTERED SECURITIES In all of the following sales of unregistered securities beginning October 1, 2003 through February 29, 2004, the shares or options were issued in a private placement transaction exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof or Rule 506 of Regulation D promulgated thereunder without payment of underwriting discounts or commissions to any person. In November 2003, we issued 2,190 shares of common stock as compensation for legal fees of $4,600 to Joseph Fioravanti, a member of our Board of Directors at that time. The legal fees related to various professional services rendered to the Company. In February 2004, we completed a private placement of 125,000 shares of our common stock for $250,000. In February 2004, we completed a private placement of 25,000,000 shares of our common stock for $46,000,000, after deduction of placement agent commissions of $2,500,000, financial advisory fees of $1,250,000 and offering expenses, estimated to be $250,000. In addition, warrants to purchase 700,000 shares of our common stock at $2.00 per share were issued to the placement agent. The net proceeds were used for the purchase of approximately 14.1 million shares of common stock and 103,500.07 shares of our Series B Preferred Stock for $5.3 million and for repayment of the principal amount of certain outstanding convertible notes for $1.5 million, with the remainder of the net proceeds to be used for general corporate purposes, including potential acquisitions. 27 In February 2004, we granted 175,000 shares of our common stock as advisory fees for the Restructuring. As consideration for services rendered in connection with the purchase of the shares of common stock and Series B Preferred stock from RAM, we issued 300,000 shares of our common stock to an unrelated party. In February and March 2004, we issued 3,109,625 shares of our common stock to employees and directors. These shares vest at various dates through January 1, 2007. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION This Management's Discussion and Analysis or Plan of Operation and other parts of this report contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this report are based on information available to the Company on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth in the section captioned "RISK FACTORS" in Item 1 and elsewhere in this report. The following should be read in conjunction with the audited financial statements of our and the notes thereto included elsewhere herein. OVERVIEW On February 27, 2004, the Company completed a series of mutually interdependent transactions that will significantly expand the scope and objectives of the company under the leadership of a new management team. The strategy of the new management team is to acquire, explore, and develop primarily international natural gas and oil properties, with an initial focus on the North Sea region. Our strategy in the coming months in the North Sea is to take advantage of the shift of the major exploration and production companies away from this region, the significant contraction of the independent sector, and the opportunities these changes create for new independent companies. We will leverage vertical alliances with companies that offer capabilities or technologies that will enhance our future exploratory and developmental efforts. We have directly and, through our subsidiaries, indirectly acquired leasehold interests in prospects in Louisiana and Thailand and significant seismic data covering 79,200 square kilometers in the North Sea. With the assistance of various third parties, we plan to explore and develop these prospects and sell on the open market any gas or oil that we discover. We may rely on third parties to assist and advise us regarding the identification and leasing of properties on favorable terms. The Kingdom of Thailand is expected to award production area status to the Phu Horm prospect during 2004. The operator of the Phu Horm prospect expects to drill two wells during 2004 and anticipates production in 2005. We may also rely upon various third parties who will be responsible for drilling wells, delivering any gas or oil reserves that are discovered through pipelines to the ultimate purchasers and assisting us in the negotiation of all sales contracts with such purchasing parties. We will play an active role in evaluating prospects, and to provide financial and other management functions with respect to the operations at each of our properties. We also may subcontract the 28 performance of the physical operations at our properties, therefore we do not anticipate incurring substantial expenses related to the purchase of plant, machinery or equipment in connection with the exploration and development of our properties. Similarly, we do not anticipate any substantial increase in the number of persons that we employ. BUSINESS STRATEGY We intend to develop an asset portfolio balanced between exploration and exploitation, gas and oil, with an initial focus in the North Sea. Our immediate objective will be to gain, as soon as possible, a level of production and cash flow that will support a strong exploration effort and provide investment funding for exploitation opportunities we identify in acquired assets. The most desirable targets for investment in the North Sea are natural gas projects with long life production profiles and oil-producing assets that provide near term cash flow, as well as upside from further drilling. Technical teams will initially focus their efforts in the regions of the North Sea that offer large reserve potential, proven play concepts and undeveloped oil and gas resources. RESULTS OF OPERATIONS FISCAL YEAR ENDED DECEMBER 31, 2003 AS COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2002 REVENUES We generated $27,305 of revenue during the fiscal year ended December 31, 2003 as compared to $16,142 of revenue during the fiscal year ended December 31, 2002. Revenues during 2003 were due to the initial production from our Oklahoma properties. These Oklahoma properties were sold in February 2004 as part of the Restructuring. Revenues during 2002 consisted of oil and gas revenues from our interest in CSR-Waha Partners, L.P. We sold our interest in CSR-Waha Partners, L.P. in January, 2003. OPERATING EXPENSES Operating expenses increased to $920,494 during 2003 from $258,560 in 2002 as production began from our Oklahoma properties and we increased activity on the Mississippi properties, partially offset by the sale of our interest in CSR-Waha Partners, L.P. in January 2003. Unproved property impairment expenses were $21,502,321 and $3,658,136 during the fiscal years ended December 31, 2003 and 2002, respectively. The increase in oil and gas properties impairment expenses was due to the impairment of Oklahoma properties of $10,117,867 in 2003, and the unsuccessful drilling results in Louisiana with impairments of $11,384,453 in 2003, while 2002's impairment related to unsuccessful drilling on the Hell Hole prospect. 29 BAD DEBT EXPENSE Bad debt expense increased to $1,800,000 in 2003 from $550,601 in 2002. All of the bad debt expense for 2003 and 2002 was related to our investment in Touchstone Resources, Ltd. ("Touchstone"), a Canadian Exchange listed company and the parent company of Touchstone USA, Inc. As of December 31, 2003, we had recorded bad debt reserves for the full balance of our investment in Touchstone. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased by $997,191 to $2,132,451 during the fiscal year ended December 31, 2003 as compared to $1,135,260 for the fiscal year ended December 31, 2002. The increase was primarily due to an in increase in compensation expenses related to professional fees and noncash directors' fees. OTHER (INCOME) AND EXPENSE Other (income) and expense was $4,971,331 during the fiscal year ended December 31, 2003 as compared to $2,714,481 for the fiscal year ended December 31, 2002. The increase was primarily due to a $1,122,953 partnership investment loss associated with the Company's investment in Louisiana Shelf Partners, L.P. and $1.7 million in losses on the sale of marketable securities. These amounts were partially offset by $1.2 million gain on the sale of CSR-Waha Partners, L.P in 2003. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities during the fiscal year ended December 31, 2003 was $4,093,490 compared to $1,442,613 during the fiscal year ended December 31, 2002. The primary use of cash in operating activities was to fund our operating activities. Net cash used in investing activities for the fiscal year ended December 31, 2003 was $6,559,897 compared to net cash used in investing activities of $23,416,685 for the fiscal year ended December 31, 2002 and consisted primarily of $8,095,876, partially offset by receipts on note receivable of $1,468,500 in 2003, and $18,474,381 for the purchase of oil and gas interests and acquisition and investments in limited partnerships in 2003 and 2002, respectively, and $4,304,036 for the purchase of marketable securities in 2002. Net cash provided by financing activities during the fiscal year ended December 31, 2003 was $10,380,299 compared to $25,149,748 during the fiscal year ended December 31, 2002. Net cash provided by financing activities in 2003 consisted primarily of the proceeds from borrowings and sales of our common and preferred stock. Net cash provided by financing activities in 2002 consisted primarily of the issuances of promissory notes and sales of our common stock and preferred stock which were partially offset by costs relating to such financings. Working capital decreased by approximately $4.8 million during the fiscal year ended December 31, 2003 to a deficit of $6,051,278 as compared to $1,214,580 as of December 31, 2002. This 30 decrease is primarily due to the issuance of our convertible notes and deferred equity option, and an increase in accounts payable and accrued expenses to $5,235,725 as compared to $2,719,860 at December 31, 2002. In May 2003, we issued to the former Class B member of BWP and its designees (consisting of creditors and consultants of BWP) 3,300,000 shares of common stock and 1,650,000 warrants at an exercise price of $2.00 per share expiring in three years as consideration for its purchase of the 100% of the Class B Membership in BWP. Between May and July 2003, we sold 477,500 shares of Series C Convertible Preferred Stock in a private placement for $10.00 per share. We were required to register the resale of all shares of the common stock issuable upon conversion of the Series C Preferred Stock, within 90 days of the date of termination of the offering. We recorded $307,200 in offering costs related to this offering. During 2003, we entered into two securities purchase agreements with RAM during 2003. In connection with these agreements we have issued 950,000 shares of our common stock to RAM. In April 2002, we entered into a loan agreement to borrow $1,500,000 from Gemini Growth Fund, LP ("Gemini"), a Delaware limited partnership. Gemini subsequently changed its name to Trident Growth Fund, L.P. ("Trident"). The note is a 12% secured convertible promissory note. The note is secured by substantially all of the assets of the Company. The note was to originally mature on October 21, 2003, however on July 29, 2003, the loan was amended to extend the maturity date to July 31, 2004 and increase the principal amount to $2,100,000. As consideration for Trident's increasing of the original loan to $2,100,000,we granted Trident warrants to purchase 150,000 shares of our common stock at an exercise price of $1.60 per share. The warrants are exercisable immediately and will expire on July 23, 2008. In February 2004, $1,500,000 of principal was repaid on the note and $600,000 of principal along with accrued interest was converted into our common stock as part of the Restructuring. The foregoing constitutes our principal sources of financing during the past twelve months. We do not currently maintain a line of credit or term loan with any commercial bank or other financial institution. Our capital needs have been, and continue to be principally met through proceeds from the sale of our equity and debt securities. We have used these funds to acquire leasehold interests. ANTICIPATED CAPITAL EXPENDITURES For 2004, we anticipate exploration and development expenditures will be $11.6 million. These expenditures include $4.5 million in Thailand, $6.2 million for seismic expenses and exploration and development related general and administrative expenses primarily in the North Sea and the remainder for corporate capital expenditures. We may increase or decrease our planned activities for 2004, depending upon drilling results, potential acquisition candidates, product prices, the availability of capital resources, and other factors affecting the economic viability of such activities. We will also incur additional general and administrative expenses over the next twelve months. After completion of the Offering with $50 million of gross proceeds, we believe 31 that we will have sufficient funding for at least 24 months to continue to execute our business plan. In the event that we locate additional prospects for acquisition, receive authorizations for expenditures from the operators at our prospects in excess of budgeted amounts, or experience cost overruns at our prospects, we may be required to raise funds through additional offerings of our securities or borrowings in order to have the funds necessary to complete these acquisitions and continue our operations. If we are unable to obtain additional funds when they are required or if the funds cannot be obtained on terms favorable to us, then we may be required to delay, scale back or eliminate some or all of our well development programs or may even be required to relinquish our interest in certain properties. If one or more of the other owners of leasehold interests in our prospects fail to pay their equitable portion of development or operation costs, then we may need to pay additional funds to protect our ownership interests in our leasehold interests and for general corporate purposes. ITEM 7. FINANCIAL STATEMENTS See "Financial Statements" beginning on page F-1. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. ITEM 8A. CONTROLS AND PROCEDURES. Under the supervision and with the participation of our management, including our co-executive officers ("Co-CEOs") and our Chief Accounting Officer, we evaluated of the effectiveness of our disclosure controls and procedures as of the end of the fiscal period covered by this report. Based on that evaluation our Co-CEOs and our Chief Accounting Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 32 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The following sets forth certain information about each director and executive officer of the Company.
Name Age Positions Held ---- --- -------------- William L. Transier 49 Co-Chief Executive Officer and Director John N. Seitz 52 Co-Chief Executive Officer and Director John B. Connally III 57 Director Nancy K. Quinn 50 Director Michael D. Cochran 62 Executive Vice President Exploration Bruce H. Stover 55 Executive Vice President Operations and Business Development H. Don Teague 61 Executive Vice President, Administration, General Counsel and Secretary Robert L. Thompson 57 Vice President, Chief Accounting Officer and Corporate Planning Ronald A Bain 57 Vice President Geosciences
In March 2004, Mr. Joseph Fioravanti resigned from our Board of Directors and Ms. Nancy Quinn was appointed to our Board of Directors. The following is a brief summary of the business experience of each of the above-named individuals: WILLIAM L. TRANSIER became Co-Chief Executive Officer and a Director of the Company upon consummation of the Merger. From 1999 to 2003, Mr. Transier was executive vice president and chief financial officer for Ocean Energy, Inc. prior to its merger with Devon Energy Corporation. In this role, he was responsible for the functions associated with corporate treasury, accounting, investor relations, corporate communications, human resources, administration, tax, corporate planning, internal audit, corporate M&A, business development and marketing and trading. He was named to that position in March 1999 following the merger of Ocean Energy and Seagull Energy Corporation ("Seagull Energy"). Mr. Transier was part of the executive management team that spearheaded the most recent merger that ultimately contributed to the creation of the largest independent U.S. oil and gas exploration and production company, Devon Energy Corporation. From September 1998 to March 1999, Mr. Transier was executive vice president and Chief Financial Officer for Seagull Energy, and was part of the leadership team that successfully completed the merger with Ocean Energy. He originally joined Seagull Energy in May 1996 as senior vice president and chief financial officer. Mr. Transier began his career in the audit 33 department of KPMG LLP, an international audit and business strategy consulting firm. In 1986, he became a partner in the firm. Mr. Transier graduated from the University of Texas with a Bachelor of Business Administration and honors in accounting. He received his Masters in Business Administration from Regis University and attended the International Program at Wharton Business School. He also studied law at the University of Houston Law Center. Mr. Transier is a director of Reliant Resources, Inc., and Cal Dive International, Inc. JOHN N. SEITZ became Co-Chief Executive Officer and a Director of the Company upon consummation of the Merger. From January 2002 to March 2003, Mr. Seitz was Chief Executive Officer, Chief Operating Officer and President of Anadarko Petroleum Corporation. Mr. Seitz was named to those positions in 2002 following a progression of increasingly responsible executive positions from Vice President-Exploration from 1997 to 1999 to President and Chief Operating Officer from 1999 to 2003. Under Mr. Seitz's leadership, Andarko successfully and economically grew its reserves and production base from its independence in 1986 through 2002 through a combination of consistent organic growth and selective acquisitions, making Anadarko one of the largest independent exploration and production companies in the world. This growth was spearheaded by Anadarko's significant exploration discoveries in Algeria, Alaska, the East Texas Bossier Play, and the sub-salt play in the Gulf of Mexico. During the ten-year period commencing in 1992, Anadarko grew its reserves per share by an average of 11% per year. Mr. Seitz began his career with Anadarko in 1977 as a senior geologist and progressed to the position of Manager - Exploration in 1986 at the time of Anadarko's spin-off from Panhandle Eastern. Before that, Mr. Seitz was a geologist with Amoco Production Company, beginning his career there in 1975. Mr. Seitz received his Bachelor of Science degree in Geology from the University of Pittsburgh in 1974 and a Master of Science degree in Geology from Rensselaer Polytechnic Institute in 1975. He has also received advanced studies in business from the University of Houston and Wharton School of Business. Mr. Seitz is an AIPG Certified Professional Geologist and is a licensed professional geoscientist with the State of Texas. He serves as a trustee for the American Geological Institute Foundation and is a director of Input / Output Inc. and Elk Petroleum, Inc. JOHN B. CONNALLY III has served as a Director of the Company since our 2002 annual meeting of shareholders. Mr. Connally is currently Chief Executive Officer of Pure Energy Group, Inc., a private oil and gas exploration and production company with extensive mineral interests principally in the state of New Mexico. Mr. Connally is also the President, Chief Executive Officer and a Director of BPK Resources, Inc., a gas and oil exploration company whose shares traded on the OTC Bulletin Board. Mr. Connally has over 30 years of experience in the oil and gas and oilfield services industry. Since 1999, he has been a principal in Graver Manufacturing Co., a private company that manufactures pressure vessels for the petrochemical and refining industry. In 1990, Mr. Connally was a member of the founding Board of Directors of Nuevo Energy Company, an exploration and production company listed on the New York Stock Exchange, where he served until 1996. Mr. Connally, formerly a partner with the law firm of Baker & Botts in Houston, Texas, specialized in corporate finance transactions for oil and gas and oil field service companies. Since leaving Baker & Botts in 1983, Mr. Connally has been an investor in the oil and gas, real estate, and oil field services 34 industries. Mr. Connally received a Bachelor of Arts degree from the University of Texas at Austin and a Juris Doctor from the University of Texas School of Law. NANCY K. QUINN became a Director of the Company in March 2004. Ms. Quinn is a Principal of Hanover Capital, a privately owned advisory firm which provides financial and strategic services primarily to clients in the energy, utility and natural resources industries. Ms. Quinn has over 20 years experience in the financial sector, particularly with clients in the energy and natural resources industries. Ms. Quinn was a co-founder of Hanover Capital in 1996 and has been a Principal with the company since that time. From 1996 until 2000, Ms Quinn was an Executive Director of The Beacon Group, LP., and Hanover Capital was a Limited Partner. The Beacon Group, now a part of JP Morgan Chase, was a merchant banking and financial advisory firm headquartered in New York. Prior to founding Hanover Capital, Ms. Quinn was the Co-Head of the Natural Resources Investment Banking at Kidder, Peabody & Co., an investment banking firm headquartered in New York. At Kidder, Ms Quinn was also Head of Southwest Regional banking and was based in Houston, Texas for approximately five years. Ms. Quinn began her investment banking career at Kidder, Peabody in 1982. When Kidder, Peabody was sold to PaineWebber Incorporated, now owned by UBS, in 1994, Ms Quinn became the Co-Head of the Energy and Natural Resources Group. Ms Quinn was a Director of DeepTech International, a diversified energy company traded on the OTC market, from 1995 to 1998. Ms. Quinn was a Director of Louis Dreyfus Natural Gas Co., an exploration and production company traded on the New York Stock Exchange, from 1999 to 2001. Ms. Quinn received a Bachelor of Fine Arts degree from Louisiana State University and a Masters in Business Administration from Louisiana State University. H. DON TEAGUE became Executive Vice President, Administration, General Counsel and Secretary in March 2004. Most recently, Mr. Teague has been an independent consultant. Prior thereto he was Executive Vice President and General Counsel of ICG Communications, Inc., from 1997 to 2000, and Senior Vice President and General Counsel of Falcon Seaboard, Inc., from 1994 to 1997. Mr. Teague was a partner at Vinson & Elkins L.L.P. from 1974 to 1994. He divided his time between the Houston and London offices of that firm, serving as the administrative head of the London office of Vinson & Elkins for several years. Mr. Teague received a B.B.A. and an LL. B. from The University of Texas and a LL.M. from Harvard University. MICHAEL D. COCHRAN became Executive Vice President Exploration of the Company upon consummation of the Merger. From 2001 to 2003, Dr. Cochran was Senior Vice President, Strategy and Planning, for Anadarko. Named to the position in 2001, he was responsible for portfolio management, business models, economic analyses, business intelligence, and planning. From 1997 to 2001, he served as Vice President, World-Wide Exploration, where he was responsible for both U.S. and international exploration and development activities for Anadarko. 35 In addition, he led the integration of the Union Pacific Resources and Anadarko exploration and development organizations. Dr. Cochran began his career with Gulf Oil Company ("Gulf Oil") in 1968, and served in many capacities in both research and exploration in U.S. and international arenas. Dr. Cochran was Manager, Exploration - Central Exploration Group, during the merger of Gulf Oil with Chevron Corporation. He joined Geosource, Inc. in 1984 as Director, Technology; his responsibilities included implementing and marketing new technologies. He joined Anadarko in 1987 as Chief Geophysicist and, subsequently held managerial positions in various exploration areas. Dr. Cochran was Manager, International Exploration for Anadarko during its initial discoveries in Algeria. Dr. Cochran holds a Bachelor of Science degree from Tulane University and a Master of Science degree in Geology from Bowling Green State University. He earned a Ph.D. in Geophysics from Rice University in 1969. BRUCE H. STOVER became Executive Vice President Operations and Business Development of the Company upon consummation of the Merger. From 1997 to 2003, Mr. Stover was Senior Vice President, Worldwide Business Development for Anadarko. In this role, Mr. Stover had responsibility for evaluating and securing new business opportunities for Anadarko, domestic and international, and was also responsible for mergers and acquisitions. Mr. Stover joined Anadarko in 1980 as Chief Engineer. In 1989, he was named President and General Manager for Anadarko Algeria Corporation where he led the company's start-up operations in Algeria. In 1993, he was named Vice President, Acquisitions and in 1997 that position evolved into Vice President, Worldwide Business Development. Prior to joining Anadarko, Mr. Stover was employed with Amoco Production Company from 1972 to1979. Mr. Stover is a graduate of the University of Oklahoma where he earned a Bachelor of Science degree in Petroleum Engineering in 1971. ROBERT L. THOMPSON became Vice President, Chief Accounting Officer and Corporate Planning in March 2004. He was most recently Vice President and Controller of Ocean Energy. Mr. Thompson joined Ocean Energy in 2001 and was responsible for its accounting functions and a member of its Management Committee until the company merged with Devon Energy Corporation. Prior to Ocean Energy, he worked with Cambridge Energy Research Associates as a senior consultant on finance and economics. The majority of his career was spent with Dallas-headquartered independent oil and gas exploration and production company Oryx Energy Company and its predecessors. His positions there included Director - Financial Analysis, Director - Business Planning and Acquisitions, and Controller and Vice President - Planning. Oryx Energy merged with Kerr-McGee in 1999, with Mr. Thompson providing financial analysis and due diligence regarding that transaction. Mr. Thompson received a Bachelor of Science in Management and a Masters in Business Administration from Drexel University in Philadelphia. He also attended the Senior Executive Program at Massachusetts Institute of Technology and is a certified public accountant. 36 RONALD A. BAIN became Vice President Geosciences of the Company upon consummation of the Merger. From 2001 to 2003, Dr. Bain was founder and president of ConRon Consulting, Inc. In this role, he provided advisory services in the areas of strategic geotechnologies and decision support for a wide range of client companies. Prior to his retirement from Anadarko in 2001, Dr. Bain held numerous management positions in technology and exploration. He joined Anadarko in 1983 as Division Exploration Manager, Gulf of Mexico. Dr. Bain held successive positions including Chief Geophysicist, Manager of Geoscience, General Manager (Anadarko China Company - Beijing), Manager of Exploration (Far East, South America and North Sea) and Manager of Exploration Technology and Planning. At retirement, he held the position of Manager, International Exploration. Immediately prior to joining Anadarko in 1983, he worked two years for Sohio Petroleum as Division Geophysicist, Gulf of Mexico. Dr. Bain entered the industry in 1974 as a research geophysicist with Gulf Research & Development Co. and held increasingly responsible positions in exploration with Gulf Oil in Oklahoma City and New Orleans. Dr. Bain holds Bachelor of Science and Doctor of Philosophy degrees in physics from the University of Texas at Austin and a Master of Science degree in physics from the University of Pittsburgh. DIRECTOR AND OFFICER TENURE All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. AUDIT COMMITTEE FINANCIAL EXPERT The Board of Directors has determined that Nancy K. Quinn, a member of the audit committee, is independent and an audit committee financial expert as such terms are defined by the SEC. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the U.S. Securities and Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's officers and directors and persons who own more than ten percent (10%) of the Company's Common Stock to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and reports of changes in ownership of the Company's Common Stock. Such officers, directors and ten percent (10%) stockholders are also required by applicable SEC rules to furnish the Company with copies of all forms filed with the SEC pursuant to Section 16(a) of the Exchange Act. Based solely on our review of the copies of such forms we received, we believe that during the fiscal year ended December 31, 2003, all Section 16(a) filing requirements applicable to the Company's officers, directors and 10% stockholders were satisfied in a timely fashion. 37 CODE OF ETHICS On March 24, 2004, we adopted a code of ethics applicable to all employees, including our Co-Chief Executive Officers and Principal Accounting Officer. The code of ethics is filed as an exhibit to this Form 10-KSB. ITEM 10. EXECUTIVE COMPENSATION The following table provides certain summary information concerning compensation paid to or accrued by our former chief executive officer (the "named executive officer") during the fiscal years ended December 31, 2003 and 2002. We had no other officers that qualified for disclosure for fiscal years 2003 and 2003 and we did not pay any compensation to any of our officers during 2001.
SUMMARY COMPENSATION TABLE Salary Bonus Securities Underlying Name And Principal Position Fiscal Year ($) ($) Options (#) --------------------------- ----------- ------- ----- --------------------- Stephen P. Harrington, 2003 150,000 -- -- President (1) 2002 112,500 -- 100,000
(1) Mr. Harrington served as our President from February 18, 2002 through February 26, 2004. OPTION GRANTS IN YEAR ENDED DECEMBER 31, 2002 (Individual Grants) The following table sets forth for the named executive officer information regarding stock options granted to such officer during the 2003 fiscal year. INDIVIDUAL GRANTS
Number of Securities % of Total Underlying Options Granted Exercise or Options to Employees in Base Price Name Granted (#) Fiscal Year ($/share) Expiration Date - ---------------------- ----------- --------------- ------------- --------------- Stephen P. Harrington 100,000 100% $ 2.30(1) August, 2008
(1) The options included above were originally granted in 2002 at an exercise price of $5.00 per share. During 2003, these options were repriced to $2.30 per share. 38 AGGREGATED OPTION EXERCISES IN THE 2003 FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth for the named executive officer, information regarding stock options exercised by such officer during the 2003 fiscal year, together with the number and value of stock options held at 2003 fiscal year-end, each on an aggregated basis.
Number of Securities Underlying Unexercised Options at Value of Unexercised Number of Fiscal In-The-Money Options at Shares Year-End (#) Fiscal Year-End ($) Acquired on Value Realized Exercisable/ Exercisable/ Name Exercise (#) ($) Unexercisable Unexercisable (1) - -------------------------------- ---------------- ----------------- ---------------- -------------------------- Stephen P. Harrington NA NA 100,000 (2) -- (2)
(1) The last sales price of our common stock on December 31, 2003 as reported on the OTC Bulletin Board was $2.18 per share. (2) All outstanding options held by Mr. Harrington were exercisable but out-of-the-money at December 31, 2003. In February 2004, Mr. Transier and Mr. Seitz became our Co-Chief Executive Officers. Pursuant to their three-year employment agreements, Mr. Transier and Mr. Seitz will receive no cash salary during 2004. DIRECTORS COMPENSATION In November 2002, the Company issued options to purchase 100,000 shares of common stock to each Director of the Company. On August 8, 2003, the prior Board of Directors modified the terms of the 500,000 options granted to its directors in 2002 by reducing the option exercise price from $5.00 to $2.30 per share and extending the option expiration date from November 4, 2004 to August 4, 2008. During August 2003, the Company paid legal fees in cash and shares of common stock of $20,800 to Joseph Fioravanti, who was a director of the Company at that time, and issued 100,000 shares of common stock and granted options to purchase 200,000 shares of common stock as director compensation. The options vest immediately at an exercise price of $3.00 per share and will expire on August 3, 2008. In 2003, the directors received no additional compensation for serving on the Board of Directors, other than reimbursement of reasonable expenses incurred in attending meetings. 39 In March 2004, we approved a new compensation plan for directors whereby directors receive annual compensation of 5,000 shares of restricted common stock, 5,000 options to purchase our common stock, and $20,000 in cash. All stock and options grants will be at the current market price of our common stock. The directors will also receive $1,000 per committee meeting attended and $2,500 per committee meeting attend as chairman of the committee. We also issued a one time grant to each non-employee director of 20,000 shares of restricted common stock and 20,000 options to purchase our common stock at $2.00 per share. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT COMMON STOCK The following table sets forth, as of March 29, 2004, information with respect to the securities holdings of all persons which the Company, pursuant to filings with the SEC, has reason to believe may be deemed the beneficial owners of more than five percent (5%) of our outstanding common stock. The table also sets forth, as of such date, the beneficial ownership of our common stock by the named executive officer, current executive officers and all directors, individually and as a group.
Amount and Nature of Beneficial Percentage Name and Address of Beneficial Owner Ownership(1) of Class(1) - ------------------------------------ ------------ ----------- William L. Transier 6,093,750 8.8% 1001 Fannin, Suite 1700 Houston, TX 77002 John N. Seitz 6,093,750 8.8% 1001 Fannin, Suite 1700 Houston, TX 77002 Michael P. Marcus 4,652,313(4) 6.7% 1505 Rockcliff Road Austin, TX 78746 RAM Trading, Ltd. 4,134,361 6.0 2100 Enterprise Avenue Geneva, Illinois 60134 Stephen P. Harrington 2,059,542(3) 3.0% 111 Presidential Boulevard Suite 158A Bala Cynwyd, PA 19004 Bruce H. Stover 837,500 * 1001 Fannin, Suite 1700 Houston, TX 77002
40
Michael D. Cochran 687,500 * 1001 Fannin, Suite 1700 Houston, TX 77002 Ronald A. Bain 556,250 * 1001 Fannin, Suite 1700 Houston, TX 77002 H. Don Teague 325,000 * 1001 Fannin, Suite 1700 Houston, TX 77002 Robert L. Thompson 150,000 * 1001 Fannin, Suite 1700 Houston, TX 77002 John B. Connally III 120,000(2) * 1745 Bolsover Houston, TX 77005 Nancy K. Quinn 32,500 * Six Georgica Close Road P.O. Box 2884 East Hampton, NY 11937 All directors and executive officers as a group (10 persons) 16,955,792(5) 24.5%
- --------------------- *Less than 1% (1) The securities "beneficially owned" by an individual are determined in accordance with the definition of "beneficial ownership" set forth in the regulations promulgated under the Securities Exchange Act of 1934 and, accordingly, may include securities owned by or for, among others, the spouse and/or minor children of an individual and any other relative who has the same home as such individual, as well as, other securities as to which the individual has or shares voting or investment power or which each person has the right to acquire within 60 days through the exercise of options or otherwise. Beneficial ownership may be disclaimed as to certain of the securities. This table has been prepared based on 69,127,070 shares of common stock outstanding as of March 29, 2004. (2) Consists of shares issuable upon exercise of options. 41 (3) Includes 100,000 shares issuable upon exercise of options. Also includes 1,909,542 shares owned of record by SPH Investments, Inc., of which Mr. Harrington is the sole officer and director. (4) Includes 282,500 shares issuable upon exercise of warrants. (5) Includes 200,000 shares issuable upon exercise of options. SERIES B PREFERRED STOCK The holders of our Series B Preferred Stock are entitled to vote with the holders of our common stock on all matters for which our stockholders are entitled to vote. Each share of Series B Preferred Stock is entitled to one vote per share The following table sets forth, as of March 29, 2004, information with respect to the securities holdings of all persons which the Company has reason to believe may be deemed the beneficial owners of more than five percent (5%) of our outstanding shares of Series B Preferred Stock. As of such date, the named executive officer and directors did not beneficially own any shares of our Series B Preferred Stock. Amount and Nature of Beneficial Percentage of Name and Address of Beneficial Owner Ownership(1) Class(1) ------------ -------- Michael Lauer 7 Dwight Lane Greenwich, CT 06831 19,714 100.0% (1) The securities "beneficially owned" by an individual are determined in accordance with the definition of "beneficial ownership" set forth in the regulations promulgated under the Securities Exchange Act of 1934 and, accordingly, may include securities owned by or for, among others, the spouse and/or minor children of an individual and any other relative who has the same home as such individual, as well as, other securities as to which the individual has or shares voting or investment power or which each person has the right to acquire within 60 days through the exercise of options or otherwise. Beneficial ownership may be disclaimed as to certain of the securities. This table has been prepared based on 19,714 shares of Series B Preferred Stock outstanding as of March 29, 2004. 42 The following table sets forth, as of December 31, 2003, information with respect to securities authorized for issuance under equity compensation plans. EQUITY COMPENSATION PLAN INFORMATION
Number of Number of securities securities to be Weighted-average remaining available issued upon exercise price for future issuance exercise of of outstanding under equity outstanding options, compensation plans options, warrants warrants and (excluding and rights rights securities reflected in column (a)) (a) (b) (c) --------------------- ------------------ --------------------- Equity compensation plans approved by security holders 0 NA NA Equity compensation plans not approved by security holders 700,000 $2.50 0 Total 700,000 $2.50 0
The options identified above, were issued to our directors on November 5, 2002 and August 4, 2003. The options have terms of 5 years from the date of grant, are immediately exercisable, are not transferable, and terminate one (1) year after termination due to death. In the event of a Change In Control, we are required to deliver written notice to each optionee fifteen (15) days prior to the occurrence of a Change in Control, during which time all options may be exercised. Thereafter, all options that are neither assumed or substituted in connection with such transaction, automatically expire, unless otherwise determined by the Board. Under the terms of the options, a "Change In Control" is defined to include (i) a sale or transfer of substantially all of our assets; (ii) the dissolution or liquidation of the Company; (iii) a merger, reorganization or consolidation in which we are acquired by another person or entity (other than a holding company formed by the Company); or (iv) the sale in a single transaction or series of related transactions of stock representing more than 50% of the voting power of all outstanding shares of the Company. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OPTIONS GRANTED TO EXECUTIVE OFFICERS AND DIRECTORS On November 5, 2002, we granted non-qualified stock options to purchase 100,000 shares of common stock at an exercise price of $5.00 per share to all of our directors. The options were immediately exercisable in full and terminate on the earlier of November 4, 2004 or 90 days after 43 cessation of service with the Company. On August 8, 2003, we modified the terms of the 500,000 options granted to its directors in 2002 by reducing the option exercise price from $5.00 to $2.30 per share and extending the option expiration date from November 4, 2004 to August 4, 2008. On August 4, 2003, we issued 100,000 shares of common stock and granted options to purchase 200,000 shares of common stock to a newly appointed director as director compensation. The options vest immediately at an exercise price of $3.00 per share and will expire on August 3, 2008. In February 2004, we modified the terms of the 700,000 options held by our directors in 2002 to remove the termination of the options 90 days after the cessation of service as a director. WAIVER OF DEFAULT FROM TRIDENT GROWTH FUND, L.P. The Company failed to comply with three financial covenants contained in the $1,500,000 Convertible Note (the "Note") issued to Trident Growth Fund, L.P, a former beneficial owner of more than 5% of our common stock. On March 24, 2003, Trident granted a waiver of compliance with such covenants for a six month period ending June 30, 2003 in consideration of the issuance of warrants to purchase 25,000 shares of our common stock at an exercise price of $1.60 per share. On June 30, 2003, we again failed to comply with three financial covenants and Trident granted a waiver of compliance with such covenants until June 30, 2004. The warrants are immediately exercisable and terminate April 30, 2012. In addition, we were obligated to file a registration statement permitting the public resale of shares of our common stock issuable upon conversion of the Note and cause such registration statement to be declared effective during October, 2002. Failure to do so results in a penalty consisting of the issuance of shares each month equal to 0.1% of our outstanding shares. Trident waived the penalty. As part of the Restructuring, all of the outstanding balance of the Note has either been repaid or converted into shares of our common stock. SALE OF LIMITED PARTNERSHIP INTEREST IN CSR-WAHA PARTNERS, L.P. TO BPK RESOURCES, INC. On January 15, 2003, the Company sold its 99% limited partnership interest (the "Interest") in CSR-WAHA Partners, L.P., a Delaware limited partnership, to BPK Resources, Inc. for a purchase price of $2,000,000. Of this amount, $150,000 was received at closing, $1,500,000 through the issuance of a promissory note due April 30, 2003, and the balance through the issuance to the Company of 600,000 shares of BPK Resources, Inc. common stock. Mr. Connally, one of our directors, is the Chief Executive Officer and a Director of BPK Resources, Inc. As part of the Restructuring, the 600,000 shares of BPK Resources, Inc. has been included in the transfer of the non-core assets to the Series A and certain of the Series B Preferred Stock holders. 44 LOANS TO BPK RESOURCES, INC. Between August and October 2002, the Company provided loans to BPK Resources, Inc. in the aggregate principal amount of $645,000. The loans accrue interest at rates of 10% and 12% per annum. Principal and accrued interest is payable on demand. During 2002, two of the Company's subsidiaries, Knox Miss. Partners, L.P. and CSR-WAHA Partners L.P., made short term loans to BPK Resources, Inc. All of these loans were included in the transfer of the non-core assets to the Series A and certain of the Series B Preferred Stock holders as part of the Restructuring in February 2004. KNOX MISS., LLC Knox Miss., LLC serves as the general partner of Knox Miss. Partners, L.P. FEQ Investments, Inc., a principal stockholder of the Company, owns a 60% membership interest in Knox Miss., LLC. On March 23, 2002, the Company purchased a 99% limited partnership interest in Knox Miss. Partners, L.P. for $2,705,000 and became a party to the Limited Partnership Agreement of Knox Miss. Partners, L.P. Under the terms of the partnership agreement, once capital is returned to all partners, any additional amounts available for distribution are allocated 75% to the limited partners and 25% to Knox Miss., LLC as the general partner. During March 2003, the Company paid investment-banking fees of $60,000 to FEQ Investments, Inc. The investment-banking fees related to the certain debt placements for the benefit of Knox Miss Partners, L.P. All of our interest in Knox Miss., LLC was sold in the Restructuring in February 2004. PURCHASE OF BWP, LLC On May 20, 2003, we purchased all of the issued and outstanding Class B Membership Interests of BWP Gas, LLC, a Delaware limited liability company ("BWP"), by issuing 3,300,000 shares of common stock and warrants to purchase an additional 1,650,000 shares and paying $2,500,000 in cash. As the sole Class B Member, we serve as the sole manager of BWP. Oklahoma Hills Gas, LLC is the sole Class A Member. The BWP Operating Agreement provides for distributions of profits to be allocated 99% to the Class B Member and 1% to the Class A Member until all capital has been returned to the members. Thereafter, distributions are allocated 75% to the Class B Member and 25% to the Class A Member. HBA Gas, Inc. ("HBA") is the managing member Oklahoma Hills Gas, LLC, and was the sole Class B Member of BWP prior to the sale of its membership interest to the Company. Ernest Bartlett is the President of HBA and is also the president of FEQ Investments, Inc. ("FEQ"), a former principal stockholder of the Company. All of our interest in BWP was included in the transfer of the non-core assets to the Series A and certain of the Series B Preferred Stock holders in the Restructuring in February 2004. 45 PHT GAS, LLC. PHT Gas, LLC, a Delaware limited liability company, served as the general partner of PHT Partners, L.P. until late February 2004. FEQ Investments, Inc., a former principal stockholder of the Company, owns a 75% membership interest in PHT Gas, LLC. On June 26, 2002, we purchased a 99% limited partnership interest (subsequently reduced to 94.1% as a result of the addition of additional limited partners) in PHT Partners, L.P. for $1,150,000 and became party to the Limited Partnership Agreement of PHT Partners, L.P. Under the terms of the partnership agreement, once capital is returned to all partners, any additional amounts available for distribution are allocated 75% to the limited partners and 25% to PHT Gas, LLC as the general partner. In late February 2004 and in connection with the NSNV merger, PHT Gas, LLC resigned as the general partner of PHT Partners, L.P., and PHT Holding GP, LLC, a Texas limited liability company in which we own 100% of the outstanding membership interests, was named as the new general partner. As a result, PHT Gas, LLC relinquished all general partner management rights it held in PHT Partners, L.P., but retained its 25% back-in interest once capital is returned to all partners. CSR, LLC CSR, LLC serves as the general partner of CSR-Waha Partners, L.P., a Delaware limited partnership ("CSRWaha"). FEQ Investments, Inc., a former principal stockholder of the Company, owns a 75% membership interest in CSR, LLC. On August 9, 2002, we purchased a 99% limited partnership interest in CSRWaha for $890,000 and became a party to the Limited Partnership Agreement of CSRWaha. Under the terms of the partnership agreement, once capital is returned to all limited partners, any additional amounts available for distribution are allocated 75% to the limited partners and 25% to CSR, LLC as the general partner. On January 15, 2003, we sold our interest in CSRWaha. LS GAS, LLC LS Gas, LLC, a Delaware limited liability company, serves as the general partner Louisiana Shelf Partners, L.P., a Delaware limited partnership ("Louisiana Shelf"). FEQ Investments, Inc., a former principal stockholder of the Company, owns a 25% membership interest in LS Gas, LLC. On December 31, 2002, we purchased a 24% limited partnership interest in Louisiana Shelf for $661,250 and became a party to the Limited Partnership Agreement of Louisiana Shelf Partners, L.P. Under the terms of the partnership agreement, once capital is returned to all limited partners, any additional amounts available for distribution are allocated 60% to the limited partners and 40% to LS Gas, LLC, as the general partner. TRANSACTIONS WITH SPH INVESTMENT, INC. Stephen P. Harrington, our former President and Treasurer and Chairman of the Board of Directors, is the sole officer and director of SPH Investments, Inc. ("SPH"), a former principal 46 stockholder of the Company. In June, 2002, the Company borrowed $300,000 from SPH which was repaid as of December, 2002. In March, 2002, we conducted a private placement of $4,150,000 principal amount of 8% unsecured convertible promissory notes in consideration of payment payable over a one year period. The resulting subscription receivable accrued interest at the rate of 2.69%. SPH purchased $1,500,000 principal amount of these notes. In May, 2002, all of these notes were converted into an aggregate of 5,928,797 shares of common stock and 4,090,713 shares of series A Preferred Stock. As a result, 2,142,876 shares of common stock and 1,478,571 shares of Series A Preferred Stock were issued to SPH. In January 2003, SPH paid the full balance of its outstanding subscription agreements amounting to $906,250. In January and May 2003, the Company borrowed $250,000 and $6,000 from SPH and issued various 10% demand notes. During 2003, the Company repaid the principal amounts of these notes along with $9,800 accrued interest. LOANS TO INTERNATIONAL TRAVEL CD'S, INC. In August and September of 2002, we loaned a total of $475,000 to International CD's, Inc. ("ILCD") pursuant to unsecured 10% promissory notes. $352,500 principal amount of the notes was repaid. On October 5, 2002, in full satisfaction of the $122,500 balance due under the notes, we entered into an assignment and release agreement with ILCD pursuant to which ILCD assigned its rights under a secured note issued by an unrelated third party to the Company which was due October 31, 2003. At the time of the transaction, Gerald Harrington, Stephen P. Harrington's brother, was a director and officer of the Company and was the sole officer and director of ILCD. The remaining balance of the notes was included in the transfer of the non-core assets to the Series A and certain of the Series B Preferred Stock holders in the Restructuring in February 2004. TRANSACTIONS WITH FEQ INVESTMENTS, INC. During 2002, we paid consulting and finder's fees in the amount of $200,000 and $260,000 to FEQ Investments, Inc., a former principal stockholder of the Company, and KAB Investments, Inc., an affiliate of FEQ Investments, Inc., respectively, in connection with the acquisition of certain oil and gas properties. In January 2003, we paid $693,000 representing all accrued interest due on the converted $9,857,149 promissory notes, to FEQ Investments, Inc. Prior to conversion, the holders of the notes assigned their rights to receive payment of such interest to FEQ Investments, Inc. We also loaned $136,000 to FEQ Investments, Inc. pursuant to a 10% demand promissory note. In May 2003, FEQ Investments, Inc. paid the full balance of its outstanding promissory note amounting to $139,204, which included $3,204 of accrued interest. On February 19, 2003, Knox Miss. Partners, L.P., a former subsidiary of the Company, borrowed $1,200,000 from Gibralt USA, Inc. and issued a 12% promissory note due on the earlier of June 30, 2003 or our completion of an equity financing resulting in gross proceeds of at least $2,000,000. We issued 75,000 shares of common stock to the lender. The loan is guaranteed by the Company and FEQ Investments Inc. This note, along with accrued interest, was repaid during 2003. 47 On January 7, 2003, Louisiana Shelf loaned FEQ Investments, Inc. (the former managing member of PHT Gas, LLC and CSR, LLC) $1,220,000 and received a 10% promissory note. As of December 31, 2003, principal in the amount of $5,000 remained outstanding along with $59,638 in accrued interest. In the fourth quarter of 2003, Louisiana Shelf loaned an additional $125,000 to FEQ which was outstanding at December 31, 2003. During July and August of 2003, FEQ Investments, Inc. paid $305,000 of its outstanding subscription agreement. As of December 31, 2003, $175,000 remained outstanding along with $17,008 in accrued interest. The subscription receivable along with accrued interest was included in the transfer of the non-core assets to the Series A and certain of the Series B Preferred Stock holders in the Restructuring in February 2004. SALE OF NON-CORE ASSETS As part of the Restructuring, we sold certain non-core assets to the holders of the Series A Preferred Stock and certain holders of the Series B Preferred Stock in February 2004. Stephen P. Harrington, our former President, Treasurer, and Chairman of the Board of Directors, beneficially owned approximately 36% of the Series A Preferred Stock and FEQ Investments, Inc., and its affiliate, KAB Investments, Inc., beneficially owned approximately 20% of the Series A Preferred Stock. In addition, FEQ Investments, Inc. and Mr. Harrington owned 17,712.86 shares of the Series B Preferred Stock. A majority of our disinterested directors approved the transfer of the non-core assets to the Series A and certain of the Series B Preferred Stock holders. PURCHASE OF SECURITIES FROM RAM TRADING, LTD. On December 16, 2003, RAM Trading Ltd. ("RAM") entered into an agreement with Lancer Offshore, Inc. and Lancer Partners, L.P. to purchase 14,097,672 shares of common stock and 103,500.07 shares of our Series B Preferred Stock (collectively, the "Lancer Shares") for $5,280,948. Concurrent with the execution of the foregoing agreement, we entered into an agreement with RAM to purchase the Lancer Shares for $5,330,948, subject to RAM completing the purchase of the Lancer Shares. Both the RAM purchase of the Lancer Shares and our purchase of the Lancer Shares from RAM were consummated on February 26, 2004. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. See "Index of Exhibits" below which lists the documents filed as exhibits herewith. 48 (b) Reports on Form 8-K. We did not file any reports on Form 8-K during the last quarter of the period covered by this report. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Our principal accountant for the last two fiscal years has been LJ Soldinger Associates. AUDIT FEES The aggregate fees billed by our principal accountant for professional services rendered for the audit of our annual financial statements on Form 10-KSB, the review of the financial statements included in our quarterly reports on Form 10-QSB and audit services provided in connection with statutory and regulatory filings were $235,000 for the fiscal year ended December 31, 2003 and $399,000 for the fiscal year ended December 31, 2002. TAX FEES The aggregate fees billed for tax compliance, tax advice and tax planning rendered by our independent auditors were $15,000 for the fiscal year ended December 31, 2002. The services comprising these fees include tax preparation, tax advice and tax planning services. AUDIT-RELATED FEES AND ALL OTHER FEES There were no other fees billed by our independent auditors for the fiscal years ended December 31, 2003 or 2002. The Audit Committee approved 100% of the fees paid to our principal accountant for audit-related, tax and other fees. The Audit Committee pre-approves all non-audit services to be performed by our principal accountant in accordance with the Audit Committee Charter. 49 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ENDEAVOUR INTERNATIONAL CORPORATION Date: March 30, 2004 /s/ William L. Transier /s/ John N. Seitz -------------------------- --------------------------- William L. Transier John N. Seitz Co-Chief Executive Officer Co-Chief Executive Officer In accordance with the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- By: /s/ William L. Transier Co-Chief Executive Officer and March 30, 2004 ------------------------------- Director (Co-Principal Executive William L. Transier Officer) By: /s/ John N. Seitz Co-Chief Executive Officer and March 30, 2004 ------------------------------- Director (Co-Principal Executive John N. Seitz Officer) By: /s/ John B. Connally III Director March 30, 2004 ------------------------------- John B. Connally III By: /s/ Nancy K. Quinn Director March 30, 2004 ------------------------------- Nancy K. Quinn By: /s/ Robert L. Thompson Chief Accounting Officer (Principal March 30, 2004 ------------------------------- Financial Officer and Principal Robert L. Thompson Accounting Officer)
50 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) FINANCIAL STATEMENTS CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) Index to Financial Statements Independent Auditors' Report F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Stockholders' Equity F-4 Consolidated Statements of Cash Flows F-16 Notes to Financial Statements F-18 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Continental Southern Resources, Inc. Houston, Texas We have audited the accompanying consolidated balance sheets of Continental Southern Resources, Inc.(a development stage entity) as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended and for the period January 13, 2000 (date of inception) through December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Continental Southern Resources, Inc. as of December 31, 2003 and 2002, and the results of operations, changes in stockholders' equity and its cash flows for the years then ended and for the period January 13, 2000 (date of inception) through December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. L J SOLDINGER ASSOCIATES LLC Deer Park, Illinois March 16, 2004 F-1 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED BALANCE SHEETS
December 31, -------------------------------- 2003 2002 -------------- -------------- ASSETS Current Assets Cash and cash equivalents $ 56,680 $ 329,768 Notes receivable - related party 837,928 483,117 Other receivables 87,080 205,642 Interest receivable - related party 158,382 53,800 Marketable securities - related party 207,480 245,020 Marketable securities 512,000 600,000 Prepaid expenses and advance payments to operators 260,644 325,772 Other current assets 1,200,550 - -------------- -------------- Total Current Assets 3,320,744 2,243,119 Property, and equipment: Oil and gas properties using successful efforts: Developed oil and gas interests net 71,037 - Undeveloped 6,428,227 15,077,643 Other, net 9,370 7,608 Marketable securities - noncurrent - 2,417,021 Equity interests in oil and gas properties 2,838,536 1,373,491 -------------- -------------- $ 12,667,914 $ 21,118,882 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses $ 5,235,725 $ 1,932,052 Accounts payable and accrued expenses - related party - 787,808 Deferred equity option 870,000 - Convertible notes 3,242,654 737,839 Note payable - related party 3,500 - Other 20,143 - -------------- -------------- Total Current Liabilities 9,372,022 3,457,699 -------------- -------------- Minority Interest 29,505 85,773 -------------- -------------- Commitments and Contingencies Stockholders' Equity Preferred stock, Series A; $.001 par value; authorized - 9,500,000 shares; shares issued and outstanding - 4,090,713 at 2003 and 2002 (Liquidation preference: $4,608,870) 4,091 4,091 Preferred stock, Series B; $.001 par value; authorized - 500,000 shares; shares issued and outstanding - 143,427 at 2003 and 2002 (Liquidation preference: $15,585,675) 144 144 Preferred stock, Series C; $.001 par value; authorized - 1,500,000 shares; shares issued and outstanding - 477,500 at 2003 and 0 at 2002 (Liquidation preference: $4,940,625) 478 - Common stock; $.001 par value; authorized - 150,000,000 shares; shares issued and outstanding - 37,144,668 at 2003 and 31,699,834 at 2002; and 0 shares issuable at 2033 and 1,017,644 at 2002 37,145 32,718 Additional paid-in capital 50,175,898 30,962,327 Other (1,000) - Less stock subscription receivables (250,000) (2,480,000) Less stock subscription receivable - related party (175,000) (1,156,250) Accumulated other comprehensive loss (489,036) (999,750) Deficit accumulated during the development stage (46,036,333) (8,787,870) -------------- -------------- Total Stockholders' Equity 3,266,387 17,575,410 -------------- -------------- $ 12,667,914 $ 21,118,882 ============== ==============
The accompanying notes are an integral part of these consolidated financial statements. F-2 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF OPERATIONS
January 13, 2000 For the Years (Inception) to Ended December 31, December 31, -------------------------------- 2003 2002 2003 --------------- ------------ ---------------- Revenues $ 27,305 $ 16,142 $ 43,837 --------------- ------------ -------------- Expenses Operating expenses 920,494 258,560 1,179,054 Depletion and amortization 1,496,725 - 1,496,725 Impairment of oil and gas properties 21,502,319 3,658,136 25,160,455 Bad debt expense - related party 1,800,000 550,601 2,350,601 General and administrative 2,132,451 1,135,260 3,384,829 General and administrative - related party 129,000 90,000 219,000 --------------- ------------ -------------- 27,980,989 5,692,557 33,790,664 --------------- ------------ -------------- Loss From Operations (27,953,684) (5,676,415) (33,746,827) --------------- ------------ -------------- Other (Income) Expense Equity interest in oil and gas partnerships 1,217,317 27,722 1,245,039 Interest income (239,950) (460,015) (699,965) Interest expense 3,569,992 3,311,763 6,881,755 Gain on sale of oil and gas interest - related party (1,235,248) - (1,235,248) Loss on marketable securities - related party 1,659,220 - 1,659,220 Gain on marketable securities - (164,989) (164,989) --------------- ------------ -------------- Total Other Expense 4,971,331 2,714,481 7,685,812 --------------- ------------ -------------- Loss Before Minority Interest (32,925,015) (8,390,896) (41,432,639) Minority Interest 82,260 4,052 86,312 --------------- ------------ -------------- Net Loss (32,842,755) (8,386,844) (41,346,327) Preferred Stock Dividends (4,405,708) (284,298) (4,690,006) --------------- ------------ -------------- Net Loss to Common Stockholders $ (37,248,463) $ (8,671,142) (46,036,333) =============== ============ ============== Net Loss Per Common Share - Basic and Diluted $ (1.06) $ (0.43) =============== ============ Weighted Average Number of Common Shares Outstanding - Basic and Diluted 35,076,435 20,174,261 =============== ============
The accompanying notes are an integral part of these consolidated financial statements. F-3 Page 1 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock - A Preferred Stock - B Preferred Stock - C Common Stock --------------------- ------------------- ------------------- ------------------------ Shares Amount Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ ------ --------- Balance at January 13, 2000 (Date of Inception) - $ - - $ - - $ - - $ - Issuance of common stock for services at $0.063 per share on: March 13, 2000 - - - - - - 320,000 320 April 12, 2000 - - - - - - 16,000 16 Issuance of common stock for cash at $0.063 per share on March 13, 2000 - - - - - - 112,000 112 Services contributed by stockholders - - - - - - - - Net loss - - - - - - - - ------ --------- ------ ------- ------ ------ ---------- ---------- Balance at December 31, 2000 - - - - - - 448,000 448 ------ --------- ------ ------- ------ ------ ---------- ---------- Issuance of common stock for cash at $0.063 per share on: Various dates - - - - - - 1,200,000 1,200 Services contributed by stockholders - - - - - - - - Net loss - - - - - - - - ------ --------- ------ ------- ------ ------ ---------- ---------- Balance at December 31, 2001 - - - - - - 1,648,000 1,648 ------ --------- ------ ------- ------ ------ ---------- ---------- Issued common stock at approximately $0.085 per share in February 2002 - - - - - - 3,285,100 3,285 Issuance of warrants in February 2002 Valued at $0.01 - $0.085 to purchase 11,850,000 shares of common stock - - - - - - - - May 31, 2002 automatic conversion of 11,450,000 warrants - - - - - - 11,450,000 11,450 Issuance of common stock at $0.085 per share in June 2002 - - - - - - 5,714,150 5,714 ------ --------- ------ ------- ------ ------ ---------- ---------- Carryforward - - - - - - 22,097,250 22,097 ------ --------- ------ ------- ------ ------ ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements. F-4 Page 2 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit Accumulated Accumulated Additional Stock Other During the Total Total Paid-In Subscription Comprehensive Development Stockholders' Comprehensive Capital Receivable Other Equity Loss Stage Equity Loss ---------- ------------ ------------ ------------- ----------- ------------- ------------- Balance at January 13, 2000 (Date of Inception) $ - $ - $ - $ - $ - $ - Issuance of common stock for services at $0.063 per share on: March 13, 2000 19,680 - - - - 20,000 April 12, 2000 984 - - - - 1,000 Issuance of common stock for cash at $0.063 per share on March 13, 2000 6,888 - - - - 7,000 Services contributed by stockholders 20,000 - - - - 20,000 Net loss - - - - (49,184) (49,184) ---------- ------------ ------------ ------------- ----------- ------------- Balance at December 31, 2000 47,552 - - - (49,184) (1,184) ---------- ------------ ------------ ------------- ----------- ------------- Issuance of common stock for cash at $0.063 per share on: Various dates 73,800 - - - - 75,000 Services contributed by stockholders 30,000 - - - - 30,000 Net loss - - - - (67,544) (67,544) ---------- ------------ ------------ ------------- ----------- ------------- Balance at December 31, 2001 151,352 - - - (116,728) 36,272 ---------- ------------ ------------ ------------- ----------- ------------- Issued common stock at approximately $0.085 per share in February 2002 274,515 - - - - 277,800 Issuance of warrants in February 2002 Valued at $0.01 - $0.085 to purchase 11,850,000 shares of common stock 933,200 - - - - 933,200 May 31, 2002 automatic conversion of 11,450,000 warrants (11,450) - - - - - Issuance of common stock at $0.085 per share in June 2002 455,486 - - - - 461,200 ---------- ------------ ------------ ------------- ----------- ------------- Carryforward 1,803,103 - - - (116,728) 1,708,472 ---------- ------------ ------------ ------------- ----------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-5 Page 3 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock - A Preferred Stock - B Preferred Stock - C Common Stock ------------------- ------------------- ------------------- ---------------------- Shares Amount Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ ------------ ------- Carryforward - $ - - $ - - $ - 22,097,250 $22,097 Cancellation of shares returned by a former officer - - - - - - (432,000) (432) Conversion of 100,000 warrants issued for consulting services - - - - - - 100,000 100 Issuance of warrants in February-March 2002 valued at $136,100 to purchase 6,499,713 shares of common stock and 539,000 shares of preferred stock - - - - - - - - Conversion of notes payable into 1.428571 shares of common and .9857141 shares of Series A preferred stock per $1 unit of convertible note at May 31, 2002 4,090,713 4,091 - - - - 5,928,790 5,928 Stock subscription receivable - - - - - - - - Stock subscription receivable - related party - - - - - - - - Conversion of note payable at $1.60 per share at May 31, 2002 - - - - - - 2,281,250 2,282 Issuance of common stock for interest on May 31, 2002 - - - - - - 2,206 2 Issuance of common stock at $2.25 per share in June 2002 - - - - - - 711,108 712 Offering costs related to $2.25 offering - - - - - - - - Issuance of warrants valued at $2.56 to purchase 150,000 shares of common stock as additional consideration for the April 2002 $1,500,000 private placement - - - - - - - - Additional financing costs to be amortized on $1,500,000 convertible debt - - - - - - - - --------- ---------- ------ --------- ------- ------- ------------ ------- Carryforward 4,090,713 4,091 - - - - 30,688,604 30,689 --------- ---------- ------ --------- ------- ------- ------------ -------
The accompanying notes are an integral part of these consolidated financial statements. F-6 Page 4 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit Accumulated Accumulated Additional Stock Other During the Total Total Paid-In Subscription Comprehensive Development Stockholders' Comprehensive Capital Receivable Other Equity Loss Stage Equity Loss ----------- ------------ ------------ ------------- ------------ ------------- ------------- Carryforward $ 1,803,103 $ - $ - $ - $ (116,728) $ 1,708,472 Cancellation of shares returned by a former officer 432 - - - - - Conversion of 100,000 warrants issued for consulting services (100) - - - - - Issuance of warrants in February - March 2002 valued at $136,100 to purchase 6,499,713 shares of common stock and 539,000 shares of preferred stock 136,100 - - - - 136,100 Conversion of notes payable into 1.428571 shares of common and .9857141 shares of Series A preferred stock per $1 unit of convertible note at May 31, 2002 4,139,981 - - - - 4,150,000 Stock subscription receivable - (2,480,000) - - - (2,480,000) Stock subscription receivable - related party - (1,156,250) - - - (1,156,250) Conversion of note payable at $1.60 per share at May 31, 2002 3,647,718 - - - - 3,650,000 Issuance of common stock for interest on May 31, 2002 13,223 - - - - 13,225 Issuance of common stock at $2.25 per share in June 2002 1,599,288 - - - - 1,600,000 Offering costs related to $2.25 offering (772,850) - - - - (772,850) Issuance of warrants valued at $2.56 to purchase 150,000 shares of common stock as additional consideration for the April 2002 $1,500,000 private placement 383,451 - - - - 383,451 Additional financing costs to be amortized on $1,500,000 convertible debt 1,116,549 - - - - 1,116,549 ----------- ------------ ------------ ------------- ----------- ------------- ------------- Carryforward 12,066,895 (3,636,250) - - (116,728) 8,348,697 ----------- ------------ ------------ ------------- ----------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-7 Page 5 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock - A Preferred Stock - B Preferred Stock - C Common Stock -------------------- ------------------- ------------------- ---------------------- Shares Amount Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ ------ ------ Carryforward 4,090,713 $ 4,091 - $ - - $ - 30,688,604 $ 30,689 Issuance of common stock at $2.25 per share in July 2002 - - - - - - 1,027,230 1,027 Issuable common stock at $2.25 per share in July 2002 - - - - - - 155,000 155 Offering costs related to the $2.25 offering - - - - - - - - Issuance of warrants to purchase 100,000 shares of common stock for investment banking fee related to the Waha/ Lockridge interest acquisition in August 2002 - - - - - - - - Cancellation of shares - - - - - - (16,000) (16) Conversion of notes payable at $100 per share on September 27, 2002 - - 39,429 40 - - - - Conversion of notes payable into 1.428584 shares of common and 0.009867 shares of Series B preferred stock per $1 unit of convertible note on September 30, 2002 of which 785,721 are issuable - - 5,427 5 - - 785,721 786 Issuance of warrants valued at $3.10 to purchase 232,500 shares of common stock as additional consideration for the October 2002 issuance of $1,550,000 in convertible debentures - - - - - - - - Additional financing costs to be amortized on $1,550,000 convertible debenture - - - - - - - - Issuance of common stock at $3.25 per share in November 2002 of which 76,923 shares are issuable - - - - - - 76,923 77 Offering costs related to $3.25 offering - - - - - - - - Conversion of notes payable at $100 per share at December 30, 2002 - - 98,571 99 - - - - Preferred stock dividend - - - - - - - - COMPREHENSIVE LOSS Net Loss - - - - - - - - Unrealized gain (loss) on available-for- sale securities - - - - - - - - --------- --------- ------- ---------- ---- ---------- ----------- ---------- Total Comprehensive Loss Balance, December 31, 2002 4,090,713 $ 4,091 143,427 $ 144 - $ - 32,717,478 $ 32,718 ========= ========= ======= ========== ==== ========== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-8 Page 6 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit Accumulated Accumulated Additional Stock Other During the Total Total Paid-In Subscription Comprehensive Development Stockholders' Comprehensive Capital Receivable Other Equity Loss Stage Equity Loss ------- ------------ ------------ ------------- ------------ ------------- ------------- Carryforward $12,066,895 $(3,636,250) $ - $ - $ (116,728) $ 8,348,697 Issuance of common stock at $2.25 per share in July 2002 2,310,223 - - - - 2,311,250 Issuable common stock at $2.25 per share in July 2002 348,595 - - - - 348,750 Offering costs related to the $2.25 offering (26,307) - - - - (26,307) Issuance of warrants to purchase 100,000 shares of common stock for investment banking fee related to the Waha/ Lockridge interest acquisition in August 2002 140,000 - - - - 140,000 Cancellation of shares 16 - - - - - Conversion of notes payable at $100 per share on September 27, 2002 3,942,819 - - - - 3,942,859 Conversion of notes payable into 1.428584 shares of common and 0.009867 shares of Series B preferred stock per $1 unit of convertible note on September 30, 2002 of which 785,721 are issuable 549,209 - - - - 550,000 Issuance of warrants valued at $3.10 to purchase 232,500 shares of common stock as additional consideration for the October 2002 issuance of $1,550,000 in convertible debentures 719,755 - - - - 719,755 Additional financing costs to be amortized on $1,550,000 convertible debenture 830,245 - - - - 830,245 Issuance of common stock at $3.25 per share in November 2002 of which 76,923 shares are issuable 249,923 - - - - 250,000 Offering costs related to $3.25 offering (26,096) - - - - (26,096) Conversion of notes payable at $100 per share at December 30, 2002 9,857,050 - - - - 9,857,149 Preferred stock dividend - - - - (284,298) (284,298) COMPREHENSIVE LOSS Net Loss - - - - (8,386,844) (8,386,844) (8,386,844) Unrealized gain (loss) on available-for- sale securities - - - (999,750) - (999,750) (999,750) ----------- ----------- ------------ ------------ ----------- ------------ ------------ Total Comprehensive Loss $ (9,386,594) ============ Balance, December 31, 2002 $30,962,327 $(3,636,250) $ - $ (999,750) $(8,787,870) $ 17,575,410 =========== =========== =========== ============ =========== ============
The accompanying notes are an integral part of these consolidated financial statements. F-9 Page 7 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock - A Preferred Stock - B Preferred Stock - C Common Stock ------------------- ------------------- ------------------- ----------------------- Shares Amount Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ ------ ------ Carryforward 4,090,713 $ 4,091 143,427 $ 144 - $ - 32,717,478 $ 32,718 Payment of subscription receivable - - - - - - - - Payment of subscription receivable - related party - - - - - - - - Issuance of common stock at $4.70 per share for consideration of loan made by Gibralt in February 2003 - - - - - - 75,000 75 Issuance of warrants to Trident valued at $3.13 to purchase 25,000 shares of common stock as consideration for Trident's waiver of certain loan covenants on the $1,500,000 convertible note at March 24, 2003 - - - - - - - - Issuance of common stock for cash at $2.00 per share to the former class B member of BWP and its designees to purchase 100% of the class B membership interest in BWP at May 20, 2003 - - - - - - 3,300,000 3,300 Issuance of warrant to the former class B member of BWP and its designees valued at $1.24 to purchase 1,650,000 shares of common stock as consideration for the purchase of 100% of the class B membership interest in BWP at May 20, 2003 - - - - - - - - Issuance of series C preferred stock for cash at $10.00 per share in May and June 2003 - - - - 477,500 478 - - Offering cost related to the series C preferred stock offering - - - - - - - - Conversion dividend on the series C preferred stock - - - - - - - - Issuance of option to Sunrise Financial Group valued at $2.07 to purchase 250,000 shares of common stock for consulting service in May 2003 - - - - - - - - Amortization of cost of the option issued to Sunrise Financial Group - - - - - - - - Issuance of 150,000 shares of common stock to Ram Trading, Ltd. For cash at $2.03 per share at August 27, 2003 - - - - - - 150,000 150 Offering cost related to the common stock issuance to Ram Trading, Ltd. - - - - - - - - --------- -------- --------- -------- --------- -------- ----------- ---------- Carryforward 4,090,713 4,091 143,427 144 477,500 478 36,242,478 36,243 --------- -------- --------- -------- --------- -------- ----------- ----------
The accompanying notes are an integral part of these consolidated financial statements F-10 Page 8 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit Accumulated Accumulated Additional Stock Other During the Total Total Paid-In Subscription Comprehensive Development Stockholders' Comprehensive Capital Receivable Other Equity Loss Stage Equity Loss ------- ---------- ------------ ---- ----- ------ ---- Carryforward $30,962,327 $(3,636,250) $ - $ (999,750) $ (8,787,870) $ 17,575,410 Payment of subscription receivable - 1,781,250 - - - 1,781,250 Payment of subscription receivable - related party - 1,430,000 - - - 1,430,000 Issuance of common stock at $4.70 per share for consideration of loan made by Gibralt in February 2003 352,425 - - - - 352,500 Issuance of warrants to Trident valued at $3.13 to purchase 25,000 shares of common stock as consideration for Trident's waiver of certain loan covenants on the $1,500,000 convertible note at March 24, 2003 78,227 - - - - 78,227 Issuance of common stock for cash at $2.00 per share to the former class B member of BWP and its designees to purchase 100% of the class B member-ship interest in BWP at May 20, 2003 6,596,700 - - - - 6,600,000 Issuance of warrant to the former class B member of BWP and its designees valued at $1.24 to purchase 1,650,000 shares of common stock as consideration for the purchase of 100% of the class B membership interest in BWP at May 20, 2003 2,046,000 - - - - 2,046,000 Issuance of series C preferred stock for cash at $10.00 per share in May and June 2003 4,774,523 - - - - 4,775,001 Offering cost related to the series C preferred stock offering (307,202) - - - - (307,202) Conversion dividend on the series C preferred stock 2,763,250 - - - - 2,763,250 Issuance of option to Sunrise Financial Group valued at $2.07 to purchase 250,000 shares of common stock for consulting service in May 2003 516,400 - (516,400) - - - Amortization of cost of the option issued to Sunrise Financial Group - - 516,400 - - 516,400 Issuance of 150,000 shares of common stock to Ram Trading, Ltd. For cash at $2.03 per share at August 27, 2003 304,350 - - - - 304,500 Offering cost related to the common stock issuance to Ram Trading, Ltd. (60,000) - - - - (60,000) ----------- ----------- ------------ ------------- ------------ ------------- Carryforward 48,027,000 (425,000) - (999,750) (8,787,870) 37,855,336 ----------- ----------- ------------ ------------- ------------ -------------
The accompanying notes are an integral part of these consolidated financial statements. F-11 Page 9 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock - A Preferred Stock - B ---------------------- -------------------- Shares Amount Shares Amount --------- ---------- ------- ---------- Carryforward 4,090,713 $ 4,091 143,427 $ 144 Issuance of option to Stern & Co., Inc. valued at $1.67 to purchase 25,000 shares of common stock for assistance in obtaining insurance in July 2003 - - - - Issuance of option to Rhodes Ventures, Ltd valued at $0.46 to purchase 50,000 shares of common stock for consulting service at July 15, 2003 - - - - Amortization of deferred compensation related to the option issued to Rhodes Ventures, Ltd. - - - - Issuance of warrant to Trident valued at $1.89 to purchase 100,000 shares of common stock as consideration for Trident's second waiver of loan and extension of maturity date of the $1,500,000 convertible note on July 29, 2003 - - - - Issuance of warrant to Trident valued at $1.66 to purchase 150,000 shares of common stock as consideration for Trident's increasing of the original $1,500,000 to $2,100,000 on July 29, 2003 - - - - Additional financing expense to be amortized on the additional $600,000 convertible note issued by Trident - - - - Issuance of 102,190 shares of common stock to a director valued at $2.12 for directorship and legal services in August 2003 - - - - Issuance of warrant to Michael Marcus valued at $1.08 to purchase 50,000 shares of common stock for Marcus' extension of the $1,550,000 convertible notes at October 17, 2003 - - - - Issuance of 650,000 shares of common stock to Ram Trading, Ltd. in exercising the call option to repurchase the 7 limited partnership units in Louisiana Shelf Partners, LP from Ram Trading, Ltd. valued at $1.07 at October 20, 2003 - - - - --------- ---------- ------- ---------- Carryforward 4,090,713 4,091 143,427 144 --------- ---------- ------- ---------- Preferred Stock - C Common Stock -------------------- ----------------------- Shares Amount Shares Amount ------- ---------- ---------- ---------- Carryforward 477,500 $ 478 36,242,478 $ 36,243 Issuance of option to Stern & Co., Inc. valued at $1.67 to purchase 25,000 shares of common stock for assistance in obtaining insurance in July 2003 - - - - Issuance of option to Rhodes Ventures, Ltd valued at $0.46 to purchase 50,000 shares of common stock for consulting service at July 15, 2003 - - - - Amortization of deferred compensation related to the option issued to Rhodes Ventures, Ltd. - - - - Issuance of warrant to Trident valued at $1.89 to purchase 100,000 shares of common stock as consideration for Trident's second waiver of loan and extension of maturity date of the $1,500,000 convertible note on July 29, 2003 - - - - Issuance of warrant to Trident valued at $1.66 to purchase 150,000 shares of common stock as consideration for Trident's increasing of the original $1,500,000 to $2,100,000 on July 29, 2003 - - - - Additional financing expense to be amortized on the additional $600,000 convertible note issued by Trident - - - - Issuance of 102,190 shares of common stock to a director valued at $2.12 for directorship and legal services in August 2003 - - 102,190 102 Issuance of warrant to Michael Marcus valued at $1.08 to purchase 50,000 shares of common stock for Marcus' extension of the $1,550,000 convertible notes at October 17, 2003 - - - - Issuance of 650,000 shares of common stock to Ram Trading, Ltd. in exercising the call option to repurchase the 7 limited partnership units in Louisiana Shelf Partners, LP from Ram Trading, Ltd. valued at $1.07 at October 20, 2003 - - 650,000 650 ------- ---------- ---------- ---------- Carryforward 477,500 $ 478 36,994,668 36,995 ------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements. F-12 Page 10 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Stock Paid-In Subscription Capital Receivable Other Equity ----------- ------------ ------------ Carryforward $48,027,000 $ (425,000) $ - Issuance of option to Stern & Co., Inc. valued at $1.67 to purchase 25,000 shares of common stock for assistance in obtaining insurance in July 2003 41,700 - - Issuance of option to Rhodes Ventures, Ltd valued at $0.46 to purchase 50,000 of common stock for consulting service at July 15, 2003 23,100 - (23,100) Amortization of cost of the option issued to Rhodes Ventures, Ltd. - - 22,100 Issuance of warrant to Trident valued at $1.89 to purchase 100,000 shares of common stock as consideration for Trident's second waiver of loan covenants and extension of maturity date of the $1,500,000 convertible note on July 29, 2003 189,000 - - Issuance of warrant to Trident valued at $1.66 to purchase 150,000 shares of common stock as consideration for Trident's increasing of the original $1,500,000 to $2,100,000 on July 29, 2003 249,000 - - Additional financing expense to be amortized on the additional $600,000 convertible note issued by Trident 351,000 - - Issuance of 102,190 shares of common stock to a director valued at $2.12 for directorship and legal services in August 2003 216,498 - - Issuance of warrant to Michael Marcus valued at $1.08 to purchase 50,000 shares of common stock for Marcus' extension of the $1,550,000 convertible notes at October 17, 2003 53,900 - - Issuance of 650,000 shares of common stock to Ram Trading, Ltd. In exercising the call option to repurchase the 7 limited partnership units in Louisiana Partners, LP from Ram Trading, Ltd. valued at $1.07 at October 20, 2003 694,850 - - ----------- ----------- -------- Carryforward 49,846,048 (425,000) (1,000) ----------- ----------- -------- Deficit Accumulated Accumulated Other During the Total Total Comprehensive Development Stockholders' Comprehensive Loss Stage Equity Loss ------------- ----------- ------------ ------------- Carryforward $ (999,750) $(8,787,870) $37,855,336 Issuance of option to Stern & Co., Inc. valued at $1.67 to purchase 25,000 shares of common stock for assistance in obtaining insurance in July 2003 - - 41,700 Issuance of option to Rhodes Ventures, Ltd valued at $0.46 to purchase 50,000 of common stock for consulting service at July 15, 2003 - - - Amortization of cost of the option issued to Rhodes Ventures, Ltd. - - 22,100 Issuance of warrant to Trident valued at $1.89 to purchase 100,000 shares of common stock as consideration for Trident's second waiver of loan covenants and extension of maturity date of the $1,500,000 convertible note on July 29, 2003 - - 189,000 Issuance of warrant to Trident valued at $1.66 to purchase 150,000 shares of common stock as consideration for Trident's increasing of the original $1,500,000 to $2,100,000 on July 29, 2003 - - 249,000 Additional financing expense to be amortized on the additional $600,000 convertible note issued by Trident - - 351,000 Issuance of 102,190 shares of common stock to a director valued at $2.12 for directorship and legal services in August 2003 - - 216,600 Issuance of warrant to Michael Marcus valued at $1.08 to purchase 50,000 shares of common stock for Marcus' extension of the $1,550,000 convertible notes at October 17, 2003 - - 53,900 Issuance of 650,000 shares of common stock to Ram Trading, Ltd. In exercising the call option to repurchase the 7 limited partnership units in Louisiana Partners, LP from Ram Trading, Ltd. valued at $1.07 at October 20, 2003 - - 695,500 ------- --------- ---------- ------------- Carryforward (999,750) (8,787,870) 39,674,136 ------- --------- ---------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-13 Page 11 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock - A Preferred Stock - B Preferred Stock - C Common Stock ------------------- ------------------- ------------------- ----------------------- Shares Amount Shares Amount Shares Amount Shares Amount --------- ------- ------- ---------- ------- ------ ---------- ---------- Carryforward 4,090,713 $ 4,091 143,427 $ 144 477,500 $ 478 36,994,668 $ 36,995 Issuance of 150,000 shares of common stock to Ram Trading, Ltd. for cash at $2.20 per share at October 28, 2003 - - - - - - 150,000 150 Preferred stock dividend - - - - - - - - COMPREHENSIVE LOSS - - - - - - - - Net Loss - - - - - - - - Unrealized gain (loss) on available-for- sale securities - - - - - - - - --------- ------- ------- ------- ------- ------- ---------- ---------- Total Comprehensive Loss Balance, December 31, 2003 4,090,713 $ 4,091 143,427 $ 144 477,500 $ 478 37,144,668 $ 37,145 ========= ======= ======= ======= ======= ======= ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-14 Page 12 of 12 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit Accumulated Accumulated Additional Stock Other During the Total Total Paid-In Subscription Comprehensive Development Stockholders' Comprehensive Capital Receivable Other Equity Loss Stage Equity Loss ----------- ------------ ------------ ------------- ------------ ------------- ------------- Carryforward $49,846,048 $ (425,000) $ (1,000) $ (999,750) $ (8,787,870) $ 39,674,136 Issuance of 150,000 shares of common stock in Ram Trading, Ltd. For cash at $2.20 per share at October 28, 2003 329,850 - - - - 330,000 Preferred stock dividend - - - - (4,405,708) (4,405,708) COMPREHENSIVE LOSS Net Loss - - - - (32,842,755) (32,842,755) (32,842,755) Unrealized gain (loss) on available- for-sale securities - - - 510,714 - 510,714 510,714 ----------- ----------- ---------- ------------ ------------ ------------ ------------ Total Comprehensive Loss $(32,332,041) ============ Balance, December 31, 2003 $50,175,898 $ (425,000) $ (1,000) $ (489,036) $(46,036,333) $ 3,266,387 =========== =========== ========== ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-15 Page 1 of 2 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 13, 2000 December 31, (Inception) to ---------------------------- December 31, 2003 2002 2003 ------------ ------------ ------------ Cash Flows from Operating Activities Net loss $(32,842,755) $ (8,386,844) $(41,346,327) Adjustments to reconcile net loss to net cash used in operating activities Minority interest (loss) (82,260) 85,773 3,513 Shares issued for services rendered 216,600 - 237,600 Option issued for services tendered 41,700 - 41,700 Warrant issued for loan extension 78,227 - 78,227 Collection incentives - 136,100 136,100 Contributed services - 53,750 103,750 Depreciation and depletion 1,497,360 9,612 1,507,610 Amortization of deferred compensation 538,500 - 538,500 Impairment of oil and gas properties 21,502,317 3,358,136 24,860,453 Bad debt expense - related party 1,800,000 550,601 2,350,601 Amortization of discount on marketable securities - (343,367) (343,367) Amortization of discount on note payable 2,857,315 2,152,048 5,009,363 Amortization of deferred revenue (26,857) - (26,857) Amortization of loan costs 263,147 74,538 337,685 Interest expense paid by stock issuance - 13,225 13,225 Equity loss in limited partnership 1,217,317 27,772 1,245,089 Realized loss on marketable securities 1,659,220 - 1,659,220 Realized gain on sale of oil and gas interest (1,235,248) - (1,235,248) Realized gain on share exchange - (164,990) (164,990) Changes in assets and liabilities (Increase) Decrease in assets Other receivables (128,520) (106,942) (235,462) Prepaid expenses and advance payments to operators (70,398) (150,160) (220,558) Other current assets (1,200,550) (5,000) (1,210,700) Increase in liabilities Accounts payable and accrued expenses (178,605) 1,253,135 1,092,295 ------------ ------------ ------------ Net Cash Used in Operating Activities (4,093,490) (1,442,613) (5,568,578) ------------ ------------ ------------ Cash Flows From Investing Activities Notes receivable - related party (176,000) - (176,000) Notes receivable (10,000) (1,428,117) (1,438,117) Repayment of notes receivable - related party 1,316,000 - 1,316,000 Repayment of notes receivable 152,500 792,500 945,000 Purchases of oil and gas interests and drilling costs (2,917,507) (17,073,118) (19,990,625) Investment in Limited Partnership (2,828,369) (1,401,263) (4,229,632) Acquisition of Limited Partnership interest, net of cash acquired (2,350,000) - (2,350,000) Proceeds from sale of oil and gas interests 146,821 - 146,821 Purchase of marketable securities (5,031) (4,304,036) (4,309,067) Proceeds from sale of marketable securities 114,086 - 114,086 Purchases of equipment (2,397) (2,651) (15,255) ------------ ------------ ------------ Net Cash Used in Investing Activities (6,559,897) (23,416,685) (29,986,789) ------------ ------------ ------------
F-16 Page 2 of 2 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 13, 2000 December 31, (Inception) to ---------------------------- December 31, 2003 2002 2003 ------------ ------------ ------------ Cash Flows From Financing Activities Advances from stockholder - 300,000 300,000 Repayments to stockholder - (300,000) (300,000) Repayment of loan - related party (1,399,340) - (1,399,340) Repayment of loan (1,200,000) - (1,200,000) Proceeds from borrowings 1,763,500 15,435,800 17,199,300 Proceeds from borrowings - related party 1,254,000 - 1,254,000 Proceeds from deferred equity option 870,000 - 870,000 Loan costs - (245,000) (245,000) Receipts of subscription receivable 1,430,000 - 1,430,000 Receipts of subscription receivable - related party 1,924,340 - 1,924,340 Proceeds from common and preferred stock issued and issuable, net of issuance costs 5,737,799 9,958,948 15,778,747 ------------ ------------ ------------ Net Cash Provided by Financing Activities 10,380,299 25,149,748 35,612,047 ------------ ------------ ------------ Net Increase in Cash and Cash Equivalents (273,088) 290,450 56,680 Cash and Cash Equivalents, Beginning of Period 329,768 39,318 - ------------ ------------ ------------ Cash and Cash Equivalents, End of Period $ 56,680 $ 329,768 $ 56,680 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-17 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - DESCRIPTION OF BUSINESS Continental Southern Resources, Inc. (the "Company" or "CSOR"), formerly known as Expressions Graphics, Inc., was incorporated under the laws of the state of Nevada on January 13, 2000. In 2004, the Company restructured its business and changed its name to Endeavour International Corporation (see Note 21). NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("US GAAP") and have been presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Principles of Consolidation and Ownership Interest in Investees The accompanying consolidated financial statements include all of the accounts of the Company and its five subsidiaries consisting of EGI Louisiana, Inc. (100% owned), a Nevada corporation incorporated in March 2002, Knox Miss. Partners, L.P. (99%), a Delaware limited partnership formed in March 2002, PHT Partners, L.P. (94.8%), a Delaware limited partnership formed in June 2002, BWP Gas, LLC (99%), a Delaware limited liability company formed in February 2003 and CSOR Acquisition Corporation (100%), a Delaware corporation incorporated in December 2003. The Company also has a 25.0% interest in Louisiana Shelf Partners, L.P., a Delaware limited partnership formed in December 2002. The various interests that the Company owns in its investees are accounted for under two broad methods: consolidation and equity method. The applicable accounting method is generally determined based on the Company's voting interest in the affiliate company. Consolidation Affiliate companies in which the Company directly or indirectly owns more than 50% of the outstanding voting interest are accounted for under the consolidation method of accounting. Under this method, an affiliate company's results of operations are reflected within the Company's Consolidated Statement of Operations. All significant intercompany accounts and transactions have been eliminated. Equity Method The Company uses the equity method to account for all of its limited partnership interests that range from 5% to 50%. Under the equity method of accounting, the Company's proportionate share of the investees' net income or loss is included in "Partnership Investment Losses" in the Consolidated Statements of Operations. Any excess investment is evaluated each reporting period for impairment and is amortized over the estimated period of the remaining oil and gas reserves. Development Stage Enterprise The Company is a Development Stage Enterprise, as defined in Statement of Financial Accounting Standards ("SFAS") No. 7 "Accounting and Reporting for Development Stage Enterprises." Under SFAS No. 7, certain additional financial information is required to be included in the financial statements for the period from inception of the Company to the current balance sheet date. F-18 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Oil and Gas Accounting The Company uses the successful efforts method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, drill and equip exploratory wells that find proved reserves, and drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, associated geological and geophysical costs, and associated costs of carrying and retaining unproved properties are expensed. Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are amortized based on the Company's experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated salvage values, are depreciated and depleted by the unit-of-production method. Support equipment and other property and equipment are depreciated over their estimated useful lives. The Company reviews the carrying values of its long-lived assets whenever events or changes in circumstances indicate that such carrying values may not be recoverable. If, upon review, the sum of the undiscounted pretax cash flows is less than the carrying value of the asset group, the carrying value is written down to estimated fair value. Individual assets are grouped for impairment purposes at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, generally on a field-by-field basis. The fair value of impaired assets is determined based on quoted market prices in active markets, if available, or upon the present values of expected future cash flows using discount rates commensurate with the risks involved in the asset group. The long-lived assets of the Company, which are subject to evaluation, consist primarily of oil and gas properties. Impairments are provided if the net capitalized costs of gas and oil properties at the field level exceed their realizable values based upon expected future cash flows. Upon the sale or retirement of a complete unit of a proved property, the cost and related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. Upon the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion, and amortization with a resulting gain or loss recognized in income. On the sale of an entire interest in an unproved property for cash or cash equivalent, gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property had been assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained. Revenue Recognition Revenue is recognized at the time title passes on oil and gas quantities, less any royalties due. Revenues related to natural gas are recognized using the entitlement method of accounting for gas imbalances. Any entitled quantities that are in excess of sales quantities are recorded as a receivable at the lower of the current market price or the market price at the time the imbalance occurred. Any entitled quantities that are lower than the sales quantities are recorded as deferred revenue at the market price at the time the imbalance occurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. F-19 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Management believes that it is reasonably possible the following material estimates affecting the financial statements could significantly change in the coming year (1) estimates of proved oil and gas reserves, (2) estimates as to the expected future cash flow from proved oil and gas properties, and (3) estimates of future dismantlement and restoration costs. The Company's business makes it vulnerable to changes in crude oil and natural gas prices. Such prices have been volatile in the past and can be expected to be volatile in the future. By definition, proved reserves are based on current oil and gas prices. Price declines may reduce the estimated quantity of proved reserves and increase annual amortization expense. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and investments in money market funds. The Company considers all highly liquid instruments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions or unsecured loans. At various times during the year, the Company may exceed the federally insured limits. To mitigate this risk, the Company places its cash deposits only with high credit quality institutions. Management believes the risk of loss is minimal. Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation. Furniture and fixtures are depreciated using the straight-line method over their estimated useful life of seven years. Capitalized Interest The Company policy is to capitalize interest on expenditures for significant exploration and development projects while activities are in progress to bring the assets to their intended use. Financial Instruments The carrying amounts reflected in the consolidated balance sheets for cash and equivalents, short-term receivables and short-term payables approximate their fair value due to the short maturity of the instruments. The carrying value of the investment in equity securities approximates fair value based on their market trading price. The carrying value of the note receivable with detachable warrants reflects a discount for the value of warrants. The carrying value of the convertible notes is recorded at the value of the underlying collateral. Income Taxes The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes." Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities in the financial statements and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than F-20 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) not that some portion of, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Dismantlement, Restoration and Environmental Costs Effective January 1, 2003, the Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations" using a cumulative effect approach to recognize transition amounts for asset retirement obligations, asset retirement costs and accumulated depreciation. SFAS No. 143 requires liability recognition for retirement obligations associated with tangible long-lived assets, such as producing well sites, offshore production platforms, and natural gas processing plants. The obligations included within the scope of SFAS No. 143 are those for which a company faces a legal obligation. The initial measurement of the asset retirement obligation is to record a separate liability at its fair value with an offsetting asset retirement cost recorded as an increase to the related property and equipment on the consolidated balance sheet. The asset retirement cost is depreciated using a systematic and rational method similar to that used for the associated property and equipment. The Company previously estimated costs of dismantlement, removal, site reclamation, and other similar activities in the total costs that are subject to depreciation, depletion, and amortization. The Company did not record a separate asset or liability for such amounts. Stock-Based Compensation Arrangements The Company applies the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued To Employees," and related interpretations, in accounting for its stock-based grants to employees. Under the intrinsic value method of accounting, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. The Company applies the disclosure provisions specified in SFAS No. 148, "Accounting For Stock Based Compensation - Transition and Disclosure - an Amendment of SFAS 123," The Company applies SFAS No. 123, "Accounting for Stock-Based Compensation," in accounting for stock-based grants to non-employees. The net loss does not include any stock-based director compensation cost, as all the options granted had an exercise price higher than the market value of the stock on the date of grant. However, the modification of options has triggered variable accounting under APB 25 and FASB interpretation No. 44. The Company will be required to record compensation expense if the modified option price is lower than the market price of the stock at the end of a reporting period until the options expire or are exercised. Since the modified option exercise price for the 500,000 options was higher than the market price of the stock on option modification date, no compensation expense was recorded under APB 25. The Company applies SFAS 148 for the disclosure requirements for options granted to the directors. Under SFAS 148, the modification of the terms for the 500,000 option requires the Company to disclose additional compensation expense, which equals the difference of the modified option valued on the option modification date and the value of the original option on the option modification date. Had compensation expense for the year ended December 31, 2003 and 2002 been determined under the fair value provisions of SFAS No. 123, as amended by SFAS 148, the Company's net loss and net loss per share would have been the following: F-21 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Year Ended December 31, ---------------------------- 2003 2002 ------------ ------------ Net loss to common stockholders, as reported $(37,248,463) $ (8,671,142) Add: Total stock-based director compensation expense determined under fair-value-based method for all awards, net of tax (826,461) (1,304,638) ------------ ------------ Pro forma net loss $(38,074,924) $ (9,975,780) ============ ============ Loss per share: Basic - as reported $ (1.06) $ (0.42) Basic - pro forma $ (1.09) $ (0.49)
These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period and additional options may be issued in future years. The estimated fair value of each option granted was calculated using the Black-Scholes Method. The following summarizes the weighted average of the assumptions used in the method.
2003 2002 ----------- ---- Risk free rate 1.63 - 3.84% 1.23% Expected years until exercise 3.0 - 5.0 2.0 Expected stock volatility 100% 110% Dividend yield - - =========== ====
Loss Per Share Loss per common share is calculated in accordance with SFAS No. 128, "Earnings Per Share." Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted loss per share is computed similarly to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued and if the additional common shares were dilutive. Shares associated with stock options, warrants and convertible debt are not included because their inclusion would be antidilutive (i.e., reduce the net loss per share). The common shares potentially issuable arising from these instruments, which were outstanding during the periods presented in the financial statements, consisted of:
December 31, --------------------------- 2003 2002 --------- --------- Options 1,025,000 500,000 Warrants 2,757,500 782,500 Convertible Debt 4,320,000 1,414,423 --------- --------- 8,102,500 2,696,923 ========= =========
F-22 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Segment Information Under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Company has determined it has one reportable operating segment being the acquiring, exploration and development of natural gas and oil properties. The Company's operations are conducted in two geographic segments as follows:
2003 2002 --------------------------- ---------------------------- Long-lived Long-lived Revenue Assets Revenue Assets -------- ---------- -------- ----------- United States $ 27,305 $8,054,710 $ 16,142 $15,321,780 Thailand - 1,692,460 - 1,136,962 -------- ---------- -------- ----------- $ 27,305 $9,747,170 $ 16,142 $16,458,742 ======== ========== ======== ===========
Impairment of Loans The Company uses SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," amended by SFAS No. 118, for measuring the impairment of certain debt investments. Under SFAS No. 114, impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The Company used the fair value of the loan collateral to measure the impairment of the loans and ceased accruing interest income on the loans. Recent Accounting Pronouncements In January 2003, the FASB issued Financial Interpretation No. 46, "Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51" (FIN 46 or Interpretation). The primary objective of the Interpretation is to provide guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights; such entities are known as variable interest entities ("VIEs"). The Interpretation requires an enterprise to consolidate a VIE if that enterprise has a variable interest that will absorb a majority of the entity's expected losses if they occur, receive a majority of the entity's expected residual returns if they occur or both. The adoption of FIN 46 is not expected to have an impact on the Company's financial condition, results of operations or cash flows. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 requires that contracts with comparable characteristics be accounted for similarly. The statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The provisions of SFAS No. 149 generally are to be applied prospectively only. The adoption of SFAS No. 149 did not have a material impact on the Company's results of operations or financial position. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for classification and measurement by an issuer of certain financial instruments with characteristics of both liabilities and equity. The statement requires that an issuer classify a financial instrument that is within its scope as a liability (or asset in some circumstances). Many of those instruments were previously classified as equity. The adoption of the effective provisions of SFAS No. 150 did not have a material impact on the Company's results of operations or financial position. F-23 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) On December 17, 2003, the Staff of the Securities and Exchange Commission (or SEC) issued Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition," which supersedes Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 104's primary purpose is to rescind the accounting guidance contained in SAB 101 related to multiple-element revenue arrangements that was superseded as a result of the issuance of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." Additionally, SAB 104 rescinds the SEC's related "Revenue Recognition in Financial Statements Frequently Asked Questions and Answers" issued with SAB 101 that had been codified in SEC Topic 13, "Revenue Recognition." While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104, which was effective upon issuance. The adoption of SAB 104 did not have a material effect on the Company's financial position or results of operations. NOTE 3 - LIQUIDITY AND CAPITAL RESOURCES The Company is in the development stage and has significant debt obligations to repay in future years. Additionally, the Company will need significant funds to meet its cash calls on its various interests in oil and gas prospects to explore, produce, develop, and eventually sell the underlying natural gas and oil products under its interests and to acquire additional properties. On February 26, 2004, the Company closed a private equity offering in which it raised net proceeds of $46,000,000 (see Note 21). The Company will use the proceeds to repay certain liabilities described in Note 12 and the balance for its working capital requirements. NOTE 4 - NOTE RECEIVABLE - RELATED PARTY During 2002, the Company loaned a total of $475,000 to International Travel CD's, Inc. ("ILCD") for which it received various 10% unsecured promissory notes that were due 45 days from the date of issuance. On October 5, 2002, the Company entered into an Assignment and Release Agreement with ILCD whereby the Company agreed to purchase and assume the assignment of a secured promissory note between ILCD and Snipes Productions, LLC ("the Secured Note") for full satisfaction of the remaining unpaid balance of the ILCD promissory notes amounting to $122,500. The Secured Note's maturity date of December 31, 2002 was extended to October 31, 2003 and interest is equal to 35% of the aggregate principal balance. As of December 31, 2003 and 2002, the outstanding principal balance was $122,500 while the unpaid interest on the Secured Note was $64,841 and $16,417, respectively. The note receivable and accrued interest were included in the sale of non-core assets in February 2004 (see Note 21). In August and October 2002, the Company loaned the aggregate of $425,000 and $220,000 to BPK Resources, Inc. and its subsidiary, CSR - Hackberry Partners, L.P., respectively. The Company received various demand promissory notes with annual interest rates of 10% and 12%. The outstanding balance of these notes was $0 and $25,000 as of December 31, 2003, and $250,000 and $45,000 as of December 31, 2002. Total unpaid accrued interest on these notes totaled $24,371 and $12,851 at December 31, 2003 and 2002, respectively. These note receivables were included in the transfer of the non-core assets to the Series A and certain of the Series B Preferred Stock holders in February 2004 (see Note 21). During 2003 and 2002, Knox Miss and CSR Waha made short-term unsecured advances of $5,617 and $18,000, respectively, to BPK Resources, Inc. These advances remain outstanding as of December 31, 2003. During 2002, PHT Partners made a short-term unsecured advance of $50,000 to PH Gas, LLC. This advance was paid on September 8, 2003 along with $3,438 of accrued interest. F-24 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - NOTE RECEIVABLE - RELATED PARTY (CONTINUED) On January 15, 2003, the Company sold its 99% limited partnership interest in CSR-WAHA Partners, LP, a Delaware Limited Partnership to BPK and in return, received a cash payment of $150,000, a $1,500,000 promissory note due on April 30, 2003, and 600,000 shares of the common stock of BPK. This resulted in a gain of $1,235,248. On April 14, 2003, the Company agreed to extend the due date of the $1,500,000 promissory note to June 30, 2004. BPK issued 100,000 shares of its common stock to the Company in consideration for the extension. As of December 31, 2003, $670,000 of principal remained outstanding along with $106,669 in accrued interest. The note receivable and accrued interest were included in the transfer of the non-core assets to the Series A and certain of the Series B Preferred Stock holders in February 2004 (see Note 21). On February 21, 2003, Knox Miss Partners, L.P. ("Knox Miss") loaned $10,000 to Touchstone Resources, LTD. ("Touchstone") for which it received a 10% unsecured demand promissory. As of December 31, 2003, the principal remained outstanding with accrued interest of $858. On March 4, 2003, the Company loaned $136,000 to FEQ Investments, Inc. ("FEQ") for which it received a 10% unsecured demand promissory note. The note was paid on May 29, 2003. On May 30, 2003, the Company loaned $30,000 to PH Gas, L.P. in exchange for a demand promissory note. This note was paid on June 4, 2003. On November 20, 2003, Knox Miss made a short-term unsecured advance of $2,250 to Louisiana Shelf Partners, L.P. ("LA Shelf"). This advance remains outstanding as of December 31, 2003. NOTE 5 - NOTE RECEIVABLE On November 1, 2002, the Company loaned $152,500 to IP Services Inc. in exchange for a 10% demand promissory note. This note along with $10,319 in accrued interest was paid in June 2003. On June 13, 2003, Knox Miss Partners, L.P. received a promissory note in exchange for a $10,000 loan from an unrelated party. As of December 31, 2003, the principal remained outstanding along with $551 in accrued interest. NOTE 6 - OIL AND GAS PROPERTIES Hell Hole Bayou During 2002, the Company acquired various working interests in the leases underlying the North Hell Hole Prospect (the "Prospect"). The purpose of the Prospect was to explore, develop and produce certain oil and gas interests it possesses in a contracted area known as Hell Hole Bayou located in Vermillion Parish, Louisiana. The Company acquired these interests from various leaseholders, including Touchstone Resources USA, Inc. ("Touchstone USA"). The Company owned an aggregate working interest of 37.9% and an additional 10% back-in interest. During 2002 through April 2003, it was determined by the Company's outside engineer and operator that the initial hole and subsequent sidetrack wells were dry. Management decided not to pursue additional exploration within these lease areas and, consequently, these leases were allowed to lapse. Management also decided not to pursue additional exploration within the remaining three leases. Consequently, these three leases were allowed to lapse. The Company has recorded impairment charges of $3,635,136 in 2002, and $11,384,452 in 2003. The aggregate amount of these impairments is $15,019,588, which is comprised of all drilling costs incurred to date plus 100% of the lease acquisition costs for the entire Hell Hole Prospect. F-25 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - OIL AND GAS PROPERTIES (CONTINUED) Knox Miss. Partners, L.P. - Limited Partnership Interest On March 23, 2002, the Company entered into a limited partnership agreement with Knox Miss, LLC and formed Knox Miss. Partners, L.P., a Delaware limited partnership. The Company is the sole limited partner with a 99% interest and Knox Miss, LLC is the general partner. As of December 31, 2003, the Company contributed $5,544,500 and the general partner contributed $27,325 to the limited partnership. Knox Miss. Partners, L.P. was formed to acquire interests in gas, oil and mineral leases of properties located in Mississippi. During 2002, Knox Miss entered into exploration agreements with SK Exploration, Inc., SKH Energy Partners II, LP and Clayton Williams Energy, Inc. ("Clayton") to jointly cooperate and participate in the exploration and development of oil, gas and leases in the Livingston Transform Area, Longview and Osborn prospects which cover several counties in Mississippi (see Note 20 - legal proceedings for contingency). In the first quarter of 2004, the Company sold its 99% limited partnership interest in Knox Miss Partners, L.P. (see Note 21). CSR-WAHA Partners, L.P. On June 27, 2002, the Company entered into a limited partnership agreement with CSR, LLC and formed CRS-WAHA Partners, L.P. ("CSR-WAHA") of which the Company was the sole limited partner with a 99% interest and CSR, LLC is the general partner. Through December 2002, the Company and CSR, LLC contributed cash of $750,000 and $500, respectively. In 2002, the partnership purchased a working interest of 12-1/2% in the Waha/Lockridge oil and gas prospect located in Reeves County, Texas for $358,038. On January 15, 2003, the Company sold its 99% limited partnership interest in CSR-WAHA to BPK (see Note 4). BWP Gas, LLC On May 20, 2003, the Company entered into a Membership Purchase Agreement with BWP Gas, LLC ("BWP") whereby the Company acquired all of the Class B membership interest of BWP from HBA Gas, Inc. ("HBA") (the "Acquisition"). The Company became the sole Class B member and the managing member with a 99% interest in BWP. Oklahoma Hills Gas, LLC ("Oklahoma Hills") is the Class A member with a 1% interest. HBA is the managing member of Oklahoma Hills and Ernest Bartlett is the president of HBA and also the president of FEQ. FEQ is a principal holder of the Company's Series A and Series B Preferred stock as well as interests in certain entities which serve as the general partner of certain oil and gas limited partnerships in which the Company has interests. In consideration for the Acquisition, the Company issued 3,300,000 shares of the Company's common stock and warrants to purchase and additional 1,650,000 common shares at an exercise price of $2.00 per share expiring in May 2006 to HBA and its designees. The shares were valued at $6,600,000. The warrants were valued at $2,046,000 using the Black-Scholes Method. The Company paid an investment banker $172,500 in connection with the Acquisition. The Company also contributed $2,500,000 to BWP at the time of the Acquisition in order for BWP to complete its funding commitment under the exploration agreement, which was defined below. Therefore, the total purchase price of the Acquisition amounted to $11,318,500. BWP's sole asset at the time of the Acquisition was a 4.5% working interest in the Mary #2-34Well ("Mary Well") in the Potato Hills Deep Prospect ("Potato Hills") located in Latimer and Pushmataha Counties, Oklahoma. Subsequent to the Acquisition, the Company contributed an additional $974,000 to BWP. BWP has entered into an exploration agreement ("Exploration Agreement") with GHK Company, LLC ("GHK") and its affiliate, which was amended in May 2003, to jointly cooperate and participate in the exploration and development of certain oil and gas leases in the Potato Hills area. Under the Exploration Agreement, BWP also has the right to participate in a 4.5% interest of all additional wells drilled in Potato Hills and the right to purchase up to F-26 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - OIL AND GAS PROPERTIES (CONTINUED) a 10% interest in all wells identified by GHK in the future. In the event that the total costs for the drilling of the Mary No. 2-34 Well as reflected in the AFE exceed one hundred and ten percent (110%) of the budgeted amount, BWP is obligated to pay its proportionate share of such costs. BWP's working interest in Potato Hills is subject to various terms and specifications including restrictions, overriding royalty interests, specific drilling depths, future wells, specific locations, and other parties with priority in recovering their costs in certain net profits in the interests. GHK is the operator. We have legal proceedings with GHK relating to performance of the parties under the Exploration Agreement. See Note 20. The Company reduced the value of its investment in Mary Well to approximately $71,000 as of December 31, 2003 and recorded a $1,496,725 and $10,117,867 of depletion and impairment, respectively, related to the Mary Well based on its January 2004 reserve and economic study. After the Acquisition, BWP invested $276,277 to acquire a 5% working interest in Indian Prospect located in Roger Mills County, Oklahoma, with GHK as the operator. BWP's share of drilling cost in the India Prospect was $403,372 as of December 31, 2003. However, GHK has not assigned the Indian Prospect leases to the Company as of this time (see Note 20). The following pro forma presentation assumes the acquisition of BWP took place on January 1, 2003 and shows the pro forma effect on loss from operations. Since BWP commenced operation in April 2003, there is no pro forma impact on the Company's statement of operations for the year ended December 31, 2002.
Year Ending Year Ended December 31, 2003 (unaudited) December 31, 2002 ----------------------------- ----------------- Historical Pro Forma Historical ------------ ------------ ------------ Revenue $ 27,305 $ 27,305 $ 16,142 Loss from operations (27,953,684) (27,953,684) (5,676,415) Other (income) expense 4,971,331 6,170,663 2,714,481 Interest expense 3,569,992 4,769,324 3,311,763 Net loss (32,842,755) (34,042,087) (8,386,844) Net loss to common stockholders (37,248,463) (38,447,795) (8,671,142) Net loss per common share - basic and diluted (1.06) (1.10) (0.43)
Following is the condensed balance sheet of BWP at the date of Acquisition: Cash $ 150,000 Unproved oil and gas property 4,500,000 ----------- Total Assets $ 4,650,000 =========== Oil and gas interest payable $ 2,500,000 ----------- Net Assets Acquired $ 2,150,000 ===========
F-27 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - OIL AND GAS PROPERTIES (CONTINUED) In February 2004, all of the Company's limited membership interest in BWP was disposed of in the various Restructuring transactions (see Note 21). As of December 31, 2003, oil and gas properties consisted of the following:
Accumulated Total Cost of Depletion and Net Oil and Gas Impairment Capital Properties Allowance Assets -------------- ------------- ----------- Unproved properties acquisition costs $ 17,266,752 $ 11,241,897 $ 6,024,855 Proved properties acquisition costs 11,468,500 11,397,463 71,037 Well and development costs 60,637 60,637 - Drilling in progress 4,540,555 4,137,183 403,372 -------------- ------------ ----------- Net $ 33,336,444 $ 26,837,180 $ 6,499,264 ============== ============ ===========
As of December 31, 2002, oil and gas properties consisted of the following:
Total Cost of Net Oil and Gas Impairment Capital Properties Allowance Assets -------------- ------------ ------------ Unproved properties acquisition costs $ 16,128,840 $ 1,222,332 $ 14,906,508 Drilling in progress 2,703,939 2,532,804 171,135 -------------- ------------ ------------ Net capitalized oil and gas properties $ 18,832,779 $ 3,755,136 $ 15,077,643 ============== ============ ============
NOTE 7 - EQUITY INTERESTS IN ENTITIES WITH OIL AND GAS PROPERTIES PHT Partners, L.P. On June 26, 2002, the Company entered into a limited partnership agreement with PHT Gas, LLC and formed PHT Partners, L.P. ("PHT"). The Company has a 94.77% limited partnership interest and PHT Gas, LLC is the general partner. As of December 31, 2003, the Company has contributed $1,721,607 to PHT. PHT has invested $1,692,460 including additional capital calls in APICO, LLC, a limited liability company, in return for 883 units out of a total of 4,100 units outstanding. The business of APICO, LLC is (i) to farm-in to certain concessions (the "Concessions") in Phu Horm Gas Field Project located in Khorat and Udon in the Kingdom of Thailand, which are controlled by Amerada Hess Limited (Thailand), which is acting as the operator; (ii) to acquire and own property interests and other rights in the Concessions; (iii) to participate in exploring the Concessions; (iv) in developing and operating oil and gas wells in the Concessions; (v) in financing its operations, in selling production from such wells and in selling interests in the Property and/or the Concessions; (vii) and to take all other actions necessary, appropriate or advisable in connection with such business. The Company is not subject to capital calls in connection with its limited partnership interest in PHT. However, as explained below, PHT is subject to cash calls from its investment in APICO, LLC. If PHT does not meet its cash calls, then the Company's investment in PHT may become impaired. Pursuant to the APICO membership F-28 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - EQUITY INTERESTS IN ENTITIES WITH OIL AND GAS PROPERTIES (CONTINUED) agreement, PHT and the other APICO members will be called upon from time to time for additional contributions so as to meet the reasonable capital requirements of APICO. If PHT or any other member fails to make required capital contributions or meet the required cash calls in the amounts and at the times specified in the membership agreement, then they would be in default. If the default is not cured within 45 days, then APICO has the right to repurchase the defaulting members' shares for 1% of their original purchase price. As of December 31, 2003, PHT has funded its proportional share of additional capital calls. At the discretion of PHT Gas, LLC, any available cash shall be distributed 99% to the limited partners of PHT to the extent of its unreturned capital balance and 1% to PHT Gas, LLC until all unreturned capital balances have been returned and then 80% to the limited partners and 20% to PHT Gas, LLC thereafter. Distributions in liquidation of the partnership shall be made in accordance with the capital accounts subject to the above distributions. In general, profits shall be allocated after giving effect to certain regulatory allocations and cumulative prior allocations 75% to the limited partners and 25% to PHT Gas, LLC. Losses in general shall be allocated after giving effect to regulatory allocations and certain proportionate allocations to all partners with a positive capital account in proportion to the extent of their balances and then entirely to PHT Gas, LLC. Louisiana Shelf Partners, L.P. On December 31, 2002, the Company entered into a limited partnership agreement with LS Gas, LLC and formed Louisiana Shelf Partners, L.P. ("LSP") of which the Company is a limited partner with an approximate 25% interest and LS Gas, LLC is the general partner. The Company contributed $240,000 to LSP in 2002 and $2,032,500 in 2003. As of December 31, 2003, LSP acquired various geological and geophysical data and interests in oil, gas and mineral leases located in Cameron Parish, Louisiana for an aggregate purchase price of $4,740,039. Pursuant to the partnership agreement, the Company and the other LSP members will be called upon from time to time for additional contributions so as to meet the reasonable capital requirements of LSP. The initial test well drilled during 2003 was determined to be a dry hole. As a result, all the drilling costs incurred on this well in the amount of $3,366,597 were written off during the third and fourth quarters of 2003. Management has decided not to pursue additional exploration within two of the four leases in Cameron Parish offshore Louisiana. Consequently, these leases were allowed to lapse in March 2004. The Company has recorded impairment charges of $991,138 in the fourth quarter of 2003 consisting of all the lease acquisition costs related to these leases. On October 8, 2003, LSP entered into a limited partnership agreement with PHT Gas, LLC and formed PHT Vicksburg Partners, LP ("PHT Vicksburg") of which LSP is a limited partner with an approximate 15% interest and PHT Gas, LLC is the general partner. As of December 31, 2003, LSP contributed $112,800 to PHT Vicksburg. Pursuant to the partnership agreement, LSP and other PHT Vicksburg members will be called upon from time to time for additional contributions to meet the reasonable capital requirements of PHT Vicksburg. In October 2003 and subsequently in January 2004, PHT Vicksburg acquired various oil, gas and mineral leases located in the East Coastal Filed Prospect in Starr and Hidalgo counties, Texas for an aggregate purchase price of approximately $518,000. On October 8, 2003, PHT Vicksburg entered into an Exploration agreement with Touchstone Resources USA, Inc. to jointly cooperate and participate in the exploration and development of oil and gas leases in the contract area in the East coastal Prospect. Touchstone USA is the operator. As of December 31, 2003, PHT Vicksburg's share of drilling costs was approximately $429,000. The following table summarizes the Company's interests in oil and gas non-public limited partnerships accounted for under the equity method of accounting as of December 31, 2003 and 2002. F-29 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - EQUITY INTERESTS IN ENTITIES WITH OIL AND GAS PROPERTIES (CONTINUED)
December 31, 2003 December 31, 2002 --------------------------------- ------------------------------------ Excess of Excess of Carrying Value Carrying Value Carrying Value Over Net Assets Carrying Value Over Net Assets -------------- --------------- -------------- --------------- PHT investment in APICO $ 1,692,460 $ 238,029 $ 1,136,962 $ 278,263 Louisiana Shelf Partners 1,146,076 - 236,529 - ------------ --------- ------------- --------- $ 2,838,536 $ 238,029 $ 1,373,491 $ 278,263 ============ ========= ============= =========
The following table summarizes financial information for the limited partnerships accounted for under the equity method of accounting at December 31, 2003 and 2002 and has been compiled from the financial statements of the respective entities:
December 31, 2003 December 31, 2002 ----------------- ----------------- Total Assets $11,545,378 $ 6,547,014 =========== =========== Total Liabilities $ 373,270 $ 381,502 =========== ===========
Year Ended Year Ended December 31, 2003 December 31, 2002 ----------------- ----------------- Results of Operations: Revenue $ - $ - Loss from operations $ (4,962,026) $ (130,689) Net Loss $ (4,888,378) $ (127,146)
NOTE 8 - MARKETABLE SECURITIES - RELATED PARTIES In connection with the February 2002 acquisition of various working interests in the North Hell Hole Prospect, the Company purchased, for the sum of $2,000,000, a 10% secured convertible promissory note in the principal amount of $2,000,000 and a detached warrant to purchase 1,063,830 shares of common stock at an exercise price of US$1.88 from Touchstone Resources, Ltd. ("Touchstone"), a Canadian Exchange listed company and the parent company of Touchstone USA, Inc. The secured convertible promissory note, with a maturity date of August 22, 2004, had an initial conversion price of US$1.88. The fair value of the note receivable was $787,234 and the fair value of the warrants on the date the note was issued, valued by using the Black-Scholes Method, was $1,212,766. Consequently, a discount in the amount of $1,212,766 was recorded in connection with this note. In addition, as described below, an impairment charge was recorded against this note. At December 31, 2003 and 2002, this note is reflected in these financial statements at a carrying value of $0 and $800,000. The face value of this note is $2,000,000. The fair market value of the warrant was $0 and $617,021 as of December 31, 2003 and 2002. In June 2002 the Company purchased, for the sum of $1,600,000, an additional 10% convertible promissory note in the principal amount of $1,600,000 and a detached warrant to purchase 2,000,000 shares of common stock at an exercise price of US$1.00 until December 28, 2002 from Touchstone. The secured convertible promissory note, which matured December 28, 2002, had an initial conversion price of US$.80. The fair values of the note receivable was $1,220,000 and the fair value of the warrants on the date the note was issued, valued by using the Black-Scholes Method, was $380,000. Consequently, a discount in the amount of $380,000 was recorded in connection with this note. On March 20, 2003, the Company renegotiated the $1,600,000 promissory note receivable from Touchstone. The principal amount of the new note increased to $1,725,586, which included accrued interest of $125,586. The note earns interest at 10% per annum and is due February 28, 2005. The note could have been converted at any time F-30 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - MARKETABLE SECURITIES - RELATED PARTIES (CONTINUED) into shares of Touchstone at one share for each $0.62 of principal amount. Interest due may also be satisfied by the issuance of shares of Touchstone valued as at the date of issuance. In addition, as described below, an impairment charge was recorded against this note. At December 31, 2003 and 2002, this note is reflected in these financial statements at a carrying value of $0 and $1,000,000. The face value of this note is $1,725,586. The fair market value of the warrant was $0 at December 31, 2003 and 2002. The original expiration date to purchase 2,000,000 shares of stock in Touchstone was extended until February 28, 2005. The Company's marketable convertible debt securities and warrants can be converted into and exercised for shares of Touchstone, which had a readily determinable fair market value. Management initially determined the appropriate classification of its investment using SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" at the time of purchase, and re-evaluates such determinations at each balance sheet date. Under SFAS No. 114 "Accounting by Creditors for Impairment of a Loan," amended by SFAS No. 118, management has evaluated the collectibility of the loan from Touchstone and believes that Touchstone may not be able to repay the loans. Therefore, the Company has measured and recorded an impairment charge of $550,601 in 2002 and $1,800,000 in 2003 on the loans and accrued interest. The loans had a significant discount which reduced their carrying value. In connection with the impairment charge the Company has stopped amortizing the loan discount and accruing interest as of the fourth quarter of 2002. Consequently the carrying value of the loans at December 31, 2003 is equal to 0% of the $2,000,000 and the $1,725,586 face values of the notes based on the fair market value of the underlying loan collateral. The Company recognized a loss of $1,592,766 in regards to the Touchstone warrants. In August 2002, the Company purchased 819,000 shares of common stock of BPK Resources, Inc. for $660,030 and 20,000 shares of common stock of ILCD for $44,005. In October 2002, the Company exchanged 500,000 shares of common stock of BPK Resources, Inc. for 400,000 shares of common stock of Trimedia Entertainment, Inc. (formerly US Patriot, Inc.). As a result of the exchange, the Company realized a gain of $164,989. In January 2003, the Company received 600,000 shares of the common stock of BPK as part of the consideration for the Company's sale of its 99% limited partnership interest in CSR-WAHA Partners, LP to BPK. In March 2003, the Company sold 141,500 shares of BPK Resources, Inc. The Company incurred a loss of $24,454 in regards to the transaction. In April 2003, the Company sold 23,000 shares of BPK Resources, Inc. The Company incurred a loss of $4,589 in regards to the transaction. In October 2003, the Company sold 20,000 shares of International Travel CD's, Inc. The Company incurred a loss of $37,411 in regards to the transaction. As of December 31, 2003, the Company owned 864,500 shares of BPK common stock with a fair market value of $207,480. The Company and BPK have one common director who is also president of BPK. The marketable securities reflected in these financial statements are deemed by management to be "available-for-sale" and, accordingly, are reported at fair value, with unrealized gains and losses reported in other comprehensive income and reflected as a separate component within the Statement of Stockholders' Equity. Realized gains and losses on securities available-for-sale are included in other income/expense and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. Gains and losses on the sale of available-for-sale securities are determined using the specific-identification method. F-31 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - MARKETABLE SECURITIES - RELATED PARTIES (CONTINUED) Available-for-sale securities consist of the following at December 31, 2003:
Current --------------------------------------------------------- Gross Unrealized Cost Loss Fair Value ----------- ------------- ---------- Stock $ 1,208,516 $ (489,036) $ 719,480 ----------- ------------ --------- Total Current $ 1,208,516 $ (489,036) $ 719,480 =========== ============ =========
In February 2004, as part of the Restructuring, all of the Company's shares in BPK and Trimedia Entertainment, Inc., which were held as of December 31, 2003, were included in the transfer of the non-core assets to the Series A and certain of the Series B Preferred Stock holders (see Note 21). Available-for-sale securities consist of the following at December 31, 2002:
Current -------------------------------------------------- Gross Unrealized Cost Loss Fair Value --------- ---------- ---------- Stock $ 869,025 $ (24,005) $ 845,020 --------- --------- --------- Total Current $ 869,025 $ (24,005) $ 845,020 ========= ========= =========
Long Term -------------------------------------------------------- Gross Allowance Amortized Unrealized for Cost Loss Impairment Fair Value ----------- ----------- ----------- ----------- Convertible debt Due 2/28/2005 $ 1,416,134 $ - $ (416,134) $ 1,000,000 Convertible debt Due 08/22/2004 934,467 - (134,467) 800,000 Warrants Expires 2/28/2005 380,000 (380,000) - - Warrants Expires 08/22/2004 1,212,766 (595,745) - 617,021 ----------- ----------- ----------- ----------- Total Non-Current $ 3,943,367 $ (975,745) $ (550,601) $ 2,417,021 =========== =========== =========== ===========
F-32 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following at December 31:
2003 2002 --------- ------- Furniture and fixture $ 5,048 $ 2,651 Less accumulated depreciation (678) (43) --------- ------- $ 4,370 $ 2,608 ========= =======
Depreciation expense for the year ended December 31, 2003 and 2002 was $636 and $9,612, respectively. NOTE 10 - INCOME TAXES Deferred income taxes result from the net tax effects of temporary timing differences between the carrying amounts of assets and liabilities reflected on the financial statements and the amounts recognized for income tax purposes. The tax effects of temporary differences and net operating loss carryforwards that give rise to significant portions of deferred tax assets and liabilities are as follows at December 31:
2003 2002 ------------ ------------ Deferred tax asset Allowance for impairment on marketable securities $ 847,700 $ 217,800 Allowance for impairment on oil and gas properties 4,001,500 1,485,300 Allowance for bad debt 711,800 - Deferred compensation 85,700 - Tax benefit arising from net operating loss carryforward 8,815,600 1,937,300 ------------ ------------ 14,462,300 3,640,400 Less valuation allowance (14,106,700) (2,640,500) ------------ ------------ 355,600 999,900 Deferred tax liability Intangible drilling costs (199,300) (999,900) Installment sale gain (156,300) - ------------ ------------ Net deferred tax asset $ - $ - ============ ============
Income tax benefit (liability) consists of the following:
December 31, ---------------------------- 2003 2002 ------------ ------------ Deferred Federal $ 4,354,600 $ 578,600 State 936,500 124,400 Federal and state benefit of net operating loss carryforward 8,815,600 1,937,500 ------------ ------------ 14,106,700 2,640,500 Less valuation allowance (14,106,700) (2,640,500) ------------ ------------ Net deferred tax asset $ - $ - ============ ============
F-33 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - INCOME TAXES (CONTINUED) As of December 31, 2003, the Company had losses which resulted in net operating loss carryforwards for tax purposes amounting to approximately $22,200,000 that may be offset against future taxable income. These NOL carryforwards expire beginning 2018 through 2021. However, these carryforwards may be significantly limited due to changes in the ownership of the Company as a result of future equity offerings. Recognition of the benefits of the deferred tax assets and liabilities will require that the Company generate future taxable income. There can be no assurance that the Company will generate any earnings or any specific level of earning in future years. Therefore, the Company has established a valuation allowance for deferred tax assets (net of liabilities) of approximately $14,106,700 and $2,640,500 as of December 31, 2003 and 2002, respectively. The following table presents the principal reasons for the difference between the Company's effective tax rates and of United States federal statutory income tax rate of 35%.
December 31, ---------------------------- 2003 2002 ------------ ------------ Federal income tax benefit at statutory rate 11,505,500 $ 3,034,900 State income tax benefit (net of effect of federal benefit) 1,233,700 300,800 Non-deductible expenses (1,273,000) (723,000) Change in valuation allowance (11,466,200) (2,612,700) ------------ ------------ Income Tax Benefit $ - $ - ============ ============ Effective Income Tax Rate 0% 0% ============ ============
NOTE 11 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES The Company had the following accounts payable and accrued expenses outstanding at December 31:
2003 2002 ----------- ----------- Accrued Interest $ 242,897 $ 910,399 Accounts Payable 307,317 151,787 Preferred Dividend 1,926,756 284,298 Payables for Oil and Gas Interests 2,221,774 1,164,135 Other Accrued Expenses 536,981 209,241 ----------- ----------- $ 5,235,725 $ 2,719,860 =========== ===========
NOTE 12 - NOTES PAYABLE Related Party In February 2002, the Company received subscription agreement commitments for promissory notes aggregating $10,000,000, which were originally to be funded by August 5, 2003. As incentive to accelerate the funding of their commitments, the Company issued options to the lenders. If the lenders funded their commitments by March 7, 2002, they would have the option to invest an additional $4,000,000 in the Company within 120 days of the original F-34 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - NOTES PAYABLE (CONTINUED) funding, at the same terms and conditions as the initial $10,000,000 investment. The fair value of the warrants, as determined by an independent valuation, amounted to $130,000 and was expensed in full upon their issuance. In February 2002 the full $10,000,000 was funded to the Company. In consideration for the funds received, the Company issued two promissory notes totaling $9,857,149. Interest accrued at 8% per annum. The fair value of these two notes was determined by an independent valuation to be $8,847,000 and a corresponding discount of $1,010,149 was recorded by the Company. The discount has been amortized over the term of the note using the effective interest rate method. The Company also issued the lenders 3,285,100 shares of common stock, and warrants to purchase an aggregate of 11,000,000 shares of the Company's common stock at an aggregate exercise price of $2. The common stock and warrants had an ascribed value of approximately $.10 per share. The Company issued warrants to purchase 450,000 shares of common stock, at an aggregate exercise price of $1, to a registered broker dealer as payment of a commission for the offering. All warrants issued in connection with this offering were automatically deemed exercised at May 31, 2002, the date the Company obtained all required approvals of its shareholders to amend the Company's Articles of Incorporation to increase the authorized shares of its common stock to at least 90,000,000 shares. In December 2002, the lender and its assignees exchanged their entire principal of $9,857,149 in promissory notes into 98,571 shares of the Company's Series B Preferred Stock. The original principal amount of the promissory note converted into a number of units ("Units") equal to the original principal amount of the promissory note divided by the conversion price of $100.00 per Unit. Each Unit consisted of 1 fully-paid share of Series B Preferred Stock. This class of stock is explained in more detail under Note 15 - Stockholder's Equity. At December 31, 2002, $255,174 had been amortized to interest expense. Upon conversion of the note, the balance of unamortized discounts was recorded as interest expense. The accrued interest the Company owed on the note of approximately $693,000 as of December 31, 2002 was assigned by the lender to FEQ Investments, Inc. In June 2002, the lender exercised its option to invest $4,000,000 in the Company. The investor funded $2,500,000 and assigned the option to invest the remaining $1,500,000 to various investors. As consideration for the full amount of $4,000,000, the Company issued a note for $3,942,860 and will issue the lender and its assignees an aggregate 5,714,150 shares of common stock. The common stock and note were valued at $461,200 and $3,538,800, respectively, as determined by an independent valuation. The related discount of $404,060 was being amortized over the term of the loan. On September 30, 2002, the lender and its assignees exchanged their entire principal of $3,942,860 in promissory notes into 39,429 shares of the Company's Series B Preferred Stock. The original principal amount of the promissory notes were converted into a number of units equal to the original principal amount of the promissory note divided by the conversion price of $100.00 per Unit. Each Unit consisted of 1 fully-paid share of Series B Preferred Stock. The remaining subscription receivable amounted to $1,000,000 at December 31, 2002. This class of stock is explained in more detail under Note 15 - Stockholders' Equity. The amount amortized to interest expense through September 30, 2002 was $38,174. Upon conversion of the note, the balance of the unamortized discounts was recorded as interest expense. As the result of the above described transactions these lenders owned in excess of 50% of the Company's common stock at December 31, 2002 in addition to the preferred stock they received upon conversion of their notes. During January and May 2003, the Company borrowed $250,000 and $6,000 from SPH Investments, Inc. and issued various 10% demand notes. During the second quarter 2003, the Company made principal payments of $176,000 and paid the remaining $80,000 of principal along with $9,800 in accrued interest in the third quarter of 2003. In January 2003, the Company borrowed $100,000 from SPH Investments, Inc. Profit Sharing Plan and issued a 10% demand note. This note with accrued interest of $3,956 was repaid in June 2003. F-35 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - NOTES PAYABLE (CONTINUED) In January 2003, the Company borrowed $85,000 from 1025 Investments, Inc. and issued various 10% demand notes. The Company paid $45,000 in principal in January 2003 and the remaining $40,000 in March 2003 along with $235 in accrued interest. Other In April 2002 the Company entered into a loan agreement to borrow $1,500,000 from Gemini Growth Fund, LP ("Gemini"), a Delaware limited partnership. Gemini subsequently changed their name to Trident Growth Fund, L.P. ("Trident"). The note is a 12% secured convertible promissory note secured by substantially all of the assets of the Company. The note was to originally mature on October 21, 2003 but was extended as noted below, however the Company has the option to redeem the note at 100% of par at any time up to the maturity date. Trident has the option to convert the principal amount of the note into common stock of the Company. As additional incentive to make the $1,500,000 loan, Trident was issued a warrant to purchase 150,000 shares of the Company's common stock. The warrant expires on the earlier of April 30, 2012 or the date all of the convertible notes are converted to common stock. The initial conversion price of the note and warrant is the lesser of $2.00 or 60% of the closing bid price of the Company's common stock for the first trading session subsequent to the effective date of a reverse split of the Company's common stock which took place on May 31, 2002. However, the conversion price was reduced to $1.60 as a result of a subsequent private offering and is subject to other adjustments according to the provisions of the note. The Company paid loan commitment and origination fees of 1% and 4%, respectively, which were recorded as loan costs of which $45,000 was amortized to interest expense in 2002. On July 29, 2003, the loan was amended to extend the maturity date to July 31, 2004 and increase the principal amount to $2,100,000. As consideration for Trident's increasing of the original loan to $2,100,000, the Company granted Trident a warrant to purchase 150,000 shares of the common stock at an exercise price of $1.60 per share. The warrant is exercisable immediately and will expire on July 23, 2008. Interest is payable in cash unless Trident elects to have the interest paid in common stock of the Company. In February 2004, $1,500,000 of principal was repaid on the note and $600,000 of principal was converted into 375,000 shares of the common stock of the Company (see Note 21). Repayment of the principal amount of the note has been guaranteed by a subsidiary of the Company. As described in the loan agreement, the Company is required to comply with various financial covenants. Any failure to comply with such covenants may be deemed a default on the loan by Trident. The Company did not meet three of the financial loan covenants as of December 31, 2002; however, Trident waived the specific covenants for six months. In consideration for this waiver, the Company granted Trident a warrant to purchase 25,000 shares of common stock at an exercise price of $1.60 per share. The warrant is exercisable immediately and will expire on April 30, 2012. As of June 30, 2003, the Company failed to meet the loan covenants again and Trident waived the covenant for until June 30, 2004. As consideration for Trident's second waiver of the loan covenants and extension of the maturity date of the original $1,500,000 note, on July 29, 2003 the Company granted Trident a warrant to purchase 100,000 shares of common stock at an initial exercise price of $1.60 per share. The warrant is exercisable immediately and will expire on April 30, 2012. These warrants were valued at $189,000 using the Black-Scholes Method and will be expensed over the extension of the notes. As of December 31, 2003, the Company had amortized $49,700 to expense. The Company has allocated the proceeds from issuance of the convertible Trident promissory note and warrants based on a fair value basis for each item. Consequently, the convertible Trident promissory note was recorded with discounts of $632,451 based on the ascribed value of the warrants as determined by using the Black-Scholes Method. The note discounts for the warrant will be amortized over the period from the date of issuance to the maturity date of the note. Beneficial conversion discounts of $1,467,549 were recorded since the Trident promissory note was convertible into common shares of stock at a rate of $1.60 per share while the prevailing common stock share price was $3.10 and $2.10 on April 5, 2003 and July 29, 2003, respectively, when the original $1,500,000 and additional $600,000 note was made. These discounts are being amortized over the term of the loan. As of December 31, 2003 and 2002, the Company amortized $1,161,636 and $531,018 of the discount. F-36 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - NOTES PAYABLE (CONTINUED) Under the terms of the loan agreement, the Company was required to register all shares of its common stock issuable upon conversion of the note or exercise of the warrants by October 2002. The Company would have been subject to a monthly penalty of either 25,000 shares of its common stock or $10,000, at the option of the lender. However, the Company was granted a waiver until June 30, 2004 regarding the requirement. During October 2002, the Company issued two unsecured 12% convertible promissory notes to a lender in the amount of $750,000 and $800,000, respectively. Both notes matured on October 15, 2003. In the event of default, the notes bear interest at 15% per annum. The lender has the option to convert the principal amount of the note into common stock of the Company at a conversion price of $3.25. The lender was issued a warrant to purchase a total of 232,500 shares of the Company's common stock at an exercise price of $5.00 per share as an additional incentive to make the loans. The warrant expires on October 15, 2005. Interest is payable in cash or common stock of the Company. On October 17, 2003, the loan was amended to extend the maturity date to June 30, 2004 and reduce the conversion price from $3.25 to $2.50. On February 26, 2004, the loan was amended again to reduce the conversion price from $2.50 to $1.75. The notes with outstanding principal of $1,550,000 and accrued interest were then converted into 1,026,624 shares of the Company's common stock (see Note 21). As consideration for the lender's extension of the note, the Company granted the lender a warrant to purchase 50,000 shares of the common stock at an exercise price of $5.00 per share. The warrants are exercisable immediately and will expire on October 17, 2006. These warrants were valued at $53,900 using the Black-Scholes Method and will be expensed over the extension of the notes. As of December 31, 2003, the Company had amortized $15,900 to expense. The Company has allocated the proceeds from issuance of the convertible promissory notes and warrants based on a fair value basis of each item. Consequently, the convertible promissory notes were recorded with a discount of $341,349 and $378,406, respectively, based on the ascribed value of the warrants as determined by using the Black-Scholes Method. The note discount for the warrant will be amortized over the period from the date of issuance to the stated maturity date of the note. An additional beneficial conversion discount of $408,651 and $421,594 was recorded for the $750,000 and $800,000 promissory notes, respectively, since the notes were convertible into common shares of stock at a rate of $3.25 per share while the prevailing common stock share price was $4.90 and $5.05, respectively. This discount will also be amortized over the term of the loan. As of December 31, 2003 and 2002, the Company had amortized a total discount of $750,000 and $800,000, and $107,923 and $99,528, respectively, for the $750,000 and $800,000 notes. In February 2003, Knox Miss Partners, L.P. borrowed $1,200,000 from Gibralt US, Inc. and issued a promissory note bearing interest at 12%. The note was payable the earlier of June 30, 2003 or upon closing of $2,000,000 of equity financing by the Company. The lender also received 75,000 shares of common stock in the Company for making the loan. The loan was guaranteed by the Company and FEQ Investments. This note was paid in July 2003. In April 2003, PHT Partners, L.P. borrowed $190,000 from Louisiana Shelf Partners, L.P. and issued a 10% demand note. The note was paid in May 2003. During June 2003, PHT Partners, L.P. borrowed $143,900 from Louisiana X Investors, LLC and issued a 10% demand note. This note was paid in July 2003. In July 2003, BWP borrowed $370,000 from Louisiana X Investors, LLC and issued a 10% demand note. The note was paid in July 2003. In July 2003, Knox Miss issued a promissory note for $200,000 to Louisiana X Investors, LLC. The note was paid in July 2003. F-37 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - LIMITED PARTNERSHIP INTEREST TRANSFERRED UNDER CONTRACTUAL ARRANGEMENTS/DEFERRED EQUITY OPTION The Company entered into a security purchase agreement on August 27, 2003 with RAM Trading, Ltd. ("RAM"), whereby RAM purchased 150,000 shares of the Company's common stock and 7 of the Company's 25.25 limited partnership units in Louisiana Shelf Partners, L.P. The total purchase price was $1,000,000 of which $304,500 was allocated to the sale of the common stock. The remaining $695,500 of the purchase price was treated as a deferred equity option. The agreement provided the Company a call option to purchase the limited partnership interest back from RAM and RAM a put option to sell the interest back to the Company. In accordance with Staff Accounting Bulletin ("SAB") Topic 5E: Accounting for Divestiture of a Subsidiary or Other Business Operation, SAB 101, "Revenue Recognition" and Financial Accounting Standard ("FAS") No. 48, "Revenue Recognition When Right of Return Exists," the sale of the interest was not recognized for accounting purposes. The carrying value of the limited partnership was not affected by the transaction nor was a gain or loss was reported from the sale of the limited partnership interest. The cost basis of this interest has been reclassified to a separate line in the balance sheet labeled "Limited Partnership Interest Transferred Under Contractual Arrangement". The Company paid $60,000 investment banking fee related to this transaction. The Company exercised its call option to buy back the limited partnership interest from RAM on October 20, 2003 and issued 650,000 shares of the Company's common stock in full payment of the option. The exercise of the call option resulted in an increase in the Company's equity of $695,500 and a corresponding decrease in the deferred equity option. The Company entered into a security purchase agreement on October 28, 2003 with RAM, whereby RAM purchased 150,000 shares of the Company's common stock and 10 of the Company's 99 limited partnership units in Knox Miss Partners, L.P. The total purchase price was $1,200,000 of which $330,000 was allocated to the sale of the common stock. The remaining $870,000 of the purchase price was treated as a deferred equity option. The agreement provided the Company a call option to purchase the limited partnership interest back from RAM and RAM a put option to sell the interest back to the Company. In accordance with Staff Accounting Bulletin ("SAB") Topic 5E: Accounting for Divestiture of a Subsidiary or Other Business Operation, SAB 101: Revenue Recognition and Financial Accounting Standard ("FAS") No. 48: Revenue Recognition When Right of Return Exists, the sale of the interest was not recognized for accounting purposes. The carrying value of the limited partnership was not affected by the transaction nor was a gain or loss was reported from the sale of the limited partnership interest. The cost basis of this interest has been reclassified to a separate line in the balance sheet labeled "Limited Partnership Interest Transferred Under Contractual Arrangement". The Company paid $60,000 investment banking fee related to this transaction. The security purchase agreement was amended on December 10, 2003 to increase the number of shares issuable upon exercise of the option to 835,000. The Company exercised its call option to buy back the limited partnership interest from RAM on February 10, 2004 and issued 835,000 shares of the Company's common stock in full payment of the option. The exercise of the call option will result in an increase in the Company's equity of $870,000 and a corresponding decrease in the deferred equity option. NOTE 14 - PRIVATE PLACEMENT OFFERINGS - SUBSCRIPTION RECEIVABLE / NOTES PAYABLE In March 2002 in a private placement offering, the Company received subscription commitments for funding an aggregate of $3,550,000 to be collected over a period of approximately twelve months. As of December 31, 2002, the Company had collected $1,410,000, reduced the receivable by $53,750 for services provided by two officers through June 30, 2002 and had outstanding subscription receivables of $2,086,250, of which $906,250 was due from an entity affiliated with the president of the Company. As of December 31, 2003, the Company had collected the remaining $2,086,250 along with $60,486 in accrued interest. The subscription receivables bore interest at 2.69%. An additional $600,000 was subscribed to and paid in May 2002. Concurrently with this offering the Company issued an option to an investor as an inducement to accelerate funding its commitment. The option granted the investor a right to invest an additional $550,000 in the Company, at the same terms and conditions as its initial investment within 180 days from the date it funded its original investment. The fair value of the option was F-38 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - PRIVATE PLACEMENT OFFERINGS - SUBSCRIPTION RECEIVABLE / NOTES PAYABLE (CONTINUED) calculated in an independent valuation to be $6,100, which was expensed upon issuance. The investor exercised the option in September 2002. In exchange for the cash proceeds and subscriptions receivable, the Company issued unsecured convertible promissory notes which were to mature one year from issuance and bore interest at 8% per annum. These notes were converted to common stock and shares of Series A preferred stock on May 31, 2002 when the Company's shareholders approved the amendments to the Company's Articles of Incorporation to increase the Company's authorized shares of common stock to 150,000,000, authorize approximately 10,000,000 shares of undesignated preferred stock, par value $.001 per share, and the Board of Directors authorized the issuance of shares of Series A preferred stock (the "May 2002 Article Amendment"). The original principal amount of the promissory notes converted into a number of Units equal to the original principal amount of the promissory note divided by the conversion price of $1.00 per Unit. Each Unit consisted of approximately 1.428571 fully-paid shares of common stock and approximately .9857141 fully-paid shares of Series A Preferred Stock. The conversion of the $4,150,000 notes resulted in the issuance of 5,928,790 of common shares and 4,090,713 of Series A preferred shares. NOTE 15 - STOCKHOLDERS' EQUITY Common Stock The Common Stock is $.001 par value common stock, 150,000,000 shares authorized. As of December 31, 2003, 37,144,668 common shares were issued and outstanding. Series A Preferred Stock The Series A Preferred Stock is to pay dividends of 8% of the original issuing price per share per annum, which are cumulative prior to any dividends on the common stock or any series of stock to be created. The holders of each share of Series A Preferred Stock are entitled to be paid out of available funds prior to any distributions to holders of common stock, in the amount of $1.00 per outstanding share plus all accrued dividends. The outstanding Series A preferred stockholders are entitled to vote as a separate class and are entitled to elect a majority of the directors that constitute the board at any time. The holders of the common shares are entitled to elect the remaining directors. The Company may, upon approval of its Board (assuming the recusal from any such vote of all members of the Board elected by the Holders of the Series A preferred stock), redeem all or a portion of the outstanding shares of Series A preferred stock at a cost of the liquidation preference and all accrued and unpaid dividends. Series B Preferred Stock The Series B Preferred Stock is to pay dividends of 8% of the original issuing price per share per annum, which are cumulative prior to any dividends on the common stock and on parity with the payment of any dividend or other distribution on the Series A Preferred Stock and any other series of preferred stock that has similar characteristics. The holders of each share of Series B Preferred Stock are entitled to be paid out of available funds prior to any distributions to holders of common stock in the amount of $100.00 per outstanding share plus all accrued dividends. At any time after the earlier of (i) five business days after the date on which the Company sells, assigns, transfers or refinances certain of its working interests in an exploration project located in Vermillion, Louisiana, and receives net proceeds equal to at least $10,000,000, or (ii) the third anniversary of the initial issuance date of the Series B Preferred Stock, the Company may, upon approval of its Board redeem all or a portion of the outstanding shares of Series B preferred stock at a cost of the liquidation preference and all accrued and unpaid dividends. F-39 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED) Series C Convertible Preferred Stock The Series C Preferred Stock is to pay dividends of 6% of the original issue price ($10.00) per share per annum, which are cumulative prior to any dividends on the common stock and on parity with the payment of any dividend or other distribution on the Series A Preferred Stock, Series B Preferred Stock, and any other series of preferred stock that has similar characteristics. The holders of each share of Series C Convertible Preferred Stock are entitled to be paid out of available funds prior to any distributions to holders of common stock in the amount of $10.00 per outstanding share plus all accrued dividends. The holders of each share of Series C Preferred Stock may convert their shares to common stock at an initial conversion price of $2.00. This conversion price may be adjusted and reset if common stock is sold for less than the conversion price in effect at the time of the sale in addition to other criteria as set forth in the Certificate of Designation of Series C Preferred Stock "(Certificate of Designation"). If these reset provisions are triggered then additional preferred stock dividends related to the beneficial conversion feature will be recorded. The Company may redeem all or a portion of the outstanding shares of Series C Convertible Preferred Stock at a cost of the liquidation preference and all accrued and unpaid dividends. The redemption may occur at any time at the Company's sole discretion upon thirty days' written notice to the holders of the Series C Convertible Preferred Stock provided that (i) the average of the closing bid prices of the Corporation's Common Stock during the twenty trading days preceding the date of the "Redemption notice" as reported on the primary market or exchange on which the Corporation's Common Stock is then trading equals or exceeds $6.00 per share, and (ii) the shares of Common Stock issuable upon conversion of the Series C Convertible Preferred Stock are subject to an effective registration statement permitting the public resale of such shares under the Securities Act of 1933, as amended (the "Act"). In the event that the Corporation redeems less than all of the outstanding Series C Convertible Preferred Stock, it shall redeem such shares pro rata among all the holders of the Series C Convertible Preferred Stock. During the period from January 13, 2000 (inception) to December 31, 2000, the Company issued 112,000 shares of its common stock for $7,000 and 336,000 shares of its common stock as compensation to its officers. The Company valued the shares issued for compensation at $21,000, which was the fair market value as of the issuance date. During 2001, the Company received $75,000 in proceeds from the issuance of 1,200,000 shares of common stock. In February 2002, as partial consideration for the $10,000,000 private placement, the Company issued 3,285,100 shares of common stock and warrants to purchase 11,000,000 shares of common stock with an aggregate exercise price of $2.00 valued at $875,200, which were exercised May 31, 2002. The Company issued a warrant to purchase 450,000 shares of common stock, at an aggregate exercise price of $1, to a registered broker dealer as payment of a commission for services rendered in connection with the $10,000,000 private offering. The warrants were converted into 450,000 common shares of stock on May 31, 2002. The Company recorded this non-cash item as a loan cost of $45,000 based on the ascribed value of the warrants, which was charged to interest expense. The above common stock and warrants had an ascribed value of $.02 per share. From February through August 2002, as consideration for services rendered in connection with the acquisition of the interest in Hell Hole Bayou, the Company issued to an unrelated party a warrant to purchase 300,000 shares of the Company's common stock at an exercise price of $2.25 per share valued at $3,000. This warrant will expire on February 20, 2005. As additional consideration the Company issued a warrant to purchase 100,000 shares of the Company's common stock at an aggregate exercise price of $1.00 valued at $10,000. The warrant was automatically deemed exercised upon the May 2002 Article Amendment. The ascribed value of the warrants, totaling $13,000, increased the cost of the Prospect interest purchased and was a non-cash item. F-40 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED) In April 2002, as additional incentive for the Gemini loan of $1,500,000, the Company issued to Trident a warrant to purchase 150,000 shares of the Company's common stock at an exercise price of $1.60 per share exercisable immediately. The warrant will expire on the earlier of April 30, 2012 or the note conversion date. In April and May 2002, the Company issued and sold mandatory convertible promissory notes in the aggregate principal amount of $3,650,000 to three accredited investors pursuant to Rule 506. The maturity date of the notes was one year from the date of the notes. The offering generated gross proceeds to the Company of $3,650,000. The Company expensed a 10% commission with respect to this offering. Concurrent with the May 2002 Article Amendment, the Company effected a 1 for 5 reverse stock split of common stock shares and automatically converted the principal amount of those notes into an aggregate of 2,281,250 shares of common stock. In April and September 2002, the Company cancelled 448,000 shares of common stock, which were tendered to the Company for cancellation by former officers of the Company when it was named Expression Graphics, Inc. Upon the May 2002 Article Amendment, the Company converted $4,150,000 of debt into 5,928,790 shares of common stock and 4,090,713 shares of Series A preferred stock. During June and July 2002, the Company sold 1,893,338 shares of common stock in a private placement for $2.25 per share of which 155,000 shares were issuable as of December 31, 2002. The Company recorded $772,850 in offering costs and $26,307 in legal costs related to the private placement. As consideration for services rendered in connection with the acquisition of the interest in Waha/Lockridge, the Company issued to an unrelated party a warrant to purchase 100,000 shares of the Company's common stock at an exercise price of $2.25 per share valued at $140,000. This warrant will expire on August 7, 2005. In September 2002, the Company authorized and designated 500,000 shares of Preferred Stock, as Series B Preferred Stock par value $.001 per share. In September 2002, the Company converted $3,942,859 in promissory notes for 39,429 shares of the Company's Series B Preferred Stock. As of December 31, 2003, subscription receivable in the amount of $250,000 remained outstanding, which was included in the transfer of the non-core assets to the Series A and certain of the Series B Preferred Stock holders in February 2004 (see Note 21). In September 2002, an investor exercised its option to invest an additional $550,000 in the Company, at the same terms and conditions as its initial investment. The investor issued the Company a subscription note for $550,000 and the Company in turn issued a note for $550,000. This $550,000 was immediately converted into a number of units equal to the original principal amount of the promissory note divided by the conversion price of $1.00 per unit. Each unit consisted of 1.428584 shares of common stock and approximately 0.009867 shares of Series B preferred stock. Accordingly, the $550,000 note was converted into 785,721 issuable shares of common stock and 5,427 issued Series A preferred stock. As of December 31, 2003, $175,000 of the subscription receivable remained outstanding. The subscription receivable and accrued interest were included in the transfer of the non-core assets to the Series A and certain of the Series B Preferred Stock holders in February 2004 (see Note 21). In October 2002, as additional incentive for a lender to loan a total of $1,550,000 to the Company, the Company issued to the lender a warrant to purchase a total of 232,500 shares of the Company's common stock at an exercise price of $5.00 per share exercisable at any time through the expiration date of October 2005. In November 2002, the Company sold 76,923 shares of common stock in a private placement for $3.25 per share of which 76,923 shares were issuable as of December 31, 2002. The Company recorded $25,000 in offering costs and $1,096 in legal costs related to the raise. F-41 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED) In December 2002, the Company converted $9,857,149 in promissory notes into 98,571 shares of the Company's Series B Preferred Stock. In May 2003, the Company issued to the former Class B member of BWP and its designee (consisting of creditors and consultants of BWP) 3,300,000 shares of common stock and 1,650,000 warrants at an exercise price of $2.00 per share expiring in three years as consideration for its purchase of the 100% of the Class B Membership in BWP. In May 2003, the Company authorized and designated 1,500,000 shares of Preferred Stock, as Series C Convertible Preferred Stock with a par value $.001 per share. Between May and July 2003, the Company sold 477,500 shares of Series C Convertible Preferred Stock in a private placement for $10.00 per share. The Company is required to register the resale of all shares of the common stock upon conversion of the Series C Preferred Stock, within 90 days of the date of termination of the offering. The Company recorded $307,200 in offering costs related to this offering. In February 2004, the Company's Series C Preferred shareholders converted all of their 477,500 shares of Series C Preferred Stock into 2,808,824 shares of the Company's common stock (see Note 21). As discussed in Note 14, the Company entered into two securities purchase agreements with RAM during 2003. In connection with these agreements the Company has issued 950,000 shares of the Company's common stock to RAM in consideration of proceeds of $1,330,000. In December 2003, RAM entered into an agreement with Lancer Offshore, Inc. and Lancer Partners, L.P. to purchase 14,097,672 shares of common stock and 103,500.07 shares of Series B Preferred Stock (collectively, the "Lancer Shares") for $5,280,948. Concurrent with the execution of the foregoing agreement, the Company entered into an agreement with RAM to purchase the Lancer Shares for $5,330,948 subject to RAM completing the purchase of the Lancer Shares which was finalized February 2004. The preferred dividends accrued at December 31, 2003 amounted to $1,926,756 in total, of which $518,157, $1,242,975, and $165,625 pertained to Series A, B and C, respectively. The preferred dividends accrued at December 31, 2002 amounted to $284,298 in total, of which $190,900 and $93,398 pertained to Series A and B, respectively. Since the Company's common stock price exceeded the initial conversion price of the Series C Preferred Stock there was a beneficial conversion feature recorded as a preferred stock dividend in the amount of $2,763,250 as of December 31, 2003. F-42 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED) Stock Warrants The Company had the following outstanding warrants to purchase its common stock at December 31, 2003 and 2002:
December 31, 2003 December 31, 2002 - --------------- -------------------------- ------------------------ Expiration Date Exercise Price Shares Exercise Price Shares - --------------- -------------- --------- -------------- ------- 2/20/2005 $ 2.25 300,000 $ 2.25 300,000 8/7/2005 $ 2.25 100,000 $ 2.25 100,000 10/18/2005 $ 5.00 112,500 $ 5.00 112,500 10/30/2005 $ 5.00 120,000 $ 5.00 120,000 5/20/2006 $ 2.00 1,650,000 - - 10/17/2006 $ 5.00 50,000 - - 7/23/2008 $ 1.60 150,000 - - 4/30/2012 $ 1.60 275,000 $ 1.60 150,000 --------- ------- 2,757,500 782,500 ========= =======
These warrants were issued in connection with the acquisition of Hell Hole, Potato Hills and Waha/Lockridge interests, the issuance and extension of convertible promissory notes and the waiver of certain loan convenants to the convertible noteholder. The weighted average grant-date fair value of warrants granted during 2003 and 2002 was $1,739,372 and $916,058, respectively. Stock Options The Company had the following outstanding common stock options to purchase its securities at December 31:
2003 2002 --------------------------------- ------------------------------- Number of Exercise Price Number of Exercise Price Description of Series Options issued Per Share Options issued Per Share - ----------------------- -------------- -------------- -------------- -------------- Expire July 2004 50,000 $ 5.00 - - Expire August 2008 500,000 $ 2.30 500,000 $ 5.00 Expire May 2006 250,000 $ 3.00 - - Expire July 2006 25,000 $ 3.00 - - Expire August 2008 200,000 $ 5.00 - - -------------- -------------- Common Stock 1,025,000 500,000 ============== ==============
F-43 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED) The following tables summarize the Company's stock option activity and related information:
Number of Shares --------- Balance as of December 31, 2001 - Granted 500,000 --------- Balance as of December 31, 2002 500,000 Granted 525,000 --------- Balance as of December 31, 2003 1,025,000 =========
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- -------------------------- Number of Weighted Weighted Number Weighted Range of Outstanding Shares Average Average Exercisable at Average Exercise at December 31, Remaining Exercise December 31, Exercise Prices 2003 Contract Life Price 2003 Price - -------- ------------------ ------------- -------- -------------- -------- $ 5.00 50,000 0.5 $ 5.00 50,000 $ 5.00 $ 3.00 475,000 3.3 $ 3.00 475,000 $ 3.00 $ 2.30 500,000 4.6 $ 2.30 500,000 $ 2.30
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- -------------------------- Number of Weighted Weighted Number Weighted Range of Outstanding Shares Average Average Exercisable at Average Exercise at December 31, Remaining Exercise December 31, Exercise Prices 2002 Contract Life Price 2002 Price - -------- ------------------ ------------- -------- -------------- -------- $ 5.00 500,000 2.0 $ 5.00 500,000 $ 5.00
The weighted average grant-date fair value of options granted during 2003 and 2002 was $348,917 and $1,304,638, respectively. In December 2002, the Company granted 100,000 options to each of the five directors of the Company for a total of 500,000 options as director compensation. The options, with an exercise price of $5.00 per share subject to adjustment, are exercisable immediately and expire on December 4, 2004. On August 8, 2003, the Company modified the terms of the 500,000 options granted to its directors in 2002 by reducing the option exercise price from $5.00 to $2.30 per share and extending the option expiration date from November 4, 2004 to August 4, 2008. In May 2003, the Company granted 250,000 options to Sunrise Financial Group, Inc. ("Sunrise") as compensation for the consulting service Sunrise provided for a minimum of five months. The option, which is fully vested at December, 31, 2003, is exercisable at $3.00 per share and expires in three years. The option was valued at $516,400 and expensed. F-44 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED) In July 2003, the Company issued options to purchase 25,000 shares of the Company's common stock for $3.00 per share to designees of Stern & Co., Inc. in connection with their assistance in obtaining D&O insurance. The options are exercisable immediately and expire in three years. The options were valued at $41,700 using the Black Scholes Method and expensed. In July 2003, the Company granted 50,000 options to Rhodes Ventures, S.A ("Rhodes") as compensation for the consulting service Rhodes will provide for twelve months. The option is exercisable at $5.00 per share and expires in one year. The option was valued at $23,100 and charged to deferred compensation. As of December 31, 2003, $22,100 has been charged to expense. In August 2003 the Company issued 100,000 shares of common stock and granted options to purchase 200,000 shares of common stock to a newly appointed director as director compensation. The options vest immediately at an exercise price of $3.00 per share and will expire on August 3, 2008. All stock options have been granted pursuant to stock option plans that were not subject to shareholder approval. NOTE 16 - RELATED PARTY TRANSACTIONS - NOT DESCRIBED ELSEWHERE / CONCENTRATIONS In 2003, the Company relied upon Touchstone USA to provide it with additional reserve assessment analysis and engineering services in connection with the exploration and development of its prospects. The president of Touchstone USA is the managing member of PHT Gas, LLC, which was the general partner of PHT Partners, LP as of December 31, 2003. In 2002, Mr. Harrington, the former President of the Company, initially provided services to the Company without compensation. In addition, an affiliate of the president provided accounting services to the Company without charge. For the three months ended March 31, 2002 the value of these services was de minimis. In accordance with the accounting treatment proscribed in the SEC Staff Accounting Bulletin Topic 5-T, the Company recorded as expense an amount representing the value of these services provided prospectively. In June 2002, the Company borrowed funds in the amount of $300,000 from an affiliate of the president of the Company. The loan was repaid as of December 31, 2002. During the first three months of 2002, two officers of the Company offset their compensation, valued at $53,750, against liabilities they had owed to the Company. No further offset was allowed by the Company. In August 2002, the Company purchased 819,000 shares representing approximately 7% of ownership in BPK Resources, Inc. The Company and BPK Resources have one common director who is also president of BPK Resources. As of December 31, 2003, the Company held 864,500 shares of BPK Resources common stock. The Company acquired 20,000 shares of common stock of ILCD, and in August 2002 the Company also loaned ILCD a total of $475,000. At the time of both of these transactions, the president of the Company was also the president of ILCD (see Note 5). During 2002, the Company and its subsidiary Knox-Miss entered into long-term consulting agreements of $6,000 and $3,000 per month, respectively, with ESC Consulting, Inc. At the time the contract was executed the president of ESC Consulting was also the president of FEQ Investments, Inc. (the former managing member of PHT Gas, LLC and CSR, LLC). Subsequently, the president of FEQ Investments resigned and a new president was appointed. F-45 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 - RELATED PARTY TRANSACTIONS - NOT DESCRIBED ELSEWHERE / CONCENTRATIONS (CONTINUED) During 2002, the Company paid investment-banking fees of $200,000 and $260,000, respectively, to FEQ Investments, Inc. and KAB Investments, Inc. (a company under common ownership with FEQ Investments, Inc.). The investment banking fees related to the acquisition of certain oil and gas properties and certain convertible debt placements. As of December 31, 2002, $385,000 of these fees were capitalized as costs related to the acquisition of oil and gas properties. During 2002, $75,000 was recorded as prepaid loan fees and which were amortized of the life of the loans. During March 2003, the Company paid investment-banking fees of $60,000 to FEQ. The investment-banking fees related to the certain debt placements for the benefit of Knox Miss Partners, L.P. In January 2003, LSP loaned FEQ (the former managing member of PHT Gas, LLC and CSR, LLC) $1,220,000 and received a 10% promissory note. As of December 31, 2003, principal in the amount of $5,000 remained outstanding along with $59,638 in accrued interest. In the fourth quarter of 2003, LSP loaned an additional $125,000 to FEQ which was outstanding at December 2003. In January 2003, SPH paid the full balance of its outstanding subscription agreements amounting to $906,250. In May 2003, FEQ paid the full balance of its outstanding promissory note amounting to $139,204, which included $3,204 of accrued interest. In June 2003, Shannon M. Harrington Trust paid the full balance of its outstanding subscription agreement amounting to $76,834, which included $1,834 of accrued interest. In June 2003, SPH Investments Profit Sharing Plan paid the full balance of its outstanding subscription agreement amounting to $25,611, which included $611 of accrued interest. In June 2003, Tara J. Harrington Trust paid the full balance of its outstanding subscription agreement amounting to $76,834, which included $1,834 of accrued interest. In June 2003, W. Stephen Harrington Trust paid the full balance of its outstanding subscription agreement amounting to $76,834, which included $1,834 of accrued interest. During July and August, FEQ paid $305,000 of its outstanding subscription agreement. As of December 31, 2003, $175,000 remained outstanding along with $17,008 in accrued interest. During 2003, the Company paid legal fees in cash and common stock amounting to $21,158 to Joseph Fioravanti. The legal fees related to various professional services rendered to the Company. Mr. Fioravanti is a current member of the Company's board of directors. F-46 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 - SUPPLEMENTARY CASH FLOW DISCLOSURES Cash paid during the period for interest and income taxes was as follows:
December 31, ------------------------ 2003 2002 ---------- ---------- Interest paid $ 210,204 $ 132,081 ========== ========== Income taxes paid $ - $ - ========== ==========
Non-Cash Investing and Financing Transactions As consideration for services rendered in connection with the Prospect and the notes payable (see Note 7 and 13) the Company issued warrants. As a result, $13,000 and $45,000 were recorded as additional interest in the Prospect and as loan costs, respectively. The Company recorded a reduction in the amount of its unrealized loss on the investment in marketable securities of $510,714 for the year ended December 31, 2003. The Company recorded an unrealized loss in the amount of $999,750 in connection with the Company's investment in marketable securities and warrants for the year ended December 31, 2002. The Company incurred loan costs of $40,000 and $75,000 which were deducted from the proceeds of the loans from Trident in 2003 and 2002, respectively. In 2002, loan costs of $80,000 and $75,000 were deducted from the proceeds of the $800,000 and $750,000 loan, respectively. The Company recorded discounts on the Trident note payable of $600,000 and $1,500,000 due to the value of attached warrants and the beneficial conversion feature on the promissory note in 2003 and 2002, respectively (see Note 12). In 2002, the Company recorded a discount of $800,000 and $750,000, respectively, on two notes due to the value of attached warrants and the beneficial conversion feature on the promissory notes (see Note 12). Two officers offset their salaries in the amount of $53,750 against subscriptions receivable for the Company's stock during the six months ended June 30, 2002. The Company acquired various oil and gas interests of which the Company owed $52,996 as of December 31, 2003 and $1,164,135 as of December 31, 2002. As consideration for 2002 services rendered in connection with the acquisition of interest in Waha/Lockridge, the Company issued warrants. The value of the warrants, which was $140,000, was recorded as other capitalized costs in the Waha/Lockridge Prospect. In 2002, the Company converted the $3,942,826 and $9,857,149 notes payable to Lancer into shares of the Company's preferred Series B stock (see Note 12). The Company recorded $1,642,458 and $284,298 in dividends in 2003 and 2002, respectively. F-47 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 - SUPPLEMENTARY CASH FLOW DISCLOSURES (CONTINUED) The Company recorded a dividend in the amount of $2,763,250 related to the beneficial conversion feature included in the Series C preferred stock issued in 2003. The Company issued common stock and warrants to acquire its interest in BWP in 2003. In 2003, the Company recorded $47,000 as the value of the stock granted by BPK for the extension of the maturity date of the note receivable owed by BPK. In 2003, the Company recorded $242,900 as the value of the warrants granted to two lenders for the extension of the maturity dates of the loans from those lenders. NOTE 18 - OPERATING LEASES In September 2002, the Company entered into a lease agreement for office space. The lease period is for 61 months commencing on November 1, 2002. Rent will be $19,370 in year one, $20,115 in year two, $20,860 in year three, $21,605 in year four, and $22,350 in year five. NOTE 19 - COMPREHENSIVE LOSS Excluding net loss, the Company's source of comprehensive loss is from the net unrealized loss on its marketable debt securities, which are classified as available-for-sale. The following summarizes the components of comprehensive loss:
Year Ended December 31, --------------------------------- 2003 2002 -------------- -------------- Net loss $ (32,842,755) $ (8,386,844) Unrealized loss (465,032) (999,750) Reclassification adjustment for loss realized in net loss above 975,746 - -------------- -------------- Unrealized gain (loss), net 510,714 (999,750) -------------- -------------- Comprehensive loss $ (32,332,041) $ (9,386,594) ============== ==============
NOTE 20 - COMMITMENTS AND CONTINGENCIES General The oil and gas industry is subject to regulation by federal, state and local authorities. In particular, gas and oil production operations and economics are affected by environmental protection statutes, tax statutes and other laws and regulations relating to the petroleum industry. The Company believes it is in compliance with all federal, state F-48 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 - COMMITMENTS AND CONTINGENCIES (CONTINUED) and local laws, regulations applicable to the Company and its properties and operations, the violation of which would have a material adverse effect on the Company or its financial condition. Operating Hazards and Insurance The gas and oil business involves a variety of operating risks, including the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formation, and environmental hazards such as oil spills, gas leaks, ruptures or discharges of toxic gases, the occurrence of any of which could result in substantial losses to the Company due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. There can be no assurance that insurance, if any, will be adequate to cover any losses or exposure to liability. Although the Company believes these policies provide coverage in scope and in amounts customary in the industry, they do not provide complete coverage against all operating risks. An uninsured or partially insured claim, if successful and of significant magnitude, could have a material adverse effect on the Company and its financial condition via its contractual liability to the Prospect. Potential Loss of Oil and Gas Interests/ Payments Due If the Company does not pay its share of future AFE invoices it may have to forfeit all of its rights in certain of its interests in the Prospect and any related profits. If one or more of the other members of the Prospect fail to pay their share of the Prospect costs, the Company may need to pay additional funds to protect its investment. Legal Proceeding On or about May 3, 2003, Knox Miss filed a complaint in the District Court Of Harris County, Texas, 234th Judicial District against Clayton Williams Energy, Inc. (the "Defendant") as a result of Defendant's breach of that certain Exploration and Development Agreement dated on or about May 23, 2002 (the "Agreement"). Under the Agreement, Knox Miss has the right to participate for a 50% share of certain leases acquired by Defendant during the term of the Agreement. Although Knox Miss had elected to participate in the acquisition of certain additional leases and paid in excess of $1.7 million to Defendant between July and December 2002 in payment of its share of the acquisition costs, in April 2003, Defendant notified Knox Miss that it would not permit Knox Miss to participate, alleging that the foregoing payments were not received within the time frame set forth in the Agreement. Knox Miss seeks a declaratory judgment establishing its right under the Agreement to participate in the acquisition of the leases at issue and damages arising from Defendant's breach of the Agreement together with attorney's fees, interest and court costs. Defendant has denied all allegations. On October 31, 2003, Defendant filed a counterclaim against Knox Miss and a third party petition against PHT Gas, LLC alleging that Knox Miss breached the Agreement by assigning an overriding royalty interest to PHT Gas, LLC in the area of mutual interest subject to the Agreement to PHT Gas, LLC. Defendant seeks a declaratory judgment establishing its rights under the Agreement and an order of specific performance compelling Knox Miss to convey the royalty interest to Defendant together with attorney's fees. Knox Miss has not answered the counterclaim and the parties are in settlement discussions with respect to both claims. As part of the Restructuring, all of the Company's interests and obligations in Knox Miss were sold in February 2004. On or about March 4, 2004, the GHK Company, LLC, GHK/Potato Hills Limited Partnership, and Brian F. Egolf (collectively "Plaintiffs") commenced an action against Endeavour International Corporation ("Endeavour"), f/k/a Continental Southern Resources, Inc., (collectively "defendants") as well as BWP Gas, L.L.C. ("BWP") and HBA Gas, Inc. ("HBA") in Oklahoma City, Oklahoma. In the petition, Plaintiffs allege that CSOR intended to acquire a F-49 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 - COMMITMENTS AND CONTINGENCIES (CONTINUED) majority of the membership interests in BWP and that HBA in turn entered into an agreement to assign Plaintiff 2.5 million common shares of CSOR stock upon compliance by Plaintiffs with certain contractual obligations including but not limited to completion and initial commercial production of the Mary #2-34 well, along with the presentation of a development plan and the commencement of the next exploration or development well in the Potato Hills Deep Prospect. Plaintiffs further allege in their petition that BWP, HBA and Endeavour are alter egos of each other and jointly and severally liable to Plaintiffs for failing to deliver Plaintiffs the CSOR common stock. Plaintiffs seek delivery of the stock as well as a temporary restraining order, a primary and permanent injunction (i) enjoining all dilutions of Plaintiff rights pertaining to CSOR stock; (ii) enjoining Endeavour from all future stock issuances and transfers of assets not in the ordinary course of business and (iii) prohibiting the alienation or encumbrance of the CSOR stock that is allegedly in Plaintiff's possession. Management intends to litigate vigorously and believes it has good and valid defenses. However, the action has just begun and counsel is unable to opine on the outcome of the litigation. NOTE 21 - SUBSEQUENT EVENTS On February 4, 2004, the Company issued a private placement offering of 125,000 shares of the Company's common stock, $.001 par value per share at $2.00 per share. The Company exercised its call option to buy back the Knox Miss limited partnership interest from RAM on February 10, 2004 and issued 835,000 shares of the Company's common stock in full payment of the option. On February 9, 2004, the Company issued a 3% promissory note to 1025 Investments, Inc. for $10,000. On February 17, 2004, PHT issued a 3% promissory note to 1025 Investments, Inc. for $24,000. On February 27, 2004, the Company announced that it has completed a series of mutually interdependent transactions that will significantly expand the scope and objectives of the company under the leadership of a new management team. In an offering of common stock (the "Offering") that closed on February 26, 2004, the Company issued 25,000,000 shares of common stock at $2.00 per share in a private placement. The estimated net proceeds of the Offering were $46,000,000 after deduction of placement agent commissions of $2,500,000, financial advisory fees of $1,250,000 and offering expenses, estimated to be $250,000. In addition, warrants to purchase 700,000 shares of common stock at $2.00 per share were issued to the placement agent. The net proceeds were used for the purchase of 14,097,672 shares of the Company's common stock and 103,500.07 shares of the Company's Series B Preferred Stock for $5,330,948 (see Note 15), for repayment of the principal amount of Trident note in the amount of $1,500,000, and with the remainder to be used for general corporate purposes, including potential acquisitions. The Company is required to use its best efforts to file a registration statement with the Securities and Exchange Commission ("SEC") within six months of closing of the Offering to permit the public resale of the offered shares and the common stock reserved for issuance upon exercise of the placement agent warrants. If the Company offers equity securities in a private placement at a price or conversion price, as the case may be, less than $2.00 per share (other than shares reserved for issuance upon exercise of outstanding warrants or options, restricted stock or options granted pursuant to an incentive plan approved by the Company's board of directors, restricted stock or options issued to employees, directors, consultants or others for services rendered to the Company, or shares issued in connection with an acquisition), each holder of shares will have the opportunity to participate in any such Offering to maintain its relative percentage ownership interest in the Company. These rights will terminate at the earlier of (a) the effective date of a registration statement covering the public resale of the shares or (b) twelve months after closing of the Offering. In addition, certain of the Company's existing security holders that hold in the aggregate 11.2 million F-50 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 - SUBSEQUENT EVENTS (CONTINUED) common shares or warrants to purchase common shares have registration rights to have their shares included in the registration statement described above to permit the public resale of their shares. Concurrent with the closing of the Offering, the Company acquired (the "Merger") NSNV, Inc. ("NSNV"), through a merger with a newly created subsidiary of the Company CSOR Acquisition Corporation, resulting in NSNV becoming a wholly-owned subsidiary of the Company. NSNV was a private company owned by William L. Transier, John N. Seitz and PGS Exploration (UK) Limited ("PGS"), a United Kingdom corporation that is a provider of geophysical services. The former shareholders of NSNV received an aggregate of 12,500,000 common shares of the Company in the merger, representing approximately 18.9% of the Company's outstanding common stock immediately after the closing of the merger. Subsequent to the Merger, the Company was renamed "Endeavour International Corporation" ("Endeavour"). The Merger is intended to provide the Company with the following competitive advantages: (i) a pre-eminent seismic and geological database of the North Sea region and (ii) a proven and experienced management team comprised of Messrs. Transier and Seitz, each pursuant to three-year employment agreements, and certain other former executives of Ocean Energy, Inc. and Anadarko Petroleum Corporation. On December 16, 2003, NSNV and PGS entered into an agreement where, in exchange for certain consideration including, among other things, 18.5% of the outstanding stock of NSNV and a three-year product and service commitment, PGS agreed to grant NSNV the right to use 79,200 square kilometers of 3-D seismic and related data in the North Sea region, including the 3D Mega Merge and North Sea Digital Atlas databases. Under the agreement, NSNV is required to purchase products and services from PGS or certain of its affiliates that have an aggregate invoice value over three years of at least $4.5 million. PGS has also agreed to provide NSNV with product discounts and certain consultancy services during the term of the agreement. Upon consummation of the Merger, the Company's sole officer, Stephen P. Harrington, and directors Humbert Power, Thomas Michael Curran and Gary Krupp resigned and William L. Transier and John N. Seitz became the Co-Chief Executive Officers and Directors. In connection with the Merger, the shareholders of NSNV and the new management of the Company executed 12 month lock-up agreements covering each individual's respective holdings of the Company's common stock. In addition, all shareholders of the Company holding 500,000 or more shares of common stock prior to February 26, 2004 and the Company's former sole officer executed lock-up agreements. These shareholders will be subject to lock-up agreements for their common shares as set forth in the following table:
% of Outstanding Shares Month Subject to Lock-up - ------- ----------------------- 1 - 6 95% 7 - 9 85% 10 - 12 75%
The lock-up agreements will terminate at the earlier of (i) the registration of the shares of (ii) 12 months after February 26, 2004. Simultaneous with the consummation of the Merger and the Offering, the Company restructured various financial and shareholder related items (the "Restructuring"). Specifically, the Company completed the following: - Repaid $1,500,000 principal amount of the Company's outstanding convertible notes; - Issued 1,026,624 shares of the Company's common stock in exchange for the $1,550,000 principal balance and accrued interest due under the Michael P. Marcus convertible debenture at a conversion price of $1.75; F-51 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 - SUBSEQUENT EVENTS (CONTINUED) - Issued 375,000 shares of the Company's common stock in exchange for the $600,000 principal balance and accrued interest due under the Trident convertible debenture at a conversion price of $1.60; - Issued 2,808,824 shares of the Company's common stock upon conversion of all of the outstanding Series C Preferred Stock, and accrued dividends, at a conversion price of $1.70 per share; - Purchased all outstanding shares of Series A Preferred Stock and 20,212.86 shares of Series B Preferred Stock in exchange for certain of the Company's non-core assets (see below); and - Purchased 14,097,672 shares of common stock and 103,500.07 shares of Series B Preferred Stock from RAM Trading, Ltd. for $5,330,948 in cash. The Company also sold the following non-core assets to the holders of the Series A Preferred Stock and certain holders of the Series B Preferred Stock: - 100% of the ownership interest in BWP Gas, LLC.; - 864,560 shares of restricted common stock of BPK Resources, Inc.; - 400,000 shares of common stock of Trimedia Group, Inc.; - Note receivable due from CSR Hackberry, LLC with a principal balance of $25,000; - Note receivable due from Snipes, LLC in the principal amount of $122,500; - Subscription receivable due from FEQ Investments in the principal amount of $175,000; - Subscription receivable due from GWR Trust in the principal amount of $250,000; and - Note receivable due from BPK Resources, Inc. with a principal balance of $670,000. The following is a calculation of the purchase price: Shares of common stock issued 12,500,000 Price per share of the Offering $ 2.00 ----------- Fair value of stock issued 25,000,000 Add: Capitalized merger costs 525,000 ----------- Purchase Price $25,525,000 ===========
Capitalized merger costs are estimated to be professional expenses for legal and accounting services. Unaudited Pro Forma Information - The following table sets forth summary unaudited pro forma condensed combined financial and operating data which are presented to give effect to the Merger, the Offering and the Restructuring. The information does not purport to be indicative of actual results, if any of these transactions had been in effect for the periods indicated, or of future results. The information was prepared assuming the Merger, the Offering and the Restructuring were assumed to occur on January 1, 2003. Since NSNV commenced operation in December 2003, there is no pro forma impact on the Company's statement of operations for the year ended December 31, 2002. F-52 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 - SUBSEQUENT EVENTS (CONTINUED) Unaudited Pro Forma Information:
Year Ended December 31, 2003 ----------------- Revenues $ - Net loss available to common shareholders (16,889,617) Basic and diluted loss per share $ (0.31)
December 31, 2003 ----------------- Current assets $ 45,910,102 Oil and gas properties - costs not being amortized - Marketable securities - noncurrent - Equity interests in oil and gas properties 2,838,536 Other assets 3,509,370 Intangible assets 8,925,000 Goodwill 16,745,745 ----------------- Total assets $ 77,928,753 =================
Current liabilities $ 3,801,501 Long-term liabilities 3,500,000 Minority interest 29,505 Shareholders' equity 70,597,747 ----------------- Total liabilities and shareholders' equity $ 77,928,753 =================
During the first quarter of 2004, the Company sold all of its limited partnership units in Knox Miss for $5,000,000 and received $500,000 in cash and a $4,500,000 short-term note that is secured by a pledge of the limited partnership interest. Subsequent to the Merger, the Company issued restricted shares of common stock to its new management, directors and employees as follows:
Number of Shares Vesting Period ---------------- ----------------------------- Inducement Grants 1,600,000 One third on January 1, 2005; One third on each January 1 thereafter Inducement Grants 731,250 January 1, 2005 Grants under the 2004 Stock Incentive Plan (1) 500,000 One third on January 1, 2005; One third on each January 1 thereafter Grants under the 2004 Stock Incentive Plan (1) 278,375 January 1, 2005 --------- 3,109,625 =========
(1)The 2004 Stock Incentive Plan is subject to the approval by a majority of our shareholders at the Company's 2004 Annual Shareholder Meeting. F-53 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 - SUBSEQUENT EVENTS (CONTINUED) In addition to the above restricted share grants, the Company granted options to purchase 2,140,000 shares of common stock at an exercise price of $2.00 to employees and directors. One third of these options vest on January 1, 2005 and an additional one-third on each January 1 thereafter. These options were granted under the 2004 Stock Incentive Plan which is subject to the approval by a majority of our shareholders at the Company's 2004 Annual Shareholder Meeting. As consideration for services rendered in connection with the purchase of the shares of common stock and Series B Preferred stock from RAM, the Company issued to an unrelated party 300,000 shares of its common stock. NOTE 22 - SUPPLEMENTAL OIL AND GAS DISCLOSURES - UNAUDITED Oil and Gas Reserves The determination of oil and gas reserves is highly complex and interpretive. The estimates are subject to continuing changes as additional information becomes available. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids, which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved development oil and gas reserves are those reserves expected to be recovered through existing wells with existing equipment and operating methods. The reserve data is based on studies prepared by a petroleum engineer. All proved developed reserves of oil and gas are located in Oklahoma. The following table presents estimates of the Company's net proved developed oil and gas reserves:
December 31, -------------------------- 2003 2002 ---------- ---------- Proved developed reserves (mcf), beginning of year - - Purchase of proved developed reserves (mcf), in place 60,000 - Production (8,000) - Extension of reservoir - - Revisions of previous estimates - - ---------- ---------- Proved developed reserves (mcf), end of year 52,000 - ========== ========== Equity in reserves in equity method investees - - ========== ==========
Standardized Measure of Discounted Future Net Cash Flows (Unaudited) SFAS No. 69, "Disclosure about Oil and Gas Producing Activities", prescribes guidelines for computing a standardized measure of future net cash flows and changes therein relating to estimated proved reserves. The Company has followed these guidelines, which are briefly discussed below. Future cash inflows and future production and development costs are determined by applying year-end prices and costs to the estimated quantities of oil and gas to be produced. Estimated future income taxes are computed using F-54 CONTINENTAL SOUTHERN RESOURCES, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 - SUPPLEMENTAL OIL AND GAS DISCLOSURES - UNAUDITED (CONTINUED) current statutory income tax rates for where production occurs. The resulting future net cash flows are reduced to present value amounts by applying a 10% annual discount factor. The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting Standards Board and, as such, do not necessarily reflect the Company's expectations for actual revenues to be derived from those reserves nor their present worth. The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the standardized measure computations since these estimates are the basis for the valuation process. The following summary sets forth the Company's future net cash flows relating to proved gas reserves based on the standardized measure prescribed in Statement of Financial Accounting Standards No. 69.
December 31, -------------------------- 2003 2002 ---------- ---------- Future cash inflows $ 189,586 $ - Future production costs (73,839) - Future development costs - - Future income tax expense - - ---------- ---------- Future net cash flows (undiscounted) 115,747 - Annual discount of 10% for estimated timing (44,710) - ---------- ---------- Standardized measure of future net $ 71,037 $ - ========== ========== Equity in standardized measure of equity method investees $ - $ - ========== ==========
Changes in Standardized Measure (Unaudited) The following are the principal sources of change in the standardized measure of discounted future net cash flows at December 31:
2003 2002 ---------- ---------- Standardized measure, beginning of period $ - $ - Net changes in prices and production costs - - Future development costs - - Revisions of previous quantity estimates - - Extension of reservoir - - Sale of reserves in place - - Accretion of discount - - Changes in income taxes, net - - Purchased reserves 71,037 - ---------- ---------- Standardized measure, end of period $ 71,037 $ - ========== ========== Equity in standardized measure of equity method investees $ - $ - ========== ==========
F-55 INDEX TO EXHIBITS
Exhibit Description - ------- ----------- 2.1 Agreement and Plan of Merger by and among Continental Southern Resources, Inc., CSOR Acquisition Corp. and NSNV, Inc. (Incorporated by reference to Exhibit 2.1 on current report on Form 8-K filed February 27, 2004) 2.2 Plan and Agreement of Merger, dated as of February 27, 2004, by and among Continental Southern Resources, Inc. and Endeavour International Corporation (Incorporated by reference to Exhibit 10.1 on current report on Form 8-K filed on March 1, 2004) 3.1 Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002) *3.2 Amended and Restated Bylaws *3.3 Certificate of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 3.4 of our Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002; Certificate of Amendment to Certificate of Designation of the Company's Series A Convertible Preferred Stock dated February 20, 2004 is filed herewith.) *3.4 Certificate of Designation of Series B Preferred Stock (Incorporated by reference to Exhibit 3.5 of our Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002; Certificate of Amendment to Certificate of Designation of the Company's Series B Convertible Preferred Stock dated February 20, 2004 is filed herewith.) *3.5 Certificate of Designation of Series C Preferred Stock (Incorporated by reference to Exhibit 3.6 of our Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002; Certificate of Amendment to Certificate of Designation of the Company's Series C Convertible Preferred Stock dated February 20, 2004 is filed herewith.) 4.1 Promissory Note in the principal amount of $7,885,720 dated February 13, 2002 issued to Lancer Offshore, Inc. (Incorporated by reference to Exhibit 4.2 of our Quarterly Report on Form 10-QSB for the Quarter Ended March 31, 2002) 4.2 Promissory Note in the principal amount of $1,971,429 dated February 13, 2002 issued to Michael Lauer (Incorporated by reference to Exhibit 4.3 of our Quarterly Report on Form 10-QSB for the Quarter Ended March 31, 2002) 4.3 Promissory Note in the principal amount of $2,464,287 dated June 13, 2002 issued to Lancer Offshore, Inc. (Incorporated by reference to Exhibit 4.4 of our Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 2002)
4.4 12% Secured Convertible Promissory Note in the principal amount of $1,500,000 issued to Gemini Growth Fund, L.P. (Incorporated by reference to Exhibit 4.5 of our Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 2002) *4.5 Warrants to Purchase Common Stock issued to Gemini Growth Fund, L.P. in April 2002 (Incorporated by reference to Exhibit 4.6 of our Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 2002; First Amendment to Warrants to Purchase Common Stock dated July 29, 2003 (warrant # 2002-1) is filed herewith.; Second Amendment to Warrants to Purchase Common Stock dated February 26, 2004 (warrant # 2002-1) is filed herewith.) *4.6 Warrants to Purchase Common Stock issued to Trident Growth Fund, L.P. dated July 29, 2003 (warrant # 2003-2) and First Amendment to Warrants to Purchase Common Stock dated February 26, 2004 (warrant # 2003-2) are filed herewith. *4.7 Warrants to Purchase Common Stock issued to Trident Growth Fund, LP dated July 29, 2003 (warrant # 2003-3) and First Amendment to Warrants to Purchase Common Stock dated February 26, 2004 (warrant # 2003-3) are filed herewith. *4.8 Warrants to Purchase Common Stock issued to Trident Growth Fund, LP (warrant # 2003-1), the First Amendment to Warrants to Purchase Common Stock dated July 29, 2003 (warrant #2003-1) and the Second Amendment to Warrants to Purchase Common Stock dated February 26, 2004 (warrant # 2003-1) are filed herewith. 4.9 Warrant to Purchase 25,000 Shares of Common Stock issued to Trident Growth Fund, L.P. (Incorporated by reference to Exhibit 10.11 of our Annual Report on Form 10-KSB for the Year Ended December 31, 2002). 4.10 12% Secured Convertible Note dated July 29, 2003, in the principal amount of $600,000 issued to Trident Growth Fund, L.P. (Incorporated by reference to Exhibit 10.23 of our Quarterly Report on Form 10-QSB for the quarter ended June 30, 2003). 10.1 Purchase and Sale Agreement dated February 17, 2002, by and between SKH Management, L.P. and Touchstone Resources USA, Inc. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K/A dated November 27, 2002) 10.2 Purchase and Sale Agreement dated February 17, 2002, by and between SKH Management, L.P. and Touchstone Resources USA, Inc. (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K/A dated November 27, 2002)
10.3 Assignment Agreement by and between Touchstone Resources USA, Inc. and Expressions Graphics, Inc. dated February 20, 2002 (Incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K/A dated November 27, 2002) 10.4 Exploration Agreement dated March 23, 2002 by and between SK Exploration, Inc. and Knox Miss. Partners, L.P. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K/A dated November 27, 2002) 10.5 Exploration Agreement dated March 23, 2002 by and between SKH Energy Partners II, L.P. and Knox Miss. Partners, L.P. (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K/A dated November 27, 2002) 10.6 Form of Amended and Restated Option to Purchase 100,000 Shares of Common Stock dated August 8, 2003, between the Company and each of Stephen P. Harrington, Humbert B. Powell, III, Gary Krupp, Thomas M. Curran and John B. Connally III (Incorporated by reference to Exhibit 10.25 of our Quarterly Report on Form 10-QSB for the quarter ended June 30, 2003). *10.7 Option to Purchase 200,000 shares of Common Stock issued to Joseph M. Fioravanti (Incorporated by reference to Exhibit 10.26 of our Quarterly Report on Form 10-QSB for the quarter ended June 30, 2003; Amendment to Option to Purchase Common Stock dated February 26, 2004 between the Company and Joseph M. Fiorvanti is filed herewith.) *10.8 Form of Amendment to Amended and Restated Option to Purchase Common Stock dated February 26, 2004, executed by each of Stephen P. Harrington, Humbert B. Powell, III Gary Krupp, Thomas M. Curran and John B. Connally. 10.9 Exploration and Development Agreement dated May 23, 2002 between Clayton Williams Energy, Inc. and Knox Miss. Partners, L.P. (Incorporated by reference to Exhibit 10.12 of our Annual Report on Form 10-KSB for the Year Ended December 31, 2002) *10.10 Limited Partnership Agreement of PHT Partners, L.P. dated August 14, 2002 (Incorporated by reference to Exhibit 10.13 of our Quarterly Report on Form 10-QSB for the Quarter Ended March 31, 2003; Amendment to the Limited Partnership Agreement of PHT Partners, L.P. dated June 23, 2003 is filed herewith; Amendment to the Limited Partnership Agreement of PHT Partners, L.P. dated August 27, 2003 is filed herewith; Amendment to the Limited Partnership Agreement of PHT Partners, L.P. dated February 26, 2004 is filed herewith.) 10.11 Limited Partnership Agreement of Knox Miss. Partners, L.P. dated March 23, 2002 (Incorporated by reference to Exhibit 10.14 of our Quarterly Report on Form 10-QSB for the Quarter Ended March 31, 2003) 10.12 Limited Partnership Agreement of Louisiana Shelf Partners, LP dated December 31, 2002 (Incorporated by reference to Exhibit 10.15 of our Quarterly Report on Form 10-QSB for the Quarter Ended March 31, 2003)
10.13 Operating Agreement of BWP Gas, LLC dated July 21, 2003 (Incorporated by reference to Exhibit 10.19 of our Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 2003) 10.14 Loan Agreement dated April 5, 2002 by and between the Company and Gemini Growth Fund, L.P. (Incorporated by reference to Exhibit 10.3 of our Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 2002) 10.15 First Amendment to Loan Agreement dated July 29, 2003, by and between the Company and Trident Growth Fund, L.P. (Incorporated by reference to Exhibit 10.22 of our Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 2003) 10.16 Security Agreement dated April 5, 2002, by and between the Company and Gemini Growth Fund, L.P. (Incorporated by reference to Exhibit 10.4 of our Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 2002) 10.17 First Amended Security Agreement dated July 29, 2003, by and between the Company and Trident Growth Fund, L.P. (Incorporated by reference to Exhibit 10.24 of our Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 2003) 10.18 Exploration Agreement dated May 19, 2003 by and among BWP Gas, LLC, The GHK Company, LLC and GHK Potato Hills Limited Partnership (Incorporated by reference to Exhibit 10.20 of our Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 2003) 10.19 Membership Purchase Agreement dated May 27, 2003 by and among BWP Gas, LLC, HBA Gas, Inc. and the Registrant (Incorporated by reference to Exhibit 10.21 of our Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 2003) *10.20 Form of Common Stock Purchase Warrant dated October 18, 2002 issued to Michael Marcus and Amendment to Common Stock Purchase Warrant issued to Michael Marcus. *10.21 Purchase and Sale Agreement by and between Continental Southern Resources, Inc. and CSOR Preferred Liquidation, LLC, dated February 26, 2004. 10.22 Stock Acquisition Agreement dated as of December 16, 2003 between Continental Southern Resources, Inc. and Ram Trading, Ltd. (Incorporated by reference to Exhibit 99.6 of the Schedule 13D filed on March 9, 2004 by Ram Trading, Ltd. et al). 10.23 Amendment to Stock Acquisition Agreement dated as of December 30, 2003 by and between Ram Trading, Ltd. and Continental Southern Resources, Inc. (Incorporated by reference to Exhibit 99.7 of the Schedule 13D filed on March 9, 2004 by Ram Trading, Ltd. et al).
*10.24 Common Stock Purchase Warrant dated February 26, 2004 issued to Sanders Morris Harris Inc. in connection with the private placement of 25,000,000 shares of the Company's common stock. *10.25 Form of Securities Purchase Agreement, dated February 4, 2004, by and between Continental Southern Resources, Inc. and certain purchasers pursuant to a private placement of 125,000 shares of Company's common stock. *10.26 Registration Rights Agreement dated as of February 26, 2004 pursuant to the private placement of 25,000,000 shares of the Company's common stock. 10.27 Piggyback Registration Rights Agreement dated as of February 26, 2004 between the Company and certain purchasers. (Incorporated by reference to Exhibit 99.2 of the Schedule 13D filed on March 9, 2004 by Ram Trading, Ltd. et al). *10.28 Interest Purchase Agreement dated February 26, 2004 by and between Continental Southern Resources, Inc. and Knox Gas, LLC. *10.29 Interest Pledge Agreement, dated February 26, 2004, by and among Knox Gas, LLC and Continental Southern Resources, Inc. *10.30 Secured Promissory Note dated February 26, 2004, made by Knox Gas, LLC in favor of Continental Southern Resources, Inc. *10.31 Securities Purchase Agreement dated October 28, 2003 by and between Continental Southern Resources, Inc. and Ram Trading, Ltd. regarding the purchase and sale of interests in Knox-Miss Partners, LP. *10.32 First Amendment to Securities Purchase Agreement dated December 10, 2003 by and between Continental Southern Resources, Inc. and Ram Trading, Ltd. *10.33 Securities Purchase Agreement dated August 27, 2003 by and between Continental Southern Resources, Inc. and Ram Trading, Ltd. regarding the purchase and sale of interests in Louisiana Shelf-Partners, L.P. *10.34 Form of Lock Up Agreement executed by each of the current executive officers of the Company and PGS Exploration (UK) Limited. *10.35 Form of Lock-up Agreement executed by certain of the Company's stockholders. *10.36 2004 Incentive Plan, effective February 26, 2004. *10.37 Employment Agreement dated February 26, 2004 by and between Continental Southern Resources, Inc. and William L. Transier. *10.38 Employment Agreement dated February 26, 2004 by and between Continental Southern Resources, Inc. and John N. Seitz. *10.39 Form of Restricted Stock Award Agreement. *14.1 Code of Ethics of Endeavour International Corporation. *21.1 List of Subsidiaries.
*31.1 Certificates of William L. Transier, Co-Chief Executive Officer, pursuant to Rule 13(a)-14(a) of the Securities and Exchange Act of 1934, as amended. *31.2 Certificate of John N. Seitz, Co-Chief Executive Officer, pursuant to Rule 13(a)-14(a) of the Securities and Exchange Act of 1934, as amended. *31.3 Certificate of Robert L. Thompson, Chief Accounting Officer, pursuant to Rule 13(a)-14(a) of the Securities and Exchange Act of 1934, as amended. *32.1 Certification of William L. Transier, Co-Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2 Certificate of John N. Seitz, Co-Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.3 Certification of Robert L. Thompson, Chief Accounting Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *99.1 Audited Financials Statements of NSNV, Inc. for the period December 16. 2003 (Inception) to December 31, 2003. *99.2 Unaudited Pro Forma Condensed Combining Financial Statements of Endeavour International Corporation to reflect the Offering, Merger and Restructuring.
- --------------- * Filed herewith. EX-3.2 3 h13916exv3w2.txt AMENDED AND RESTATED BYLAWS EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF CONTINENTAL SOUTHERN RESOURCES, INC. A Nevada Corporation ARTICLE I Stockholders Section 1. Annual Meeting. Annual meetings of the stockholders, commencing with the year 2000, shall be held on the 13th day of January each year if not a legal holiday and, if a legal holiday, then on the next secular day following, or at such other time as may be set by the Board of Directors from time to time, at which the stockholders shall elect by vote a Board of Directors and transact such other business as may properly be brought before the meeting. Section 2. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may be called by the President or the Secretary by resolution of the Board of Directors or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose of the proposed meeting. Section 3. Place of Meetings. All annual meetings of the stockholders shall be held at the registered office of the corporation or at such other place within or without the State of Nevada as the directors shall determine. Special meetings of the stockholders may be held at such time and place within or without the State of Nevada as shall be stated in the notice of the meeting, or in a duly executed waiver of notice thereof. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 4. Quorum: Adjourned Meetings. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Articles of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 5. Voting. Each stockholder of record of the corporation holding stock which is entitled to vote at this meeting shall be entitled at each meeting of stockholders to one vote for each share of stock standing in his name on the books of the corporation. Upon the demand of any stockholder-, the vote for directors and the vote upon any question before the meeting shall be by ballot. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall be sufficient to elect directors or to decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Articles of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 6. Proxies. At any meeting of the stockholders any stockholder may be represented and vote by a proxy or proxies appointed by an instrument in writing. In the event that any such instrument in writing shall designate two or more persons to act as proxies, a majority of such persons present at the meeting, or, if only one shall be present, then that one shall have and may exercise all of the powers conferred by such written instrument upon all of the persons so designated unless the instrument shall otherwise provide. No proxy or power of attorney to vote shall be used to vote at a meeting of the stockholders unless it shall have been filed with the secretary of the meeting. All questions regarding the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by the inspectors of election who shall be appointed by the Board of Directors, or if not so appointed, then by the presiding officer of the meeting. Section 7. Action Without Meeting. Any action which may be taken by the vote of the stockholders at a meeting may be taken without a meeting if authorized by the written consent of stockholders holding at least a majority of the voting power, unless the provisions of the statutes or of the Articles of Incorporation require a greater proportion of voting power to authorize such action in which case such greater proportion of written consents shall be required. ARTICLE II Directors Section 1. Management of Corporation. The business of the corporation shall be managed by its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 2. Number, Tenure, and Qualifications. The number of directors which shall constitute the whole board shall be at least one. The number of directors may from time to time be increased or decreased to not less than one nor more than fifteen as determined by resolution of the Board of Directors, which resolution shall be deemed to be an amendment to these Bylaws. The directors shall be elected at the annual meeting of the stockholders and except as provided in Section 2 of this Article. each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 3. Vacancies. Vacancies in the Board of Directors including those caused by an increase in the number of directors, may be filled by a majority of the remaining directors, 2 though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual or a special meeting of the stockholders. The holders of two-thirds of the outstanding shares of stock entitled to vote may at any time peremptorily terminate the term of office of all or any of the directors by vote at a meeting called for such purpose or by a written statement filed with the secretary or, in his absence, with any other officer. Such removal shall be effective immediately, even if successors are not elected simultaneously. A vacancy or vacancies in the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any directors, or if the authorized number of directors be increased, or if the stockholders fail at any annual or special meeting of stockholders at which any director or directors are elected to elect the full authorized number of directors to be voted for at that meeting. If the Board of Directors accepts the resignation of a director tendered to take effect at a future time, the Board or the stockholders shall have power to elect a successor to take office when the resignation is to become effective. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Section 4. Annual and Regular Meetings. Regular meetings of the Board of Directors shall be held at any place within or without the State which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. In the absence of such designation regular meetings shall be held at the registered office of the corporation. Special meetings of the Board may be held either at a place so designated or at the registered office. Regular meetings of the Board of Directors may be held without call or notice at such time and at such place as shall from time to time be fixed and determined by the Board of Directors. Section 5. First Meeting. The first meeting of each newly elected Board of Directors shall be held immediately following the adjournment of the meeting of stockholders and at the place thereof. No notice of such meeting shall be necessary to the directors in order legally to constitute the meeting, provided a quorum be present. In the event such meeting is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors. Section 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman or the President or by any Vice-President or by any two directors. Written notice of the time and place of special meetings shall be delivered personally to each director, or sent to each director by mail or by other form of written communication, charges prepaid, addressed to him at his address as it is shown upon the records or if such address is not readily ascertainable, at the place in which the meetings of the directors are regularly held. In case such notice is mailed or telegraphed, it shall be deposited in the United States mail or delivered to the telegraph company at least three (3) days prior to the time of the 3 holding of the meeting. In case such notice is hand delivered as above provided, it shall be so delivered at least twenty-four (24) hours prior to the time of the holding of the meeting. Such mailing, telegraphing or delivery as above provided shall be due, legal and personal notice to such director. Section 7. Business of Meetings. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present, and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 8. Quorum; Adjourned Meetings. A majority of the authorized number of directors shall be necessary to constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, unless a greater number be required by law or by the Articles of Incorporation. Any action of a majority, although not at a regularly called meeting, and the record thereof, if assented to in writing by all of the other members of the Board shall be as valid and effective in all respects as if passed by the Board in regular meeting. A quorum of the directors may adjourn any directors meeting to meet again at a stated day and hour; provided, however, that in the absence of a quorum, a majority of the directors present at any directors meeting, either regular or special, may adjourn from time to time until the time fixed for the next regular meeting of the Board. Notice of the time and place of holding an adjourned meeting need not be given to the absent directors if the time and place be fixed at the meeting adjourned. Section 9. Committees. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees of the Board of Directors, each committee to consist of at least one or more of the directors of the corporation which, to the extent provided in the resolution, shall have and may exercise the power of the Board of Directors in the management of the business and affairs of the corporation and may have power to authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by the Board of Directors. The members of any such committee present at any meeting and not disqualified from voting may, whether or not they constitute a quorum, unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. At meetings of such committees, a majority of the members or alternate members shall constitute a quorum for the transaction of business, and the act of a majority of the members or alternate members at any meeting at which there is a quorum shall be the act of the committee. The committees shall keep regular minutes of their proceedings and report the same to the Board of Directors. 4 Section 10. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. Section 11. Special Compensation. The directors may be paid their expenses of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standincommittees may be allowed like reimbursement and compensation for attending committee meetings. ARTICLE III Notices Section 1. Notice of Meetings. Notices of meetings shall be in writing and signed by the President or a Vice-President or the Secretary or an Assistant Secretary or by such other person or persons as the directors shall designate. Such notice shall state the purpose or purposes for which the meeting is called and the time and the place, which may be within or without this State, where it is to be held. A copy of such notice shall be either delivered personally to or shall be mailed, postage prepaid, to each stockholder of record entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before such meeting. If mailed, it shall be directed to a stockholder at his address as it appears upon the records of the corporation and upon such mailing of any such notice, the service thereof shall be complete and the time of the notice shall begin to run from the date upon which such notice is deposited in the mail for transmission to such stockholder. Personal delivery of any such notice to any officer of a corporation or association, or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. In the event of the transfer of stock after delivery of such notice of and prior to the holding of the meeting it shall not be necessary to deliver or mail notice of the meeting to the transferee. Section 2. Effect of Irregularly Called Meetings. Whenever all parties entitled to vote at any meeting, whether of directors or stockholders, consent, either by a writing on the records of the meeting or filed with the secretary, or by presence at such meeting and oral consent entered on the minutes, or by taking part in the deliberations at such meeting without objection, the doings of such meeting shall be as valid as if had at a meeting regularly called and noticed, and at such meeting any business may be transacted which is not excepted from the written consent or to the consideration of which no objection for want of notice is made at the time, and if any meeting be irregular for want of notice or of such consent, provided a quorum was present at such meeting, the proceedings of said meeting may be ratified and approved and rendered likewise valid and the irregularity or defect therein waived by a writing signed by all parties having the right to vote at such meeting; and such consent or approval of stockholders may be by proxy or attorney, but all such proxies and powers of attorney must be in writing. 5 Section 3. Waiver of Notice. Whenever any notice whatever is required to be given under the provisions of the statutes, of the Articles of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE IV Officers Section 1. Election. The officers of the corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer, none of whom need be directors. Any person may hold two or more offices. The Board of Directors may appoint a Chairman of the Board, Vice-Chairman of the Board, one or more vice presidents, assistant treasurers and assistant secretaries. Section 2. Chairman of the Board. The Chairman of the Board shall preside at meetings of the stockholders and the Board of Directors, and shall see that all orders and resolutions of the Board of Directors are carried into effect. Section 3. Vice-Chairman of the Board. The Vice-Chairman shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties as the Board of Directors may from time to time prescribe. Section 4. President. The President shall be the chief executive officer of the corporation and shall have active management of the business of the corporation. He shall execute on behalf of the corporation all instruments requiring such execution except to the extent the signing and execution thereof shall be expressly designated by the Board of Directors to some other officer or agent of the corporation. In the absence of the President the Vice President will assume all of the President's responsibilities. Section 5. Vice-President. The Vice-President shall act under the direction of the President and in the absence or disability of the President shall perform the duties and exercise the powers of the President. They shall perform such other duties and have such other powers as the President or the Board of Directors may from time to time prescribe. The Board of Directors may designate one or more Executive Vice-Presidents or may otherwise specify the order of seniority of the Vice-Presidents. The duties and powers of the President shall descend to the Vice Presidents in such specified order of seniority. Section 6. Secretary. The Secretary shall act under the direction of the President. Subject to the direction of the President he shall attend all meetings of the Board of Directors and all meetings of the stockholders and record the proceedings. He shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the President or the Board of Directors. In the absence of the Secretary the Vice President will assume all of the Secretary's responsibilities. 6 Section 7. Assistant Secretaries. The Assistant Secretaries shall act under the direction of the President. In order of their seniority, unless otherwise determined by the President or the Board of Directors, they shall, in the absence or disability of the Secretary, Perform the duties and exercise the powers of the Secretary. They shall perform such other duties and have such other powers as the President or the Board of Directors may from time to time prescribe. Section 8. Treasurer. The Treasurer shall act under the direction of the President. Subject to the direction of the President he shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the President or the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the corporation. In the absence of the Treasurer the Vice President will assume all of the Treasurer's responsibilities. If required by the Board of Directors, he shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 9. Assistant Treasurers. The Assistant Treasurers in the order of their seniority. unless otherwise determined by the President or the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer. They shall perform such other duties and have such other powers as the President or the Board of Directors may from time to time prescribe. Section 10. Compensation. The salaries and compensation of all officers of the corporation shall be fixed by the Board of Directors. Section 11. Removal; Resignation. The officers of the corporation shall hold office at the pleasure of the Board of Directors. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise shall be filled by the Board of Directors. ARTICLE V Capital Stock Section 1. Certificates. Every stockholder shall be entitled to have a certificate signed by the President or a Vice-President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more 7 than one series of any class, the designations, preferences and relative, participating, optional or other special rights of the various classes of stock or series thereof and the qualifications, limitations or restrictions of such rights, shall be set forth in full or summarized on the face or back of the certificate, which the corporation shall issue to represent such stock. If a certificate is signed (1) by a transfer agent other than the corporation or its employees or (2) by a registrar other than the corporation or its employees, the signatures of the officers of the corporation may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall cease to be such officer before such certificate is issued, such certificate may be issued with the same effect as though the person had not ceased to be such officer. The seal of the corporation, or a facsimile thereof, may, but need not be, affixed to certificates of stock. Section 2. Surrendered; Lost or Destroyed Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates. the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. Section 3. Replacement Certificates. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation, if it is satisfied that all provisions of the laws and regulations applicable to the corporation regarding transfer and ownership of shares have been complied with, to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Record Date. The Board of Directors may fix in advance a date not exceeding sixty (60) days nor less than ten (10) days preceding the date of any meeting of stockholders, or the date for the payment of any distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining the consent of stockholders for any purpose, as a record date for the determination of the stockholders entitled to notice of and to vote at any such meeting, and any adjournment thereof, or entitled to receive payment of any such distribution, or to give such consent, and in such case, such stockholders, and only such stockholders as shall be stockholders of record on the date so fixed, shall be entitled to notice of and to vote at such meeting, or any adjournment thereof, or to receive payment of such distribution, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. Section 5. Registered Owner. The corporation shall be entitled to recognize the person registered on its books as the owner of shares to be the exclusive owner for all purposes 8 including voting and distribution, and the corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Nevada. ARTICLE VI General Provisions Section 1. Registered Office. The registered office of this corporation shall be in the State of Nevada. The corporation may also have offices at such other places both within and without the State of Nevada as the Board of Directors may from time to time determine or the business of the corporation may require. Section 2. Distributions. Distributions upon the capital stock of the corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Distributions may be paid in cash, in property or in shares of the capital stock, subject to the provisions of the Articles of Incorporation. Section 3. Reserves. Before payment of any distribution, there may be set aside out of any funds of the corporation available for distributions such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing distributions or for repairing or maintaining any property of the corporation or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 4. Checks. Notes. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. Section 6. Corporate Seal. The corporation may or may not have a corporate seal, as may from time to time be determined by resolution of the Board of Directors. If a corporate seal is adopted, it shall have inscribed thereon the name of the corporation and the words "Corporate Seal" and "Nevada". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. ARTICLE VII Indemnification 9 Section 1. Indemnification of Officers and Directors, Employees and Other Persons. Every person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a director or officer of the corporation or is or was serving at the request of the corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless to the fullest extent legally permissible under the general corporation law of the State of Nevada from time to time against all expenses, liability and loss (including attorneys' fees, judgments, fines and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. The expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. Such right of indemnification shall be a contract right which may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such directors, officers or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of stockholders, provision of law or otherwise, as well as their rights under this Article. Section 2. Insurance. The Board of Directors may cause the corporation to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the corporation would have the power to indemnify such person. Section 3. Further Bylaws. The Board of Directors may from time to time adopt further Bylaws with respect to indemnification and may amend these and such Bylaws to provide at all times the fullest indemnification permitted by the General Corporation Law of the State of Nevada. ARTICLE VIII Amendments Section 1. Amendments by Stockholders. The Bylaws may be amended by a majority vote of all the stock issued and outstanding and entitled to vote for the election of directors of the stockholders, provided notice of intention to amend shall have been contained in the notice of the meeting. Section 2. Amendments by Board of Directors. The Board of Directors by a majority vote of the whole Board at any meeting may amend these Bylaws, including Bylaws adopted by the stockholders, but the stockholders may from time to time specify particular provisions of the Bylaws which shall not be amended by the Board of Directors. 10 EX-3.3 4 h13916exv3w3.txt CERTIFICATE OF DESIGNATION OF SERIES A DEAN HELLER Secretary of State [SEAL] 204 North Carson Street, Suite 1 Carson City, Nevada 89701-4299 (775) 684 5708 Website: secretaryofstate.biz AMENDMENT TO CERTIFICATE OF DESIGNATION AFTER ISSUANCE OF CLASS OR SERIES (PURSUANT TO NRS 78: 1955) IMPORTANT: READ ATTACHED INSTRUCTIONS ABOVE SPACE IS FOR OFFICE USE ONLY BEFORE COMPLETING FORM. CERTIFICATE OF AMENDMENT TO CERTIFICATE OF DESIGNATION FOR NEVADA PROFIT CORPORATIONS (PURSUANT TO NRS 78.1955 - AFTER ISSUANCE OF CLASS OR SERIES) 1. Name of corporation: Continental Southern Resources, Inc. 2. Stockholder approval pursuant to statute has been obtained. 3. The class or series of stock being amended: Series A Convertible Preferred Stock - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 4. By a resolution adopted by the board of directors, the certificate of designation is being amended as follows SERIES A AMENDMENTS The amendments to the Certificate of Designation of Series A Preferred Stock consist of: (i) deleting the defined term "Permitted Repurchases" originally set forth in Section l(h); (ii) deleting the reference to Permitted Repurchases from Sections l(d) and Section 2(a); and (iii) deleting the prohibition against repurchasing or redeeming any shares of preferred of the Corporation originally set forth in Section 5(e). The forgoing is qualified in its entirety by reference to the full text of the Amended and Restated Certificate of Designation of Series A Preferred Stock attached hereto as Exhibit A. 5. Effective date of filing (optional) ----------------------------------------- [ILLEGIBLE] 6. Officer Signature (Required): /s/ Stephen P. Harrington ----------------------------------------------- Stephen P. Harrington, President. IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected. FILING FEE: $175.00 SUBMIT IN DUPLICATE THIS FORM MUST BE ACCOMPANIED BY APPROPRIATE FEES. SEE ATTACHED FEE SCHEDULE. [ILLEGIBLE] Amended and Restated Certificate of Designation of Series A Preferred Stock of Continental Southern Resources, Inc. FIRST: Of the 10,000,000 shares of Preferred Stock, par value $0.001 per share, authorized to be issued by the Corporation 4,100,000 shares are hereby designated as "Series A Preferred Stock." The rights, preference, privileges and restrictions granted to and imposed upon the Series A Preferred Stock are as set forth below: 1. Definitions. For purposes of this resolution, the following definitions shall apply: (a) "Board" shall mean the Board of Directors of the Corporation. (b) "Common Stock" shall mean the Common Stock, $0.001 par value per share, of the Corporation. (c) "Common Stock Dividend" shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock. (d) "Distribution" shall mean the transfer of cash or property by the Corporation to one or more of its stockholders without consideration regardless of whether such transfer is in the form of a dividend or otherwise (except a dividend in shares of Corporation's stock). (e) "Dividend Rate" shall mean $.08 per share, which is eight percent (8%) of the Original Issue Price (as defined below) per share per annum for the Series A Preferred Stock (as defined below). (f) "Original Issue Date" shall mean the date on which the first share of Series A Preferred Stock is issued by the Corporation. (g) "Original Issue Price" shall mean $1.00 per share for the Series A Preferred Stock. (h) "Series A Preferred Stock" shall mean the 8% Series A Preferred Stock, $0.001 par value per share, of the Corporation. 2. Dividend Rights. (a) Dividend Preference. The holders of issued and outstanding Series A Preferred Stock shall be entitled to receive, out of any funds and assets of the Corporation legally available therefore, cumulative dividends at the annual Dividend Rate for the Series A Preferred Stock, prior and in preference to the payment of any dividend or other Distribution on the Common Stock (other than a Common Stock Dividend) or any class or Series of capital stock hereafter created. Such dividends shall accrue on each share of Series A Preferred Stock from the date on which such share of Series A Preferred Stock is issued by the Corporation, and shall accrue from day-to-day until paid, whether earned or declared. Unless the full amount of any accrued and unpaid cumulative dividends accrued on the Series A Preferred Stock shall have been paid or declared in full and a sum sufficient for the payment thereof reserved and set apart, no dividend shall be paid or declared, and no Distribution shall be made, on any Common Stock. All dividends shall be paid in cash. (b) Non-Cash Dividends. Whenever a dividend provided for in this Section 2 shall be payable in property other than cash, the value of such dividend or Distribution shall be deemed to be the fair market value of such property as determined in goad faith by the Board. 3. Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the funds and assets of the Corporation that may be legally distributed to the Corporation's stockholders (the "Available Funds and Assets"), shall be distributed to stockholders in the following manner: (a) Liquidation Preferences. The holders of each share of Series A Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution), of any Available Funds and Assets on any shares of Common Stock. an amount per share equal to the Original Issue Price of the Series A Preferred Stock, plus all accrued but unpaid interest and dividends thereon. (b) Merger or Sale of Assets. A (i) consolidation or merger of the Corporation with or into any other corporation or corporations in which the holders of the Corporation's outstanding shares immediately before such consolidation or merger do not, immediately after such consolidation or merger, retain stock representing a majority of the voting power of the surviving corporation of such consolidation or merger; and (ii) a sale of all or substantially an of the assets of the Corporation, shall each be deemed to be a liquidation, dissolution or winding up of the Corporation as those terms are used in this Section 3. Notwithstanding anything to the contrary contained in the preceding sentence, by vote or written consent of the holders of a majority of the Series A Preferred Stock then outstanding, such holders may waive the right to treat any of the foregoing events as a deemed liquidation. (c) Non-Cash Consideration. If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as reasonably determined by the Board in good faith, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows: (1) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows: (i) if the securities are then traded on a national securities exchange or the NASDAQ National Market System (or a similar national quotation system), then 2 the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the 30-day period ending three (3) days prior to the distribution; and (ii) if actively traded over-the-counter, then the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) days prior to the closing of such merger, consolidation or sale; and (iii) if there is no active public market, then the value shall be the fair market value thereof, as determined in good faith by the Board. (2) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in Section 3(d)(1)(i),(ii) or (iii) to reflect the approximate fair market value thereof, as reasonably determined in good faith by the Board. 4. Voting Rights. (a) Board of Directors; Elections; Meetings. (1) Board Election. So long as any shares of Series A Preferred Stock remain outstanding the holders of the Series A Preferred Stock, voting as a separate class, exclusive of all other stockholders, shall be entitled to elect a majority of the directors that constitute the Board at any time (the "Series A Designee(s)"). The holders of the Common Stock shall be entitled to elect the remaining directors. (2) Special Meetings. Notwithstanding anything to the contrary contained in the Bylaws of the Corporation, the holders of at least fifty percent (50%) of the Series A Preferred Stock then outstanding, shall be entitled to call a special meeting of the Board of Directors or stockholders of the Corporation on such notice as is required by the Bylaws of the Corporation for special meetings. (3) Quarterly Meeting. The Board of Directors shall be required to meet at least once each calendar quarter at a location and time that is convenient to all Directors. (4) Committee Appointments. The holders of the Series A Preferred Stock shall have the right to appoint a Series A Designee to each of the Executive and Audit Committees of the Board of Directors, if and when constituted. (b) Special Voting Rights. So long as any shares of Series A Preferred Stock are issued and outstanding, the Corporation shall not, without the approval, by vote or written consent of the holders or a majority of the Series A Preferred Stock then outstanding voting as a separate series: (1) amend its Certificate of Incorporation in any manner that would alter or change any of the rights, preferences, privileges or restrictions of the Series A Preferred Stock; 3 (2) reclassify any outstanding shares of securities of the Corporation into shares having rights, preferences or privileges senior or on a parity with the Series A Preferred Stock; (3) authorize or issue any additional Series A Preferred Stock or any other stock having rights or preferences senior or on a parity with the Series A Preferred Stock; (4) merge or consolidate, with or into any corporation; (5) sell all or substantially all the Corporation's assets in a single transaction or Series of related transactions; (6) liquidate or dissolve; or (7) amend the Corporation's Bylaws to alter any rights of the holders of the Series A Preferred Stock. 5. Redemption. (a) Redemption Request. At any lime after the earlier of (i) five business days after the date on which the Corporation sells, assigns, transfers or refinances its working interests in Louisiana Stale Lease No. 16141 No.1 Well in Hell Hole Bayou, an exploration project located in Vermillion, Louisiana, and receives net proceeds equal to at least Ten Million Dollars ($10,000,000), (ii) five business days after the date on which the Corporation satisfies in full its obligations under those certain Promissory Notes in the aggregate principal amount of Ten Million Dollars ($10,000,000) which it issued to Lancer Offshore, Inc. and Michael Lauer in February 2002, or (iii) the third anniversary of the initial issuance date of the Series A Preferred Stock, the Corporation may, upon approval of its Board (assuming the recusal from any such vote of all members of the Board elected by the Holders of the Series A Preferred Stock pursuant to Section 4(a)(2) hereof), redeem all or a portion of the outstanding shares of Series A Preferred Stock. The Corporation shall redeem at the Redemption Price (as provided for in Section 5(b) below) that number of shares of Series A Preferred Stock set forth in the minutes or written consent of the Board approving such redemption on the date fixed for redemption therein (the "Redemption Date"). If at any time, any holders of any other Series of Preferred Stock or Common Stock of the Corporation have elected to have any of their shares redeemed at the same time as outstanding shares of Series A Preferred Stock are required to be redeemed hereunder, the Corporation shall pay the applicable Redemption Price (as provided for in Section 5(b) below) on shares of Series A Preferred Slack prior to any other payment on or redemption of the Corporation's other classes of capital stock, including any other Series of Preferred Stock or Common Stock. (b) Redemption Price. The redemption price per share of Series A Preferred Stock (the "Redemption Price") shall be equal to the Liquidation Preference thereof as described in Section 3(a) plus all accrued and unpaid dividends thereon. 4 (c) Insufficient Funds. If the Corporation on any Redemption Date does not have sufficient funds legally available to redeem the shares of Series A Preferred Stock for which redemption is required pursuant to Section 5(a) hereof, then it shall, prior to redeeming any other Series or class of the Company's Preferred Stock or Common Stock, to the maximum lawful extent redeem such shares of Series A Preferred Stock on a pro rata basis among the Series A Preferred Stock stockholders in proportion to the number of shares held by each of them, and shall redeem the remaining shares to be redeemed as soon as sufficient funds are legally available. (d) Mechanics of Redemption. Each holder of outstanding shares of Series A Preferred Stock shall promptly surrender the certificate or certificates (or affidavit(s) of loss thereof) representing such shares to the Corporation at the Corporation's principal executive office, and thereupon the Corporation shall pay the portion of the Redemption Price for such shares to be paid as described in Section 5(a) hereof in immediately available funds, by wire transfer to an account designated by the holder of such shares or by certified or bank check payable to the order of such holder. Each stock certificate surrendered for redemption shall be canceled and retired. 5 Corporation of any class or series, then, upon the occurrence of any subdivision, combination or stock dividend of such class or Series of stock, the specific number of shares so referenced in this Certificate shall automatically be proportionally adjusted to reflect the effect on the outstanding shares of such class or Series of stock by such subdivision, combination or stock dividend. 7. No Reissuance of Preferred Stock. No share or shares of Series A Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue. SECOND: That such determination of the designation, preferences and the relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, relating to the Series A Preferred Stock, was duly made by the Board of Directors pursuant to the provisions of the Articles of Incorporation of the Corporation, and in accordance with the provisions of Section 78-1955 of the Nevada Revised Statutes. IN WITNESS WHEREOF, Stephen P. Harrington has caused this Designation to be executed this ____ day of ____________, 200__. Continental Southern Resources, Inc. By: __________________________ Stephen P. Harrington President 6 EX-3.4 5 h13916exv3w4.txt CERTIFICATE OF DESIGNATION OF SERIES B EXHIBIT 3.4 DEAN HELLER Secretary of State [SEAL] 204 North Carson Street, Suite 1 Carson City, Nevada 89701-4299 (775) 684 5708 Website: Secretaryofstate. Biz AMENDMENT TO CERTIFICATE OF DESIGNATION AFTER ISSUANCE OF CLASS OR SERIES (PURSUANT TO NRS 78:1955) ABOVE SPACE IS FOR OFFICE USE ONLY IMPORTANT: READ ATTACHED INSTRUCTIONS BEFORE COMPLETING FORM. CERTIFICATE OF AMENDMENT TO CERTIFICATE OF DESIGNATION FOR NEVADA PROFIT CORPORATIONS (PURSUANT TO NRS 78.1955 - AFTER ISSUANCE OF CLASS OR SERIES) 1. Name of corporation: Continental Southern Resources, Inc. ________________________________________________________________________________ 2. Stockholder approval pursuant to statute has been obtained. 3. The class or series of stock being amended: Series B Convertible Preferred Stock ________________________________________________________________________________ ________________________________________________________________________________ 4. By a resolution adopted by the board of directors, the certificate of designation is being amended as follows or the new class or series is: The amendments to the Certificate of Designation of Series B Preferred Stock consist of: (i)deleting the right to treat certain mergers as a liquidation event originally set forth in Section 3(b); (ii) amending Section 4 to eliminate class vote rights and provide for the holders of the Series B Preferred Shares to vote together with common stockholders as a single class on all matters; (iii) amending the redemption provisions set forth in Section 5(a) to provide for the Corporation to redeem the Series B Preferred Shares at anytime; and (iv) amending the redemption provisions set forth in Sections 5(a), 5 (c) and 5(e) to permit the Corporation to redeem any series of preferred stock which is senior to the Series B Preferred Shares. The foregoing is qualified in its entirety by reference to the full text of the Amended and Restated Certificate of Designation of Series B Preferred Stock attached hereto as Exhibit A. ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 5. Effective date of filing (optional): February 26, 2004 - 1:00 P.M. CST (must not be later than 90 days after the certificate in filed) 6. Officer Signature (Required): /s/ Stephen P. Harrington _______________________________________ Stephen P. Harrington , President IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected. FILING FEE: $175.00 SUBMIT IN DUPLICATE THIS FORM MUST BE ACCOMPANIED BY APPROPRIATE FEES. SEE ATTACHED FEE SCHEDULE. Nevada Secretary of State AM 78.1955 After Issue 2003 Revised on: 10/30/03 Amended and Restated Certificate of Designation of Series B Preferred Stock of Continental Southern Resources, Inc. Continental Southern Resources, Inc., a Nevada corporation (the "Corporation"), does hereby certify that the holders of the Corporation's Series B Preferred Stock have approved the following resolution of the Board of Directors of the Corporation to amend and restate the Certificate of Designation of Series B Preferred Stock to provide in its entirety as set forth below in accordance with and as required by the provisions of Section 78.1955 of the Nevada Revised Statutes. RESOLVED, that the Corporation hereby amends and restates the Certificate of Designation of the Series B Preferred Stock to provide in its entirety as follows: FIRST: Of the 10,000,000 shares of Preferred Stock, par value $0.001 per share, authorized to be issued by the Corporation, 50,000 shares are hereby designated as "Series B Preferred Stock." The rights, preference, privileges and restrictions granted to and imposed upon the Series B Preferred Stock are as set forth below: 1. Definitions. For purposes of this resolution, the following definitions shall apply: (a) "Board" shall mean the Board of Directors of the Corporation. (b) "Common Stock" shall mean the Common Stock, $0.001 par value per share, of the Corporation. (c) "Common Stock Dividend" shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock. (d) "Distribution" shall mean the transfer of cash or property by the Corporation to one or more of its stockholders without consideration regardless of whether such transfer is in the form of a dividend or otherwise (except a dividend in shares of Corporation's stock), but not including Permitted Repurchases (as defined below). (e) "Dividend Rate" shall mean $8.00 per share, which is eight percent (8%) of the Original Issue Price (as defined below) per share per annum for the Series B Preferred Stock (as defined below). (f) "Original Issue Date" shall mean the date on which the first share of Series B Preferred Stock is issued by the Corporation. (g) "Original Issue Price" shall mean $100.00 per share for the Series B Preferred Stock. (h) "Permitted Repurchases" shall mean the repurchase by the Corporation of shares of Common Stock held by employees, officers, directors, consultants, independent contractors, advisors, or other persons performing services for the Corporation or any of its subsidiaries that are subject to a stockholders agreement, restricted stock purchase agreements or stock option agreements under which the Corporation has the option to repurchase such shares: (i) at such holder's cost, upon the occurrence of certain events, such as the termination of employment or services or (ii) at any price pursuant to the Corporation's exercise of a right of first refusal to repurchase such shares. (i) "Series A Preferred Stock" shall mean the 8% Series A Preferred Stock, $0.001 par value per share, of the Corporation. (j) "Series B Preferred Stock" shall mean the 8% Series B Preferred Stock, $0.001 par value per share, of the Corporation. 2. Dividend Rights. (a) Dividend Preference. The holders of issued and outstanding Series B Preferred Stock shall be entitled to receive, out of any funds and assets of the Corporation legally available therefor, cumulative dividends at the annual Dividend Rate for the Series B Preferred Stock, prior and in preference to the payment of any dividend or other Distribution on the Common Stock (other than a Common Stock Dividend) and on parity with the payment of any dividend or other Distribution on the Series A Preferred Stock and any other series of preferred stock which by its terms is pari passu with the Series B Preferred Stock. Such dividends shall accrue on each share of Series B Preferred Stock from the date on which such share of Series B Preferred Stock is issued by the Corporation, and shall accrue from day-to-day until paid, whether earned or declared. Unless the full amount of any accrued and unpaid cumulative dividends accrued on the Series B Preferred Stock shall have been paid or declared in full and a sum sufficient for the payment thereof reserved and set apart, no dividend shall be paid or declared, and no Distribution shall be made, on any Common Stock; provided, however, that this restriction shall not apply to Permitted Repurchases. All dividends shall be paid in cash, unless otherwise mutually agreed upon by the holders of a majority of the issued and outstanding shares of Series B Preferred Stock and the Corporation. (b) Non-Cash Dividends. Whenever a dividend provided for in this Section 2 shall be payable in property other than cash, the value of such dividend or Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board. 3. Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the funds and assets of the Corporation that may be legally distributed to the Corporation's stockholders (the "AVAILABLE FUNDS AND ASSETS"), shall be distributed to stockholders in the following manner: (a) Liquidation Preferences. The holders of each share of Series B Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and 2 prior and in preference to any payment or distribution (or any setting apart of any payment or distribution), of any Available Funds and Assets on any shares of Common Stock, an amount per share equal to the Original Issue Price of the Series B Preferred Stock, plus all accrued but unpaid interest and dividends thereon; provided, however, that, the all such payments or distributions made to the holders of the Series B Preferred Stock shall be made on parity with any payments or distributions made to the holders of the Series A Preferred Stock and any other series of preferred stock which by its terms is pari passu with the Series B Preferred Stock. (b) Non-Cash Consideration. If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as reasonably determined by the Board in good faith, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows: (1) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows: (i) if the securities are then traded on a national securities exchange or the NASDAQ National Market System (or a similar national quotation system), then the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the 30-day period ending three (3) days prior to the distribution; and (ii) if actively traded over-the-counter, then the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) days prior to the closing of such merger, consolidation or sale; and (iii) if there is no active public market, then the value shall be the fair market value thereof, as determined in good faith by the Board. (2) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in Section 3(c)(l)(i),(ii) or (iii) to reflect the approximate fair market value thereof, as reasonably determined in good faith by the Board. 4. Voting. Except as required by law, the holders of each Series B Preferred Stock shall be entitled to vote on all matters upon which holders of Common Stock have the right to vote, and with respect to such vote shall vote together with the holders of Common Stock as a single class, shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Company, and shall be entitled to one vote per share of Series B Preferred Stock. 5. Redemption (a) Redemption Request The Corporation may, upon approval of its Board, redeem all or a portion of the outstanding shares of Series B Preferred Stock. The Corporation shall redeem at the Redemption Price (as provided for in Section 5(b) below) that number of shares of Series B Preferred Stock set forth in the minutes or written consent of the Board approving such redemption on the date fixed for redemption therein (the "Redemption Date"). If at any time, any holders of any other Series of Preferred Stock (other than the Series A Preferred 3 Stock and any other series which by its terms is pari passu or senior with the Series B Preferred Stock) or Common Stock of the Corporation are entitled to have any of their shares redeemed at the same time as outstanding shares of Series B Preferred Stock are required to be redeemed hereunder, the Corporation shall pay the applicable Redemption Price (as provided for in Section 5(b) below) on shares of Series B Preferred Stock prior to any other payment on or redemption of the Corporation's other classes of capital stock, including any other Series of Preferred Stock (other than the Series A Preferred Stock and any other series which by its terms is pari passu or senior with the Series B Preferred Stock) or Common Stock. (b) Redemption Price. The redemption price per share of Series B Preferred Stock (the "REDEMPTION PRICE") shall be equal to the Liquidation Preference thereof as described in Section 3(a) plus all accrued and unpaid dividends thereon. (c) Insufficient Funds. If the Corporation on any Redemption Date does not have sufficient funds legally available to redeem the shares of Series B Preferred Stock for which redemption is authorized pursuant to Section 5(a) hereof, then it shall, prior to redeeming any other Series or class of the Company's Preferred Stock (other than the Series A Preferred Stock and any other series which by its terms is pari passu or senior with the Series B Preferred Stock) or Common Stock, to the maximum lawful extent redeem such shares of Series B Preferred Stock on a pro rata basis among the Series B Preferred Stock stockholders in proportion to the number of shares held by each of them, and shall redeem the remaining shares to be redeemed as soon as sufficient funds are legally available. (d) Mechanics of Redemption. Each holder of outstanding shares of Series B Preferred Stock shall promptly surrender the certificate or certificates (or affidavit(s) of loss thereof) representing such shares to the Corporation at the Corporation's principal executive office, and thereupon the Corporation shall pay the portion of the Redemption Price for such shares to be paid as described in Section 5(a) hereof in immediately available funds, by wire transfer to an account designated by the holder of such shares or by certified or bank check payable to the order of such holder. Each stock certificate surrendered for redemption shall be canceled and retired. (e) Ranking. The redemption rights of the Series B Preferred Stock set forth in this Section 5 shall be pari passu with the redemption rights of the Series A Preferred Stock in all respects and, if the Corporation elects to redeem any shares of Series A Preferred Stock at the same time that it elects to redeem any shares of Series B Preferred Stock, then the Corporation shall satisfy the redemption rights of the Series A Preferred Stock and the Series B Preferred Stock on a pro rata basis. At no time shall the Corporation redeem shares of any other Series of Preferred Stock of the Corporation (other than the Series A Preferred Stock and any other series which by its terms is pari passu or senior with the Series B Preferred Stock) or pay the applicable redemption price for or make any other payment on shares of any other Series of Preferred Stock of the Corporation (other than the Series A Preferred Stock and any other series which by its terms is pari passu or senior with the Series B Preferred Stock) to holders of such other Series of Preferred Stock (other than the Series A Preferred Stock and any other series which by its terms is pari passu or senior with the Series B Preferred Stock) so long as any shares of Series B Preferred Stock are outstanding and have not been redeemed. 4 6. No Reissuance of Preferred Stock. No share or shares of Series B Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue. SECOND: That such determination of the designation, preferences and the relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, relating to the Series B Preferred Stock, was duly made by the Board of Directors pursuant to the provisions of the Articles of Incorporation of the Corporation, and in accordance with the provisions of Section 78.1955 of the Nevada Revised Statutes and approved by the holders of the Series B Preferred Stock in accordance with and as required by the provisions of Section 78.1955 of the Nevada Revised Statutes. IN WITNESS WHEREOF, Stephen P. Harrington has caused this Designation to be executed this 26 day of February, 2004. Continental Southern Resources Inc. By: /s/ Stephen P. Harrington ------------------------------------ Stephen P. Harrington Chief Executive Officer 5 EX-3.5 6 h13916exv3w5.txt CERTIFICATE OF DESIGNATION OF SERIES C EXHIBIT 3.5 DEAN HELLER Secretary of State [SEAL] 204 North Carson Street, Suite 1 Carson City. Nevada 89701-4299 (775) 684 5708 Website: Secretaryofstate.biz AMENDMENT TO CERTIFICATE OF DESIGNATION AFTER ISSUANCE OF CLASS OR SERIES (PURSUANT TO NRS 78.1955) ABOVE SPACE IS OFFICE USE ONLY IMPORTANT: READ ATTACHED INSTRUCTIONS BEFORE COMPLETING FORM. CERTIFICATE OF AMENDMENT TO CERTIFICATE OF DESIGNATION FOR NEVADA PROFIT CORPORATIONS (PURSUANT TO NRS 78.1955 - AFTER ISSUANCE OF CLASS OR SERIES) 1. Name of corporation: Continental Southern Resources, Inc. ________________________________________________________________________________ 2. Stockholder approval pursuant to statute has been obtained. 3. The class or series of stock being amended: Series C Convertible Preferred Stock ________________________________________________________________________________ ________________________________________________________________________________ 4. By a resolution adopted by the board of directors, the certificate of designation is being amended as follows or the new class or series is: SERIES C AMENDMENTS The amendments to the Certificate of Designation of Series C Preferred Stock consist of: (i) deleting the defined term "Permitted Repurchases" originally set forth in Section l(j); (ii) deleting the reference to permitted Repurchases from Section l(f) and Section 2 (a), (iii) deleting the prohibition against repurchasing or redeeming any shares of preferred stock or common stock of the corporation originally set forth in Section 6(a); (iv) amending the conversion price set forth in Section 5(a) to $1.70; and (v) deleting the anti dilution adjustment provision originally set forth in Section 5(b)(ii). The forgoing is qualified in its entirety by reference to the full text of the Amended and Restated Certificate of Designation of Series C Preferred Stock attached hereto as Exhibit A. 5. Effective date of filing (optional): ________________________________________ [ILLEGIBLE] 6. Officer Signature (Required): /s/ Stephen H. Harrington __________________________________________ Stephen H. Harrington, President IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filling to be rejected. FILING FEE: $175.00 SUBMIT IN DUPLICATE THIS FORM MUST BE ACCOMPANIED BY APPROPRIATE FEES. SEE ATTACHED FEE SCHEDULE. [ILLEGIBLE] Amended and Restated Certificate of Designation of Series C Convertible Preferred Stock of Continental Southern Resources, Inc. FIRST: Of the 10,000,000 shares of Preferred Stock, par value $0.001 per share, authorized to be issued by the Corporation, 1,500,000 shares are hereby designated as "Series C Convertible Preferred Stock." The rights, preference, privileges and restrictions granted to and imposed upon the Series C Convertible Preferred Stock are as set forth below: 1. Definitions. For purposes of this resolution, the following definitions shall apply: (a) "Board" shall mean the Board of Directors of the Corporation. (b) "Common Stock" shall mean the Common Stock, $0.001 par value per share, of the Corporation. (c) "Common Stock Dividend" shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock. (d) "Conversion Rate" shall mean the Original Issue Price divided by the Conversion Price. (e) "Conversion Price" shall be as set forth in Section 5(a) hereof. (f) "Distribution" shall mean the transfer of cash or property by the Corporation to one or more of its stockholders without consideration regardless of whether such transfer is in the form of a dividend or otherwise (except a dividend in shares of Corporation's stock). (g) "Dividend Rate" shall mean six percent (6%) of the Original Issue Price (as defined below) per share per annum for the Series C Convertible Preferred Stock (as defined below). (h) "Original Issue Date" shall mean the date on which the first share of Series C Convertible Preferred Stock is issued by the Corporation. (i) "Original Issue Price" shall mean $10.00 per share for the Series C Convertible Preferred Stock. (j) "Series A Preferred Stock" shall mean the 8% Series A Preferred Stock, $0.001 par value per share, of the Corporation. 1 (k) "Series B Preferred Stock" shall mean the 8% Series B Preferred Stock, $0.001 par value per share, of the Corporation. (l) "Series C Convertible Preferred Stock" shall mean the 6% Series C Convertible Preferred Stock, $0.001 par value per share, of the Corporation. 2. Dividend Rights. (a) Dividend Preference. The holders of issued and outstanding Series C Convertible Preferred Stock shall be entitled to receive, out of any funds and assets of the Corporation legally available therefor, cumulative dividends at the annual Dividend Rate for the Series C Convertible Preferred Stock, prior and in preference to the payment of any dividend or other Distribution on the Common Stock (other than a Common Stock Dividend) or any series of preferred stock hereafter created (other than the Series A Preferred Stock, Series B Preferred Stock, and any other series which by its terms is pari passu with the Series C Preferred Stock). Such dividends shall accrue on each share of Series C Convertible Preferred Stock from the date on which such share of Series C Convertible Preferred Stock is issued by the Corporation, and shall accrue from day-to-day until paid, whether earned or declared. The dividends shall, at the option of the Corporation, be payable in either (1) cash; or (2) shares of Common Stock (a "Series C Payment-in-Kind"). Each Series C Payment-in-Kind shall be equal in amount to that number of shares of Common Stock determined by dividing the aggregate cash dividends payable with respect to the Series C Convertible Preferred Stock by the average of the closing bid prices of the Corporation's Common Stock during the twenty (20) trading days preceding the date the dividend is declared (each a "Dividend Date") as reported on the primary market or exchange on which the Corporation's Common Stock is then trading. Certificates representing the Common Stock issuable in payment of any Series C Payment-in-Kind shall be delivered to each holder entitled to receive such Series C Payment-in-Kind as soon as practicable after the Dividend Date. Unless the full amount of any accrued and unpaid cumulative dividends accrued on the Series C Convertible Preferred Stock shall have been paid or declared in full and a sum sufficient for the payment thereof reserved and set apart, no dividend shall be paid or declared, and no Distribution shall be made on any Common Stock (other than a Common Stock Dividend). (b) Non-Cash Dividends. Whenever a dividend provided for in this Section 2 shall be payable in property other than cash or shares of Common Stock, the value of such dividend or Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board add back in pay in kind provision. 3. Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the funds and assets of the Corporation that may be legally distributed to the Corporation's stockholders (the "Available Funds and Assets"), shall be distributed to stockholders in the following manner: (a) Liquidation Preferences. The holders of each share of Series C Convertible Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any shares of Common Stock or preferred stock (other than the Series A Preferred Stock, the Series B Preferred Stock, 2 and any other series which by its terms is pari passu with the Series C Preferred Stock), an amount per share equal to the Original Issue Price of the Series C Convertible Preferred Stock, plus all accrued but unpaid dividends thereon; provided, however, that, all such payments or distributions shall be made on parity with any payments or distributions made to the holders of the Series A Preferred Stock, Series B Preferred Stock and any other series of preferred stock which by its terms is pari passu with the Series C Preferred Stock. (b) Non-Cash Consideration. If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as reasonably determined by the Board in good faith, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows: (1) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows: (i) if the securities are then traded on a national securities exchange or the NASDAQ National Market System (or a similar national quotation system), then the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the 30-day period ending three (3) days prior to the distribution; (ii) if actively traded over-the-counter, then the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) days prior to the closing of such merger, consolidation or sale; and (iii) if there is no active public market, then the value shall be the fair market value thereof, as determined in good faith by the Board. (2) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in Section 3(b)(1)(i),(ii) or (iii) to reflect the approximate fair market value thereof, as reasonably determined in good faith by the Board. 4. Voting Rights. Except as provided by applicable law, the holders of the Series C Convertible Preferred Stock shall have no voting rights. 5. Conversion. (a) Subject to the provisions for adjustment hereinafter set forth, each share of Series C Convertible Preferred Stock shall be convertible, at the option of the holder thereof and in the manner hereinafter set forth, into that number of fully paid and nonassessable shares of Common Stock determined by dividing the Original Issue Price by the Conversion Price in effect on the date of conversion. The initial conversion price shall be $2.00 (the "Conversion Price"). (b) The Conversion Price, and the number and kind of securities or property into which the Series C Convertible Preferred Stock may be converted, shall be subject to adjustment from time to time as follows: 3 (i) In case the Corporation shall at any time or from time to time declare a dividend, or make a distribution, on the outstanding shares of Common Stock in shares of Common Stock or subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares of Common Stock or combine or reclassify the outstanding shares of Common stock into a smaller number of shares of Common Stock, in each case, (A) the Conversion Price in effect immediately prior to such dividend, distribution, subdivision, combination or reclassification shall be proportionately adjusted; and (B) an adjustment made pursuant to this clause (i) shall become effective (I) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of shares of Common Stock entitled to receive such dividend or distribution, or (II) in the case of any such subdivision, reclassification or combination, at the close of business on the day upon which such corporate action becomes effective. (ii) If, at any time after the date hereof and prior to the effective date of the first registration statement permitting the public resale of all of the shares of Common Stock issuable upon conversion of the Series C Convertible Preferred Stock, the Corporation shall issue any shares of Common Stock at a purchase price less than the Conversion Price in effect on the date of such issuance or issue any debt or preferred stock convertible into shares of Common Stock at an exercise or conversion price, as applicable, less than the Conversion Price in effect on the date of such issuance by means of a public offering or private placement undertaken primarily for capital raising purposes, then in each such case, the Conversion Price shall be reduced to an amount equal to the consideration per share received or receivable by the Corporation for the additional shares of Common Stock issued or to be issued. The foregoing shall not apply to any securities issued by the Corporation pursuant to options, warrants, rights, other convertible securities or other obligations outstanding or in existence as of the date hereof, or issuances for which adjustment is made pursuant to other provisions hereof. (iii) In the case, at any time after the date hereof, of any capital reorganization or any reclassification of the stock of the Corporation (other than as a result of a stock dividend or subdivision, split-up or combination of shares), then, as a condition of the consummation of such transaction, lawful and adequate provision shall be made so that each holder of shares of Series C Convertible Preferred Stock shall be entitled, upon conversion, to an amount per share equal to (A) the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or which each share of Common Stock is changed or exchanged multiplied by (B) the number of shares of Common Stock into which a share of Series C Preferred Stock is convertible immediately prior to the consummation of such transaction. (c) In case the Corporation shall be a party to a transaction described in subparagraph (b)(iii) above resulting in the change or exchange of the Corporation's Common Stock then, from and after the date of announcement of the pendency of such subparagraph (b)(iii) transaction until the effective date thereof, each share of Series C Convertible Preferred Stock may be converted, at the option of the holder thereof, into shares of Common Stock on the 4 terms and conditions set forth in this Section 5, and if so converted during such period, such holder shall be entitled to receive such consideration in exchange for such holder's shares of Common Stock as if such holder had been the holder of such shares of Common Stock as of the record date for such change or exchange of the Common Stock. (d) The holder of any shares of Series C Convertible Preferred Stock may exercise his right to convert such shares into shares of Common Stock by surrendering for such purpose to the Corporation, at the offices of the Corporation, at 111 Presidential Boulevard, Suite 158A, Bala Cynwyd, PA 19004, or any successor location, a certificate or certificates representing the shares of Series C Convertible Preferred Stock to be converted with the form of election to convert (the "Election to Convert") on the reverse side of the stock certificate completed and executed as indicated, thereby stating that such holder elects to convert all or a specified whole number of such shares in accordance with the provisions of this Section 5 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case the Election to Convert shall specify a name or names other than that of such holder, it shall be accompanied by payment of all transfer or other taxes payable upon the issuance of shares of Common Stock in such name or names that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series C Convertible Preferred Stock pursuant hereto. The Corporation will have no responsibility to pay any taxes with respect to the Series C Convertible Preferred Stock. As promptly as practicable, and in any event within three business days after the surrender of such certificate or certificates and the receipt of the Election to Convert, and, if applicable, payment of all transfer or other taxes (or the demonstration to the satisfaction of the Corporation that such taxes have been paid), the Corporation shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable full shares of Common Stock to which the holder of shares of Series C Convertible Preferred Stock so converted shall be entitled and (ii) if less than the full number of shares of Series C Convertible Preferred Stock evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares converted. Such conversion shall be deemed to have been made at the close of business on the date of giving of the Election to Convert and of such surrender of the certificate or certificates representing the shares of Series C Convertible Preferred Stock to be converted so that the rights of the holder thereof as to the shares being converted shall cease except for the right to receive shares of Common Stock in accordance herewith, and the person entitled to receive the shares of Common Stock shall be treated for all purposes as having become the record holder of such shares of Common Stock at such time. The Corporation shall not be required to convert, and no surrender of shares of Series C Convertible Preferred Stock shall be effective for that purpose, while the transfer books of the Corporation for the Common Stock are closed for any purpose (but not for any period in excess of 15 calendar days); but the surrender of shares of Series C Convertible Preferred Stock for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books, as if the conversion had been made on the date such shares of Series C Convertible Preferred Stock were surrendered, and at the conversion rate in effect at the date of such surrender. 5 (e) In connection with the conversion of any shares of Series C Convertible Preferred Stock, no fractions of shares of Common Stock shall be issued, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Conversion Rate. 6. Redemption. (a) Redemption Request. All or any portion of the Series C Convertible Preferred Stock may be redeemed upon payment of $10.00 per share of Series C Convertible Preferred Stock, plus accrued and unpaid dividends thereon (the "Redemption Price"), at any time by the Corporation at its sole discretion upon thirty (30) days' written notice to the holders of the Series C Convertible Preferred Stock provided that: (i) the average of the closing bid prices of the Corporation's Common Stock during the twenty (20) trading days preceding the date of the "Redemption Notice" (as hereinafter defined) as reported on the primary market or exchange on which the Corporation's Common Stock is then trading equals or exceeds $6.00 per share; and (ii) the shares of Common Stock issuable upon conversion of the Series C Convertible Preferred Stock are subject to an effective registration statement permitting the public resale of such shares under the Securities Act of 1933, as amended (the "Act"). In the event that the Corporation redeems less than all of the outstanding Series C Convertible Preferred Stock, it shall redeem such shares pro rata among all holders of the Series C Convertible Preferred Stock. (b) Notice of Redemption. Any notice of redemption ("Redemption Notice") given by the Corporation with respect to the Series C Convertible Preferred Stock shall be delivered by mail, first class postage prepaid, to each holder of record (determined at the close of business on the business day preceding the day on which notice is given) of the Series C Convertible Preferred Stock, at the address last shown on the records of the Corporation for such holder or given by the holder to the Corporation, for the purpose of notifying such holder of the redemption to be effected. The Redemption Notice shall specify a date (the "Redemption Date") not earlier than 30 days after the mailing of the Redemption Notice on which the shares of Series C Convertible Preferred Stock then outstanding shall be redeemed and the place at which payment may be obtained, which shall be the principal offices of the Corporation. The Redemption Notice shall call upon each holder of Series C Convertible Preferred Stock to either (i) surrender to the Corporation, in the manner and at the place designated, such holder's certificate or certificates representing the shares of Series C Convertible Preferred Stock to be redeemed, or (ii) convert the Series C Convertible Preferred Stock into Common Stock prior to the Redemption Date in accordance with the provisions of Section 5 hereof. If the Corporation elects to redeem shares pursuant to this Section 6 and defaults or fails to perform its redemption obligations in connection therewith, the holders of the Series C Convertible Preferred Stock subject to such redemption shall then have the absolute right to convert such Series C Convertible Preferred Stock into Common Stock in accordance with the provisions of Section 5 hereof and to all other rights hereunder until such time as the Redemption Price applicable to such shares is paid in full. (c) Insufficient Funds. If the funds of the Corporation legally available for redemption of the Series C Convertible Preferred Stock are insufficient to redeem the total number of shares of Series C Convertible Preferred Stock subject to redemption on the Redemption Date, the Corporation shall, prior to redeeming any other series of the Corporation's 6 Common Stock or preferred stock (other than the Series A Preferred Stock, the Series B Preferred Stock, and any other series which by its terms is pari passu with the Series C Preferred Stock), redeem on a pro rata basis from the holders of the Series C Convertible Preferred Stock, from time to time, to the extent the Corporation is legally permitted to do so, and the redemption obligations of the Corporation hereunder will be a continuing obligation until the Corporation 's redemption of all of the remaining shares of Series C Convertible Preferred Stock subject to redemption is complete. (d) Mechanics of Redemption. On the Redemption Date, each holder of outstanding shares of Series C Convertible Preferred Stock subject to redemption shall promptly surrender the certificate or certificates (or affidavit(s) of loss thereof) representing such shares to the Corporation at the Corporation's principal executive office, and thereupon the Corporation shall pay the Redemption Price by cash or wire transfer of immediately available funds to the person whose name appears on the certificate or certificates of the shares of Series C Convertible Preferred Stock, or by certified or bank check payable to the order of such person, that (i) shall not have been converted pursuant to Section 6 hereof, and (ii) shall have been surrendered to the Corporation in the manner and at the place designated in the Redemption Notice. Each stock certificate surrendered for redemption shall be canceled and retired. 7. No Reissuance of Preferred Stock. No share or shares of Series C Convertible Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue. SECOND: That such determination of the designation, preferences and the relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, relating to the Series C Convertible Preferred Stock, was duly made by the Board of Directors pursuant to the provisions of the Articles of Incorporation of the Corporation, and in accordance with the provisions of Section 78-1955 of the Nevada Revised Statutes. IN WITNESS WHEREOF, Stephen P. Harrington has caused this Designation to be executed this ___ day of ____________, 200_. Continental Southern Resources, Inc. By:_________________________________ Stephen P. Harrington Chief Executive Officer 7 EX-4.5 7 h13916exv4w5.txt WARRANTS TO PURCHASE COMMON STOCK IN 4/2002 EXHIBIT 4.5 FIRST AMENDMENT TO WARRANTS to Purchase Common Stock of Continental Southern Resources, Inc. f/k/a Expressions Graphics, Inc. Expiring on April 30, 2012 Warrant No. 2002-1 To reflect the Company's reverse split, name change and to memorialize the prior agreements of the parties, this warrant is hereby amended as follows: The introductory and referenced paragraphs are hereby replaced as follows: This Common Stock Purchase Warrant (the "Warrant") certifies that for value received, Trident Growth Fund, LP f/k/a Gemini Capital, L.P. (the "Holder") or its assigns, is entitled to subscribe for and purchase from the Company (as hereinafter defined), in whole or in part, 150,000 shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (as hereinafter defined) at an initial Exercise Price (as hereinafter defined) per share of $1.60, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. The number of Warrants (as hereinafter defined), the number of shares of Common Stock purchasable hereunder, and the Exercise Price therefore are subject to adjustment as hereinafter set forth. These Warrants and all rights hereunder shall expire at 5:00 p.m., Houston, Texas time, April 30, 2012. 1. "Company" shall mean Continental Southern Resources, Inc., a Nevada corporation, and shall also include any successor thereto with respect to the obligations hereunder, by merger, consolidation or otherwise. 2. "Common Stock" shall mean and include the Company's common stock, $0.001 par value per share, authorized on the date of the original issue of these Warrants and shall also include (i) in case of any reorganization, reclassification, consolidation, merger, share exchange or sale, transfer or other disposition of assets, the stock or other securities provided for herein, and (ii) any other shares of common stock of the Company into which such shares of Common Stock may be converted. All other provision not superficially modified herein are in full force and effect. IN WITNESS WHEREOF, the Company has caused this Amendment to be signed in its name dated July 29, 2003. Continental Southern Resources, Inc. /s/ STEPHEN P. HARRINGTON ----------------------------------------- Stephen P. Harrington Title: President 2 SECOND AMENDMENT TO WARRANTS to Purchase Common Stock of Continental Southern Resources, Inc. f/k/a Expressions Graphics, Inc. Expiring on April 30, 2012 Warrant No. 2002-1 To memorialize the prior agreements of the parties, this warrant is hereby amended as follows: 1. The introductory paragraph is hereby deleted in its entirety and replaced with the following: "This Common Stock Purchase Warrant (the "Warrant") certifies that for value received, Trident Growth Fund, LP f/k/a Gemini Capital, L.P. (the "Holder") or its assigns, is entitled to subscribe for and purchase from the Company (as hereinafter defined), in whole or in part, 150,000 shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (as hereinafter defined) at an initial Exercise Price (as hereinafter defined) per share of $2.00, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. The number of Warrants (as hereinafter defined), the number of shares of Common Stock purchasable hereunder, and the Exercise Price therefore are subject to adjustment as hereinafter set forth. These Warrants and all rights hereunder shall expire at 5:00 p.m., Houston, Texas time, April 30, 2012." 2. Section IV.5 is hereby deleted in its entirety and replaced with the following: "Exceptions: The term "Additional Common Stock" herein shall mean in the most broadest sense all shares of Common Stock hereafter issued by the Company (including, but not limited to, Common Stock held in the treasury of the Company and Common Stock purchasable via derivative security or option on the date of such grant), except (i) Common Stock issued upon the exercise of this warrant or any other warrants issued to Holder, (ii) Common Stock issued upon the conversion of the Convertible Notes, (iii) Common Stock issuable or issued to employees, consultants or directors of the Company or its consolidated subsidiaries or other consolidated entities directly or pursuant to a stock option plan, restricted stock plan or other incentive plan approved by the Board of Directors of the Company, (iv) Common Stock issued or issuable in connection with a bona fide business acquisition of or by the Company or its consolidated subsidiaries or other consolidated entities approved by the Board of Directors, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, including Common Stock issued in connection with the Company's proposed acquisition of NSNV, Inc., a Texas corporation ("NSNV"), and Common Stock issued in connection with the payment of an advisory fee payable upon the successful completion of the acquisition of NSNV." All other provisions not modified herein are in full force and effect. 3 For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Holder and the Company have executed this Amendment by its duly authorized signatories, this 26th day of February, 2004. Continental Southern Resources, Inc. /s/ STEPHEN P. HARRINGTON ------------------------------------------- Stephen P. Harrington Title: President Trident Growth Fund, L.P. By: Trident Management, LLC, its general partner /s/ SCOTT COOK ------------------------------------------- Name: Scott Cook Title: General Partner 4 EX-4.6 8 h13916exv4w6.txt WARRANTS TO PURCHASE COMMON STOCK(WARRANT#2003-2) EXHIBIT 4.6 THE SECURITIES REPRESENTED BY THESE WARRANTS AND THE COMMON STOCK ISSUABLE THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW. THE SECURITIES REPRESENTED BY THESE WARRANTS MAY NOT BE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS. WARRANTS to Purchase Common Stock of Continental Southern Resources, Inc. F/KA/ EXPRESSIONS GRAPHICS, INC. EXPIRING ON APRIL 30, 2012 Warrant No. 2003-2 This Common Stock Purchase Warrant (the "Warrant") certifies that for value received, Trident Growth Fund, L.P. f/k/a Gemini Capital, L.P. (the "Holder") or its assigns, is entitled to subscribe for and purchase from the Company (as hereinafter defined), in whole or in part, 150,000 shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (as hereinafter defined) at an initial Exercise Price (as hereinafter defined) per share of $1.60, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. The number of Warrants (as hereinafter defined), the number of shares of Common Stock purchasable hereunder, and the Exercise Price therefore are subject to adjustment as hereinafter set forth. These Warrants and all rights hereunder shall expire at 5:00 p.m., Houston, Texas time, April 30, 2012 (the "Expiration Date"). ARTICLE I Definitions As used herein, the following terms shall have the meanings set forth below: I.1 "Company" shall mean Continental Southern Resources, Inc., a Nevada corporation, and shall also include any successor thereto with respect to the obligations hereunder, by merger, consolidation or otherwise. I.2 "Common Stock" shall mean and include the Company's common stock, $0.001 par value per share, authorized on the date of the original issue of these Warrants and shall also include (i) in case of any reorganization, reclassification, consolidation, merger, share exchange or sale, transfer or other disposition of assets, the stock or other securities provided for herein, and (ii) any other shares of common stock of the Company into which such shares of Common Stock may be converted. I.3 "Exercise Price" shall mean the initial purchase price of $1.60 per share of Common Stock payable upon exercise of the Warrants, as adjusted from time to time pursuant to the provisions hereof. I.4 "Market Price" for any day, when used with reference to Common Stock, shall mean the price of said Common Stock determined by reference to the last reported sale price for the Common Stock on such day on the principal securities exchange on which the Common Stock is listed or admitted to trading or if no such sale takes place on such date, the average of the closing bid and asked prices thereof as officially reported, or, if not so listed or admitted to trading on any securities exchange, the last sale price for the Common Stock on the National Association of Securities Dealers national market system on such date, or, if there shall have been no trading on such date or if the Common Stock shall not be listed on such system, the average of the closing bid and asked prices in the over-the-counter market as furnished by any NASD member firm selected from time to time by the Company for such purpose or, if the Common Stock is not traded, then such price as is reasonably determined by the Company's Board of Directors. I.5 "Warrant" shall mean the right upon exercise to purchase one Warrant Share. I.6 "Warrant Shares" shall mean the shares of Common Stock purchased or purchasable by the holder hereof upon the exercise of the Warrants. ARTICLE II Exercise of Warrants II.1 Method of Exercise. The Warrants represented hereby may be exercised by the holder hereof, in whole or in part, at any time and from time to time on or after the date hereof until 5:00 p.m., Houston, Texas time, on the Expiration Date. To exercise the Warrants, the holder hereof shall deliver to the Company, at the Warrant Office designated herein, (i) a written notice in the form of the Subscription Notice attached as an exhibit hereto, stating therein the election of such holder to exercise the Warrants in the manner provided in the Subscription Notice; (ii) payment in full of the Exercise Price (A) in cash or by bank check for all Warrant Shares purchased hereunder, or (B) through a "cashless" or "net-issue" exercise of each such Warrant ("Cashless Exercise"); the holder shall exchange each Warrant subject to a Cashless Exercise for that number of Warrant Shares determined by multiplying the number of Warrant Shares issuable hereunder by a fraction, the numerator of which shall be the difference between (x) the Market Price and (y) the Exercise Price for each such Warrant, and the denominator of which shall be the Market Price; the Subscription Notice shall set forth the calculation upon which the Cashless Exercise is based, or (C) a combination of (A) and (B) above; and (iii) these Warrants. The Warrants shall be deemed to be exercised on the date of receipt by the Company of the Subscription Notice, accompanied by payment for the Warrant Shares and surrender of these Warrants, as aforesaid, and such date is referred to herein as the "Exercise Date". Upon such exercise, the Company shall, as promptly as practicable and in any event within five business days, issue and deliver to such holder a certificate 2 or certificates for the full number of the Warrant Shares purchased by such holder hereunder, and shall, unless the Warrants have expired, deliver to the holder hereof a new Warrant representing the number of Warrants, if any, that shall not have been exercised, in all other respects identical to these Warrants. As permitted by applicable law, the person in whose name the certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the Exercise Date and shall be entitled to all of the benefits of such holder on the Exercise Date, including without limitation the right to receive dividends and other distributions for which the record date falls on or after the Exercise Date and to exercise voting rights. II.2 Expenses and Taxes. The Company shall pay all expenses and taxes (including, without limitation, all documentary, stamp, transfer or other transactional taxes) other than income taxes attributable to the preparation, issuance or delivery of the Warrants and of the shares of Common Stock issuable upon exercise of the Warrants. II.3 Reservation of Shares. The Company shall reserve at all times so long as the Warrants remain outstanding, free from preemptive rights, out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the exercise of the Warrants, a sufficient number of shares of Common Stock to provide for the exercise of the Warrants. II.4 Valid Issuance. All shares of Common Stock that may be issued upon exercise of the Warrants will, upon issuance by the Company, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof and, without limiting the generality of the foregoing, the Company shall take no action or fail to take any action which will cause a contrary result (including, without limitation, any action that would cause the Exercise Price to be less than the par value, if any, of the Common Stock). II.5 Loan Agreement. The Warrants represented hereby were issued on conjunction with a Loan Agreement dated around April 5, 2002 as amended from time to time (the "Loan Agreement") between the Company and the Holder. The Holder shall be entitled to the rights to registration under the Securities Act and any applicable state securities or blue sky laws to the extent set forth in the registration rights provision found in the Loan Agreement. The terms of the registration rights provisions are hereby incorporated herein for all purposes and shall be considered a part of this Warrant as if they had been fully set forth herein. II.6 Acknowledgment of Rights. At the time of the exercise of the Warrants in accordance with the terms hereof and upon the written request of the holder hereof, the Company will acknowledge in writing its continuing obligation to afford to such holder any rights (including, without limitation, any right to registration of the Warrant Shares) to which such holder shall continue to be entitled after such exercise in accordance with the provisions of these Warrants; provided, however, that if the Holder hereof shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights. II.7 No Fractional Shares. The Company shall not be required to issue fractional shares of Common Stock on the exercise of these Warrants. If more than one Warrant shall be presented for exercise at the same time by the same holder, the number of full shares of Common Stock which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of 3 whole shares of Common Stock purchasable on exercise of the Warrants so presented. If any fraction of a share of Common Stock would, except for the provisions of this Section, be issuable on the exercise of this Warrant, the Company shall pay an amount in cash calculated by it to be equal to the Market Price of one share of Common Stock at the time of such exercise multiplied by such fraction computed to the nearest whole cent. ARTICLE III Transfer III.1 Warrant Office. The Company shall maintain an office for certain purposes specified herein (the "Warrant Office"), which office shall initially be the Company's offices at 111 Presidential Boulevard, Suite 158-A, Bala Cynwyd, PA 19004 and may subsequently be such other office of the Company or of any transfer agent of the Common Stock in the continental United States as to which written notice has previously been given to the Holder. The Company shall maintain, at the Warrant Office, a register for the Warrants in which the Company shall record the name and address of the Person in whose name these Warrants has been issued, as well as the name and address of each permitted assignee of the rights of the registered owner hereof. III.2 Ownership of Warrants. The Company may deem and treat the Person in whose name the Warrants are registered as the holder and owner hereof until provided with notice to the contrary. The Warrants may be exercised by an assignee for the purchase of Warrant Shares without having new Warrants issued. III.3 Restrictions on Transfer of Warrants. These Warrants may be transferred, in whole or in part, by the Holder. The Company agrees to maintain at the Warrant Office books for the registration and transfer of the Warrants. The Company, from time to time, shall register the transfer of the Warrants in such books upon surrender of this Warrant at the Warrant Office properly endorsed or accompanied by appropriate instruments of transfer and written instructions for transfer. Upon any such transfer and upon payment by the holder or its transferee of any applicable transfer taxes, new Warrants shall be issued to the transferee and the transferor (as their respective interests may appear) and the surrendered Warrants shall be cancelled by the Company. The Company shall pay all taxes (other than securities transfer taxes or income taxes) and all other expenses and charges payable in connection with the transfer of the Warrants pursuant to this Section. III.4 Compliance with Securities Laws. Subject to the terms of the Registration Rights Agreement and notwithstanding any other provisions contained in these Warrants, the Holder understands and agrees that the following restrictions and limitations shall be applicable to all Warrant Shares and to all resales or other transfers thereof pursuant to the Securities Act: III.4.1 The holder hereof agrees that the Warrant Shares may not be sold or otherwise transferred unless the Warrant Shares are registered under the Securities Act and applicable state securities or blue sky laws or are exempt therefrom. III.4.2 A legend in substantially the following form will be placed on the certificate(s) evidencing the Warrant Shares: 4 "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS." ARTICLE IV Anti-Dilution IV.1 If and whenever any Additional Common Stock (as herein defined) shares shall be issued by the Company (the "Stock Issue Date") for a consideration per share less than the Exercise Price, then in each such case the initial Exercise Price shall be reduced to a new Exercise Price in an amount equal to the consideration per share received by the Company for the additional shares of Common Stock then issued and the number of shares issuable to Holder upon conversion shall be proportionately increased; and, in the case of shares issued without consideration, the initial Exercise Price shall be reduced in amount and the number of shares issued upon conversion shall be increased in an amount so as to maintain for the Holder the right to exercise into shares equal in amount to the same percentage interest in the Common Stock of the Company as existed for the Holder immediately preceding the Stock Issue Date. IV.2 Sale of Shares: In case of the issuance of Additional Common Stock for a consideration part or all of which shall be cash, the amount of the cash consideration therefore shall be deemed to be the amount of the cash received by Company for such shares, after any compensation or discount in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services or for any expenses incurred in connection therewith. In case of the issuance of any shares of Additional Common Stock for a consideration part or all of which shall be other than cash, the amount of the consideration therefore, other than cash, shall be deemed to be the then fair market value of the property received as determined by an investment banking firm selected by Lender. IV.3 Reclassification of Shares: In case of the reclassification of securities into shares of Common Stock, the shares of Common Stock issued in such reclassification shall be deemed to have been issued for a consideration other than cash. Shares of Additional Common Stock issued by way of dividend or other distribution on any class of stock of the Company shall be deemed to have been issued without consideration. IV.4 Split up or Combination of Shares: In case issued and outstanding shares of Common Stock shall be subdivided or split up into a greater number of shares of the Common Stock, the Exercise Price shall be proportionately decreased, and in case issued and outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Exercise 5 Price shall be proportionately increased, such increase or decrease, as the case may be, becoming effective at the time of record of the split-up or combination, as the case may be. IV.5 Exceptions: The term "Additional Common Stock" herein shall mean in the most broadest sense all shares of Common Stock hereafter issued by the Company (including, but not limited to Common Stock held in the treasury of the Company and common stock purchasable via derivative security or option on the date of such grant), except Common Stock issued upon the exercise of this warrant or the Convertible Notes. IV.6 In the event of distribution to all Common Stock holders of any stock, indebtedness of the Company or assets or other rights to purchase securities or assets, then, after such event, the Exercise Price reduced to so as to entitle the Holder to the economic interest he had immediately prior to the occurrence of such event. IV.7 In case of any capital reorganization, reclassification of the stock of the Company (other than a change in par value or as a result of a stock dividend, subdivision, split up or combination of shares), the Exercise Price reduced to so as to entitle the Holder to the economic interest he had immediately prior to the occurrence of such event. The provisions of these foregoing sentence shall similarly apply to successive reorganizations, reclassifications, consolidations, exchanges, leases, transfers or other dispositions or other share exchanges. IV.8 Notice of Adjustment. (A) In the event the Company shall propose to take any action which shall result in an adjustment in the Exercise Price, the Company shall give notice to the Holder, which notice shall specify the record date, if any, with respect to such action and the date on which such action is to take place. Such notice shall be given on or before the earlier of 10 days before the record date or the date which such action shall be taken. Such notice shall also set forth all facts (to the extent known) material to the effect of such action on the Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon exercise of this warrant (B) Following completion of an event wherein the Exercise Price shall be adjusted, the Company shall furnish to the Holder a statement, signed by an authorized officer of the Company of the facts creating such adjustment and specifying the resultant adjusted Exercise Price then in effect. ARTICLE V Miscellaneous V.1 Entire Agreement. These Warrants, together with the Loan Agreement, contain the entire agreement between the holder hereof and the Company with respect to the Warrant Shares purchasable upon exercise hereof and the related transactions and supersedes all prior arrangements or understandings with respect thereto. V.2 Governing Law. This warrant shall be governed by and construed in accordance with the laws of the State of Texas in the courts located in Dallas, Texas. 6 V.3 Waiver and Amendment. Any term or provision of these Warrants may be waived at any time by the party which is entitled to the benefits thereof and any term or provision of these Warrants may be amended or supplemented at any time by agreement of the holder hereof and the Company, except that any waiver of any term or condition, or any amendment or supplementation, of these Warrants shall be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of these Warrants shall not in any way effect, limit or waive a party's rights hereunder at any time to enforce strict compliance thereafter with every term or condition of these Warrants. V.4 Illegality. In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of these Warrants shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired. V.5 Copy of Warrant. A copy of these Warrants shall be filed among the records of the Company. V.6 Notice. Any notice or other document required or permitted to be given or delivered to the holder hereof shall be in writing and delivered at, or sent by certified or registered mail to such holder at, the last address shown on the books of the Company maintained at the Warrant Office for the registration of these Warrants or at any more recent address of which the holder hereof shall have notified the Company in writing. V.7 Limitation of Liability; Not Stockholders. No provision of these Warrants shall be construed as conferring upon the holder hereof the right to vote, consent, receive dividends or receive notices (other than as herein expressly provided) in respect of meetings of stockholders for the election of directors of the Company or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of affirmative action by the holder hereof to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the purchase price of any shares of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. V.8 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, mutilation or destruction of these Warrants, and in the case of any such loss, theft or destruction upon delivery of an appropriate affidavit in such form as shall be reasonably satisfactory to the Company and include reasonable indemnification of the Company, or in the event of such mutilation upon surrender and cancellation of these Warrants, the Company will make and deliver new Warrants of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrants. Any Warrants issued under the provisions of this Section in lieu of any Warrants alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrants, shall constitute an original contractual obligation on the part of the Company. These Warrants shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange or replacement. The Company shall pay all taxes (other than securities transfer taxes or income taxes) and all other expenses and charges payable in connection with the preparation, execution and delivery of Warrants pursuant to this Section. 7 V.9 Headings. The Article and Section and other headings herein are for convenience only and are not a part of this Warrant and shall not affect the interpretation thereof. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name dated July 29, 2003 Continental Southern Resources, Inc. /s/ STEPHEN P. HARRINGTON -------------------------------------- Stephen Harrington Title: President Witness -------------------------------------- 8 SUBSCRIPTION NOTICE The undersigned, the holder of the foregoing Warrants, hereby elects to exercise purchase rights represented thereby for, and to purchase thereunder, shares of the Common Stock covered by such Warrants, and herewith makes payment in full for such shares, and requests (a) that certificates for such shares (and any other securities or other property issuable upon such exercise) be issued in the name of, and delivered to, and (b), if such shares shall not include all of the shares issuable as provided in such Warrants, that new Warrants of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned. Date: ------------------------------- 9 ASSIGNMENT For value received, , hereby sells, assigns and transfers unto these Warrants, together with all rights, title and interest therein, and does irrevocably constitute and appoint attorney, to transfer such Warrants on the books of the Company, with full power of substitution. Date: ------------------------------- 10 FIRST AMENDMENT TO WARRANTS to Purchase Common Stock of Continental Southern Resources, Inc. (a Nevada Corporation) Expiring on April 30, 2012 Warrant No. 2003-2 To memorialize the prior agreements of the parties, this warrant is hereby amended as follows: 1. The introductory paragraph is hereby deleted in its entirety and replaced with the following: "This Common Stock Purchase Warrant (the "Warrant") certifies that for value received, Trident Growth Fund, (the "Holder") or its assigns, is entitled to subscribe for and purchase from the Company (as hereinafter defined), in whole or in part, 100,000 shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (as hereinafter defined) at an initial Exercise Price (as hereinafter defined) per share of $2.00, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. The number of Warrants (as hereinafter defined), the number of shares of Common Stock purchasable hereunder, and the Exercise Price therefore are subject to adjustment as hereinafter set forth. These Warrants and all rights hereunder shall expire at 5:00 p.m., Houston, Texas time, April 30, 2012." 2. Section IV.5 is hereby deleted in its entirety and replaced with the following: "Exceptions: The term "Additional Common Stock" herein shall mean in the most broadest sense all shares of Common Stock hereafter issued by the Company (including, but not limited to, Common Stock held in the treasury of the Company and Common Stock purchasable via derivative security or option on the date of such grant), except (i) Common Stock issued upon the exercise of this warrant or any other warrants issued to Holder, (ii) Common Stock issued upon the conversion of the Convertible Notes, (iii) Common Stock issuable or issued to employees, consultants or directors of the Company or its consolidated subsidiaries or other consolidated entities directly or pursuant to a stock option plan, restricted stock plan or other incentive plan approved by the Board of Directors of the Company, (iv) Common Stock issued or issuable in connection with a bona fide business acquisition of or by the Company or its consolidated subsidiaries or other consolidated entities approved by the Board of Directors, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, including Common Stock issued in connection with the Company's proposed acquisition of NSNV, Inc., a Texas corporation ("NSNV"), and Common Stock issued in connection with the payment of an advisory fee payable upon the successful completion of the acquisition of NSNV." All other provisions not modified herein are in full force and effect. 11 For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Holder and the Company have executed this Amendment by its duly authorized signatories, this 26th day of February, 2004. Continental Southern Resources, Inc. /s/ STEPHEN P. HARRINGTON --------------------------------------------- Stephen P. Harrington Title: President Trident Growth Fund, L.P. By: Trident Management, LLC, its general partner /s/ SCOTT COOK --------------------------------------------- Name: Scott Cook Title: General Partner 12 EX-4.7 9 h13916exv4w7.txt WARRANTS TO PURCHASE COMMON STOCK(WARRANT#2003-3) EXHIBIT 4.7 THE SECURITIES REPRESENTED BY THESE WARRANTS AND THE COMMON STOCK ISSUABLE THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW. THE SECURITIES REPRESENTED BY THESE WARRANTS MAY NOT BE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS. WARRANTS to Purchase Common Stock of Continental Southern Resources, Inc. F/KA/ EXPRESSIONS GRAPHICS, INC. EXPIRING ON JULY 23, 2008 Warrant No. 2003-3 This Common Stock Purchase Warrant (the "Warrant") certifies that for value received, Trident Growth Fund, L.P. f/k/a Gemini Capital, L.P. (the "Holder") or its assigns, is entitled to subscribe for and purchase from the Company (as hereinafter defined), in whole or in part, 150,000 shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (as hereinafter defined) at an initial Exercise Price (as hereinafter defined) per share of $1.60, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. The number of Warrants (as hereinafter defined), the number of shares of Common Stock purchasable hereunder, and the Exercise Price therefore are subject to adjustment as hereinafter set forth. These Warrants and all rights hereunder shall expire at 5:00 p.m., Houston, Texas time, July 23, 2008 (the "Expiration Date"). ARTICLE I Definitions As used herein, the following terms shall have the meanings set forth below: I.1 "Company" shall mean Continental Southern Resources, Inc., a Nevada corporation, and shall also include any successor thereto with respect to the obligations hereunder, by merger, consolidation or otherwise. I.2 "Common Stock" shall mean and include the Company's common stock, $0.001 par value per share, authorized on the date of the original issue of these Warrants and shall also include (i) in case of any reorganization, reclassification, consolidation, merger, share exchange or sale, transfer or other disposition of assets, the stock or other securities provided for herein, and (ii) any other shares of common stock of the Company into which such shares of Common Stock may be converted. I.3 "Exercise Price" shall mean the initial purchase price of $1.60 per share of Common Stock payable upon exercise of the Warrants, as adjusted from time to time pursuant to the provisions hereof. I.4 "Market Price" for any day, when used with reference to Common Stock, shall mean the price of said Common Stock determined by reference to the last reported sale price for the Common Stock on such day on the principal securities exchange on which the Common Stock is listed or admitted to trading or if no such sale takes place on such date, the average of the closing bid and asked prices thereof as officially reported, or, if not so listed or admitted to trading on any securities exchange, the last sale price for the Common Stock on the National Association of Securities Dealers national market system on such date, or, if there shall have been no trading on such date or if the Common Stock shall not be listed on such system, the average of the closing bid and asked prices in the over-the-counter market as furnished by any NASD member firm selected from time to time by the Company for such purpose or, if the Common Stock is not traded, then such price as is reasonably determined by the Company's Board of Directors. I.5 "Warrant" shall mean the right upon exercise to purchase one Warrant Share. I.6 "Warrant Shares" shall mean the shares of Common Stock purchased or purchasable by the holder hereof upon the exercise of the Warrants. ARTICLE II Exercise of Warrants II.1 Method of Exercise. The Warrants represented hereby may be exercised by the holder hereof, in whole or in part, at any time and from time to time on or after the date hereof until 5:00 p.m., Houston, Texas time, on the Expiration Date. To exercise the Warrants, the holder hereof shall deliver to the Company, at the Warrant Office designated herein, (i) a written notice in the form of the Subscription Notice attached as an exhibit hereto, stating therein the election of such holder to exercise the Warrants in the manner provided in the Subscription Notice; (ii) payment in full of the Exercise Price (A) in cash or by bank check for all Warrant Shares purchased hereunder, or (B) through a "cashless" or "net-issue" exercise of each such Warrant ("Cashless Exercise"); the holder shall exchange each Warrant subject to a Cashless Exercise for that number of Warrant Shares determined by multiplying the number of Warrant Shares issuable hereunder by a fraction, the numerator of which shall be the difference between (x) the Market Price and (y) the Exercise Price for each such Warrant, and the denominator of which shall be the Market Price; the Subscription Notice shall set forth the calculation upon which the Cashless Exercise is based, or (C) a combination of (A) and (B) above; and (iii) these Warrants. The Warrants shall be deemed to be exercised on the date of receipt by the Company of the Subscription Notice, accompanied by payment for the Warrant Shares and surrender of these Warrants, as aforesaid, and such date is referred to herein as the "Exercise Date". Upon such exercise, the Company shall, as promptly as practicable and in any event within five business days, issue and deliver to such holder a certificate 2 or certificates for the full number of the Warrant Shares purchased by such holder hereunder, and shall, unless the Warrants have expired, deliver to the holder hereof a new Warrant representing the number of Warrants, if any, that shall not have been exercised, in all other respects identical to these Warrants. As permitted by applicable law, the person in whose name the certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the Exercise Date and shall be entitled to all of the benefits of such holder on the Exercise Date, including without limitation the right to receive dividends and other distributions for which the record date falls on or after the Exercise Date and to exercise voting rights. II.2 Expenses and Taxes. The Company shall pay all expenses and taxes (including, without limitation, all documentary, stamp, transfer or other transactional taxes) other than income taxes attributable to the preparation, issuance or delivery of the Warrants and of the shares of Common Stock issuable upon exercise of the Warrants. II.3 Reservation of Shares. The Company shall reserve at all times so long as the Warrants remain outstanding, free from preemptive rights, out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the exercise of the Warrants, a sufficient number of shares of Common Stock to provide for the exercise of the Warrants. II.4 Valid Issuance. All shares of Common Stock that may be issued upon exercise of the Warrants will, upon issuance by the Company, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof and, without limiting the generality of the foregoing, the Company shall take no action or fail to take any action which will cause a contrary result (including, without limitation, any action that would cause the Exercise Price to be less than the par value, if any, of the Common Stock). II.5 Loan Agreement. The Warrants represented hereby were issued on conjunction with a Loan Agreement dated around April 5, 2002 as amended from time to time (the "Loan Agreement") between the Company and the Holder. The Holder shall be entitled to the rights to registration under the Securities Act and any applicable state securities or blue sky laws to the extent set forth in the registration rights provision found in the Loan Agreement. The terms of the registration rights provisions are hereby incorporated herein for all purposes and shall be considered a part of this Warrant as if they had been fully set forth herein. II.6 Acknowledgment of Rights. At the time of the exercise of the Warrants in accordance with the terms hereof and upon the written request of the holder hereof, the Company will acknowledge in writing its continuing obligation to afford to such holder any rights (including, without limitation, any right to registration of the Warrant Shares) to which such holder shall continue to be entitled after such exercise in accordance with the provisions of these Warrants; provided, however, that if the Holder hereof shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights. II.7 No Fractional Shares. The Company shall not be required to issue fractional shares of Common Stock on the exercise of these Warrants. If more than one Warrant shall be presented for exercise at the same time by the same holder, the number of full shares of Common Stock which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of 3 whole shares of Common Stock purchasable on exercise of the Warrants so presented. If any fraction of a share of Common Stock would, except for the provisions of this Section, be issuable on the exercise of this Warrant, the Company shall pay an amount in cash calculated by it to be equal to the Market Price of one share of Common Stock at the time of such exercise multiplied by such fraction computed to the nearest whole cent. ARTICLE III Transfer III.1 Warrant Office. The Company shall maintain an office for certain purposes specified herein (the "Warrant Office"), which office shall initially be the Company's offices at 111 Presidential Boulevard, Suite 158-A, Bala Cynwyd, PA 19004 and may subsequently be such other office of the Company or of any transfer agent of the Common Stock in the continental United States as to which written notice has previously been given to the Holder. The Company shall maintain, at the Warrant Office, a register for the Warrants in which the Company shall record the name and address of the Person in whose name these Warrants has been issued, as well as the name and address of each permitted assignee of the rights of the registered owner hereof. III.2 Ownership of Warrants. The Company may deem and treat the Person in whose name the Warrants are registered as the holder and owner hereof until provided with notice to the contrary. The Warrants may be exercised by an assignee for the purchase of Warrant Shares without having new Warrants issued. III.3 Restrictions on Transfer of Warrants. These Warrants may be transferred, in whole or in part, by the Holder. The Company agrees to maintain at the Warrant Office books for the registration and transfer of the Warrants. The Company, from time to time, shall register the transfer of the Warrants in such books upon surrender of this Warrant at the Warrant Office properly endorsed or accompanied by appropriate instruments of transfer and written instructions for transfer. Upon any such transfer and upon payment by the holder or its transferee of any applicable transfer taxes, new Warrants shall be issued to the transferee and the transferor (as their respective interests may appear) and the surrendered Warrants shall be cancelled by the Company. The Company shall pay all taxes (other than securities transfer taxes or income taxes) and all other expenses and charges payable in connection with the transfer of the Warrants pursuant to this Section. III.4 Compliance with Securities Laws. Subject to the terms of the Registration Rights Agreement and notwithstanding any other provisions contained in these Warrants, the Holder understands and agrees that the following restrictions and limitations shall be applicable to all Warrant Shares and to all resales or other transfers thereof pursuant to the Securities Act: III.4.1 The holder hereof agrees that the Warrant Shares may not be sold or otherwise transferred unless the Warrant Shares are registered under the Securities Act and applicable state securities or blue sky laws or are exempt therefrom. III.4.2 A legend in substantially the following form will be placed on the certificate(s) evidencing the Warrant Shares: 4 "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS." ARTICLE IV Anti-Dilution IV.1 If and whenever any Additional Common Stock (as herein defined) shares shall be issued by the Company (the "Stock Issue Date") for a consideration per share less than the Exercise Price, then in each such case the initial Exercise Price shall be reduced to a new Exercise Price in an amount equal to the consideration per share received by the Company for the additional shares of Common Stock then issued and the number of shares issuable to Holder upon conversion shall be proportionately increased; and, in the case of shares issued without consideration, the initial Exercise Price shall be reduced in amount and the number of shares issued upon conversion shall be increased in an amount so as to maintain for the Holder the right to exercise into shares equal in amount to the same percentage interest in the Common Stock of the Company as existed for the Holder immediately preceding the Stock Issue Date. IV.2 Sale of Shares: In case of the issuance of Additional Common Stock for a consideration part or all of which shall be cash, the amount of the cash consideration therefore shall be deemed to be the amount of the cash received by Company for such shares, after any compensation or discount in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services or for any expenses incurred in connection therewith. In case of the issuance of any shares of Additional Common Stock for a consideration part or all of which shall be other than cash, the amount of the consideration therefore, other than cash, shall be deemed to be the then fair market value of the property received as determined by an investment banking firm selected by Lender. IV.3 Reclassification of Shares: In case of the reclassification of securities into shares of Common Stock, the shares of Common Stock issued in such reclassification shall be deemed to have been issued for a consideration other than cash. Shares of Additional Common Stock issued by way of dividend or other distribution on any class of stock of the Company shall be deemed to have been issued without consideration. IV.4 Split up or Combination of Shares: In case issued and outstanding shares of Common Stock shall be subdivided or split up into a greater number of shares of the Common Stock, the Exercise Price shall be proportionately decreased, and in case issued and outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Exercise 5 Price shall be proportionately increased, such increase or decrease, as the case may be, becoming effective at the time of record of the split-up or combination, as the case may be. IV.5 Exceptions: The term "Additional Common Stock" herein shall mean in the most broadest sense all shares of Common Stock hereafter issued by the Company (including, but not limited to Common Stock held in the treasury of the Company and common stock purchasable via derivative security or option on the date of such grant), except Common Stock issued upon the exercise of this warrant or the Convertible Notes. IV.6 In the event of distribution to all Common Stock holders of any stock, indebtedness of the Company or assets or other rights to purchase securities or assets, then, after such event, the Exercise Price reduced to so as to entitle the Holder to the economic interest he had immediately prior to the occurrence of such event. IV.7 In case of any capital reorganization, reclassification of the stock of the Company (other than a change in par value or as a result of a stock dividend, subdivision, split up or combination of shares), the Exercise Price reduced to so as to entitle the Holder to the economic interest he had immediately prior to the occurrence of such event. The provisions of these foregoing sentence shall similarly apply to successive reorganizations, reclassifications, consolidations, exchanges, leases, transfers or other dispositions or other share exchanges. IV.8 Notice of Adjustment. (A) In the event the Company shall propose to take any action which shall result in an adjustment in the Exercise Price, the Company shall give notice to the Holder, which notice shall specify the record date, if any, with respect to such action and the date on which such action is to take place. Such notice shall be given on or before the earlier of 10 days before the record date or the date which such action shall be taken. Such notice shall also set forth all facts (to the extent known) material to the effect of such action on the Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon exercise of this warrant (B) Following completion of an event wherein the Exercise Price shall be adjusted, the Company shall furnish to the Holder a statement, signed by an authorized officer of the Company of the facts creating such adjustment and specifying the resultant adjusted Exercise Price then in effect. ARTICLE V Miscellaneous V.1 Entire Agreement. These Warrants, together with the Loan Agreement, contain the entire agreement between the holder hereof and the Company with respect to the Warrant Shares purchasable upon exercise hereof and the related transactions and supersedes all prior arrangements or understandings with respect thereto. V.2 Governing Law. This warrant shall be governed by and construed in accordance with the laws of the State of Texas in the courts located in Dallas, Texas. 6 V.3 Waiver and Amendment. Any term or provision of these Warrants may be waived at any time by the party which is entitled to the benefits thereof and any term or provision of these Warrants may be amended or supplemented at any time by agreement of the holder hereof and the Company, except that any waiver of any term or condition, or any amendment or supplementation, of these Warrants shall be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of these Warrants shall not in any way effect, limit or waive a party's rights hereunder at any time to enforce strict compliance thereafter with every term or condition of these Warrants. V.4 Illegality. In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of these Warrants shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired. V.5 Copy of Warrant. A copy of these Warrants shall be filed among the records of the Company. V.6 Notice. Any notice or other document required or permitted to be given or delivered to the holder hereof shall be in writing and delivered at, or sent by certified or registered mail to such holder at, the last address shown on the books of the Company maintained at the Warrant Office for the registration of these Warrants or at any more recent address of which the holder hereof shall have notified the Company in writing. V.7 Limitation of Liability; Not Stockholders. No provision of these Warrants shall be construed as conferring upon the holder hereof the right to vote, consent, receive dividends or receive notices (other than as herein expressly provided) in respect of meetings of stockholders for the election of directors of the Company or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of affirmative action by the holder hereof to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the purchase price of any shares of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. V.8 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, mutilation or destruction of these Warrants, and in the case of any such loss, theft or destruction upon delivery of an appropriate affidavit in such form as shall be reasonably satisfactory to the Company and include reasonable indemnification of the Company, or in the event of such mutilation upon surrender and cancellation of these Warrants, the Company will make and deliver new Warrants of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrants. Any Warrants issued under the provisions of this Section in lieu of any Warrants alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrants, shall constitute an original contractual obligation on the part of the Company. These Warrants shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange or replacement. The Company shall pay all taxes (other than securities transfer taxes or income taxes) and all other expenses and charges payable in connection with the preparation, execution and delivery of Warrants pursuant to this Section. 7 V.9 Headings. The Article and Section and other headings herein are for convenience only and are not a part of this Warrant and shall not affect the interpretation thereof. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name dated July 29, 2003 Continental Southern Resources, Inc. /s/ STEPHEN P. HARRINGTON -------------------------------------- Stephen Harrington Title: President Witness 8 SUBSCRIPTION NOTICE The undersigned, the holder of the foregoing Warrants, hereby elects to exercise purchase rights represented thereby for, and to purchase thereunder, shares of the Common Stock covered by such Warrants, and herewith makes payment in full for such shares, and requests (a) that certificates for such shares (and any other securities or other property issuable upon such exercise) be issued in the name of, and delivered to, and (b), if such shares shall not include all of the shares issuable as provided in such Warrants, that new Warrants of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned. Date: ------------------------------- 9 ASSIGNMENT For value received, , hereby sells, assigns and transfers unto these Warrants, together with all rights, title and interest therein, and does irrevocably constitute and appoint attorney, to transfer such Warrants on the books of the Company, with full power of substitution. Date: ------------------------------- 10 FIRST AMENDMENT TO WARRANTS to Purchase Common Stock of Continental Southern Resources, Inc. f/k/a Expressions Graphics, Inc. Expiring on April 30, 2012 Warrant No. 2003-3 To memorialize the prior agreements of the parties, this warrant is hereby amended as follows: 1. The introductory paragraph is hereby deleted in its entirety and replaced with the following: "This Common Stock Purchase Warrant (the "Warrant") certifies that for value received, Trident Growth Fund, LP f/k/a Gemini Capital, L.P. (the "Holder") or its assigns, is entitled to subscribe for and purchase from the Company (as hereinafter defined), in whole or in part, 150,000 shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (as hereinafter defined) at an initial Exercise Price (as hereinafter defined) per share of $2.00, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. The number of Warrants (as hereinafter defined), the number of shares of Common Stock purchasable hereunder, and the Exercise Price therefore are subject to adjustment as hereinafter set forth. These Warrants and all rights hereunder shall expire at 5:00 p.m., Houston, Texas time, April 30, 2012." 2. Section IV.5 is hereby deleted in its entirety and replaced with the following: "Exceptions: The term "Additional Common Stock" herein shall mean in the most broadest sense all shares of Common Stock hereafter issued by the Company (including, but not limited to, Common Stock held in the treasury of the Company and Common Stock purchasable via derivative security or option on the date of such grant), except (i) Common Stock issued upon the exercise of this warrant or any other warrants issued to Holder, (ii) Common Stock issued upon the conversion of the Convertible Notes, (iii) Common Stock issuable or issued to employees, consultants or directors of the Company or its consolidated subsidiaries or other consolidated entities directly or pursuant to a stock option plan, restricted stock plan or other incentive plan approved by the Board of Directors of the Company, (iv) Common Stock issued or issuable in connection with a bona fide business acquisition of or by the Company or its consolidated subsidiaries or other consolidated entities approved by the Board of Directors, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, including Common Stock issued in connection with the Company's proposed acquisition of NSNV, Inc., a Texas corporation ("NSNV"), and Common Stock issued in connection with the payment of an advisory fee payable upon the successful completion of the acquisition of NSNV." All other provisions not modified herein are in full force and effect. 11 For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Holder and the Company have executed this Amendment by its duly authorized signatories, this 26th day of February, 2004. Continental Southern Resources, Inc. /s/ STEPHEN P. HARRINGTON ------------------------------------- Stephen P. Harrington Title: President Trident Growth Fund, L.P. By: Trident Management, LLC, its general partner /s/ SCOTT COOK ------------------------------------- Name: Scott Cook Title: General Partner 12 EX-4.8 10 h13916exv4w8.txt WARRANTS TO PURCHASE COMMON STOCK(WARRANT#2003-1) EXHIBIT 4.8 THE SECURITIES REPRESENTED BY THESE WARRANTS AND THE COMMON STOCK ISSUABLE THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW. THE SECURITIES REPRESENTED BY THESE WARRANTS MAY NOT BE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS. WARRANTS TO PURCHASE COMMON STOCK OF CONTINENTAL SOUTHERN RESOURCES, INC. (A COLORADO CORPORATION) EXPIRING ON APRIL 30, 2012 Warrant No. 2003-1 This Common Stock Purchase Warrant (the "Warrant") certifies that for value received, Trident Growth Fund, L.P. (the "Holder") or its assigns, is entitled to subscribe for and purchase from the Company (as hereinafter defined), in whole or in part, 25,000 shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (as hereinafter defined) at an initial Exercise Price (as hereinafter defined) of $1.60 per share, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. The number of Warrants (as hereinafter defined), the number of shares of Common stock purchasable hereunder, and the Exercise Price therefore are subject to adjustment as hereinafter set forth. These Warrants and all rights hereunder shall expire on the earlier of (i) 5:00 p.m., Houston, Texas time, April 30, 2012 or (ii) the date all of the Convertible Notes issued pursuant to a certain Loan Agreement dated April 30, 2002 are converted to Common Stock (the "Expiration Date"). ARTICLE 1 Definitions As used herein, the following terms shall have the meanings set forth below: 1.1 "Company" shall mean Continental Southern Resources, Inc., a Colorado corporation, and shall also include any successor thereto with respect to the obligations hereunder, by merger, consolidation or otherwise. 1.2 "Common Stock" shall mean and include the Company's common stock, $0.001 par value per share, authorized on the date of the original issue of these Warrants and shall include (i) in case of any reorganization, reclassification, consolidation, merger, share exchange or sale, transfer or other disposition of assets, the stock or other securities provided for herein, and (ii) any other shares of common stock of the Company to which such shares of Common Stock may be converted. 1.3 "Exercise Price" shall mean the initial exercise price of $1.60, as adjusted from time to time pursuant to the provisions hereof. 1.4 "Market Price" for any day, when used with reference to Common Stock, shall mean the price of said Common Stock determined by reference to the last reported sale price for the Common Stock on such day on the principal securities exchange on which the Common Stock is listed or admitted to trading or if no such sale take place on such date, the average of the closing bid and asked prices thereof as officially reported, or, if not so listed or admitted to trading on any securities exchange, the last sale price for the Common Stock on the National Association of Securities Dealers national market system on such date, or, if there shall have been no trading on such date or if the Commons Stock shall not be listed on such systems, the average of the closing bid and asked prices in the over-the-counter market as furnished by any NASD member firm selected from time to time by the Company for such purpose or, if the Common Stock is not traded, then such price as is reasonably determined by the Company's Board of Directors. 1.5 "Warrant" shall mean the right upon exercise to purchase one Warrant Share. 1.6 "Warrant Shares" shall mean the shares of Common Stock purchased or purchasable hereof upon exercise of the Warrants. ARTICLE II Exercise of Warrants 2.1 Method of Exercise. The Warrants represented hereby may be exercised by the holder hereof, in whole or in part, at any time and from time to time on or after the date hereof until 5:00 p.m., Houston, Texas time on the Expiration Date. To exercise the Warrants, the holder hereof shall deliver to the Company, at the Warrant Office designated herein, (i) a written notice in the form of the Subscription Notice attached as an exhibit hereto, stating therein the election of such holder to exercise the Warrants in the manner provided in the Subscription Notice; (ii) payment in full of the Exercise Price (A) in cash or by bank check for all Warrant Shares purchased hereunder, or (B) through a "cashless" or "net-issue" exercise of each such Warrant ("Cashless Exercise"); the holder shall exchange each Warrant subject to a Cashless Exercise for that number of Warrant Shares determined by multiplying the number of Warrant Shares issuable hereunder by a fraction, the numerator of which shall be the difference between (x) the Market Price and (y) the Exercise Price of each such Warrant, and the denominator of which shall be the Market Price; the Subscription Notice shall set forth the calculation upon which the Cashless Exercise is based, of (C) (a combination of (A) and (B) above; and (iiii) these Warrants. The Warrants shall be deemed to be exercised on the date of receipt by the Company of the Subscription Notice, accompanied by payment for the Warrant Shares and surrender of these Warrants, as aforesaid, and such date is referred to herein as the "Exercise Date". Upon such exercise, the Company shall, as promptly as practicable and in any event within five business days, issue and deliver to such holder a certificate or certificates for the full number of the Warrant Shares purchased by such holder hereunder, and shall, unless the Warrants have expired, deliver to the holder hereof a new Warrant representing the number of Warrants, if any, that shall not have been exercised in all other respects identical to these Warrants. As permitted by applicable law, the person in whose name the certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the Exercise Date and shall be entitled to all of the benefits of such holder on the Exercise Date, including without limitation the right to receive dividends and other distributions for which the record date falls on or after the Exercise Date and to exercise voting rights. 2.2 Expenses and Taxes. The Company shall pay all expenses and taxes (including without limitation, all documentary, stamp, transfer or other transactional taxes) other than income taxes attributable to the preparation, issuance or deliver of the Warrants and of the shares of Common Stock issuable upon exercise of the Warrants. 2.3 Reservation of Shares. The Company shall ensure that there is reserved at all times so long as the Warrants remain outstanding, free from preemptive rights, out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the exercise of the Warrants, a sufficient number of shares of Common Stock to provide for the exercise of the Warrants. 2.4 Valid Issuance. All shares of Common Stock that may be issued upon exercise of the Warrants will, upon issuance by the Company, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof and without limiting the generality of the foregoing, the Company shall take no action or fail to take any action which will cause a contrary result (including, without limitation, any action that would cause the Exercise Price to be less than the par value, if any, of the Common Stock). 2.5 Loan Agreement. The Warrants represented hereby were issued pursuant to a waiver of certain requirements and/or covenants contained in a certain Loan Agreement between the Holder and the Company dated April 30, 2002 which was provided by the Holder to the Company. The Holder shall be entitled to the rights to registration under the Securities Act and any applicable state securities or blue sky laws to the extent set forth in the registration rights provision found in the Loan Agreement. The terms of the registration rights provisions are herby incorporated herein for all purposes and shall be considered a part of this Warrant as if they had been fully set forth herein. 2.6 Acknowledgement of Rights. At the time of the exercise of the Warrants in accordance with the terms hereof and upon the written request of the holder hereof, the Company will acknowledge in writing its continuing obligation to afford to such holder any rights (including, without limitation, any right to registration of the Warrant Shares) to which such holder shall continue to be entitled after such exercise in accordance with the provision of these Warrants' provided, however, that if the Holder hereof shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights. 2.7 No Fractional Shares. The Company shall not be required to issued fractional shares of Common Stock on the exercise of these Warrants. If more than one Warrant shall be presented for exercise at the same time by the same holder, the number of full shares of Common Stock which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of whole shares of Common Stock purchasable on exercise of the Warrants so presented. If any fraction of a share of Common Stock would, except for the provisions of this Section, be issuable on the exercise of this Warrant, the Company shall pay an amount in cash calculated by it to be equal to the Market Price of one share of Common stock at the time of such exercise multiplied by such fraction computed to the nearest whole cent. ARTICLE III Transfer 3.1 Warrant Office. The Company shall maintain an office for certain purposes specified herein (the "Warrant Office"), which office shall be the Company's offices to 111 Presidential Boulevard, Suite 158-A, Bala Cynwyd, Pennsylvania 19004 and may subsequently be such other office of the Company or of any transfer agent of the Common Stock in the continental United States as to which written notice has previously been given to the Holder. The Company shall maintain, at the Warrant Office, a register for the Warrants in which the Company shall record the name and address of the Person in whose name these Warrants has been issued, as well as the name and address of each permitted assignee of the rights of the registered owner hereof. 3.2 Ownership of Warrants. The Company may deem and treat the Person in whose name the Warrants are registered as the holder and owner hereof until provided with notice to the contrary. The Warrants may be exercised by an assignee for the purchase of Warrant Shares without having new Warrants issued. 3.3 Restrictions on Transfer of Warrants. These Warrants may be transferred, in whole or in part, by the Holder. The Company agrees to maintain at the Warrant Office books for the registration and transfer of the Warrants. The Company, from time to time, shall register the transfer of the Warrants in such books upon surrender of this Warrant at the Warrant Office properly endorsed or accompanied by appropriate instruments of transfer and written instructions for transfer. Upon any such transfer and upon payment by the holder or its transferee of any applicable transfer taxes, new Warrants shall be issued to the transferee and the transferor (as their respective interests may appear) and the surrendered Warrants shall be cancelled by the Company. The Company shall pay all taxes(other than securities transfer taxes or income taxes) and all other expenses and charges payable in connection with the transfer of the Warrants pursuant to this Section. 3.4 Compliance with Securities Laws. Subject to the terms of the Registration Rights Agreement and notwithstanding any other provisions contained in these Warrants, the Holder understands and agrees that the following restrictions and limitations shall be applicable to all Warrant Shares and to all resales or other transfer thereof pursuant to the Securities Act: 3.4.1 The holder hereof agrees that the Warrant Shares may not be sold or otherwise transferred unless the Warrant Shares are registered under the Securities Act and applicable state securities or blue sky laws or are exempt therefrom. 3.4.2 A legend in substantially the following form will be placed on the certificate(s) evidencing the Warrant Shares: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE; MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS." ARTICLE IV Anti-Dilution 4.1 If and whenever any Additional Common Stock (as herein defined) shares shall be issued by the company (the "Stock Issue Date") for a consideration per share less than the Exercise Price, then in each such case the initial Exercise Price shall be reduced to a new Exercise Price in an amount equal to the consideration per share received by the Company for the additional shares of Common Stock then issued and the number of shares issuable to Holder upon conversion shall be proportionately increased; and, in the case of shares issued without consideration, the initial Exercise Price shall be reduced in an amount and number of shares issued upon conversion shall be increased in an amount so as to maintain for the Holder the right to exercise into shares equal in amount to the same percentage interest in the Common Stock of the Company as existed for the Holder immediately preceding the Stock Issue Date. 4.2 Sale of Shares: In case of the issuance of Additional Common Stock for a consideration part or all of which shall be cash, the amount of the cash consideration therefore shall be deemed to be the amount of the case received by the company for such shares, after any compensation or discount in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services on for any expenses incurred in connection therewith. In case of the issuance of any shares of Additional Common Stock for a consideration part or all of which shall be other than cash, the amount of the consideration therefore, other than cash, shall be deemed to be the then fair market value of the property received as determined by an investment banking firm selected by Lender. 4.3 Reclassification of Shares: In case of the reclassification of securities into shares of Common Stock, the shares of Common Stock issued in such reclassification shall be deemed to have been issued for a consideration other than cash. Shares of Additional Common Stock issued by way of dividend or other distribution on any class of stock of the Company shall be deemed to have been issued without consideration. 4.4 Split up of Combination of Shares: In case issued and outstanding shares of Common Stock shall be subdivided or split up into a greater number of shares of the Common Stock, the Exercise Price shall be proportionately decreased, and in case issued and outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Exercise Price shall be proportionately increased, such increase or decrease, as the case may be, becoming effective at the time of record of the split-up or combination, as the case may be. 4.5 Exceptions: The term "Additional Common Stock" herein shall mean in the most broadest sense all shares of Common Stock hereafter issued by the Company (including, but not limited to Common Stock held in the treasury of the Company and common stock purchasable via derivative security or option on the date of such grant), except Common Stock issued upon the exercise of this warrant or Convertible Notes. 4.6 In the event of distribution to all Common Stock holders of any stock, indebtedness of the Company or assets or other rights to purchase securities or assets, then, after such event, the Exercise Price reduced to so entitle the Holder to the economic interest he had immediately prior to the occurrence of such event. 4.7 In case of any capital reorganization, reclassification of the stock of the Company (other than a change in par value or as a result of a stock dividend, subdivision, split up or combination of shares), the Exercise Price reduced to so as to entitle the Holder to the economic interest he has immediately prior to the occurrence of such event. The provisions of these foregoing sentence shall similarly apply to successive reorganizations, reclassifications, consolidations, exchanges, leases, transfers or other dispositions or other share exchanges. 4.8 Notice of Adjustment. (A) In the event the Company shall propose to take any action which shall result in an adjustment in the Exercise Price, the Company shall give notice to the Holder, which notice shall specify the record date, if any, with respect to such action and the date on which such action is to take place. Such notice shall be given on or before the earlier of 10 days before the record date or the date on which such action shall be taken. Such notice shall also set forth all facts (to the extent known) material to the effect of such action on the Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon exercise of this warrant (B) Following completion of an event wherein the Exercise Price shall be adjusted, the Company shall furnish to the Holder a statement, signed by an authorized officer of the Company of the facts creating such adjustment and specifying the resultant adjusted Exercise Price then in effect. ARTICLE V Miscellaneous 5.1 Entire Agreement. These Warrants, together with the Loan Agreement, contain the entire agreement between the holder and the Company with respect to the Warrant Shares purchasable upon exercise hereof and the related transactions and supersedes all prior arrangements or understanding with respect thereto. 5.2 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Texas in the courts located in Dallas, Texas. 5.3 Waiver and Amendment. Any term or provision of these Warrants may be waived at any time by the party which is entitled to the benefits thereof and any term or provision of these Warrants may be amended or supplemented at any time by agreement of the holder hereof and the Company, except that any waiver of any term or condition, or any amendment or supplementation, of these Warrants shall be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of these Warrant shall not in any way effect, limit or waive a party's rights hereunder at any time to enforce strict compliance thereafter with every term or condition of these Warrants. 5.4 Illegality. In the event that may one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provision of these Warrants shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired. 5.5 Notice. Any notice or other document required or permitted to be given or delivered to the holder hereof shall be in writing and delivered at, or sent by certified or registered mail to such holder at, the last address shown on the books of the Company maintained at the Warrant Office for the registration of these Warrants or at any more recent address of which the holder hereof shall have notified the Company in writing. 5.6 Notice. Any notice or other document required or permitted to be given or delivered to the holder hereof shall be in writing and delivered at, or sent by certified or registered mail to such holder at, the last address shown on the books of the Company maintained at the Warrant Office for the registration of these Warrants or at any more recent address of which the holder hereof shall have notified the Company in writing. 5.7 Limitation of Liability; Note Stockholders. No provision of these Warrants shall be construed as conferring upon the holder hereof the right to vote, consent, receive dividends or receive notices (other than as herein expressly provided) in respect of meetings of stockholders for the election of directors of the Company or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of affirmative action by the holder hereof to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the purchase price of any shares of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 5.8 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, mutilation or destruction of these Warrants, and in the case of any such loss, theft or destruction upon delivery of any appropriate affidavit in such form as shall be reasonably satisfactory to the Company and include reasonable indemnification of the Company, or in the event of such mutilation upon surrender and cancellation of these Warrants, the Company will make and deliver new Warrants of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrants. Any Warrants issued under the provisions of this Section in lieu of any Warrants alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrants, shall constitute an original contractual obligation on the part of the Company. These shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange or replacement. The Company shall pay all taxes (other than securities transfer taxes or income taxes) and all other expenses and charges payable in connection with the preparation, execution and delivery of Warrants pursuant to this Section. 5.9 Headings. The Article and Section and other headings herein are for convenience only and are not a party of this Warrant and shall not affect the interpretation thereof. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name dated March 24,2003. Continental Southern Resources, Inc. By:__________________________________ Stephen P. Harrington, President SUBSCRIPTION NOTICE The undersigned, the holder of the foregoing Warrants, hereby elects to exercise purchase rights represented thereby for, and to purchase thereunder ___________________________ shares of the Common stock covered by such Warrants, and herewith makes payment in full for such shares, and requests (a) that certificates for such shares (and any other securities or other property issuable upon such exercise) be issued in the name of, and delivered to _________________________________________________ and (b), if such shares shall not include all of the shares issuable as provided in such Warrants, that new Warrants of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned. _______________________________ Date:_____________________ ASSIGNMENT For value received, _____________________, hereby sells, assigns and transfers unto ___________________ these Warrants, together with all rights, title and interest therein, and does irrevocably constitute and appoint ___________ attorney, to transfer such Warrants on the books of the Company, with full power of substitution. _______________________________ Date:_____________________ FIRST AMENDMENT TO WARRANTS to Purchase Common Stock of Continental Southern Resources, Inc. (a Nevada Corporation) Expiring on April 30, 2012 Warrant No. 2003-1 To reflect the Company's proper state or incorporation and to memorialize the prior agreements of the parties, this warrant is hereby amended as follows: The introductory and referenced paragraphs are hereby replaced as follows: This Common Stock Purchase Warrant (the "Warrant") certifies that for value received, Trident Growth Fund,. (the "Holder") or its assigns, is entitled to subscribe for and purchase from the Company (as hereinafter defined), in whole or in part, 25,000 shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (as hereinafter defined) at an initial Exercise Price (as hereinafter defined) per share of $1.60, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. The number of Warrants (as hereinafter defined), the number of shares of Common Stock purchasable hereunder, and the Exercise Price therefore are subject to adjustment as hereinafter set forth. These Warrants and all rights hereunder shall expire at 5:00 p.m., Houston, Texas time, April 30, 2012. All other provision not superficially modified herein are in full force and effect. IN WITNESS WHEREOF, the Company has caused this Amendment to be signed in its name dated July 29, 2003. Continental Southern Resources, Inc. /s/ STEPHEN P. HARRINGTON ------------------------------------ Stephen P. Harrington Title: President SECOND AMENDMENT TO WARRANTS to Purchase Common Stock of Continental Southern Resources, Inc. (a Nevada Corporation) Expiring on April 30, 2012 Warrant No. 2003-1 To memorialize the prior agreements of the parties, this warrant is hereby amended as follows: 1. The introductory paragraph is hereby deleted in its entirety and replaced with the following: "This Common Stock Purchase Warrant (the "Warrant") certifies that for value received, Trident Growth Fund,. (the "Holder") or its assigns, is entitled to subscribe for and purchase from the Company (as hereinafter defined), in whole or in part, 25,000 shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (as hereinafter defined) at an initial Exercise Price (as hereinafter defined) per share of $2.00, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. The number of Warrants (as hereinafter defined), the number of shares of Common Stock purchasable hereunder, and the Exercise Price therefore are subject to adjustment as hereinafter set forth. These Warrants and all rights hereunder shall expire at 5:00 p.m., Houston, Texas time, April 30, 2012." 2. Section IV.5 is hereby deleted in its entirety and replaced with the following: "Exceptions: The term "Additional Common Stock" herein shall mean in the most broadest sense all shares of Common Stock hereafter issued by the Company (including, but not limited to, Common Stock held in the treasury of the Company and Common Stock purchasable via derivative security or option on the date of such grant), except (i) Common Stock issued upon the exercise of this warrant or any other warrants issued to Holder, (ii) Common Stock issued upon the conversion of the Convertible Notes, (iii) Common Stock issuable or issued to employees, consultants or directors of the Company or its consolidated subsidiaries or other consolidated entities directly or pursuant to a stock option plan, restricted stock plan or other incentive plan approved by the Board of Directors of the Company, (iv) Common Stock issued or issuable in connection with a bona fide business acquisition of or by the Company or its consolidated subsidiaries or other consolidated entities approved by the Board of Directors, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, including Common Stock issued in connection with the Company's proposed acquisition of NSNV, Inc., a Texas corporation ("NSNV"), and Common Stock issued in connection with the payment of an advisory fee payable upon the successful completion of the acquisition of NSNV." All other provisions not modified herein are in full force and effect. 2 For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Holder and the Company have executed this Amendment by its duly authorized signatories, this 26th day of February, 2004. Continental Southern Resources, Inc. /s/ STEPHEN P. HARRINGTON --------------------------------------- Stephen P. Harrington Title: President Trident Growth Fund, L.P. By: Trident Management, LLC, its general partner /s/ SCOTT COOK --------------------------------------- Name: Scott Cook Title: General Partner 3 EX-10.7 11 h13916exv10w7.txt OPTION TO PURCHASE 200,000 SHARES OF COMMON STOCK EXHIBIT 10.7 AMENDMENT TO OPTION TO PURCHASE COMMON STOCK THIS AMENDMENT (the "Amendment") to the Option to Purchase Common Stock (the "Option"), dated August 4, 2003, issued to Joseph M. Fioravanti (the "Holder") to purchase 200,000 shares of common stock, par value $.001, of Continental Southern Resources, Inc., a Nevada corporation (the "Company"), is made and entered into February 26, 2004. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Option. RECITALS WHEREAS, the parties hereto desire to amend the Option to delete Section 3.3(a). NOW, THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Section 3.3(a) is hereby deleted in its entirety. 2. Except as expressly provided herein, the Option shall remain in full force and effect. 3. This Amendment may be executed in counterpart, each of which shall be deemed to be an original, and both of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, the Holder and the Company have caused this Amendment to be signed by their respective officers hereunto duly authorized, all as of the date first written above. CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ STEPHEN P. HARRINGTON ----------------------------------- Name: Title: /s/ JOSEPH M. FIORAVANTI ---------------------------------------- Joseph M. Fioravanti EX-10.8 12 h13916exv10w8.txt FORM OF AMENDMENT TO PURCHASE COMMON STOCK EXHIBIT 10.8 AMENDMENT TO AMENDED AND RESTATED OPTION TO PURCHASE COMMON STOCK THIS AMENDMENT (the "Amendment") to the Amended and Restated Option to Purchase Common Stock (the "Option"), dated August 8, 2003, issued to ____________________ (the "Holder") to purchase 100,000 shares of common stock, par value $.001, of Continental Southern Resources, Inc., a Nevada corporation (the "Company"), is made and entered into February 26, 2004. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Option. RECITALS WHEREAS, the parties hereto desire to amend the Option to delete Section 3.3(a). NOW, THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Section 3.3(a) is hereby deleted in its entirety. 2. Except as expressly provided herein, the Option shall remain in full force and effect. 3. This Amendment may be executed in counterpart, each of which shall be deemed to be an original, and both of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, the Holder and the Company have caused this Amendment to be signed by their respective officers hereunto duly authorized, all as of the date first written above. CONTINENTAL SOUTHERN RESOURCES, INC. By:__________________________________ Name: Title: ------------------------------------- [Holder] EX-10.10 13 h13916exv10w10.txt LIMITED PARTNERSHIP AGREEMENT OF PHT PARTNERS EXHIBIT 10.10 AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT OF PHT PARTNERS, L.P. DATED AUGUST 14, 2002 AUGUST 27, 2003 AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT OF PHT PARTNERS, L.P. THIS AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT is entered into effective August 21, 2003, by and among PHT GAS, LLC (the "General Partner") and those persons listed as Limited Partners on Exhibit A attached hereto. 1. Exhibit A to the Limited Partnership Agreement dated August 14, 2002 is amended to reflect additional paid-in capital by certain of the Limited Partners. IN WITNESS WHEREOF, the General Partner and Limited Partners have executed this Amendment the date and year above written. GENERAL PARTNER: PHT GAS, LLC By: /s/ MARK A. BUSH ----------------------------------------- Mark A. Bush, Managing Member PARTNERS AS OF AUGUST 27, 2003
CAPITAL PERCENTAGE CONTRIBUTION INTEREST ------------- ---------- LIMITED PARTNERS: BPK Resources, Inc. $ 76,493.00 4.23% 5858 Westheimer Street, Suite 708 Houston, Texas 77057 Continental Southern Resources, Inc. $1,717,607.00 94.77% 111 Presidential Boulevard Suite 158-A Bala Cynwyd, PA 19004 GENERAL PARTNER: PHT Gas LLC 1.0% 5858 Westheimer Street, Suite 708 $ 12,000.00 Houston, Texas 77057
AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT OF PHT PARTNERS, L.P. DATED AUGUST 14, 2002 JUNE 23, 2003 AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT OF PHT PARTNERS, L.P. THIS AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT is entered into effective June 23, 2003, by and among PH GAS, LLC (the "General Partner") and those persons listed as Limited Partners on Exhibit A attached hereto. 1. ARTICLE V. CONTRIBUTIONS TO CAPITAL AND STATUS OF PARTNERS shall be amended at paragraph 5.1 (c) as follows: 5.1 Capital Contributions and Loan Amounts. (c) Additional Capital Contributions. The Partners will be required to make additional contributions to the capital of the Partnership and may at the Limited Partners' discretion loan funds, from time to time, to the Partnership. IN WITNESS WHEREOF, the General Partner and Limited Partners have executed this Amendment the date and year above written. GENERAL PARTNER: PHT GAS, LLC By: /s/ MARK A. BUSH ----------------------------------------- Mark A. Bush, Managing Member LIMITED PARTNERS: CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ STEPHEN P. HARRINGTON --------------------------------- Stephen P. Harrington, President BPK RESOURCES, INC. By: /s/ JOHN B. CONNALLY --------------------------------- John B. Connally, III, President PARTNERS AS OF AUGUST 27, 2003
CAPITAL PERCENTAGE CONTRIBUTION INTEREST ------------- ---------- LIMITED PARTNERS: BPK Resources, Inc. $ 72,665.00 4.23% 5858 Westheimer Street, Suite 708 Houston, Texas 77057 Continental Southern Resources, Inc. $1,629,890.00 94.77% 111 Presidential Boulevard Suite 158-A Bala Cynwyd, PA 19004 GENERAL PARTNER: PHT Gas LLC 1.0% 5858 Westheimer Street, Suite 708 $ 12,000.00 Houston, Texas 77057
AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT OF PHT PARTNERS, L.P. DATED AUGUST 27, 2003 February 26, 2004 AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT OF PHT PARTNERS, L.P. THIS AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT is entered into effective February 26, 2004, by and among PHT Holding GP, LLC (the "General Partner") and those persons listed as Limited Partners on Exhibit A attached hereto. 1. ARTICLE I. DEFINITIONS shall be amended to replace the definition of General Partner and to add the definitions of Other Partners and Converted General Partner as follows: "General Partner" means PHT Holding GP, LLC. "Other Partners" means PHT Holding GP, LLC and all Limited Partners except PHT Gas, LLC. "Converted General Partner" means PHT Gas, LLC. 2. ARTICLE VI. DISTRIBUTIONS; ALLOCATION OF PROFITS AND LOSSES; CAPITAL ACCOUNTS shall be amended at 6.1(a)(i) and (ii) and 6.2(a)(iii) as follows: 6.1 Cash Available for Distribution. (a) Distribution Prior to Liquidation. (i) First , 99 percent to the Other Partners in proportion to and to the extent of their Unreturned Capital Balances and one percent to the Converted Partner until all Unreturned Capital Balances have been reduced to zero; (ii) Then, 80 percent to the Other Partners in proportion to their Percentage Interests and 20 percent to the Converted General Partner. 6.2 Allocation of Profits and Losses. (a) Allocation of Profits. (iii) Then, 75 percent to the Other Partners in proportion to their Percentage Interests and 25 percent to the Converted General Partner. 3. Exhibit A to the Limited Partnership Agreement dated February 26, 2004 is amended to reflect admission of PHT Holding GP, LLC and change in status of PHT Gas, LLC from general partner to limited partner. [SIGNATURE PAGE FOLLOWS] 1 IN WITNESS WHEREOF, the General Partner and Limited Partners have executed this Amendment the date and year above written. GENERAL PARTNER: PHT HOLDING GP, LLC By: /s/ STEPHEN P. HARRINGTON ------------------------------------------ Stephen P. Harrington, Manager LIMITED PARTNERS: CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ STEPHEN P. HARRINGTON ------------------------------------------ Stephen P. Harrington, President PHT GAS, LLC By: /s/ MARK A. BUSH ------------------------------------------ Mark A. Bush, Managing Member BPK RESOURCES, INC. By: ------------------------------------------ John B. Connally, III, President 2 PARTNERS AS OF FEBRUARY 26, 2004 -------------------------------------------------------------------------- CAPITAL PERCENTAGE CONTRIBUTION INTEREST -------------------------------------------------------------------------- LIMITED PARTNERS: -------------------------------------------------------------------------- PHT Gas, LLC $ 12,000.00 1.00% 5858 Westheimer Street, Suite 708 Houston, Texas 77057 -------------------------------------------------------------------------- BPK Resources, Inc. $ 76,493.00 4.23% 5858 Westheimer Street, Suite 708 Houston, Texas 77057 -------------------------------------------------------------------------- Continental Southern Resources, Inc. $1,717,607.00 93.77% 111 Presidential Boulevard Suite 158-A Bala Cynwyd, PA 19004 -------------------------------------------------------------------------- GENERAL PARTNER: -------------------------------------------------------------------------- PHT Holding GP, LLC -- 1.00% 111 Presidential Boulevard Suite 158-A Bala Cynwyd, PA 19004 -------------------------------------------------------------------------- Exhibit A Page 1 EX-10.20 14 h13916exv10w20.txt FORM OF COMMON STOCK WARRANT DATED 10/18/2002 EXHIBIT 10.20 THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS COMMON STOCK PURCHASE WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. THIS COMMON STOCK PURCHASE WARRANT AND SUCH SECURITIES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS COMMON STOCK PURCHASE WARRANT. October __, 2002 FORM OF CONTINENTAL SOUTHERN RESOURCES, INC. COMMON STOCK PURCHASE WARRANT CONTINENTAL SOUTHERN RESOURCES, INC., a Nevada corporation the "Company"), for value received, hereby certifies that Michael Marcus or his registered assigns (the "Holder"), is entitled to purchase from the Company, at any time or from time to time during the period specified in Section 2 hereof, One Hundred Twelve Thousand Five Hundred (112,500) fully paid and nonassessable shares of common stock, par value $.001 per share, of the Company (the "Common Stock"), at an exercise price of $5.00 per share, subject to adjustment hereunder (the "Exercise Price"), and subject to the other terms herein. As used herein, the term "Warrant Shares" means the shares of Common Stock issuable upon exercise of this Common Stock Purchase Warrant (the "Warrant"). This Warrant is subject to the following terms, provisions and conditions: 1. Manner of Exercise: Issuance of Certificates: Payment for Shares. Subject to the provisions hereof, this Warrant shall be exercised by the Holder hereof by the surrender of this Warrant to the Company at the Company's principal executive offices (or such other office of the Company as it may designate by notice to the Holder hereof). The Warrant Shares so purchased shall be deemed to be issued to the Holder hereof or such Holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, and payment shall have been made for such shares as set forth above. Certificates for the Warrant Shares so purchased shall be delivered to the Holder hereof within five business days after this Warrant shall have been so exercised and surrendered to the Company. The certificates so delivered shall be in such denominations as may be reasonably requested by the Holder hereof and shall be registered in the name of such Holder or such other name as such Holder may designate subject to the transfer restrictions herein and upon payment by such holder of any applicable transfer taxes. 2. Period of Exercise. This Warrant is exercisable at any time or from time to time on or after the date first listed above, and before 5:00 p.m., eastern time on the third anniversary of the date hereof (the "Exercise Period"). 3. Certain Agreements of the Company. The Company hereby covenants and agrees as follows: (a) Shares to be Fully Paid. All Warrant Shares shall, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all taxes, liens, and charges with respect to the issue thereof. (b) Reservation of Shares. During the Exercise Period, the Company shall at all times have authorised, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common. Stock to provide for the exercise of this Warrant. (c) Certain Actions Prohibited. The Company shall not, by amendment of its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but shall at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the Holder of this Warrant against impairment, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (d) Successors and Assigns. This Warrant shall be binding upon any entity succeeding to the Company by merger, consolidation, or acquisition of all or substantially all the Company's assets. 4. Antidilution Provisions. During the Exercise Period, the Exercise Price and the number of Warrant Shares shall be subject to adjustment from time to time as provided in this Section 4. (a) Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) the Common Stock into a greater number of shares, then, after the record date for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of Warrant Shares shall be proportionately increased. If the Company at any time combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) the Common Stock into a smaller number of shares, then, after the record date for effecting such combination, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares shall be proportionately decreased. (b) Consolidation, Merger or Sale. In case the Company after the date hereof (a) shall consolidate with or merge into any other entity and shall not be the continuing or surviving corporation of such consolidation or merger, (b) shall permit any other entity to consolidate with or merge into the Company and the Company shall be the continuing or surviving entity but, in connection with such consolidation or merger, all outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other 2 entity or cash or any other property, (c) shall transfer all or substantially all of its properties or assets to any other person or entity, or (d) shall effect a capital reorganization or reclassification of the Common Stock (other than a capital reorganization or reclassification for which adjustment in the Exercise Price is provided in Section 4(a)), then, and in the case of each such transaction, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant, upon the exercise hereof at any time after the consummation of such transaction, shall be entitled to receive (at the aggregate Exercise Price in effect at the time of such consummation for all Common Stock issuable upon such exercise immediately prior to such consummation), in lieu of the Common Stock issuable upon such exercise immediately prior to such consummation, the highest amount of securities, cash or other property to which such Holder would have been entitled as a stockholder upon such consummation if such Holder had exercised this Warrant immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in this Section 4. The Company shall not effect any such consolidation, merger, or sale of assets, or capital reorganization or reclassification unless prior to the consummation thereof, the continuing or surviving corporation (if other than the Company) assumes by written instrument the obligations under this Section 4 and the obligations to deliver to the Holder of this Warrant such securities, cash or other property as, in accordance with the foregoing provisions, the Holder may be entitled to acquire. (c) Distribution of Assets. In case the Company shall declare or make any distribution of its assets to all holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise, other than a dividend payable in shares of Common Stock or in cash out of earnings of the Company, the Holder of this Warrant shall be entitled upon exercise of this Warrant to receive the amount of cash, securities or other property that would have been payable to the Holder had such Holder been the Holder of such shares of Common Stock on the record date for the determination of stockholder entitled to such distribution. (d) Certain Events. In case any event shall occur as to which paragraphs(a), (b) or (c) of this Section 4 are not strictly applicable but the failure to make any adjustment would not fairly protect the rights represented by this Warrant in accordance with the essential intent of such provisions, the Company shall give notice of such event as provided in Section 4(d) and shall make an appropriate adjustment in the Exercise Price and the number of Warrant Shares to preserve, without dilution, the rights represented by this Warrant. 5. No Rights as a Stockholder. Prior to the exercise of this Warrant, the Holder hereof, as such, shall not be entitled to any rights of a stockholder of the Company, including, without limitation, the right to vote, to consent, to exercise any preemptive right, to receive any notice of meetings of stockholders for the election of directors of the Company or any other matter or to receive any notice of any proceedings of the Company, except as may be specifically provided for herein. 6. Transfer, Exchange, and Replacement of Warrant. (a) Restriction on Transfer. The Holder of this Warrant (including any replacement Warrant) acknowledges that this Warrant and any Warrant Shares may not be sold, transferred, assigned or otherwise disposed of unless such securities have been registered under the Securities Act and all applicable state securities laws or are being sold, transferred or 3 assigned pursuant to an applicable exemption under the Securities Act and the Holder of this Warrant shall have delivered an opinion of counsel to the Company stating that an exemption from such registration or qualification is available (such opinion and such counsel to be acceptable to the Company), except for (i) the exercise of this Warrant in accordance with its terms, (ii) pledges to bona fide financial institutions to secure the repayment of indebtedness and (iii) in case of natural persons, transfers to immediate family members or a trust or trusts for the benefit of such family members for estate planning purposes. The Warrant Shares shall be issued with a restrictive legend setting forth the above restrictions on transfer. (b) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, shall execute and deliver, in lieu thereof, a new Warrant of like tenor. (c) Cancellation. Payment of Expenses; Upon the surrender of this Warrant in connection with any transfer or replacement as provided in this Section 6, this Warrant shall be promptly canceled by the Company. The Company shall pay all taxes and all other reasonable expenses (other than legal expenses, if any, incurred by the Holder or transferees) and charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 6. (d) Register. The Company shall maintain, at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder hereof), a register for this Warrant, in which the Company shall record the name, address and social security number of the person in whose name this Warrant has been issued, as well as the name, address and social security number of each transferee and each prior owner of this Warrant. 7. Notices. All notices, requests, and other communications required or permitted to be given or delivered hereunder to the Holder of this Warrant shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to such Holder at the address shown for such Holder on the books of the Company, or at such other address as such Holder shall have furnished to the Company. All notices, requests and other communications required or permitted to be given or delivered hereunder to the Company shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to Continental Southern Resources, Inc., 111 Presidential Boulevard, Suite 158, Bala Cynwyd, PA 19004, or to such other address as the Company shall have furnished to the Holder of this Warrant. Any such notice, request or other communication may be sent by facsimile, but shall in such case be subsequently confirmed by a writing personally delivered or sent by certified or registered mail or by recognized overnight mail courier as provided above. All notices, requests and other communications shall be deemed to have been given either at the time of the receipt thereof at the address specified in this Section 7 or, if mailed by registered or certified mail or with a recognized overnight mail courier, upon deposit with the United States Post Office or such overnight mail courier, postage prepaid and properly addressed. 8. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO ITS OR ANY OTHER JURISDICTION'S CONFLICTS OF LAW. 9. Miscellaneous. (a) Amendments. This Warrant may only be amended by an instrument in writing signed by the Company and the Holder hereof. (b) Headings. The headings of the sections and paragraphs of this Warrant are for reference purposes only, and shall not affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. CONTINENTAL SOUTHERN RESOURCES, INC. By: _________________________________ Stephen P. Harrington President 5 EXHIBIT "C" FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the rights of the undersigned under the within Warrant, with respect to the number of shares of nonvoting common stock covered thereby set forth below to: Name of Assignee Address No. of Shares "C" , and hereby irrevocably constitutes and appoints _______________________ as agent and attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full power of substitution in the premises. Dated:____________, ______, Name:_______________________________________ Signature:__________________________________ Title of Signing Officer or Agent (if any): ____________________________________________ Address:____________________________________ ____________________________________________ NOTE: The above signature should correspond exactly with the name on the face of the within Warrant. AMENDMENT TO COMMON STOCK PURCHASE WARRANT THIS AMENDMENT (the "Amendment") to the Common Stock Purchase Warrant (the "Warrant"), dated October 18, 2002, issued to Michael Marcus (the "Holder") to purchase 112,500 shares of common stock, par value $.001, of Continental Southern Resources, Inc. a Nevada corporation (the "Company"), is made and entered into February 15, 2004. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Warrant. RECITALS WHEREAS, the parties hereto desire to amend the Warrant to provide for the Warrant Exercise Price to be $2.00. NOW, THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. The introductory paragraph is hereby deleted in its entirety and replaced with the following provision: CONTINENTAL SOUTHERN RESOURCES, INC., a Nevada corporation (the "Company"), for value received, hereby certifies that Michael Marcus or his registered assigns (the "Holder"), is entitled to purchase from the Company, at any time or from time to time during the period specified in Section 2 hereof, One Hundred Twelve Thousand Five Hundred (112,500) fully paid and non assessable shares of common stock, par value $.001 per share, of the Company (the "Common Stock"), at an exercise price of $2.00 per share, subject to adjustment hereunder (the "Exercise Price"), and subject to the other terms herein. As used herein, the term "Warrant Shares" means the shares of Common Stock issuable upon exercise of this Common Stock Purchase Warrant (the "Warrant"). 2. Except as expressly provided herein, the Warrant shall remain in full force and effect. 3. This Amendment may be executed in counterpart, each of which shall be deemed to be an original, and both of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, the Holder and the Company have caused this Amendment to be signed by their respective officers hereunto duly authorized, all as of the date fast written above. CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ STEPHEN P. HARRINGTON ---------------------------------- Name: Title: /s/ MICHAEL MARCUS ---------------------------------- Michael Marcus 2 EX-10.21 15 h13916exv10w21.txt PURCHASE AND SALE AGREEMENT 2/26/2004 EXHIBIT 10.21 PURCHASE AND SALE AGREEMENT BY AND BETWEEN CONTINENTAL SOUTHERN RESOURCES, INC. AND CSOR PREFERRED LIQUIDATION, LLC FEBRUARY 26, 2004
TABLE OF CONTENTS 1.1 The Purchase and Sale...........................................................................1 2.1 Closing Date....................................................................................2 2.2 Closing Deliveries..............................................................................3 3.1 Organization and Qualification..................................................................4 3.2 Authorization; Validity and Effect of Agreement.................................................4 3.3 No Conflict; Required Filings and Consents......................................................5 3.4 Investment Intent...............................................................................5 3.5 Brokers and Finders Fees........................................................................6 4.1 Organization and Qualification..................................................................6 4.2 Authorization; Validity and Effect of Agreement.................................................6 4.3 No Conflict; Required Filings and Consents......................................................7 4.4 Brokers and Finders.............................................................................7 5.1 Access to Information...........................................................................7 5.2 Confidentiality; No Solicitation................................................................7 5.3 Best Efforts; Consents..........................................................................8 5.4 Further Assurances..............................................................................9 5.5 Public Announcements............................................................................9 5.6 Notification of Certain Matters.................................................................9 5.7 Prohibition on Trading in Securities...........................................................10 6.1 Mutual Conditions to Obligations of the Company and CSOR Liquidation...........................10 6.2 Conditions to Obligations of CSOR Liquidation..................................................12 6.3 Conditions to Obligations of the Company.......................................................13 7.1 Indemnification by CSOR Liquidation............................................................13 7.2 Indemnification Procedures for Third-Party Claim...............................................14 7.3 Indemnification Procedures for Non-Third Party Claims..........................................15 7.4 Limitations on Indemnification.................................................................15 7.5 Exclusive Remedy...............................................................................15 8.1 Termination....................................................................................16 8.2 Procedure and Effect of Termination............................................................16 9.1 Entire Agreement...............................................................................17 9.2 Amendment and Modifications....................................................................17 9.3 Extensions and Waivers.........................................................................17 9.4 Successors and Assigns.........................................................................17 9.5 Survival of Representations, Warranties and Covenants..........................................18 9.6 Headings; Definitions..........................................................................18 9.7 Severability...................................................................................18 9.8 Specific Performance...........................................................................18 9.9 Expenses.......................................................................................18 9.10 Notices........................................................................................18 9.11 Governing Law..................................................................................19 9.12 Arbitration....................................................................................19 9.13 Counterparts...................................................................................19 9.14 Certain Definitions............................................................................19
i Exhibits 3.1 Certificate of Formation and Operating Agreement of CSOR Preferred Liquidation, LLC 2.2(a)(viii)(a) Form of General Release (Individual) 2.2(a)(viii)(b) Form of General Release (Entity) ii PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (the "Agreement"), is made and entered into this 26th day of February, 2004, by and between CONTINENTAL SOUTHERN RESOURCES, INC. a Nevada corporation (the "Company"), and CSOR PREFERRED LIQUIDATION, LLC, a Delaware limited liability company ("CSOR Liquidation"). RECITALS WHEREAS, the Board of Directors of the Company and the Managers and Members of CSOR Liquidation have approved, and deem it advisable and in the best interests of their respective companies and stockholders or interest holders, as the case may be, to consummate the transactions contemplated hereby upon the terms and subject to the conditions set forth in this Agreement; and WHEREAS, the Company wishes to sell to CSOR Liquidation, and CSOR Liquidation wishes to purchase, certain assets of the Company (the "Asset Purchase") in exchange for all of the shares of Company preferred stock owned (or to be owned) by CSOR Liquidation (the transactions contemplated by this Agreement (other than those set forth in Section 6.1 hereof) are collectively referred to herein as the "Transactions"). NOW, THEREFORE, in consideration of the foregoing premises and representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE I THE PURCHASE AND SALE 1.1 THE PURCHASE AND SALE. (a) Preliminary Transactions. Prior to the Closing (as defined in Section 2.1), CSOR Liquidation shall purchase 4,090,713 shares of the Company Series A Convertible Preferred Stock (the "Series A Convertible Preferred Stock") representing one hundred percent (100%) of the outstanding shares of Series A Preferred Stock and 20,212.23 shares of the Company Series B Convertible Preferred Stock (the "Series B Convertible Preferred Stock"; together with the Series A Convertible Preferred Stock, the "Company Preferred Shares") from the holders thereof, in consideration of which CSOR Liquidation shall issue to such holders membership interests in CSOR Liquidation. (b) The Purchase and Sale. Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, the Company shall sell, and CSOR Liquidation shall purchase, the following assets of the Company (the "Transferred Assets"): (i) One hundred percent (100%) of the Company's ownership interests in BWP Gas, LLC (the "BWP Gas Interests"); (ii) Eight Hundred Sixty-Four Thousand, Five Hundred Sixty (864,560) shares of common stock, $.001 par value per share, of BPK Resources, Inc. ("BPK Resources"; such shares, the "BPK Shares"); (iii) Four Hundred Thousand (400,000) shares of common stock, $.0001 par value per share, of Trimedia Group, Inc. (the "Trimedia Shares"; together with the BWP Gas Interests and the BPK Shares, the "Securities"); (iv) The note receivable due from CSR Hackberry, LLC, dated August 12, 2002, with a principal balance of Twenty-Five Thousand Dollars ($25,000) (the "CSR Hackberry Receivable"); (v) The note receivable due from Snipes, LLC, dated June 27, 2002, and as amended April 11, 2003, and October 30, 2003, in the principal amount of One Hundred Twenty-Two Thousand Five Hundred Dollars ($122,500) (the "Snipes Receivable"); (vi) The subscription receivable due from FEQ Investments, Inc., dated September 30, 2002, in the principal amount of One Hundred Seventy-Five Thousand Dollars ($175,000) (the "FEQ Receivable"); (vii) The subscription receivable due from GWR Trust, dated September 30, 2002, in the principal amount of Two Hundred Fifty Thousand Dollars ($250,000) (the "GWR Receivable"); and (viii) The note receivable due from BPK Resources, dated January 15, 2003, with a principal balance of Six Hundred Seventy Thousand Dollars ($670,000) (the "BPK Receivable"; together with the CSR Hackberry Receivable, the Snipes Receivable, the FEQ Receivable and the GWR Receivable, the "Receivables"). (c) Purchase Price. In consideration for the sale of the Transferred Assets by the Company to CSOR Liquidation and for other covenants and agreements of the Company contained herein, CSOR Liquidation shall transfer and convey to the Company, free and clear of all Liens, the Company Preferred Shares. ARTICLE II THE CLOSING 2.1 CLOSING DATE. The closing of the Transactions (the "Closing") shall take place at a time and on a date to be specified by the parties (the "Closing Date") at the offices of Spector Gadon & Rosen, P.C., 1635 Market Street, Philadelphia, Pennsylvania 19103, or at such other place as may be mutually agreed upon in writing by the parties hereto. 2 2.2 CLOSING DELIVERIES. (a) At the Closing, CSOR Liquidation shall deliver or cause to be delivered to the Company the following documents: (i) Stock certificates evidencing all of the shares of Company Preferred Shares duly endorsed for transfer or accompanied by duly executed stock powers; (ii) Any outstanding shareholder agreements relating to the Company Preferred Shares; (iii) The certificate described in Section 6.3(c); (iv) An incumbency certificate signed by the Manager of CSOR Liquidation dated at or about the Closing Date; (v) A certificate of good standing from the Secretary of State of the State of Delaware, dated at or about the Closing Date, to the effect that CSOR Liquidation is in good standing under the laws of said state; (vi) Certificate of Formation of CSOR Liquidation certified by the Secretary of State of the State of Delaware at or about the Closing Date and the Operating Agreement of CSOR Liquidation certified by the Manager of CSOR Liquidation at or about the Closing Date; (vii) Manager resolutions and, if required under CSOR Liquidation's formation documents or applicable Delaware law, Member resolutions, of CSOR Liquidation dated at or about the Closing Date authorizing the Transactions, certified by the Manager of CSOR Liquidation; (viii) General releases executed by CSOR Liquidation and each of the Members, which releases shall be substantially in the form attached hereto as Exhibit 2.2(a)(viii)(a), in the case of Members who are individuals, and Exhibit 2.2(a)(viii)(b), in the case of CSOR Liquidation and Members who are entities; and (ix) Such other documents, instruments and consents required to consummate the Transactions and to comply with the terms hereof. (b) At the Closing, the Company shall deliver or cause to be delivered to CSOR Liquidation the following documents: (i) Certificates evidencing all of the Securities duly endorsed for transfer or accompanied by duly executed stock powers; (ii) Agreements evidencing the assignment of the Receivables to CSOR Liquidation; 3 (iii) The certificate described in Section 6.2(c); (iv) An incumbency certificate signed by all of the executive officers of the Company dated at or about the Closing Date; (v) A certificate of good standing from the Secretary of State of the State of Nevada, dated at or about the Closing Date, to the effect that the Company is in good standing under the laws of said state; (vi) Board resolutions of the Company dated at or about the Closing Date authorizing the Transactions, certified by the Secretary of the Company; and (vii) Such other documents, instruments and consents required to consummate the Transactions and to comply with the terms hereof. (b) Each of the parties to this Agreement shall have otherwise executed whatever documents and agreements, provided whatever consents or approvals and shall have taken all such other actions as are required under this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF CSOR LIQUIDATION CSOR Liquidation hereby makes the following representations and warranties to the Company. 3.1 ORGANIZATION AND QUALIFICATION. CSOR Liquidation is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, with full power and authority to own and operate its businesses as presently conducted, except where the failure to be or have any of the foregoing would not have a Material Adverse Effect. CSOR Liquidation is duly qualified as a foreign entity to do business and is in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not, individually or in the aggregate, have a Material Adverse Effect. CSOR Liquidation has no subsidiaries. True, correct and complete copies of the Certificate of Formation and Operating Agreement of CSOR Liquidation, as amended the date, are attached hereto as Exhibit 3.1. 3.2 AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENT. CSOR Liquidation has the requisite power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the Transactions. The execution and delivery of this Agreement by CSOR Liquidation and the performance by CSOR Liquidation of its obligations hereunder and the consummation of the Transactions have been duly authorized by its Managers and Members and all other necessary company action on the part of CSOR Liquidation and no other company proceedings on the part of CSOR Liquidation are 4 necessary to authorize this Agreement and the Transactions. This Agreement has been duly and validly executed and delivered by CSOR Liquidation and, assuming that it has been duly authorized, executed and delivered by the other parties hereto, constitutes a legal, valid and binding obligation of CSOR Liquidation, enforceable against it in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 3.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Neither the execution and delivery of this Agreement by CSOR Liquidation nor the performance by CSOR Liquidation of its obligations hereunder, nor the consummation of the Transactions, will: (i) conflict with CSOR Liquidation's Certificate of Formation or Operating Agreement; (ii) violate any statute, law, ordinance, rule or regulation applicable to CSOR Liquidation or any of the properties or assets of CSOR Liquidation; or (iii) violate, breach, be in conflict with or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of CSOR Liquidation under, or result in the creation or imposition of any Liens upon any properties, assets or business of CSOR Liquidation under, any material contract or any order, judgment or decree to which CSOR Liquidation is a party or by which CSOR Liquidation or any of its assets or properties is bound or encumbered except, in the case of clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a Material Adverse Effect or would not prevent the consummation of this Agreement or the Transactions. 3.4 INVESTMENT INTENT. The BWP Gas Interests and the BPK Shares (the "Restricted Securities") being acquired in connection with the Transactions are being acquired for CSOR Liquidation's own account for investment purposes only and not with a view to, or with any present intention of, distributing or reselling any of such Restricted Securities. CSOR Liquidation acknowledges and agrees that the Restricted Securities have not been registered under the Securities Act or under any state securities laws, and that the Restricted Securities may not be, directly or indirectly, sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and applicable state securities laws, except pursuant to an available exemption from such registration. CSOR Liquidation also acknowledges and agrees that neither the SEC nor any securities commission or other Governmental Authority has (a) approved the transfer of the Restricted Securities or passed upon or endorsed the merits of the transfer of the Restricted Securities, this Agreement or the Transactions; or (b) confirmed the accuracy of, determined the adequacy of, or reviewed this Agreement. CSOR Liquidation has such knowledge, sophistication and experience in financial, tax and business matters in general, and investments in securities in particular, that it is capable of evaluating the merits and risks of this investment in the Restricted Securities, and CSOR Liquidation has made such investigations in connection herewith as it deemed necessary or desirable so as to make an informed investment 5 decision without relying upon the Company for legal or tax advice related to this investment. Each of the Members of CSOR Liquidation is an "accredited investor" within the meaning of Rule 501 promulgated under the Securities Act. 3.5 BROKERS AND FINDERS FEES. Neither CSOR Liquidation nor any of its officers, directors, employees or managers has employed any broker or finder or incurred any liability for any investment banking fees, brokerage fees, commissions or finders fees in connection with the Transactions for which CSOR Liquidation has or could have any liability. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby makes the following representations and warranties to CSOR Liquidation: 4.1 ORGANIZATION AND QUALIFICATION. The Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of its organization, with the corporate power and authority to own and operate its business as presently conducted, except where the failure to be or have any of the foregoing would not have a Material Adverse Effect. The Company is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not have a Material Adverse Effect. 4.2 AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENT. The Company has the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the Transactions. The execution and delivery of this Agreement by the Company and the performance by the Company of its obligations hereunder and the consummation of the Transactions have been duly authorized by its Board of Directors and all other necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement and the Transactions. This Agreement has been duly and validly executed and delivered by the Company and, assuming that it has been duly authorized, executed and delivered by the other parties hereto, constitutes a legal, valid and binding obligation of the Company, in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 6 4.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Neither the execution and delivery of the Agreement by the Company nor the performance by the Company of its obligations hereunder, nor the consummation of the Transactions, will: (i) conflict with the Company's Articles of Incorporation or Bylaws; (ii) violate any statute, law, ordinance, rule or regulation, applicable to the Company or any of the properties or assets of the Company; or (iii) violate, breach, be in conflict with or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of the Company, or result in the creation or imposition of any Lien upon any properties, assets or business of the Company under, any material contract or any order, judgment or decree to which the Company is a party or by which it or any of its assets or properties is bound or encumbered except, in the case of clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a material adverse effect on its obligation to perform its covenants under this Agreement. 4.4 BROKERS AND FINDERS. Neither the Company nor any of its officers, directors, employees or managers has employed any broker or finder or incurred any liability for any investment banking fees, brokerage fees, commissions or finders' fees in connection with the Transactions for which the Company has or could have any liability. ARTICLE V CERTAIN COVENANTS 5.1 ACCESS TO INFORMATION. At all times prior to the Closing or the earlier termination of this Agreement in accordance with the provisions of Article VIII, and in each case subject to Section 5.2 below, each party hereto shall provide to the other party (and the other party's authorized representatives) reasonable access during normal business hours and upon reasonable prior notice to the premises, properties, books, records, assets, liabilities, operations, contracts, personnel, financial information and other data and information of or relating to such party (including without limitation all written proprietary and trade secret information and documents, and other written information and documents relating to intellectual property rights and matters), and will cooperate with the other party in conducting its due diligence investigation of such party, provided that the party granted such access shall not interfere unreasonably with the operation of the business conducted by the party granting access, and provided that no such access need be granted to privileged information or any agreements or documents subject to confidentiality agreements. 7 5.2 CONFIDENTIALITY; NO SOLICITATION. (a) Confidentiality. Each party shall hold, and shall cause its respective Affiliates and representatives to hold, all Confidential Information made available to it in connection with the transactions contemplated under this Agreement in strict confidence, shall not use such information except for the sole purpose of evaluating the Transactions and shall not disseminate or disclose any of such information other than to its directors, officers, managers, employees, shareholders, interest holders, Affiliates, agents and representatives, as applicable, who need to know such information for the sole purpose of evaluating the Transactions and with respect to representatives, advisors and Affiliates of the Persons involved in the transactions described in Section 6.1, including potential investors in the contemplated private offering of the Company's common stock, par value $.001 per share ("Common Stock") (each of whom shall be informed in writing by the disclosing party of the confidential nature of such information and directed by such party in writing to treat such information confidentially). If this Agreement is terminated pursuant to the provisions of Article VIII, each party shall immediately return to the other party all such information, all copies thereof and all information prepared by the receiving party based upon the same. The above limitations on use, dissemination and disclosure shall not apply to Confidential Information that (i) is learned by the disclosing party from a third party entitled to disclose it; (ii) becomes known publicly other than through the disclosing party or any third party who received the same from the disclosing party, provided that the disclosing party had no Knowledge that the disclosing party was subject to an obligation of confidentiality; (iii) is required by law or court order to be disclosed by the parties; or (iv) is disclosed with the express prior written consent thereto of the other party. The parties shall undertake all necessary steps to ensure that the secrecy and confidentiality of such information will be maintained in accordance with the provisions of this subsection (a). Notwithstanding anything contained herein to the contrary, in the event a party is required by court order or subpoena to disclose information which is otherwise deemed to be confidential or subject to the confidentiality obligations hereunder, prior to such disclosure, the disclosing party shall: (i) promptly notify the non-disclosing party and, if having received a court order or subpoena, deliver a copy of the same to the non-disclosing party; (ii) cooperate with the non-disclosing party, at the expense of the non-disclosing party, in obtaining a protective or similar order with respect to such information; and (iii) provide only that amount of information as the disclosing party is advised by its counsel is necessary to strictly comply with such court order or subpoena. (b) No Solicitation. Except as otherwise contemplated in this Agreement, CSOR Liquidation shall not, directly or indirectly, solicit any inquiries or proposals for, or enter into or continue or resume any discussions with respect to or enter into any negotiations or agreements relating to the sale or exchange of the Company Preferred Shares. CSOR Liquidation shall promptly notify the Company if any such proposal or offer, or any inquiry or contact with any Person or entity with respect thereto, is made. 5.3 BEST EFFORTS; CONSENTS. Subject to the terms and conditions herein provided, each of the Company and CSOR Liquidation agrees to use all reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate 8 and make effective as promptly as practicable the transactions contemplated under this Agreement and to cooperate with the others in connection with the foregoing, including using its reasonable efforts to (i) obtain all waivers, consents and approvals from other parties to loan agreements, leases, mortgages and other contracts necessary for the consummation of the Transactions, (ii) make all filings with, and obtain all consents, approvals and authorizations that are required to be obtained from, Governmental Authorities, (iii) lift or rescind any injunction, restraining order, decree or other order adversely affecting the ability of the parties hereto to consummate such transactions, (iv) effect all necessary registrations and filings and submissions of information requested by Governmental Authorities, and (v) fulfill all conditions to this Agreement. Each of the Company and CSOR Liquidation shall use all reasonable efforts to prevent the entry, enactment or promulgation of any threatened or pending preliminary or permanent injunction or other order, decree or ruling or statute, rule, regulation or executive order that would adversely affect the ability of the parties hereto to consummate such transactions. 5.4 FURTHER ASSURANCES. Subject to Section 5.3, each of the parties hereto agrees to use its reasonable best efforts before and after the Closing Date to take or cause to be taken all action, to do or cause to be done, and to assist and cooperate with the other party hereto in doing, all things necessary, proper or advisable under applicable laws to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated under this Agreement, including, but not limited to (i) the satisfaction of the conditions precedent to the obligations of any of the parties hereto; (ii) to the extent consistent with the obligations of the parties set forth in Section 5.3, the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the performance of the obligations hereunder; and (iii) the execution and delivery of such instruments, and the taking of such other actions, as the other party hereto may reasonably require in order to carry out the intent of this Agreement. 5.5 PUBLIC ANNOUNCEMENTS. The Company and CSOR Liquidation shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereunder, and shall not issue any other press release or make any other public statement without prior consent of the other parties, except as may be required by law or, with respect to the Company, by obligations pursuant to rule or regulation of the Exchange Act, the Securities Act, any rule or regulation promulgated thereunder or any rule or regulation of the National Association of Securities Dealers. 5.6 NOTIFICATION OF CERTAIN MATTERS. Each party hereto shall promptly notify the other party in writing of any events, facts or occurrences that would result in any breach of any representation or warranty or breach of any covenant by such party contained in this Agreement. 9 5.7 PROHIBITION ON TRADING IN SECURITIES. CSOR Liquidation acknowledges that information concerning the matters that are the subject matter of this Agreement may constitute material non-public information under United States federal securities laws, and that United States federal securities laws prohibit any Person who has received material non-public information relating to the Company from purchasing or selling securities of the Company, or from communicating such information to any Person under circumstances in which it is reasonably foreseeable that such Person is likely to purchase or sell securities of the Company. Accordingly, until such time as any such non-public information has been adequately disseminated to the public, CSOR Liquidation shall not purchase or sell any securities of the Company, or communicate such information to any other Person. 5.8 PREFERRED STOCK CSOR Liquidation covenants and agrees that, on or prior to the Closing Date: (a) CSOR Liquidation shall (i) have good and marketable title to all of the Company Preferred Shares and (ii) be the sole record and beneficial owner of all of the Company Preferred Shares, free and clear of any Liens; (b) With the exception of this Agreement, there shall be no outstanding (i) options, warrants, agreements, conversion rights, preemptive rights, or other rights to purchase or otherwise acquire any Company Preferred Shares, or (ii) obligations of any Person to purchase, redeem or otherwise acquire any Company Preferred Shares; and (c) There shall be no (i) voting trusts or other agreements or understandings to which CSOR Liquidation shall be a party with respect to the voting of the Company Preferred Shares, or (ii) indebtedness of CSOR Liquidation having general voting rights issued and outstanding. ARTICLE VI CONDITIONS TO CONSUMMATION OF THE TRANSACTION 6.1 MUTUAL CONDITIONS TO OBLIGATIONS OF THE COMPANY AND CSOR LIQUIDATION. The obligations of the Company and CSOR Liquidation to consummate the Transactions shall be subject to the fulfillment, or written waiver by each of the Company and CSOR Liquidation, at or prior to the Closing, of each of the following conditions: (a) Trident Growth Fund, L.P. ("Trident") shall receive (i) an aggregate of approximately 375,000 shares of Common Stock in full satisfaction and release of all amounts, liabilities and obligations due and owing by Parent to Trident under that certain First Amended Loan Agreement between the Company and Trident, the First Amended Security Agreement between the Company and Trident and the 6% Secured Convertible Promissory Note in the 10 principal amount of $600,000, all dated July 29, 2003 (collectively, the "Trident 2003 Loan Documents"), and (ii) $1,500,000 cash, payable in good funds, in full satisfaction and release of all amounts, liabilities and obligations due and owing by the Company to Trident under that certain Loan Agreement between the Company and Trident, the Security Agreement between the Company and Trident and the 12% Secured Convertible Promissory Note in the principal amount of $1,500,000, all dated April 5, 2002 (the "Trident 2002 Loan Documents," and together with the Trident 2003 Loan Documents, the "Trident Loan Documents"). In connection with the foregoing, Trident shall deliver and surrender to the Company (i) the original promissory notes issued by the Company in connection with the Trident Loan Documents, (ii) a release of the Company from any and all obligations under the Trident Loan Documents, and (iii) any other documentation necessary to facilitate the termination and release of all Liens on any asset of the Company; (b) Michael P. Marcus ("Marcus") shall convert the full $1,550,000 principal amount due under the 12% convertible promissory notes issued by the Company to Marcus, dated October 18 and 30, 2002, and all accrued interest due thereunder, into shares of Common Stock. In connection with the foregoing, Marcus shall deliver and surrender to the Company (i) the original promissory notes issued by the Company in connection with the underlying loan documents, (ii) a release of the Company from any and all obligations under the underlying loan documents, and (iii) any other documentation necessary to facilitate the termination and release of all Liens on any asset of the Company; (c) The holders of all of the Company's outstanding shares of Series C Convertible Preferred Stock (the "Series C Preferred Stock") shall enter into an agreement with the Company, pursuant to which, on or prior to Closing, they will convert their shares of Series C Preferred Stock, and waive certain registration rights and other rights of such holders under such agreements; (d) The Company, CSOR Acquisition Corp. and NSNV, Inc. ("North Sea") shall enter into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which, on or prior to Closing, North Sea shall merge with and into CSOR Acquisition Corp., with the separate corporate existence of North Sea ceasing and CSOR Acquisition Corp. continuing as the surviving corporation (the "Merger"); (e) The Company shall purchase from RAM Trading Limited all of the shares of Series B Convertible Preferred Stock currently owned by Lancer Offshore, Inc. and approximately 14,100,000 shares of Common Stock currently owned by Lancer Offshore, Inc. and Lancer Partners, L.P.; (f) The Company shall complete a private offering of Common Stock for a minimum of $35,000,000 of gross proceeds (the "Equity Offering"); (g) The Company shall have entered into employment agreements with each of William L. Transier and John N. Seitz; 11 (h) The Company shall purchase the limited partnership interest in Knox-Miss Partners, L.P. held by RAM Trading, Inc.; (i) No domestic or foreign governmental or regulatory agency, authority, bureau, commission, department, official or similar body or instrumentality thereof, or any governmental court, arbitral tribunal located or having jurisdiction in the United States shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, decree, judgment, injunction or other order, whether temporary, preliminary or permanent which is then in effect and has the effect of making the Closing illegal or otherwise prohibiting consummation of the Closing; provided, that the parties use reasonable commercial efforts to challenge any decree, judgment or injunction or other order that is not final and non-applicable, but in no event will any party be required to expend in excess of $10,000 [SEEMS LOW] with respect to such challenge; and (j) There shall not be pending, instituted or threatened by any Person or Governmental Authority any suit, action, investigation or proceeding seeking to (i) alter, prevent, materially delay, restrain or prohibit the consummation of the Merger, the Equity Offering or the other transactions contemplated by this Agreement, (ii) obtain from the Company any damages that would have, or could reasonably be expected to have, a Material Adverse Effect on the Company, or (iii) seeking to prohibit or limit the ownership or operation by the Company of its businesses or assets in a manner that would have, or could reasonably be expected to have, a Material Adverse Effect on the Company. 6.2 CONDITIONS TO OBLIGATIONS OF CSOR LIQUIDATION. The obligations of CSOR Liquidation to consummate the Transactions shall be subject to the fulfillment, or written waiver by CSOR Liquidation, at or prior to the Closing, of each of the following conditions: (a) The representations and warranties of the Company set out in this Agreement shall be true and correct in all material respects at and as of the time of the Closing as though such representations and warranties were made at and as of such time; (b) The Company shall have performed and complied in all material respects with all covenants, conditions, obligations and agreements required by this Agreement to be performed or complied with by the Company on or prior to the Closing Date; (c) There shall be delivered to CSOR Liquidation an officer's certificate of the Company to the effect that the conditions set forth in Section 6.2(a) and (b) have been satisfied; and (d) The Company shall have made all the deliveries required of the Company under Section 2.2(a). 12 6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate the Transactions shall be subject to the fulfillment, or written waiver by the Company, at or prior to the Closing of each of the following conditions: (a) The representations and warranties of CSOR Liquidation set out in this Agreement shall be true and correct in all material respects at and as of the time of the Closing as though such representations and warranties were made at and as of such time; (b) CSOR Liquidation shall have performed and complied in all material respects with all covenants, conditions, obligations and agreements required by this Agreement to be performed or complied with by CSOR Liquidation on or prior to the Closing Date, except that CSOR Liquidation shall have performed and complied in all respects with the covenants, conditions, obligations and agreements contained in Section 5.8; (c) There shall be delivered to the Company a certificate of the Manager of CSOR Liquidation to the effect that the conditions set forth in Section 6.2(a) and (b) hereof have been satisfied; (d) CSOR Liquidation shall have made all the deliveries required of CSOR Liquidation under Section 2.2(b); and (e) The Company shall have completed a due diligence review of the business, operations, financial condition and prospects of CSOR Liquidation and shall have been satisfied with the results of its due diligence review in its sole and absolute discretion. ARTICLE VII INDEMNIFICATION 7.1 INDEMNIFICATION BY CSOR LIQUIDATION. From and after the Closing Date, CSOR Liquidation shall indemnify and hold harmless the Company and its respective officers and directors (each an "Indemnified Party"), from and against any and all demands, claims, actions or causes of action, judgments, assessments, losses, liabilities, damages or penalties and reasonable attorneys' fees and related disbursements (collectively, "Claims") suffered by such Indemnified Party resulting from or arising out of (i) any inaccuracy in or breach of any of the representations or warranties made by CSOR Liquidation herein, in any certificate, or in any other document delivered herewith or otherwise required hereby at the time they were made, and, except for representations and warranties that speak as of a specific date or time (which need only be true and correct as of such date or time), on and as of the Closing Date, (ii) any breach or nonfulfillment of any covenants or agreements made by CSOR Liquidation, and (iii) any misrepresentation made by CSOR Liquidation, in each case as made herein or in the Exhibits annexed hereto or in any closing 13 certificate, schedule or any ancillary certificates or other documents or instruments furnished by CSOR Liquidation pursuant hereto or in connection with the Transactions. 7.2 INDEMNIFICATION PROCEDURES FOR THIRD-PARTY CLAIM. (a) Upon obtaining Knowledge of any Claim by a third party which has given rise to, or is expected to give rise to, a claim for indemnification hereunder, the Company shall give written notice ("Notice of Claim") of such claim or demand to CSOR Liquidation, specifying in reasonable detail such information as the Indemnified Party may have with respect to such indemnification claim (including copies of any summons, complaint or other pleading which may have been served on it and any written claim, demand, invoice, billing or other document evidencing or asserting the same). Subject to the limitations set forth in Section 7.2(b) hereof, no failure or delay by the Company in the performance of the foregoing shall reduce or otherwise affect the obligation of CSOR Liquidation to indemnify and hold the Indemnified Party harmless, except to the extent that such failure or delay shall have actually adversely affected CSOR Liquidation's ability to defend against, settle or satisfy any Claims for which the Indemnified Party entitled to indemnification hereunder. (b) If the claim or demand set forth in the Notice of Claim given by the Company pursuant to Section 7.2(a) hereof is a claim or demand asserted by a third party, CSOR Liquidation shall have fifteen (15) days after the date on which Notice of Claim is given to notify the Company in writing of its election to defend such third party claim or demand on behalf of the Indemnified Party. If CSOR Liquidation elects to defend such third party claim or demand, the Company shall make available to CSOR Liquidation and its agents and representatives all records and other materials that are reasonably required in the defense of such third party claim or demand and shall otherwise cooperate with, and assist CSOR Liquidation in the defense of, such third party claim or demand, and so long as CSOR Liquidation is defending such third party claim in good faith, the Indemnified Party shall not pay, settle or compromise such third party claim or demand. If CSOR Liquidation elects to defend such third party claim or demand, the Indemnified Party shall have the right to participate in the defense of such third party claim or demand, at such Indemnified Party's own expense. In the event, however, that such Indemnified Party reasonably determines that representation by counsel to CSOR Liquidation of both CSOR Liquidation and such Indemnified Party could reasonably be expected to present counsel with a conflict of interest, then the Indemnified Party may employ separate counsel to represent or defend it in any such action or proceeding and CSOR Liquidation will pay the fees and expenses of such counsel. If CSOR Liquidation does not elect to defend such third party claim or demand or does not defend such third party claim or demand in good faith, the Indemnified Party shall have the right, in addition to any other right or remedy it may have hereunder, at CSOR Liquidation's expense, to defend such third party claim or demand; provided, however, that (i) such Indemnified Party shall not have any obligation to participate in the defense of, or defend, any such third party claim or demand; (ii) such Indemnified Party's defense of or its participation in the defense of any such third party claim or demand shall not in any way diminish or lessen the obligations of CSOR Liquidation under the agreements of indemnification set forth in this Article VII; and (iii) such Indemnified Party may not settle any claim without the consent of CSOR Liquidation, which consent shall not be unreasonably withheld or delayed. 14 (c) CSOR Liquidation and the Company and the other Indemnified Party, if any, shall cooperate fully in all aspects of any investigation, defense, pre-trial activities, trial, compromise, settlement or discharge of any claim in respect of which indemnity is sought pursuant to this Article VII, including, but not limited to, by providing the other party with reasonable access to employees and officers (including as witnesses) and other information. (d) Except for third party claims being defended in good faith, CSOR Liquidation shall satisfy its obligations under this Article VII in respect of a valid claim for indemnification hereunder which is not contested by CSOR Liquidation in good faith in cash within thirty (30) days after the date on which Notice of Claim is given. 7.3 INDEMNIFICATION PROCEDURES FOR NON-THIRD PARTY CLAIMS. In the event any Indemnified Party should have an indemnification claim against CSOR Liquidation under this Agreement that does not involve a claim by a third party, the Indemnified Party shall promptly deliver notice of such claim to CSOR Liquidation in writing and in reasonable detail. The failure by any Indemnified Party to so notify CSOR Liquidation shall not relieve CSOR Liquidation from any liability that it may have to such Indemnified Party, except to the extent that CSOR Liquidation has been actually prejudiced by such failure. If CSOR Liquidation does not notify the Indemnified Party within fifteen (15) Business Days following its receipt of such notice that CSOR Liquidation disputes such claim, such claim specified by CSOR Liquidation in such notice shall be conclusively deemed a liability of CSOR Liquidation under this Article VII and CSOR Liquidation shall pay the amount of such liability to the Indemnified Party on demand, or in the case of any notice in which the amount of the claim is estimated, on such later date when the amount of such claim is finally determined. If CSOR Liquidation disputes its liability with respect to such claim in a timely manner, CSOR Liquidation and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations, such dispute shall be submitted to arbitration pursuant to Section 9.12. 7.4 LIMITATIONS ON INDEMNIFICATION. No claim for indemnification under this Article VII shall be asserted by, and no liability for such indemnify shall be enforced against, CSOR Liquidation to the extent the Indemnified Party has theretofore received indemnification or otherwise been compensated for such Claim. In the event that an Indemnified Party shall later collect any such amounts recovered under insurance policies with respect to any Claim for which it has previously received payments under this Article VII from CSOR Liquidation, such Indemnified Party shall promptly repay to CSOR Liquidation such amount recovered. 7.5 EXCLUSIVE REMEDY. The indemnification provisions of this Article VII (i) shall be the exclusive remedy following the Closing with respect to breaches thereof, (ii) shall apply without regard to, and shall not be subject to, any limitation by reason of set-off, limitation or otherwise and (iii) are intended to be comprehensive and not to be limited by any requirements of law concerning 15 prominence of language or waiver of any legal right under any law (including, without limitation, rights under any workers compensation statute or similar statute conferring immunity from suit). The obligations of the parties set forth in this Article VII shall be conditioned upon the Closing having occurred. ARTICLE VIII TERMINATION 8.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing: (a) by mutual consent of the Company and CSOR Liquidation; (b) by the Company or CSOR Liquidation if any Governmental Authority shall have issued an injunction, order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting any material portion of the Transactions and such injunction, order, decree, ruling or other action shall have become final and nonappealable; (c) by the Company or CSOR Liquidation upon written notice to the other party if any of the conditions to the Closing set forth in Section 6.1 shall have become incapable of fulfillment by [APRIL 30, 2004], and shall not have been waived in writing by the Company or CSOR Liquidation, respectively; (d) by the Company upon written notice to CSOR Liquidation if any of the conditions to the Closing set forth in Section 6.3 shall have become incapable of fulfillment by [APRIL 30, 2004], and shall not have been waived in writing by the Company; or (e) by CSOR Liquidation upon written notice to the Company if any of the conditions to the Closing set forth in Section 6.2 shall have become incapable of fulfillment and shall not have been waived in writing by CSOR Liquidation. 8.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination of this Agreement pursuant to Section 8.1 hereof, written notice thereof shall forthwith be given by the terminating party to the other party, and, except as set forth below, this Agreement shall terminate and be void and have no effect and the Transactions shall be abandoned without any further action by the parties hereto; provided that, if such termination shall result from the failure of a party to perform a covenant, obligation or agreement in this Agreement or from the breach by the Company or CSOR Liquidation of any representation or warranty contained herein, such party shall be fully liable for any and all damages incurred or suffered by the other party as a result of such failure or breach. If this Agreement is terminated as provided herein: (a) each party hereto shall redeliver, and shall cause its agents (including, without limitation, attorneys and accountants) to redeliver, all documents, work papers and other 16 material of each party hereto relating to the Transactions, whether obtained before or after the execution hereof; and (b) each party agrees that all Confidential Information received by the Company or CSOR Liquidation with respect to the other party, this Agreement or the transactions contemplated hereunder (including those set forth in Section 6.1) shall be kept confidential notwithstanding the termination of this Agreement. ARTICLE IX MISCELLANEOUS 9.1 ENTIRE AGREEMENT. This Agreement and the Schedules and Exhibits hereto contain the entire agreement between the parties and supercede all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 9.2 AMENDMENT AND MODIFICATIONS. This Agreement may not be amended, modified or supplemented except by an instrument or instruments in writing signed by the party against whom enforcement of any such amendment, modification or supplement is sought. 9.3 EXTENSIONS AND WAIVERS. At any time prior to the Closing, the parties hereto entitled to the benefits of a term or provision may (a) extend the time for the performance of any of the obligations or other acts of the parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document, certificate or writing delivered pursuant hereto, or (c) waive compliance with any obligation, covenant, agreement or condition contained herein. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument or instruments in writing signed by the party against whom enforcement of any such extension or waiver is sought. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement. 9.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that no party hereto may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other party hereto. Except as provided in Article VII, nothing in this Agreement is intended to confer upon any person not a party hereto (and their successors and assigns) any rights, remedies, obligations or liabilities under or by reason of this Agreement. 17 9.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties contained herein shall survive the Closing and shall thereupon terminate twelve (12) months from the Closing, except that the representations contained in Sections 3.1, 3.2, 4.1 and 4.2 shall survive indefinitely. All covenants, conditions, obligations and agreements contained herein which by their terms contemplate actions following the Closing shall survive the Closing and remain in full force and effect in accordance with their terms. The covenants, conditions, obligations and agreements contained in Section 5.8 shall survive indefinitely. All other covenants, conditions, obligations and agreements contained herein shall not survive the Closing and shall thereupon terminate. 9.6 HEADINGS; DEFINITIONS. The Section and Article headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections or Articles contained herein mean Sections or Articles of this Agreement unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. 9.7 SEVERABILITY. If any provision of this Agreement or the application thereof to any Person or circumstance is held to be invalid or unenforceable to any extent, the remainder of this Agreement shall remain in full force and effect and shall be reformed to render the Agreement valid and enforceable while reflecting to the greatest extent permissible the intent of the parties. 9.8 SPECIFIC PERFORMANCE. The parties hereto agree that in the event that any party fails to consummate the Transactions in accordance with the terms of this Agreement, irreparable damage would occur, no adequate remedy at law would exist and damages would be difficult to determine, and that the parties shall be entitled to specific performance in such event, without the necessity of proving the inadequacy of money damages as a remedy, in addition to any other remedy at law or in equity. 9.9 EXPENSES. Whether or not the Transactions are consummated, and except as otherwise expressly set forth herein, all legal and other costs and expenses incurred in connection with the Transactions shall be paid by the party incurring such expenses and shall be paid at the Closing. 9.10 NOTICES. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below. 18
If to the Company: with a copy to: ----------------- -------------- Continental Southern Resources, Inc. Spector Gadon & Rosen, P.C. 111 Presidential Boulevard 1635 Market Street, 7th Floor Suite 158A Philadelphia, PA 19103 Bala Cynwyd, PA 19004 Attention: Vincent A. Vietti, Esquire Attention: Chief Executive Officer If to CSOR Liquidation: ---------------------- CSOR Preferred Liquidation, LLC c/o 1025 Investments, Inc. One Belmont Avenue Suite 417 Bala Cynwyd, PA 19004 Attention: Manager
9.11 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the laws that might otherwise govern under applicable principles of conflicts of laws thereof, except to the extent that the Nevada General Corporation Law shall apply to the internal corporate governance of the Company. 9.12 ARBITRATION. If a dispute arises as to the interpretation of this Agreement, it shall be decided in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration then in effect at the time of the dispute. The arbitration shall take place in Philadelphia, Pennsylvania. The decision of the Arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. The parties shall share equally the costs of the arbitration. 9.13 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. 9.14 CERTAIN DEFINITIONS. As used herein: (a) "Affiliate" shall have the meanings ascribed to such term in Rule 12b-2 of the Exchange Act; 19 (b) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which federally chartered financial institutions are not open for business in the City of Philadelphia, Pennsylvania; (c) "Confidential Information" shall mean the existence and contents of this Agreement and the Schedules and Exhibits hereto, and all proprietary technical, economic, environmental, operational, financial and/or business information or material of one party which, prior to or following the Closing Date, has been disclosed by the Company, on the one hand, or CSOR Liquidation, on the other hand, in written, oral (including by recording), electronic, or visual form to, or otherwise has come into the possession of, the other. (d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended; (e) "Governmental Authority" shall mean any nation or government, any state, municipality or other political subdivision thereof and any entity, body, agency, commission or court, whether domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any executive official thereof; (f) "Knowledge" shall mean (i) with respect to an individual, knowledge of a particular fact or other matter, if such individual is aware of such fact or other matter, and (ii) with respect to a Person that is not an individual, knowledge of a particular fact or other matter if any individual who is serving, or who has at any time served, as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity) has, or at any time had, knowledge of such fact or other matter; (g) "Liens" shall mean liens, pledges, charges, claims, security interests, purchase agreements, options, title defects, restrictions on transfer or other encumbrances, or any agreements (other than this Agreement) to do any of the foregoing, of any nature whatsoever, whether consensual, statutory or otherwise; (h) "Material Adverse Effect" shall mean, with respect to any Person, any adverse effect on the business, assets, liabilities, condition (financial or otherwise) or results of operation of such Person and its subsidiaries, if any, which is material to such Person and its subsidiaries, if any, taken as a whole; (i) "Person" shall mean any individual, corporation, partnership, association, trust or other entity or organization, including a governmental or political subdivision or any agency or institution thereof; (j) "SEC" shall mean the Securities and Exchange Commission; and (k) "Securities Act" shall mean the Securities Act of 1933, as amended. [Remainder of page intentionally left blank] 20 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ STEPHEN P. HARRINGTON ---------------------------------- Steven P. Harrington President CSOR PREFERRED LIQUIDATION, LLC By: 1025 Investments, Inc. By: /s/ HOWARD M. APPEL ---------------------------------- Howard M. Appel President 21 EX-10.24 16 h13916exv10w24.txt COMMON STOCK PURCHASE WARRANT DATED 2/26/2004 EXHIBIT 10.24 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS (I) PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR (II) IN COMPLIANCE WITH AN EXEMPTION THEREFROM AND ACCOMPANIED, IF REQUESTED BY CONTINENTAL SOUTHERN RESOURCES, INC., WITH AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH AN EXEMPTION THEREFROM. THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN ARTICLE II OF THIS WARRANT Warrant No. __-____ Number of Shares: 700,000 (subject to adjustment) Date of Issuance: February 26, 2004 CONTINENTAL SOUTHERN RESOURCES, INC. COMMON STOCK PURCHASE WARRANT THIS IS TO CERTIFY THAT, for value received, SANDERS MORRIS HARRIS INC., a Texas corporation (the "Registered Holder"), or its permitted assigns, is entitled to purchase from CONTINENTAL SOUTHERN RESOURCES, INC., a Nevada corporation (the "Company"), at the place where the Warrant Office designated pursuant to Section 2.1 is located, at a purchase price per share of $2.00 (as adjusted pursuant to the terms of this Warrant, the "Exercise Price"), 700, 000 shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock, $0.001 par value per share, of the Company, and is entitled also to exercise the other appurtenant rights, powers and privileges hereinafter set forth. The number of shares of the Common Stock purchasable hereunder and the Exercise Price are subject to adjustment in accordance with Article III hereof. This Warrant shall expire at 5:00 p.m., Los Angeles time, on February 26, 2009. Certain Terms used in this Warrant are defined in Article IV. ARTICLE I Exercise of Warrant 1.1 Method of Exercise. This Warrant may be exercised by the Registered Holder as a whole or in part from time to time until February 26, 2009, at which time this Warrant shall expire and be of no further force or effect; provided, however, that the minimum number of Warrant Shares that may be purchased on a single exercise shall be 50,000 or the entire number of shares remaining available for exercise hereunder, whichever is less. To exercise this Warrant, the Registered Holder or permitted assignees of all rights of the Registered Holder shall deliver to the Company, at the Warrant Office designated in Section 2.1(a), a written notice in the form of the Purchase Form attached as Exhibit A hereto, stating therein the election of the Registered Holder or such permitted assignees of the Registered Holder to exercise this Warrant in the manner provided in the Purchase Form, (b) payment in full of the Exercise Price (in the manner described below) for all Warrant Shares purchased hereunder, and (c) this Warrant. Subject to compliance with Section 3.1(a)(vi), this Warrant shall be deemed to be exercised on the date of receipt by the Company of the Purchase Form, accompanied by payment for the Warrant Shares to be purchased and surrender of this Warrant, as aforesaid, and such date is referred to herein as the "Exercise Date." Upon such exercise (subject as aforesaid), the Company shall issue and deliver to the Registered Holder a certificate for the full number of the Warrant Shares purchasable by the Registered Holder hereunder, against the receipt by the Company of the total Exercise Price payable hereunder for all such Warrant Shares, (a) in cash or by certified or cashier's check or (b) if the Common Stock is registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), by surrendering Warrant Shares having a Current Market Price equal to the Exercise Price for all the Warrant Shares so purchased. The Person in whose name the certificate(s) for Common Stock is to be issued shall be deemed to have become a holder of record of such Common Stock on the Exercise Date. 1.2 Net Exercise. Notwithstanding any provisions herein to the contrary, if the Common Stock is registered under the Exchange Act, and the Current Market Price of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of cash, the Registered Holder may elect to receive Warrant Shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the Warrant Office together with the properly endorsed Purchase Form in which event the Company shall issue the Registered Holder a number of shares of Common Stock computed as follows: X = Y(A-B) ------ A Where: X = the number of shares of Common Stock to be issued to the Registered Holder. Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the Current Market Price of one share of Common Stock (at the date of such calculation) B = Exercise Price (as adjusted to the date of such calculation) 1.3 Fractional Shares. No fractional shares of Common Stock shall be issued upon exercise of this Warrant. Instead of any fractional shares of Common Stock that would otherwise be issuable upon exercise of this Warrant, the Company shall pay a cash adjustment in respect of such fractional interest equal to the fair market value of such fractional interest as determined in good faith by the Board of Directors. 2 1.4 Termination. Notwithstanding any other provision of this Warrant, the right to exercise this Warrant shall terminate upon the first to occur of (a) at the close of business on February 26, 2009. ARTICLE II Warrant Office; Transfer 2.1 Warrant Office. The Company shall maintain an office for certain purposes specified herein (the "Warrant Office"), which office shall initially be the Company's office at 111 Presidential Boulevard, Suite 158A, Bala Cynwyd, Pennsylvania 19004, and may subsequently be such other office of the Company or of any transfer agent of the Common Stock in the continental United States of which written notice has previously been given to the Registered Holder. The Company shall maintain, at the Warrant Office, a register for the Warrant in which the Company shall record the name and address of the Registered Holder, as well as the name and address of each permitted assignee of the rights of the Registered Holder. 2.2 Ownership of Warrant. The Company may deem and treat the Registered Holder as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article II. 2.3 Transfer of Warrants. The Company agrees to maintain at the Warrant Office books for the registration and transfer of this Warrant. This Warrant may be transferred in whole or in part only in compliance with the applicable law and only to shareholders, officers, and employees of Sanders Morris Harris Inc. or to any person who succeeds to all of the assets of Sanders Morris Harris Inc. The Company, from time to time, shall register the transfer of this Warrant in such books upon surrender of this Warrant at the Warrant Office, properly endorsed, together with a written assignment of this Warrant, substantially in the form of the Assignment attached as Exhibit B hereto. Upon any such transfer, a new Warrant shall be issued to the transferee, and the Company shall cancel the surrendered Warrant. The Registered Holder shall pay all taxes and all other expenses and charges payable in connection with the transfer of Warrants pursuant to this Section 2.3. 2.4 Registration Rights. The Company agrees (a) that the Warrant Shares shall be "Registrable Securities" under the Registration Rights Agreement (the "Registration Rights Agreement") between the Company and the purchasers of shares of Common Stock of the Company issued and sold pursuant to the terms of the Placement Agent Agreement dated as of January 23, 2004, between the Company and Sanders Morris Harris Inc. and (b) that the Registered Holder shall have the rights and obligations of a Holder set forth on the Registration Rights Agreement. 2.5 No Rights as Shareholder Until Exercise. This Warrant does not entitle the Registered Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate 3 Exercise Price, the Warrant Shares so purchased shall be and be deemed to be issued to the Registered Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. 2.6 Expenses of Delivery of Warrants. Except as provided in Section 2.3 above, the Company shall pay all reasonable expenses, taxes (other than transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of Warrants and related Warrant Shares hereunder. 2.7 Compliance with Securities Laws. The Registered Holder (and its transferees and assigns), by acceptance of this Warrant, covenants and agrees that such Registered Holder is acquiring the Warrants evidenced hereby, and, upon exercise hereof, the Warrant Shares, for its own account as an investment and not with a view to distribution thereof. Neither this Warrant nor the Warrant Shares issuable hereunder have been registered under the Securities Act or any state securities laws and no transfer of this Warrant or any Warrant Shares shall be permitted unless the Company has received notice of such transfer in the form of the assignment attached hereto as Exhibit B, accompanied, if requested by the Company, by an opinion of counsel reasonably satisfactory to the Company that an exemption from registration of such Warrant or Warrant Shares under the Securities Act is available for such transfer, except that no such opinion shall be required after the registration for resale of the Warrant Shares has become effective. Upon any exercise of the Warrants prior to effective registration for resale or except as in accordance with Rule 144 under the Securities Act, certificates representing the Warrant Shares shall bear a restrictive legend substantially identical to that set forth as follows: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state (collectively, the "Acts"). Neither the shares nor any interest therein may be offered, sold, transferred, pledged, or otherwise disposed of in the absence of an effective registration statement with respect to the shares under all of the applicable Acts, or an opinion of counsel satisfactory to Tarrant Apparel Group to the effect that such registrations are not required." (c) Any purported transfer of the Warrant or Warrant Shares not in compliance with the provisions of this section shall be null and void. Stop transfer instructions have been or will be imposed with respect to the Warrant Shares so as to restrict resale or other transfer thereof, subject to this Section 2.7. ARTICLE III Anti-Dilution Provisions 3.1 Adjustment of Exercise Price and Number of Warrant Shares. The Exercise Price shall be subject to adjustment from time to time as hereinafter provided in this Article III. Upon each adjustment of the Exercise Price, except pursuant to Sections 3.1(a)(iii), (iv), and (v), the Registered Holder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of the Common Stock obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of the 4 Common Stock purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (a) Exercise Price Adjustments. The Exercise Price shall be subject to adjustment from time to time as follows: (i) Adjustment for Stock Splits and Combinations. If the Company shall, at any time or from time to time after the date hereof (the "Original Issue Date") while this Warrant remains outstanding, effect a subdivision of the outstanding Common Stock, the Exercise Price in effect immediately before such subdivision shall be proportionately decreased. Conversely, if the Company shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately before such combination shall be proportionately increased. Any adjustment under this Section 3.1(a)(i) shall become effective at the close of business on the date the subdivision or combination becomes effective. (ii) Adjustment for Common Stock Dividends and Distributions. If the Company, at any time or from time to time after the Original Issue Date while this Warrant remains outstanding makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, in each such event the Exercise Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Exercise Price then in effect by a fraction (i) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Exercise Price shall be recomputed accordingly as of the close of business on such record date, and thereafter the Exercise Price shall be adjusted pursuant to this Section 3.1(a)(ii) to reflect the actual payment of such dividend or distribution. (iii) Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date while this Warrant remains outstanding, the Common Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than an Acquisition, Asset Transfer, subdivision or combination of shares, stock dividend, reorganization, merger, consolidation, or sale of assets provided for elsewhere in this Section 3.1(a)), in any such event the Registered Holder shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of Common Stock into which such shares of Common Stock could have been converted immediately prior to such recapitalization, 5 reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. (iv) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time after the Original Issue Date while this Warrant remains outstanding, there is a capital reorganization of the Common Stock (other than an Acquisition, Asset Transfer, recapitalization, or subdivision, combination, reclassification, exchange, or substitution of shares provided for elsewhere in this Section 3.1(a)), as a part of such capital reorganization, provision shall be made so that the Registered Holder shall thereafter be entitled to receive upon exercise hereof the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of Common Stock deliverable upon exercise immediately prior to such event would have been entitled as a result of such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3.1(a) with respect to the rights of the Registered Holder after the capital reorganization to the end that the provisions of this Section 3.1(a) (including adjustment of the Exercise Price then in effect and the number of shares issuable upon exercise) shall be applicable after that event and be as nearly equivalent as practicable. (v) Rounding of Calculations; Minimum Adjustment. All calculations under this Section 3.1(a) and under Section 3.1(b) shall be made to the nearest cent. Any provision of this Section 3.1 to the contrary notwithstanding, no adjustment in the Exercise Price shall be made if the amount of such adjustment would be less than one percent, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate one percent or more. (vi) Timing of Issuance of Additional Common Stock Upon Certain Adjustments. In any case in which the provisions of this Section 3.1(a) shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event issuing to the Registered Holder after such record date and before the occurrence of such event the additional shares of Common Stock or other property issuable or deliverable upon exercise by reason of the adjustment required by such event over and above the shares of Common Stock or other property issuable or deliverable upon such exercise before giving effect to such adjustment; provided, however, that the Company upon request shall deliver to such Registered Holder a due bill or other appropriate instrument evidencing such Registered Holder's right to receive such additional shares or other property, and such cash, upon the occurrence of the event requiring such adjustment. (vii) Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors, in its sole discretion, of the Company. 6 (b) Current Market Price. The "Current Market Price" shall mean, as of any date, 5% of the sum of the average, for each of the 20 consecutive Trading Days immediately prior to such date, of either: (i) the high and low sales prices of the Common Stock on such Trading Day as reported on the composite tape for the principal national securities exchange on which the Common Stock may then be listed, or (ii) if the Common Stock shall not be so listed on any such Trading Day, the high and low sales prices of Common Stock in the over-the-counter market as reported by the Nasdaq Stock Market for National Market Securities, or (iii) if the Common Shares shall not be included in the Nasdaq Stock Market as a National Market Security on any such Trading Day, the representative bid and asked prices at the end of such Trading Day in such market as reported by the Nasdaq Stock Market or (iv) if there be no such representative prices reported by the Nasdaq Stock Market, the lowest bid and highest asked prices at the end of such Trading Day in the over-the-counter market as reported by the OTC Electronic Bulletin Board or National Quotation Bureau, Inc., or any successor organization. For purposes of determining Current Market Price, the term "Trading Day" shall mean a day on which an amount greater than zero can be calculated with respect to the Common Stock under any one or more of the foregoing categories (i), (ii), (iii) and (iv), and the "end" thereof, for the purposes of categories (iii) and (iv), shall mean the exact time at which trading shall end on the New York Stock Exchange. If the Current Market Price cannot be determined under any of the foregoing methods, Current Market Price shall mean the fair value per share of Common Stock on such date as determined by the Board of Directors in good faith, irrespective of any accounting treatment. (c) Statement Regarding Adjustments. Whenever the Exercise Price shall be adjusted as provided in Section 3.1(a), and upon each change in the number of shares of the Common Stock issuable upon exercise of this Warrant, the Company shall forthwith file, at the office of any transfer agent for this Warrant and at the principal office of the Company, a statement showing in detail the facts requiring such adjustment and the Exercise Price and new number of shares issuable that shall be in effect after such adjustment, and the Company shall also cause a copy of such statement to be given to the Registered Holder. Each such statement shall be signed by the Company's chief financial or accounting officer. Where appropriate, such copy may be given in advance and may be included as part of a notice required to be mailed under the provisions of Section 3.1(d). (d) Notice to Holders. In the event the Company shall propose to take any action of the type described in clause (iii) or (iv) of Section 3.1(a), the Company shall give notice to the Registered Holder, in the manner set forth in Section 6.6, which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable upon exercise of this Warrant. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action. 7 (e) Treasury Stock. For the purposes of this Section 3.1, the sale or other disposition of any Common Stock of the Company theretofore held in its treasury shall be deemed to be an issuance thereof. 3.2 Costs. The Registered Holder shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of the Warrant Shares upon exercise of this Warrant. Additionally, the Company shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such Warrant Shares. The Registered Holder shall reimburse the Company for any such taxes assessed against the Company. 3.3 Reservations of Shares. The Company shall reserve at all times so long as this Warrant remains outstanding, free from preemptive rights, out of its treasury Common Stock or its authorized but unissued shares of Common Stock, or both, solely for the purpose of effecting the exercise of this Warrant, sufficient shares of Common Stock to provide for the exercise hereof. 3.4 Valid Issuance. All shares of Common Stock which may be issued upon exercise of this Warrant will upon issuance by the Company be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof attributable to any act or omission by the Company, and the Company shall take no action which will cause a contrary result (including without limitation, any action which would cause the Exercise Price to be less than the par value, if any, of the Common Stock). ARTICLE IV Terms Defined As used in this Warrant, unless the context otherwise requires, the following terms have the respective meanings set forth below or in the Section indicated: Board of Directors means the Board of Directors of the Company. Common Stock means the Company's authorized Common Stock, $0.001 par value per share. Company means Continental Southern Resources, Inc., a Nevada corporation, and any other corporation assuming or required to assume the obligations undertaken in connection with this Warrant. Current Market Price is defined in Section 3.1(b). Exchange Act is defined in Section 1.1. Exercise Date is defined in Section 1.1. Exercise Price is defined in the Preamble. 8 Original Issue Date is defined in Section 3.1(a)(i). Outstanding means when used with reference to Common Stock at any date, all issued shares of Common Stock (including, but without duplication, shares deemed issued pursuant to Article III) at such date, except shares then held in the treasury of the Company. Person means any individual, corporation, partnership, trust, organization, association or other entity. Registered Holder is defined in the Preamble. Securities Act means the Securities Act of 1933 and the rules and regulations promulgated thereunder, all as the same shall be in effect at the time. Trading Day is defined in Section 3.1(b). Warrant means this Warrant and any successor or replacement Warrant delivered in accordance with Section 2.3 or 6.8. Warrant Office is defined in Section 2.1. Warrant Shares means the shares of Common Stock purchased or purchasable by the Registered Holder, or the permitted assignees of such Registered Holder, upon exercise of this Warrant pursuant to Article I hereof. ARTICLE V Covenant of the Company The Company covenants and agrees that this Warrant shall be binding upon any corporation succeeding to the Company by merger, consolidation, or acquisition of all or substantially all of the Company's assets. ARTICLE VI Miscellaneous 6.1 Entire Agreement. This Warrant and the Registration Rights Agreement contain the entire agreement between the Registered Holder and the Company with respect to the Warrant Shares that it can purchase upon exercise hereof and the related transactions and supersedes all prior arrangements or understanding with respect thereto. 6.2 Governing Law. This Warrant shall be governed by and construed in accordance with the internal laws of the State of Texas, without regard to its conflict of law provisions. 9 6.3 Waiver and Amendment. Any term or provision of this Warrant may be waived at any time by the party which is entitled to the benefits thereof, and any term or provision of this Warrant may be amended or supplemented at any time by the written consent of the parties (it being agreed that an amendment to or waiver under any of the provisions of Article III of this Warrant shall not be considered an amendment of the number of Warrant Shares or the Exercise Price). No waiver by any party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising because of any prior or subsequent such occurrence. 6.4 Illegality. In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Warrant shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired. 6.5 Copy of Warrant. A copy of this Warrant shall be filed among the records of the Company. 6.6 Notice. Any notice or other document required or permitted to be given or delivered to the Registered Holder shall be delivered at, or sent by certified or registered mail to such Registered Holder at, the last address shown on the books of the Company maintained at the Warrant Office for the registration of this Warrant or at any more recent address of which the Registered Holder shall have notified the Company in writing. Any notice or other document required or permitted to be given or delivered to the Company, other than such notice or documents required to be delivered to the Warrant Office, shall be delivered at, or sent by certified or registered mail to, the office of the Company at 111 Presidential Boulevard, Suite 158A, Bala Cynwyd, Pennsylvania 19004 or any other address within the continental United States of America as shall have been designated in writing by the Company delivered to the Registered Holder. 6.7 Limitation of Liability; Not Stockholders. Subject to the provisions of Article III, until the exercise of this Warrant, the Registered Holder shall not have or exercise any rights by virtue hereof as a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to receive notice of, or attend meetings of stockholders or any other proceedings of the Company. Until the exercise of this Warrant, no provision hereof, and no mere enumeration herein of the rights or privileges of the Registered Holder, shall give rise to any liability of such Registered Holder for the purchase price of any shares of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 6.8 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of evidence satisfactory to the Company (an affidavit of the Registered Holder shall be satisfactory evidence) of the loss, theft, mutilation or destruction of this Warrant, and, in the case of any such loss, theft or destruction, upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or, in the event of such mutilation upon surrender and cancellation of this Warrant, the Company will make and deliver a new Warrant of like tenor, in 10 lieu of such lost, stolen, destroyed or mutilated Warrant; provided, however, that the original Registered Holder of this Warrant shall not be required to provide any such bond of indemnity and may in lieu thereof provide his agreement of indemnity. Any Warrant issued under the provisions of this Section 6.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company. This Warrant shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange or replacement. The Registered Holder of this Warrant shall pay all taxes (including securities transfer taxes) and all other expenses and charges payable in connection with the preparation, execution and delivery of replacement Warrant(s) pursuant to this Section 6.8. 6.9 Headings. The Article and Section and other headings herein are for convenience only and are not a part of this Warrant and shall not affect the interpretation thereof. 6.10 Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Registered Holder. The provisions of this Warrant are intended to be for the benefit of all Registered Holders from time to time of this Warrant and shall be enforceable by any such Registered Holder or holder of Warrant Shares. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name. Dated: February 26, 2004 CONTINENTAL SOUTHERN RESPURCES, INC. By: /s/ STEPHEN P. HARRINGTON -------------------------------- Name: Stephen P, Harrington ------------------------------ Title: President ------------------------------ 11 Exhibit A PURCHASE FORM To: Continental Southern Resources, Inc. Dated:__________, 200__ 111 Presidential Boulevard, Suite 158A Bala Cynwyd, Pennsylvania 19004 The undersigned, pursuant to the provisions set forth in the attached Warrant (No. ____), hereby irrevocably elects to purchase ________ shares of the Common Stock covered by such Warrant. The undersigned herewith makes payment of the full exercise price for such shares at the price per share provided for in such Warrant, which is $_____ per share in lawful money of the United States. [________________________________] ________________________________ Name:___________________________ Title:__________________________ 12 Exhibit B ASSIGNMENT For value received, _____________________________, hereby sells, assigns and transfers unto _______________________________ the within Warrant, together with all right, title and interest therein and does hereby irrevocably constitute and appoint attorney, to transfer said Warrant on the books of the Company, with full power of substitution. ---------------------------------- Dated: ___________________, 200_ 13 EX-10.25 17 h13916exv10w25.txt FORM OF SECURITIES PURCHASE AGREEMENT 2/4/2004 EXHIBIT 10.25 CONTINENTAL SOUTHERN RESOURCES, INC. SECURITIES PURCHASE AGREEMENT COMMON STOCK February 4, 2004 CONFIDENTIAL NOTICE TO OFFEREES THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THIS SECURITIES PURCHASE AGREEMENT AND THE OTHER OFFERING DOCUMENTS DO NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE BEING SOLD FOR INVESTMENT PURPOSES ONLY, WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED, RESOLD OR OFFERED FOR RESALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND EFFECTIVE REGISTRATION OR QUALIFICATION UNDER THE APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, OR THE AVAILABILITY OF AN EXEMPTION THEREFROM. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR THE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS SECURITIES PURCHASE AGREEMENT OR ANY OF THE OTHER OFFERING DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. CONFIDENTIAL SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated February 4, 2004, by and between CONTINENTAL SOUTHERN RESOURCES, INC., a Nevada corporation (the "Company"), and the purchaser or purchasers identified on the signature page hereof ("Purchaser"). R E C I T A L S: WHEREAS, Purchaser desires to purchase and the Company desires to sell shares of the Company's common stock on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises hereof and the agreements set forth herein below, the parties hereto hereby agree as follows: 1. The Offering. (a) Private Offering. The securities offered by this Agreement are being offered in a private offering (the "Offering") of up to 100,000 shares ("Shares") of the Company's common stock, $.001 par value per share ("Common Stock"). The Shares will be sold on a reasonable "best efforts" basis at a purchase price of $2.00 per Share pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 of Regulation D thereunder. The Shares are being offered solely to a limited number of "accredited investors" as that term is defined in Rule 501(a) of the Securities Act during an offering period commencing February 4, 2004, and terminating at the sole discretion of the Company. (b) Use of Proceeds. Assuming all of the Shares in the Offering are sold, the net proceeds to the Company are estimated to be approximately $200,000 (after deducting offering expenses payable by the Company estimated at $10,000. The Company intends to use the net proceeds for general working capital purposes and other general corporate purposes. (c) Placement and Finder's Fees. The Company reserves the right to pay placement or finder's fees in connection with the sale of the Shares in an amount of up to five percent (5%) of the Purchase Price of such Shares. 2. Sale and Purchase of Shares. (a) Sale and Purchase of Shares. Subject to the terms and conditions hereof, the Company agrees to sell, and Purchaser agrees to purchase, the number of Shares specified on the signature page of this Agreement at a purchase price of $2.00 per Share. The aggregate purchase price for the Share shall be as set forth on the signature page hereto (the "Purchase Price") and shall be payable upon execution hereof by check or wire transfer of immediately available funds. 1 (b) Subscription Procedure. In order to purchase Shares, Purchaser shall deliver to the Company, at its principal executive office identified in Section 16 hereof: (i) one completed and duly executed copy of this Agreement; and (ii) immediately available funds in an amount equal to the Purchase Price. Execution and delivery of this Agreement shall constitute an irrevocable subscription for that number of Shares set forth on the signature page hereto. Payment for the Shares may be made by wire transfer to: Sovereign Bank Wyomissing, PA. ABA#231372691 For the account of: Continental Southern Resources, Inc. Acct.#236 102 5973 or by check made payable to Continental Southern Resources, Inc. This Agreement may be rejected by the Company, in whole or in part, in its sole discretion, in which event the Purchase Price will be returned (by mail) to Purchaser within ten (10) business days thereafter. Unless the Offering is otherwise terminated by the Company, as soon as possible after the receipt and acceptance by the Company of this Agreement and collection of the funds paid therefor, the Company will issue certificates for the Shares to Purchaser, together with a copy of Purchaser's executed Agreement countersigned by the Company. (c) Closing. (i) Closing Date. The closing of the transactions (the "Closing") shall take place at such time, on such date and in such manner as the parties may agree. (ii) Closing Transactions. At the Closing, the Company shall execute and deliver to Purchaser a certificate representing the number of Shares specified on the signature page of this Agreement, against payment of the Purchase Price specified on the signature page of this Agreement by wire transfer or check payable to the Company. 3. Representations and Warranties of Purchaser. Purchaser represents and warrants to the Company as follows: (a) Organization and Qualification. (i) If Purchaser is an entity, Purchaser is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, with the corporate or other entity power and authority to own and operate its business as presently conducted, except where the failure to be or have any of the foregoing would not have a material adverse effect on Purchaser, and Purchaser is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of their activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not have a material adverse effect on it. 2 (ii) If Purchaser is an entity, the address of its principal place of business is as set forth on the signature page hereto, and if Purchaser is an individual, the address of its principal residence is as set forth on the signature page hereto. (b) Authority; Validity and Effect of Agreement. (i) If Purchaser is an entity, Purchaser has the requisite corporate or other entity power and authority to execute and deliver this Agreement and perform its obligations under this Agreement. The execution and delivery of this Agreement by Purchaser, the performance by Purchaser of its obligations hereunder and all other necessary corporate or other entity action on the part of Purchaser have been duly authorized by its Boards of Directors or similar governing body, and no other corporate or other entity proceedings on the part of Purchaser is necessary for Purchaser to execute and deliver this Agreement and perform its obligations hereunder. (ii) This Agreement has been duly and validly authorized, executed and delivered by Purchaser and, assuming it has been duly and validly executed and delivered by the Company, constitutes a legal, valid and binding obligation of Purchaser, in accordance with its terms. (c) No Conflict; Required Filings and Consents. Neither the execution and delivery of this Agreement by Purchaser nor the performance by Purchaser of its obligations hereunder will: (i) if Purchaser is an entity, conflict with Purchaser's Articles of Incorporation or Bylaws, or other similar organizational documents; (ii) violate any statute, law, ordinance, rule or regulation, applicable to Purchaser or any of the properties or assets of Purchaser; or (iii) violate, breach, be in conflict with or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of Purchaser under, or result in the creation or imposition of any lien upon any properties, assets or business of Purchaser under, any material contract or any order, judgment or decree to which Purchaser is a party or by which it or any of its assets or properties is bound or encumbered except, in the case of clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a material adverse effect on its obligation to perform its covenants under this Agreement. (d) Accredited Investor. Purchaser is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D under the Securities Act. If Purchaser is an entity, Purchaser was not formed for the specific purpose of acquiring the Shares, and, if it was, all of Purchaser's equity owners are "accredited investors" as defined above. (e) No Government Review. Purchaser understands that neither the United States Securities and Exchange Commission ("SEC") nor any securities commission or other governmental authority of any state, country or other jurisdiction has approved the issuance of the Shares or passed upon or endorsed the merits of the Shares, or this Agreement or any of the other documents relating to the proposed Offering (collectively, the "Offering Documents"), or 3 confirmed the accuracy of, determined the adequacy of, or reviewed this Agreement or the other Offering Documents. (f) Investment Intent. The Shares are being acquired for the Purchaser's own account for investment purposes only, not as a nominee or agent and not with a view to the resale or distribution of any part thereof, and Purchaser has no present intention of selling, granting any participation in or otherwise distributing the same. By executing this Agreement, Purchaser further represents that Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or third person with respect to any of the Shares. (g) Restrictions on Transfer. Purchaser understands that the Shares are "restricted securities" as such term is defined in Rule 144 under the Securities Act and have not been registered under the Securities Act or registered or qualified under any state securities law, and may not be, directly or indirectly, sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and registration or qualification under applicable state securities laws or the availability of an exemption therefrom. In any case where such an exemption is relied upon by Purchaser from the registration requirements of the Securities Act and the registration or qualification requirements of such state securities laws, Purchase shall furnish the Company with an opinion of counsel stating that the proposed sale or other disposition of such securities may be effected without registration under the Securities Act and will not result in any violation of any applicable state securities laws relating to the registration or qualification of securities for sale, such counsel and opinion to be satisfactory to the Company. Purchaser acknowledges that it is able to bear the economic risks of an investment in the Shares for an indefinite period of time, and that its overall commitment to investments that are not readily marketable is not disproportionate to its net worth. (h) Investment Experience. Purchaser has such knowledge, sophistication and experience in financial, tax and business matters in general, and investments in securities in particular, that it is capable of evaluating the merits and risks of this investment in the Shares, and Purchaser has made such investigations in connection herewith as it deemed necessary or desirable so as to make an informed investment decision without relying upon the Company for legal or tax advice related to this investment. In making its decision to acquire the Shares, Purchaser has not relied upon any information other than information provided to Purchaser by the Company or its representatives and contained herein and in the other Offering Documents. (i) Access to Information. Purchaser acknowledges that it has had access to and has reviewed all documents and records relating to the Company, including, but not limited to, the Company's filings with the SEC, that it has deemed necessary in order to make an informed investment decision with respect to an investment in the Shares; that it has had the opportunity to ask representatives of the Company certain questions and request certain additional information regarding the terms and conditions of such investment and the finances, operations, business and prospects of the Company and has had any and all such questions and requests answered to its satisfaction; and that it understands the risks and other considerations relating to such investment. 4 (j) Reliance on Representations. Purchaser understands that the Shares are being offered and sold to it in reliance on specific exemptions from the registration requirements of the federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Shares. Purchaser represents and warrants to the Company that any information that Purchaser has heretofore furnished or furnishes herewith to the Company is complete and accurate, and further represents and warrants that it will notify and supply corrective information to the Company immediately upon the occurrence of any change therein occurring prior to the Company's issuance of the Shares. Within five (5) days after receipt of a request from the Company, Purchaser will provide such information and deliver such documents as may reasonably be necessary to comply with any and all laws and regulations to which the Company is subject. (k) No General Solicitation. Purchaser is unaware of, and in deciding to participate in the Offering is in no way relying upon, and did not become aware of the Offering through or as a result of, any form of general solicitation or general advertising including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media, or broadcast over television or radio or the internet, in connection with the Offering. (l) Placement and Finder's Fees. No agent, broker, investment banker, finder, financial advisor or other person acting on behalf of Purchaser or under its authority is or will be entitled to any broker's or finder's fee or any other commission or similar fee, directly or indirectly, in connection with the Offering, and no person is entitled to any fee or commission or like payment in respect thereof based in any way on agreements, arrangements or understanding made by or on behalf of Purchaser. (m) Offering Risks. Purchaser understands that purchasing Shares in the Offering will subject Purchaser to certain risks, including, but not limited to, each of the following: (i) The offering price of the Shares offered hereby has been determined solely by the Company and does not necessarily bear any relationship to the value of the Company's assets, current or potential earnings of the Company, or any other recognized criteria used for measuring value, and therefore, there can be no assurance that the offering price of the Shares is representative of the actual value of the underlying Shares. (ii) The Company has provided herein that it intends to use the net proceeds from the Offering for general working capital purposes and other general corporate purposes. Thus, Purchaser is making its investment in the Shares based in part upon very limited information regarding the specific uses to which the net proceeds will be applied. (iii) An investment in the Shares may involve certain material legal, accounting and federal and state tax consequences. Purchaser should consult with its legal 5 counsel, accountant and/or business adviser as to the legal, accounting, tax and related matters accompanying such an investment. (n) Legends. The certificates and agreements evidencing the Shares shall have endorsed thereon the following legend (and appropriate notations thereof will be made in the Company's stock transfer books), and stop transfer instructions reflecting these restrictions on transfer will be placed with the transfer agent of the Shares: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM. NO TRANSFER OF THE SECURITIES REPRESENTED HEREBY MAY BE MADE IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION UNLESS THERE SHALL HAVE BEEN DELIVERED TO THE ISSUER A WRITTEN OPINION OF UNITED STATES COUNSEL OF RECOGNIZED STANDING, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER MAY BE MADE WITHOUT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS. 4. Representations and Warranties of the Company. The Company represents and warrants to Purchaser as follows: (a) Organization and Qualification. The Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, with the corporate power and authority to own and operate its business as presently conducted, except where the failure to be or have any of the foregoing would not have a material adverse effect on the Company. The Company is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of their activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not have a material adverse effect on the Company. (b) Authority; Validity and Effect of Agreement. (i) The Company has the requisite corporate power and authority to execute and deliver this Agreement, perform its obligations under this Agreement, and conduct the Offering. The execution and delivery of this Agreement by the Company, the performance by the Company of its obligations hereunder, the Offering and all other necessary corporate action 6 on the part of the Company have been duly authorized by its Board of Directors, and no other corporate proceedings on the part of the Company is necessary to authorize this Agreement or the Offering. This Agreement has been duly and validly executed and delivered by the Company and, assuming that it has been duly authorized, executed and delivered by Purchaser, constitutes a legal, valid and binding obligation of the Company, in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (ii) The Shares have been duly authorized and, when issued and paid for in accordance with this Agreement, will be validly issued, fully paid and non-assessable shares of Common Stock with no personal liability resulting solely from the ownership of such shares and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company. (c) No Conflict; Required Filings and Consents. Neither the execution and delivery of this Agreement by the Company nor the performance by the Company of its obligations hereunder will: (i) conflict with the Company's Articles of Incorporation or Bylaws; (ii) violate any statute, law, ordinance, rule or regulation, applicable to the Company or any of the properties or assets of the Company; or (iii) violate, breach, be in conflict with or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of the Company, or result in the creation or imposition of any lien upon any properties, assets or business of the Company under, any material contract or any order, judgment or decree to which the Company is a party or by which it or any of its assets or properties is bound or encumbered except, in the case of clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a material adverse effect on its obligation to perform its covenants under this Agreement; and (d) Placement and Finder's Fees. Except as provided in Section 1(c), neither the Company nor any of its respective officers, directors, employees or managers, has employed any broker, finder, advisor or consultant, or incurred any liability for any investment banking fees, brokerage fees, commissions or finders' fees, advisory fees or consulting fees in connection with the Offering for which the Company has or could have any liability. 5. Indemnification. Purchaser agrees to indemnify, defend and hold harmless the Company and its respective affiliates and agents from and against any and all demands, claims, actions or causes of action, judgments, assessments, losses, liabilities, damages or penalties and reasonable attorneys' fees and related disbursements incurred by the Company which arise out of or result from a breach of any representations or warranties made by Purchaser herein, and Purchaser agrees that in the event of any breach of any representations or warranties made by Purchaser herein, the Company may, at its option, forthwith rescind the sale of the Shares to Purchaser. 7 6. Registration Rights. The Company covenants and agrees as follows: 6.1 For the purpose of this Section 6, the following definitions shall apply: (a) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. (b) "Person" shall mean an individual, partnership (general or limited), corporation, limited liability company, joint venture, business trust, cooperative, association or other form of business organization, whether or not regarded as a legal entity under applicable law, a trust (inter vivos or testamentary), an estate of a deceased, insane or incompetent person, a quasi-governmental entity, a government or any agency, authority, political subdivision or other instrumentality thereof, or any other entity. (c) "Register," "registered," and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or order of effectiveness of such registration statement or document. (d) "Registration Statement" shall mean any registration statement of the Company filed with the SEC pursuant to the provisions of Section 6.2 of this Agreement, which covers the resale of the Restricted Stock on an appropriate form then permitted by the SEC to be used for such registration and the sales contemplated to be made thereby under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including any pre- and post- effective amendments thereto, in each case including the prospectus contained therein, all exhibits thereto and all materials incorporated by reference therein. (e) "Restricted Stock" shall mean (i) the Shares; and (ii) any additional shares of Common Stock of the Company issued or issuable after the date hereof in respect of any of the foregoing securities, by way of a stock dividend or stock split; provided that as to any particular shares of Restricted Stock, such securities shall cease to constitute Restricted Stock when (x) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of thereunder, (y) such securities are permitted to be transferred pursuant to Rule 144 (or any successor provision to such rule) under the Securities Act or (z) such securities are otherwise freely transferable to the public without further registration under the Securities Act. (f) "Selling Stockholders" shall mean Purchaser and any other purchaser of Shares in the Offering, and their respective successors and assigns. 6.2 Registration of the Shares. (a) The Company shall notify all Selling Stockholders in writing at least twenty (20) days prior to the filing of any registration statement under the Securities Act for purposes of registering securities of the Company, excluding registration statements on SEC 8 Forms S-4, S-8 or any similar or successor forms, and will afford each such Selling Stockholder an opportunity to include in such registration statement all or part of such Restricted Stock held by such Selling Stockholder. Each Selling Stockholder desiring to include in any such registration statement all or any part of the Restricted Stock held by it shall, within ten (10) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Restricted Stock by such Selling Stockholder. If a Selling Stockholder decides not to include all of its Restricted Stock in any registration statement thereafter filed by the Company, such Selling Stockholder shall nevertheless continue to have the right to include any Restricted Stock in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. The Company may, without the consent of the Selling Stockholders, withdraw such registration statement prior to its becoming effective if the proposal to register the securities proposed to be registered thereby is abandoned. (b) In the event that any registration pursuant to Section 6.2(a) shall be, in whole or in part, an underwritten public offering of Common Stock on behalf of the Company, all Purchasers proposing to distribute their Restricted Stock through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. If the managing underwriter thereof advises the Company in writing that in its opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Company, the Company shall include in such registration (i) first, the securities the Company proposes to sell, and (ii) second, the Restricted Stock and any other registrable securities eligible and requested to be included in such registration to the extent that the number of shares to be registered under this clause (ii) will not, in the opinion of the managing underwriter, adversely affect the offering of the securities pursuant to clause (i). In such a case, shares shall be registered pro rata among the holders of such Restricted Stock and registrable securities on the basis of the number of shares eligible for registration that are owned by all such holders and requested to be included in such registration. (c) Notwithstanding anything to the contrary contained herein, the Company's obligation in Sections 6.2(a) and 6.2(b) above shall extend only to the inclusion of the Restricted Stock in a Registration Statement. The Company shall have no obligation to assure the terms and conditions of distribution, to obtain a commitment from an underwriter relative to the sale of the Restricted Stock or to otherwise assume any responsibility for the manner, price or terms of the distribution of the Restricted Stock. (d) The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 6.2 prior to the effectiveness of such registration without thereby incurring liability to the holders of the Restricted Stock, regardless of whether any holder has elected to include securities in such registration. The Registration Expenses (as defined in Section 6.5) of such withdrawn registration shall be borne by the Company in accordance with Section 6.4 hereof. 9 6.3 Registration Procedures. Whenever it is obligated to register any Restricted Stock pursuant to this Agreement, the Company shall: (a) prepare and file with the SEC a Registration Statement with respect to the Restricted Stock in the manner set forth in Section 6.2 hereof and use its reasonable best efforts to cause such Registration Statement to become effective as promptly as possible and to remain effective until the earlier of (i) the sale of all shares of Restricted Stock covered thereby, (ii) the availability under Rule 144 for the Selling Stockholder to immediately, freely resell without restriction all Restricted Stock covered thereby, or (iii) one (1) year from the effective date of the first Registration Statement filed by the Company with the SEC pursuant to this Agreement or with respect to any subsequent Registration Statement, 180 days from the effective date of such Registration Statement; (b) prepare and file with the SEC such amendments (including post-effective amendments) and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the period specified in Section 6.3(a) above and to comply with the provisions of the Act with respect to the disposition of all Restricted Stock covered by such Registration Statement in accordance with the intended method of disposition set forth in such Registration Statement for such period; (c) furnish to the Selling Stockholders such number of copies of the Registration Statement and the prospectus included therein (including each preliminary prospectus) as such person may reasonably request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such Registration Statement; (d) use its reasonable best efforts to register or qualify the Restricted Stock covered by such Registration Statement under the state securities laws of such jurisdictions as any Selling Stockholder shall reasonably request; provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Purchaser participating in such underwriting shall also enter into and perform its obligations under such an agreement, as described in Section 6.2(b); (f) immediately notify each Selling Stockholder at any time when a prospectus relating thereto is required to be delivered under the Act, of the happening of any event as a result of which the prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required or necessary to be stated therein in order to make the statements contained therein not misleading in light of the circumstances under which they were made. The Company will use reasonable efforts to amend or supplement such prospectus in order to cause such prospectus not to include 10 any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (g) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement; (h) make available for inspection by any Selling Stockholder and any attorney, accountant or other agent retained by any Selling Stockholder, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any Selling Stockholder, attorney, accountant or agent in connection with such Registration Statement; provided, however, that such Selling Stockholder, underwriter, attorney or accountant shall agree to hold in confidence and trust all information so provided; (i) use its reasonable best efforts to list the Restricted Stock covered by such Registration Statement on each exchange or automated quotation system on which similar securities issued by the Company are then listed (with the listing application being made at the time of the filing of such Registration Statement or as soon thereafter as is reasonably practicable); (j) notify each Selling Stockholder of any threat by the SEC or state securities commission to undertake a stop order with respect to sales under the Registration Statement; and (k) cooperate in the timely removal of any restrictive legends from the shares of Restricted Stock in connection with the resale of such shares covered by an effective Registration Statement. 6.4 Delay of Registration. No Selling Stockholder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 6. 6.5 Expenses. (a) For the purposes of this Section 6.5, the term "Registration Expenses" shall mean: all expenses incurred by the Company in complying with Section 6.2 of this Agreement, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, reasonable fees and disbursements of a single special counsel for the Selling Stockholders, fees under state securities laws, fees of the National Association of Securities Dealers, Inc. ("NASD"), fees and expenses of listing shares of Restricted Stock on any securities exchange or automated quotation system on which the Company's shares are listed and fees of transfer agents 11 and registrars. The term "Selling Expenses" shall mean: all underwriting discounts and selling commissions applicable to the sale of Restricted Stock and all accountable or non-accountable expenses paid to any underwriter in respect of such sale. (b) Except as otherwise provided herein, the Company will pay all Registration Expenses in connection with the Registration Statements filed pursuant to Section 6.2 of this Agreement. All Selling Expenses in connection with any Registration Statements filed pursuant to Section 6.1 of this Agreement shall be borne by the Selling Stockholders pro rata on the basis of the number of shares registered by each Selling Stockholder whose shares of Restricted Stock are covered by such Registration Statement, or by such persons other than the Company (except to the extent the Company may be a seller) as they may agree. 6.6 Obligations of the Selling Stockholders. (a) In connection with each registration hereunder, each Selling Stockholder will furnish to the Company in writing such information with respect to it and the securities held by it and the proposed distribution by it, as shall be reasonably requested by the Company in order to assure compliance with applicable federal and state securities laws as a condition precedent to including the Selling Stockholder's Restricted Stock in the Registration Statement. Each Selling Stockholder shall also promptly notify the Company of any changes in such information included in the Registration Statement or prospectus as a result of which there is an untrue statement of material fact or an omission to state any material fact required or necessary to be stated therein in order to make the statements contained therein not misleading in light of the circumstances under which they were made. (b) In connection with the filing of the Registration Statement, each Selling Stockholder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with such Registration Statement or prospectus. (c) In connection with each registration pursuant to this Agreement, each Selling Stockholder agrees that it will not effect sales of any Restricted Stock until notified by the Company of the effectiveness of the Registration Statement, and thereafter will suspend such sales after receipt of telegraphic or written notice from the Company to suspend sales to permit the Company to correct or update a Registration Statement or prospectus. At the end of any period during which the Company is obligated to keep a Registration Statement current, each Selling Stockholder shall discontinue sales of Restricted Stock pursuant to such Registration Statement upon receipt of notice from the Company of its intention to remove from registration the Restricted Stock covered by such Registration Statement which remains unsold, and each Selling Stockholder shall notify the Company of the number of shares registered which remain unsold immediately upon receipt of such notice from the Company. 6.7 Information Blackout and Holdbacks. (a) At any time when a Registration Statement effected pursuant to Section 6.2 is effective, upon written notice from the Company to Purchaser that the Company 12 has determined in good faith that the sale of Restricted Stock pursuant to the Registration Statement would require disclosure of non-public material information, Purchaser shall suspend sales of Restricted Stock pursuant to such Registration Statement until such time as the Company notifies Purchaser that such material information has been disclosed to the public or has ceased to be material, or that sales pursuant to such Registration Statement may otherwise be resumed. (b) Notwithstanding any other provision of this Agreement, Purchaser shall not effect any public sale or distribution (including sales pursuant to Rule 144 under the Securities Act), if and when available, of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the thirty (30) days prior to the commencement of any primary offering to be undertaken by the Company of shares of its unissued Common Stock ("Primary Offering"), which may also include other securities, and ending one hundred twenty (120) days after completion of any such Primary Offering, unless the Company, in the case of a non-underwritten Primary Offering, or the managing underwriter, in the case of an underwritten Primary Offering, otherwise agree. 6.8 Indemnification. (a) The Company agrees to indemnify, to the extent permitted by law, each Selling Stockholder, such Selling Stockholder's respective partners, officers, directors, underwriters and each Person who controls any Selling Stockholder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses caused by (i) any untrue statement of or alleged untrue statement of material fact contained in the Registration Statement, prospectus or preliminary prospectus or any amendment or supplement thereto, (ii) any omission of or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement ("Violations"); provided, however, that the indemnity agreement contained in this Section 6.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in for any loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Selling Stockholder, partner, officer, director, underwriter or controlling person of such Selling Stockholder. (b) To the extent permitted by law, each Selling Stockholder shall indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Selling Stockholder selling securities under such registration statement or any of such other Selling Stockholder's partners, directors or officers or any person who controls such Selling Stockholder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Selling Stockholder, or partner, director, officer or controlling person of such other Selling Stockholder, 13 may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation (i) occurs in reliance upon and in conformity with written information furnished by such Selling Stockholder under an instrument duly executed by such Selling Stockholder for use in connection with such registration; (ii) occurs as a result of any failure to deliver a copy of the prospectus relating to such Registration Statement, or (iii) occurs as a result of any disposition of the Restricted Stock in a manner that fails to comply with the permitted methods of distribution identified within the Registration Statement. (c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party), and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (d) If the indemnification provided for in this Section 6.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the violation(s) described in Section 6.8(a) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Selling Stockholder hereunder exceed the net proceeds from the offering received by such Selling Stockholder. (e) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and 14 shall survive the transfer of securities. The Company also agrees to make such provisions as are reasonably requested by any indemnified party for contribution to such party in the event the Company's indemnification is unavailable for any reason. 7. Confidentiality. Purchaser acknowledges and agreements that: (a) All of the information contained herein and in the other Offering Documents is of a confidential nature and may be regarded as material non-public information under Regulation FD of the Securities Act. (b) This Agreement and the other Offering Documents have been furnished to Purchaser by the Company for the sole purpose of enabling Purchaser to consider and evaluate an investment in the Company, and will be kept confidential by Purchaser and not used for any other purpose. (c) The information contained herein shall not, without the prior written consent of the Company, be disclosed by Purchaser to any person or entity, other than Purchaser's personal financial and legal advisors for the sole purpose of evaluating an investment in the Company, and will not, directly or indirectly, disclose or permit Purchaser's personal financial and legal advisors to disclose, any of such information without the prior written consent of the Company. (d) Purchaser shall make its representatives aware of the terms of this section and to be responsible for any breach of this Agreement by such representatives. (e) Purchaser shall not, without the prior written consent of the Company, directly or indirectly, make any statements, public announcements or release to trade publications or the press with respect to the subject matter of this Agreement and the other Offering Documents. (f) If Purchaser decides to not pursue further investigation of the Company or to not participate in the Offering, Purchaser will promptly return this Agreement, the other Offering Documents and any accompanying documentation to the Company. 8. Non-Public Information. Purchaser acknowledges that information concerning the matters that are the subject matter of this Agreement may constitute material non-public information under United States federal securities laws, and that United States federal securities laws prohibit any person who has received material non-public information relating to the Company from purchasing or selling securities of the Company, or from communicating such information to any person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell securities of the Company. Accordingly, until such time as any such non-public information has been adequately disseminated to the public, Purchaser shall not purchase or sell any securities of the Company, or communicate such information to any other person. 9. Entire Agreement. This Agreement contains the entire agreement between the parties and supercedes all prior agreements and understandings, both written and oral, between 15 the parties with respect to the subject matter hereto, and no party shall be liable or bound to any other party in any manner by any warranties, representations, guarantees or covenants except as specifically set forth in this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 10. Amendment and Modification. This Agreement may not be amended, modified or supplemented except by an instrument or instruments in writing signed by the party against whom enforcement of any such amendment, modification or supplement is sought. 11. Extensions and Waivers. At any time prior to the Closing, the parties hereto entitled to the benefits of a term or provision may (a) extend the time for the performance of any of the obligations or other acts of the parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document, certificate or writing delivered pursuant hereto, or (c) waive compliance with any obligation, covenant, agreement or condition contained herein. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument or instruments in writing signed by the party against whom enforcement of any such extension or waiver is sought. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement. 12. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that no party hereto may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other party hereto. Except as provided in Section 5, nothing in this Agreement is intended to confer upon any person not a party hereto (and their successors and assigns) any rights, remedies, obligations or liabilities under or by reason of this Agreement. 13. Survival of Representations, Warranties and Covenants. The representations and warranties contained herein shall survive the Closing and shall thereupon terminate eighteen (18) months from the Closing, except that the representations contained in Sections 3(a), 3(b), 4(a), and 4(b) shall survive indefinitely. All covenants and agreements contained herein which by their terms contemplate actions following the Closing shall survive the Closing and remain in full force and effect in accordance with their terms. All other covenants and agreements contained herein shall not survive the Closing and shall thereupon terminate. 14. Headings; Definitions. The Section headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections contained herein mean Sections of this Agreement unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms 15. Severability. If any provision of this Agreement or the application thereof to any person or circumstance is held to be invalid or unenforceable to any extent, the remainder of this 16 Agreement shall remain in full force and effect and shall be reformed to render the Agreement valid and enforceable while reflecting to the greatest extent permissible the intent of the parties. 16. Notices. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below: If to the Company: ----------------- Continental Southern Resources, Inc. 111 Presidential Boulevard, Suite 158A Bala Cynwyd, PA 19004 Attention: Stephen P. Harrington, President with a copy to: -------------- Spector Gadon & Rosen, P.C. Seven Penn Center 1635 Market Street, 7th Floor Philadelphia, PA 19103 Attention: Vincent A. Vietti, Esquire If to Purchaser: --------------- To that address indicated on the signature page hereof. 17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 18. Arbitration. If a dispute arises as to the interpretation of this Agreement, it shall be decided in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration then in effect at the time of the dispute. The arbitration shall take place in the Commonwealth of Pennsylvania. The decision of the arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. The parties shall share equally the costs of the arbitration. 19. Counterparts. This Agreement may be executed and delivered by facsimile in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. [Remainder of page intentionally left blank] 17 IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have caused this Agreement to be executed as of the date set forth below. PURCHASER Date: _____________________ _____________________________________ By:__________________________________ Name: Title: Address: Number of Shares Purchased: _________ Purchase Price @ $2.00 per Share: $_________________ CONTINENTAL SOUTHERN RESOURCES, INC. Date:______________________ By:__________________________________ Stephen P. Harrington President 18 EX-10.26 18 h13916exv10w26.txt REGISTRATION RIGHTS AGREEMENT DATED 2/26/2004 EXHIBIT 10.26 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "AGREEMENT") is made and entered into as of February 26, 2004 (the "EFFECTIVE DATE") among Continental Southern Resources, Inc., a Nevada corporation (the "COMPANY"), the parties set forth Exhibit A hereto (each, a "PURCHASER" and collectively, the "PURCHASERS"), and the parties set forth on the signature page. R E C I T A L S: A. The Purchasers have purchased shares of the Company's Common Stock (as defined below) pursuant to Subscription Agreements (each, a "SUBSCRIPTION AGREEMENT" and collectively, the "SUBSCRIPTION AGREEMENTS") by and between the Company and each Purchaser. B. The Company has issued a warrant (the "WARRANT") to purchase shares of the Company's Common Stock to Sanders Morris Harris Inc., a Texas corporation ("SMH"). C. Lancer Offshore, Inc., an international business company organized under the laws of the British Virgin Islands, and Lancer Partners, LP, a Connecticut limited partnership (together, "LANCER"), own shares of the Company's Common Stock. D. The Company, the Purchasers, SMH, and Lancer desire to set forth the registration rights to be granted by the Company to the Purchasers, SMH, and Lancer. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, and conditions set forth herein, in the Subscription Agreements, or otherwise, the parties mutually agree as follows: A G R E E M E N T: 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Blackout Period" means, with respect to a registration, a period in each case commencing on the day immediately after the Company notifies the Purchasers, SMH, and Lancer that they are required, pursuant to Section 4(f), to suspend offers and sales of Registrable Securities during which the Company, in the good faith judgment of its Board of Directors, determines (because of the existence of, or in anticipation of, any acquisition, financing activity, or other transaction involving the Company, or the unavailability for reasons beyond the Company's control of any required financial statements, disclosure of information which is in its best interest not to publicly disclose, or any other event or condition of similar significance to the Company) that the registration and distribution of the Registrable Securities to be covered by such registration statement, if any, would be seriously detrimental to the Company and its shareholders and ending on the earlier of (1) the date upon which the material non-public information commencing the Blackout Period is disclosed to the public or ceases to be material and (2) such time as the Company notifies the selling Holders that the Company will no longer delay such filing of the Registration Statement, recommence taking steps to make such Registration Statement effective, or allow sales pursuant to such Registration Statement to resume; provided, however, that (a) the Company shall limit its use of Blackout Periods, in the aggregate, to 60 Trading Days in any 12-month period and (b) no Blackout Period may commence sooner than 60 days after the end of a prior Blackout Period. "Business Day" means any day of the year, other than a Saturday, Sunday, or other day on which the Commission is required or authorized to close. "Closing Date" means February 26, 2004, or such other time as is mutually agreed between the Company and the Purchasers for the closing of the sale referred to in Recital A above. "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" means the common stock, par value $.001 per share, of the Company and any and all shares of capital stock or other equity securities of: (i) the Company which are added to or exchanged or substituted for the Common Stock by reason of the declaration of any stock dividend or stock split, the issuance of any distribution or the reclassification, readjustment, recapitalization or other such modification of the capital structure of the Company; and (ii) any other corporation, now or hereafter organized under the laws of any state or other governmental authority, with which the Company is merged, which results from any consolidation or reorganization to which the Company is a party, or to which is sold all or substantially all of the shares or assets of the Company, if immediately after such merger, consolidation, reorganization or sale, the Company or the stockholders of the Company own equity securities having in the aggregate more than 50% of the total voting power of such other corporation. "Equity Securities" means (i) any Common Stock, (ii) any security convertible, with or without consideration, into any Common Stock (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any Common Stock, or (iv) any such warrant or right. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Family Member" means (a) with respect to any individual, such individual's spouse, any descendants (whether natural or adopted), any trust all of the beneficial interests of which are owned by any of such individuals or by any of such individuals together with any organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, the estate of any such individual, and any corporation, association, partnership or limited liability company all of the equity interests of which are owned by those above described individuals, trusts or organizations and (b) with respect to any trust, the owners of the beneficial interests of such trust. 2 "Form S-1" means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the Commission, which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the Commission. "Form S-3" means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the Commission, which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the Commission. "Holder" means each Purchaser, SMH, Lancer, or any successor or Permitted Assignee of a Purchaser, SMH, or Lancer who acquire rights in accordance with this Agreement with respect to the Registrable Securities directly or indirectly from a Purchaser, SMH, or Lancer, including from any Permitted Assignee. "Inspector" means any attorney, accountant, or other agent retained by a Purchaser for the purposes provided in Section 4(j). "Offering Price" means the Offering Price set forth in the Placement Agent Agreement dated January 23, 2004, between the Company and SMH. "Permitted Assignee" means (a) with respect to a partnership, its partners or former partners in accordance with their partnership interests, (b) with respect to a corporation, its shareholders in accordance with their interest in the corporation, (c) with respect to a limited liability company, its members or former members in accordance with their interest in the limited liability company, (d) with respect to an individual party, any Family Member of such party, (e) an entity that is controlled by, controls, or is under common control with a transferor, or (f) a party to this Agreement. The terms "register," "registered," and "registration" refers to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registrable Securities" means (i) shares of Common Stock issued to each Purchaser pursuant to the Subscription Agreements (ii) shares of Common Stock issued or issuable to SMH pursuant to the Warrant, and (ii) 2,000,000 shares of Common Stock owned by Lancer, but in each case excluding (A) any Registrable Securities that have been publicly sold or may be publicly sold immediately without registration under the Securities Act either pursuant to Rule 144 of the Securities Act or otherwise; (B) any Registrable Securities sold by a person in a transaction pursuant to a registration statement filed under the Securities Act or (C) any Registrable Securities that are at the time subject to an effective registration statement under the Securities Act. "Registration Statement" means the registration statement required to be filed by the Company pursuant to Section 3(a). 3 "Securities Act" means the Securities Act of 1933, as amended, or any similar federal statute promulgated in replacement thereof, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "SEC Effective Date" means the date the Registration Statement is declared effective by the Commission. "Trading Day" means a day on whichever (a) the national securities exchange, (b) the Nasdaq Stock Market, or (c) such other securities market, in any such case which at the time constitutes the principal securities market for the Common Stock, is open for general trading of securities. 2. Term. This Agreement shall continue in full force and effect for a period of two (2) years from the Effective Date, unless terminated sooner hereunder. 3. Registration. (a) Registration on Form S-1 or S-3. As promptly as reasonably practicable after the date hereof, but in any event not later than 180 days after the Closing Date (the "REGISTRATION FILING DATE"), the Company shall file with the Commission a shelf registration statement on Form S-1 or, if the Company is eligible to use such form, Form S-3 relating to the resale by the Holders of all of the Registrable Securities; provided, however, that the Company shall not be obligated to effect any such registration, qualification, or compliance pursuant to this Section 3(a), or keep such registration effective pursuant to Section 4: (i) in any particular jurisdiction in which the Company would be required to qualify to do business as a foreign corporation or as a dealer in securities under the securities or blue sky laws of such jurisdiction or to execute a general consent to service of process in effecting such registration, qualification or compliance, in each case where it has not already done so; or (ii) during any Blackout Period, in which case the Registration Filing Date shall be extended to the date immediately following the last day of such Blackout Period. (b) Piggyback Registration. If prior to the date that the Company files a registration pursuant to Section 3(a), the Company shall determine to register for sale for cash any of its Common Stock, for its own account or for the account of others (other than the Holders), other than (i) a registration relating solely to employee benefit plans or securities issued or issuable to employees, consultants (to the extent the securities owned or to be owned by such consultants could be registered on Form S-8) or any of their Family Members (including a registration on Form S-8), (ii) a registration relating solely to a Commission Rule 145 transaction, a registration on Form S-4 in connection with a merger, acquisition, divestiture, reorganization, or similar event, or (iii) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered, the Company shall promptly give to the Holders written notice thereof (and in no event shall such notice be given less than 20 calendar days prior to the filing of such registration statement), and shall, subject to Section 3(c), include in such registration (and any related qualification under blue sky laws or other compliance) (a "PIGGYBACK REGISTRATION"), all of the Registrable Securities specified in a written request or requests, made within 10 calendar days after receipt of such written notice 4 from the Company, by any Holder or Holders. However, the Company may, without the consent of the Holders, withdraw such registration statement prior to its becoming effective if the Company or such other shareholders have elected to abandon the proposal to register the securities proposed to be registered thereby. (c) Underwriting. If a Piggyback Registration is for a registered public offering involving an underwriting, the Company shall so advise the Holders in writing or as a part of the written notice given pursuant to Section 3(b). In such event the right of any Holder to registration pursuant to Section 3(b) shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and any other shareholders of the Company distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company or selling shareholders, as applicable. Notwithstanding any other provision of this Section 3(c), if the underwriter or the Company determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may exclude some or all Registrable Securities from such registration and underwriting. The Company shall so advise all Holders (except those Holders who failed to timely elect to distribute their Registrable Securities through such underwriting or have indicated to the Company their decision not to do so), and the number of shares of Registrable Securities that may be included in the registration and underwriting, if any, shall be allocated among such Holders as follows: (i) In the event of a Piggyback Registration that is initiated by the Company, the number of shares that may be included in the registration and underwriting shall be allocated first to the Company and then, subject to obligations and commitments existing as of the date hereof, to all selling shareholders, including the Holders, who have requested to sell in the registration on a pro rata basis according to the number of shares requested to be included; and (ii) In the event of a Piggyback Registration that is initiated by the exercise of demand registration rights by a shareholder or shareholders of the Company (other than the Holders), then the number of shares that may be included in the registration and underwriting shall be allocated first to such selling shareholders who exercised such demand and then, subject to obligations and commitments existing as of the date hereof, to all other selling shareholders, including the Holders, who have requested to sell in the registration, on a pro rata basis according to the number of shares requested to be included. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter. The Registrable Securities and/or other securities so withdrawn from such underwriting shall also be withdrawn from such registration; provided, however, that, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the 5 maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities pursuant to the terms and limitations set forth herein in the same proportion used above in determining the underwriter limitation. 4. Registration Procedures. In the case of each registration, qualification, or compliance effected by the Company pursuant to Section 3 hereof, the Company will keep each Holder including securities therein reasonably advised in writing (which may include e-mail) as to the initiation of each registration, qualification, and compliance and as to the completion thereof. With respect to any registration statement filed pursuant to Section 3, the Company will use its commercially reasonable best efforts to: (a) prepare and file with the Commission with respect to such Registrable Securities, a registration statement on Form S-1, Form S-3, or any other form for which the Company then qualifies or which counsel for the Company shall deem appropriate, and which form shall be available for the sale of the Registrable Securities in accordance with the intended method(s) of distribution thereof, and use its commercially reasonable efforts to cause such registration statement to become and remain effective at least for a period ending with the first to occur of (i) the sale of all Registrable Securities covered by the registration statement, (ii) the availability under Rule 144 for the Holder to immediately, freely resell without restriction all Registrable Securities covered by the registration statement, (iii) one year after a registration statement filed pursuant to Section 3(a) is declared effective by the Commission (provided, however, that if the Company files a registration Form S-1 and subsequently becomes eligible to use Form S-3, it may file a post-effective amendment to such Form S-1 on Form S-3 prior to the end of such period and use its best efforts to cause such registration statement as amended to become effective until the end of such one-year period), or (iv) 90 days after a Piggyback Registration is declared effective by the Commission (in either case, the "EFFECTIVENESS PERIOD"); provided, however, if at the end of such one-year period, any Holder is not able to immediately, freely resell all Registrable Securities that it owns, the Effectiveness Period shall continue until terminated pursuant to clause (i) or (ii)(but in no event, more than two years after the SEC Effective Date); and provided that no later than two business days before filing with the Commission a registration statement or prospectus or any amendments or supplements thereto, the Company shall (i) furnish to (A) one special counsel ("HOLDERS COUNSEL") selected by the Company for the benefit of the Holders (which Holders Counsel initially shall be John T. Unger of Thompson & Knight LLP, Houston, Texas) and David E. Wells of Hunton & Williams, LLP, counsel to Lancer, copies of all such documents proposed to be filed (excluding any exhibits other than applicable underwriting documents), in substantially the form proposed to be filed, which documents shall be subject to the review of such Holders Counsel, and (ii) notify each Holder of Registrable Securities covered by such registration statement of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (b) if a registration statement is subject to review by the Commission, promptly respond to all comments and diligently pursue resolution of any comments to the satisfaction of the Commission; 6 (c) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective during the Effectiveness Period (but in any event at least until expiration of the 90-day period referred to in Section 4(3) of the Securities Act and Rule 174, or any successor thereto, thereunder, if applicable), and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended method(s) of disposition by the sellers thereof set forth in such registration statement; (d) furnish, without charge, to each Holder of Registrable Securities covered by such registration statement (i) a reasonable number of copies of such registration statement (including any exhibits thereto other than exhibits incorporated by reference), each amendment and supplement thereto as such Holder may request, (ii) such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any other prospectus filed under Rule 424 under the Securities Act) as such Holders may request, in conformity with the requirements of the Securities Act, and (iii) such other documents as such Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder, but only during the Effectiveness Period; (e) use its commercially reasonable best efforts to register or qualify such Registrable Securities under such other applicable securities or blue sky laws of such jurisdictions as any Holder of Registrable Securities covered by such registration statement reasonably requests as may be necessary for the marketability of the Registrable Securities (such request to be made by the time the applicable registration statement is deemed effective by the Commission) and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Holder; provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (e), (ii) subject itself to taxation in any such jurisdiction, or (iii) consent to general service of process in any such jurisdiction; (f) as promptly as practicable after becoming aware of such event, notify each Holder of such Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event which comes to the Company's attention if as a result of such event the prospectus included in such registration statement contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading and the Company shall promptly prepare and furnish to such Holder a supplement or amendment to such prospectus (or prepare and file appropriate reports under the Exchange Act) so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, unless suspension of the use of such prospectus otherwise is authorized herein or in the event of a Blackout Period, in which case no supplement or amendment need be furnished (or Exchange Act filing made) until the termination of such suspension or Blackout Period; 7 (g) comply, and continue to comply during the period that such registration statement is effective under the Securities Act, in all material respects with the Securities Act and the Exchange Act and with all applicable rules and regulations of the Commission with respect to the disposition of all securities covered by such registration statement, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months, but not more than 18 months, beginning with the first full calendar month after the SEC Effective Date, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. (h) as promptly as practicable after becoming aware of such event, notify each Holder of Registrable Securities being offered or sold pursuant to the Registration Statement of the issuance by the Commission of any stop order or other suspension of effectiveness of the Registration Statement at the earliest possible time; (i) permit the Holders of Registrable Securities being included in the Registration Statement and their legal counsel, at such Holders' sole cost and expense (except as otherwise specifically provided in Section 6) to review and have a reasonable opportunity to comment on the Registration Statement and all amendments and supplements thereto at least two Business Days prior to their filing with the Commission; (j) make available for inspection by any Holder and any Inspector retained by such Holder, at such Holder's sole expense, all Records as shall be reasonably necessary to enable such Holder to exercise its due diligence responsibility, and cause the Company's officers, directors, and employees to supply all information which such Holder or any Inspector may reasonably request for purposes of such due diligence; provided, however, that such Holder shall hold in confidence and shall not make any disclosure of any record or other information which the Company determines in good faith to be confidential, and of which determination such Holder is so notified at the time such Holder receives such information, unless (i) the disclosure of such record is necessary to avoid or correct a misstatement or omission in the Registration Statement and a reasonable time prior to such disclosure the Holder shall have informed the Company of the need to so correct such misstatement or omission and the Company shall have failed to correct such misstatement of omission, (ii) the release of such record is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction or (iii) the information in such record has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information in such records to any Inspector until and unless such Inspector shall have entered into a confidentiality agreement with the Company with respect thereto, substantially in the form of this Section 4(j), which agreement shall permit such Inspector to disclose records to the Holder who has retained such Inspector. Each Holder agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the records deemed confidential. The Company shall hold in confidence and shall not make any disclosure of information concerning a Holder provided to the Company pursuant to this Agreement unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) disclosure of such 8 information to the Staff of the Division of Corporation Finance is necessary to respond to comments raised by the Staff in its review of the Registration Statement, (iii) disclosure of such information is necessary to avoid or correct a misstatement or omission in the Registration Statement, (iv) release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, or (v) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning a Holder is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Holder and allow such Holder, at such Holder's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information; (k) use its best efforts to cause all the Registrable Securities covered by the Registration Statement to be listed or quoted on the principal securities market on which securities of the same class or series issued by the Company are then listed or traded; (l) provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities at all times; (m) cooperate with the Holders of Registrable Securities being offered pursuant to the Registration Statement to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates to be in such denominations or amounts as the Holders may reasonably request and registered in such names as the Holders may request; and (n) take all other reasonable actions necessary to expedite and facilitate disposition by the Holders of the Registrable Securities pursuant to the Registration Statement. 5. Suspension of Offers and Sales. Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(f) hereof or of the commencement of an Blackout Period, such Holder shall discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 4(f) hereof or notice of the end of the Blackout Period, and, if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies (including, without limitation, any and all drafts), other than permanent file copies, then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period mentioned in Section 4(a)(iii) hereof shall be extended by the greater of (i) ten business days or (ii) the number of days during the period from and including the date of the giving of such notice pursuant to Section 4(f) hereof to and including the date when each Holder of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 4(f) hereof. 9 6. Registration Expenses. The Company shall pay all expenses in connection with any registration, including, without limitation, all registration, filing, stock exchange and NASD fees, printing expenses, all fees and expenses of complying with securities or blue sky laws, the fees and disbursements of counsel for the Company and of its independent accountants, and the reasonable fees and disbursements of a Holders Counsel; provided that, in any underwritten registration, each party shall pay for its own underwriting discounts and commissions and transfer taxes. Except as provided above in this Section 6 and Section 10, the Company shall not be responsible for the expenses of any attorney or other advisor employed by a Holder of Registrable Securities. 7. Preemptive Rights. (a) Subsequent Offerings. In the event the Company issues and sells Equity Securities other than the Equity Securities excluded by Section 7(e) hereof at a price or conversion or exercise price, as the case may be, that is less than $2.00 per share of Common Stock, each Holder who qualifies as an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities act (an "ELIGIBLE HOLDER") shall have a preemptive right to purchase such number of shares of Equity Securities necessary for such Eligible Holder to maintain its percentage ownership position in the Company. Each Eligible Holder's preemptive share is equal to the ratio of (a) the number of shares of the Company's Common Stock of which such Eligible Holder is deemed to be a holder immediately prior to the issuance of such Equity Securities to (b) the total number of shares of the Company's outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of any security of the Company or upon the exercise of any outstanding warrants, options, or rights to subscribe to or purchase any Common Stock or other security of the Company) immediately prior to the issuance of the Equity Securities. (b) Exercise of Preemptive Rights. If the Company issues any Equity Securities, it shall give each Eligible Holder written notice of such issuance, describing the Equity Securities and the price and the terms and conditions upon which the Company issued the same and shall provide each Eligible Holder with access to any information regarding such offering and the Company, provided to the purchasers of Equity Securities. Each Eligible Holder shall have 10 Business Days from the giving of such notice to exercise its preemptive right to purchase Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to any Holder who would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale. (c) Issuance of Equity Securities to Other Persons. The Company shall have 90 days after expiration of the 10-Business Day period set forth in Section 7(b) to sell the Equity Securities in respect of which the Holders' rights were not exercised, at a price and upon general terms and conditions materially no more favorable to the purchasers thereof than specified in the Company's notice to the Eligible Holders pursuant to Section 7(b) hereof. If the Company has not sold such Equity Securities within 90 days of the notice provided pursuant to Section 7(b), 10 the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the Eligible Holders in the manner provided above. (d) Termination and Waiver of Preemptive Rights. The preemptive rights established by this Section 7 shall terminate upon the earlier of (i) the effective date of a registration statement pursuant to Section 3(a) or (ii) twelve months after the Closing Date. (e) Excluded Securities. The preemptive rights established by this Section 4 shall have no application to any of the following Equity Securities: (i) up to 7,200,000 shares (as may be adjusted for any stock dividend, combinations, splits, recapitalizations and the like) of Common Stock (and/or options, warrants or other Common Stock purchase rights issued pursuant to such options, warrants or other rights) issued or to be issued after the date hereof to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the board of directors of the Company; (ii) capital stock of the Company issued or issuable pursuant to any rights or agreements outstanding as of the date of this Agreement, options and warrants outstanding as of the date of this Agreement, and capital stock issued pursuant to or upon the exercise of any such rights or agreements granted after the date of this Agreement; provided that in the case of rights or agreements granted after the date of this Agreement, the pre-emptive right established by this Section 7 applied with respect to the initial sale or grant by the Company of such rights or agreements and such rights or agreements were approved by the board of directors of the Company; (iii) shares of Common Stock issued in connection with any stock split, dividend, combination, distribution, or recapitalization; or (iv) any Equity Securities issued for consideration other than cash in connection with any merger, consolidation, strategic alliance, acquisition, or similar business combination approved by the board of directors of the Company. 8. Assignment of Rights. No Holder may assign its rights under this Agreement to any party without the prior written consent of the Company; provided, however, that a Holder may assign its rights under this Agreement without such restrictions to a Permitted Assignee as long as (a) such transfer or assignment is effected in accordance with applicable securities laws; (b) such transferee or assignee agrees in writing to become subject to the terms of this Agreement; and (c) the Company is given written notice by such Holder of such transfer or assignment, stating the name and address of the transferee or assignee and identifying the Registrable Securities with respect to which such rights are being transferred or assigned. 9. Information by Holder. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may request in writing. 11 10. Indemnification. (a) In the event of the offer and sale of Registrable Securities held by Holders under the Securities Act, the Company shall, and hereby does, indemnify and hold harmless, to the fullest extent permitted by law, each Holder, its directors, officers, partners, each other person who participates as an underwriter in the offering or sale of such securities, and each other person, if any, who controls or is under common control with such Holder or any such underwriter within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities, joint or several, and expenses to which the Holder or any such director, officer, partner or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such shares were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading, and the Company shall reimburse the Holder, and each such director, officer, partner, underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating, defending or settling any such loss, claim, damage, liability, action or proceeding; provided that the foregoing shall not apply to, and the Company shall not be liable, in any such case (i) to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by or on behalf of such Holder specifically stating that it is for use in the preparation thereof, (ii) provided that the Company has complied with its obligations hereunder to furnish such Holder with copies of the applicable prospectus, if the person asserting any such loss, claim, damage, liability (or action or proceeding in respect thereof) who purchased the Registrable Securities that are the subject thereof did not receive a copy of an amended preliminary prospectus or the final prospectus (or the final prospectus as amended or supplemented) at or prior to the written confirmation of the sale of such Registrable Securities to such person because of the failure of such Holder or underwriter to so provide such amended preliminary or final prospectus and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact made in such preliminary prospectus was corrected in the amended preliminary or final prospectus (or the final prospectus as amended or supplemented), or (iii) provided that the plan of distribution mechanics described in the applicable prospectus are, in form and substance, reasonable and customary for transactions of this type, to the extent that the Holders failed to comply with the terms of such plan of distribution mechanics. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holders, or any such director, officer, partner, underwriter or controlling person and shall survive the transfer of such shares by the Holder. 12 (b) As a condition to including any Registrable Securities to be offered by a Holder in any registration statement filed pursuant to this Agreement, each such Holder agrees to be bound by the terms of this Section 10 and to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors and officers, and each other person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, legal counsel and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement and any controlling person within the meaning of the Securities Act of any such underwriter or other Holder, against any losses, claims, damages or liabilities, joint or several, to which the Company or any such director or officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon (i) an untrue statement or alleged untrue statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information about such Holder as a Holder of the Company furnished to the Company, (ii) provided that the Company has complied with its obligations hereunder to furnish such Holder with copies of the applicable prospectus, if the person asserting any such loss, claim, damage, liability (or action or proceeding in respect thereof) who purchased the Registrable Securities that are the subject thereof did not receive a copy of an amended preliminary prospectus or the final prospectus (or the final prospectus as amended or supplemented) at or prior to the written confirmation of the sale of such Registrable Securities to such person because of the failure of such Holder or underwriter to so provide such amended preliminary or final prospectus and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact made in such preliminary prospectus was corrected in the amended preliminary or final prospectus (or the final prospectus as amended or supplemented), or (iii) provided that the plan of distribution mechanics described in the applicable prospectus are, in form and substance, reasonable and customary for transactions of this type, to the extent that the Holders failed to comply with the terms of such plan of distribution mechanics. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holders, or any such director, officer, partner, underwriter or controlling person and shall survive the transfer of such shares by the Holder, and such Holder shall reimburse the Company, and each such director, officer, legal counsel and accountants, underwriter, other Holder, and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating, defending, or settling and such loss, claim, damage, liability, action, or proceeding; provided, however, that such indemnity agreement found in this Section 10(b) shall in no event exceed the gross proceeds from the offering received by such Holder. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer by any Holder of such shares. (c) Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in Section 10(a) or (b) hereof (including any governmental action), such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the indemnifying party of the commencement of such action; provided that the failure of any indemnified party to give notice 13 as provided herein shall not relieve the indemnifying party of its obligations under Section 10(a) or (b) hereof, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in the reasonable judgment of counsel to such indemnified party a conflict of interest between such indemnified and indemnifying parties may exist or the indemnified party may have defenses not available to the indemnifying party in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties arises in respect of such claim after the assumption of the defenses thereof or the indemnifying party fails to defend such claim in a diligent manner, other than reasonable costs of investigation. Neither an indemnified nor an indemnifying party shall be liable for any settlement of any action or proceeding effected without its consent. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement, which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. Notwithstanding anything to the contrary set forth herein, and without limiting any of the rights set forth above, in any event any party shall have the right to retain, at its own expense, counsel with respect to the defense of a claim. (d) In the event that an indemnifying party does or is not permitted to assume the defense of an action pursuant to Section 10(c) or in the case of the expense reimbursement obligation set forth in Section 10(a) and (b), the indemnification required by Section 10(a) and (b) hereof shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills received or expenses, losses, damages, or liabilities are incurred. (e) If the indemnification provided for in this Section 10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall (i) contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense as is appropriate to reflect the proportionate relative fault of the indemnifying party on the one hand and the indemnified party on the other (determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission), or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or provides a lesser sum to the indemnified party than the amount hereinafter calculated, not only the proportionate relative fault of the indemnifying party and the indemnified party, but also the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other, as well as any other relevant equitable considerations. No indemnified party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall 14 be entitled to contribution from any indemnifying party who was not guilty of such fraudulent misrepresentation. (f) Other Indemnification. Indemnification similar to that specified in the preceding subsections of this Section 10 (with appropriate modifications) shall be given by the Company and each Holder of Registrable Securities with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. 11. Miscellaneous (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America, both substantive and remedial. Any judicial proceeding brought against either of the parties to this agreement or any dispute arising out of this Agreement or any matter related hereto shall be brought in the courts of the State of Texas, Harris County, or in the United States District Court for the Southern District of Texas and, by its execution and delivery of this agreement, each party to this Agreement accepts the jurisdiction of such courts. The foregoing consent to jurisdiction shall not be deemed to confer rights on any person other than the parties to this Agreement. (b) Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, Permitted Assigns, executors and administrators of the parties hereto. In the event the Company merges with, or is otherwise acquired by, a direct or indirect subsidiary of a publicly traded company, the Company shall condition the merger or acquisition on the assumption by such parent company of the Company's obligations under this Agreement. (c) Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof. (d) Notices, etc. All notices or other communications which are required or permitted under this Agreement shall be in writing and sufficient if delivered by hand, by facsimile transmission, by registered or certified mail, postage pre-paid, by electronic mail, or by courier or overnight carrier, to the persons at the addresses set forth below (or at such other address as may be provided hereunder), and shall be deemed to have been delivered as of the date so delivered: If to the Company: Continental Southern Resources, Inc. 111 Presidential Boulevard, Suite 158A Bala Cynwyd, Pennsylvania 19004 Attention: Stephen P. Harrington Facsimile: 610-__________ e-mail: shags@comcast.com 15 If to the Purchasers: To each Purchaser at the address set forth on Exhibit A with a copy to: Sanders Morris Harris Inc. 600 Travis, Suite 3100 Houston, Texas 77002 Attention: President Facsimile: ( 713) 224-1101 e-mail: ben.morris@smhhou.com If to Lancer: Marty Steinberg, Esq., as the Receiver for Lancer Management Group II, LLC, Lancer Offshore, Inc., and as the party in control of Lancer Partners, LP. c/o David E. Wells Hunton & Williams, LLP 1111 Brickell Avenue, Suite 2500 Miami, Florida 33131 Facsimile: (305) 810-2460 e-mail: dwells@hunton.com or at such other address as any party shall have furnished to the other parties in writing. (e) Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any Holder of any Registrable Securities, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such Holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereunder occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Holder of any breach or default under this Agreement, or any waiver on the part of any Holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, or by law or otherwise afforded to any holder, shall be cumulative and not alternative. (f) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. (g) Severability. In the case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (h) Amendments. The provisions of this Agreement may be amended at any time and from time to time, and particular provisions of this Agreement may be waived, with and only with an agreement or consent in writing signed by the Company and by the holders of a majority 16 of the number of shares of Registrable Securities outstanding as of the date of such amendment or waiver. The Purchasers acknowledge that by the operation of this Section 11(h), the holders of a majority of the outstanding Registrable Securities may have the right and power to diminish or eliminate all rights of the Purchasers under this Agreement. (i) Limitation on Subsequent Registration Rights. After the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least a majority of the Registrable Share then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder registration rights senior to those granted to the Holder hereunder. [Signatures on the following page] 17 This Registration Rights Agreement is hereby executed as of the date first above written. COMPANY: CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ STEPHEN P. HARRINGTON -------------------------------------- Name: Stephen P. Harrington Title: President SANDERS MORRIS HARRIS INC., Individually and as Agent and Attorney in Fact for the Purchasers listed on Exhibit A attached hereto By: /s/ JOHN MALANGA -------------------------------------- Name: John Malanga Title: Vice President LANCER OFFSHORE, INC. By: /s/ MARTY STEINBERG -------------------------------------- Name: Marty Steinberg Title: Receiver LANCER PARTNERS, LP By: /s/ MARTY STEINBERG -------------------------------------- Name: Marty Steinberg Title: Party in Control 18 Exhibit A Purchaser Information [INTENTIONALLY OMITTED] 19 EX-10.28 19 h13916exv10w28.txt INTEREST PURCHASE AGMT. DATED 2/26/2004 EXHIBIT 10.28 INTEREST PURCHASE AGREEMENT BY AND BETWEEN CONTINENTAL SOUTHERN RESOURCES, INC. AND KNOX GAS, LLC FEBRUARY 26, 2004
TABLE OF CONTENTS 1.1 The Purchase and Sale...........................................................................1 2.1 Closing Date....................................................................................2 2.2 Closing Deliveries..............................................................................2 3.1 Organization and Qualification..................................................................3 3.2 Authorization; Validity and Effect of Agreement.................................................3 3.3 No Conflict; Required Filings and Consents......................................................4 3.4 Investment Intent...............................................................................4 3.5 Brokers and Finders Fees........................................................................5 4.1 Organization and Qualification..................................................................5 4.2 Authorization; Validity and Effect of Agreement.................................................5 4.3 No Conflict; Required Filings and Consents......................................................5 4.4 Title to LP Interest............................................................................6 4.5 Brokers and Finders.............................................................................6 5.1 Access to Information...........................................................................6 5.2 Confidentiality; No Solicitation................................................................7 5.3 Best Efforts; Consents..........................................................................8 5.4 Further Assurances..............................................................................8 5.5 Public Announcements............................................................................8 5.6 Notification of Certain Matters.................................................................9 5.7 Prohibition on Trading in Securities............................................................9 6.1 Mutual Conditions to Obligations of the Company and Knox Gas....................................9 6.2 Conditions to Obligations of Knox Gas..........................................................11 6.3 Conditions to Obligations of the Company.......................................................11 7.1 Indemnification by the Parties.................................................................12 7.2 Indemnification Procedures for Third-Party Claims..............................................12 7.3 Indemnification Procedures for Non-Third Party Claims..........................................13 7.4 Limitations on Indemnification.................................................................14 7.5 Exclusive Remedy...............................................................................14 8.1 Entire Agreement...............................................................................14 8.2 Amendment and Modifications....................................................................15 8.3 Extensions and Waivers.........................................................................15 8.4 Successors and Assigns.........................................................................15 8.5 Survival of Representations, Warranties and Covenants..........................................15 8.6 Headings; Definitions..........................................................................15 8.7 Severability...................................................................................16 8.8 Specific Performance...........................................................................16 8.9 Expenses.......................................................................................16 8.10 Notices........................................................................................16 8.11 Governing Law..................................................................................17 8.12 Arbitration....................................................................................17 8.13 Counterparts...................................................................................17 8.14 Certain Definitions............................................................................17
i Exhibits 1.1(b)(ii) Form of Note 2.2(a)(2) Form of Pledge Agreement 3.1 Certificate of Formation and Operating Agreement of Knox Gas, LLC ii INTEREST PURCHASE AGREEMENT THIS INTEREST PURCHASE AGREEMENT (the "Agreement"), is made and entered into this 26th day of February, 2004, by and between CONTINENTAL SOUTHERN RESOURCES, INC. a Nevada corporation (the "Company"), and KNOX GAS, LLC, a Delaware limited liability company ("Knox Gas"). RECITALS WHEREAS, the Board of Directors of the Company and the Managers and Members of Knox Gas have approved, and deem it advisable and in the best interests of their respective companies and stockholders or interest holders, as the case may be, to consummate the transactions contemplated hereby upon the terms and subject to the conditions set forth in this Agreement; and WHEREAS, the Company wishes to sell to Knox Gas, and Knox Gas wishes to purchase, a certain partnership interests owned by the Company in exchange for cash consideration and a note payable (the transactions contemplated hereby (other than those set forth in Section 6.1 hereof) collectively referred to herein as, the "Transactions"). NOW, THEREFORE, in consideration of the foregoing premises and representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE I THE PURCHASE AND SALE 1.1 THE PURCHASE AND SALE. (a) The Purchase and Sale. Upon the terms and subject to the conditions set forth in this Agreement, the Company shall sell, and Knox Gas shall purchase, the Company's ninety-nine percent (99%) limited partnership interest (the "LP Interest") in Knox Miss. Partners, L.P. ("Knox Miss"), and the Company's one percent (1%) membership interest in Knox Miss., LLC, the general partner in Knox Miss (the "Membership Interest"; together with the LP Interest, the "Interests"). (b) Purchase Price. In consideration for the sale of the Interests by the Company to Knox Gas and for other covenants and agreements of the Company contained herein, Knox Gas shall transfer to the Company five million dollars ($5,000,000) (the "Purchase Price") as follows: (i) Five hundred thousand dollars ($500,000) (the "Deposit") as of the date hereof, which amount will be applied against the Purchase Price on the Closing Date (as defined below); and (ii) The issuance of a note dated as of the Closing Date substantially in the form attached hereto as Exhibit 1.1(b)(ii) (the "Note") payable to the Company in the amount of four million, five hundred thousand dollars ($4,500,000), issuable to the Company upon the Closing Date and secured by the Pledge Agreement (as defined in Section 2.2(a)(ii)). ARTICLE II THE CLOSING 2.1 CLOSING DATE. The closing of the Transactions (the "Closing") shall take place as of the date hereof (the "Closing Date") at the offices of the Company or at such other place as may be mutually agreed upon in writing by the parties hereto. 2.2 CLOSING DELIVERIES. (a) At the Closing, Knox Gas shall deliver or cause to be delivered to the Company the following documents: (i) The Note; (ii) A pledge agreement substantially in the form attached hereto as Exhibit 2.2(a)(ii) (the "Pledge Agreement"); (iii) An incumbency certificate signed by the Manager of Knox Gas dated at or about the Closing Date; (iv) A certificate of good standing from the Secretary of State of the State of Delaware, dated at or about the Closing Date, to the effect that Knox Gas is in good standing under the laws of said state; (v) Certificate of Formation of Knox Gas certified by the Secretary of State of the State of Delaware at or about the Closing Date and the Operating Agreement of Knox Gas certified by the Manager of Knox Gas at or about the Closing Date; (vi) Manager and/or Member resolutions of Knox Gas dated at or about the Closing Date authorizing the Transactions, certified by the Manager of Knox Gas; (vii) Such other documents, instruments and consents required to consummate the Transactions and to comply with the terms hereof. (b) At the Closing, the Company shall deliver or cause to be delivered to Knox Gas the following documents: (i) All agreements evidencing the Interests; 2 (ii) An incumbency certificate signed by all of the executive officers of the Company dated at or about the Closing Date; (iii) A certificate of good standing from the Secretary of State of the State of Nevada, dated at or about the Closing Date, to the effect that the Company is in good standing under the laws of said state; (iv) Board resolutions of the Company dated at or about the Closing Date authorizing the Transactions, certified by the Secretary of the Company; and (v) Such other documents, instruments and consents required to consummate the Transactions and to comply with the terms hereof. (c) Each of the parties to this Agreement shall have otherwise executed whatever documents and agreements, provided whatever consents or approvals and shall have taken all such other actions as are required under this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF KNOX GAS Knox Gas hereby makes the following representations and warranties to the Company. 3.1 ORGANIZATION AND QUALIFICATION. Knox Gas is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, with full power and authority to own and operate its business as presently conducted, except where the failure to be or have any of the foregoing would not have a Material Adverse Effect. Knox Gas is duly qualified as a foreign entity to do business and is in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not, individually or in the aggregate, have a Material Adverse Effect. Knox Gas has no subsidiaries. True, correct and complete copies of the Certificate of Formation and Operating Agreement of Knox Gas, as amended to date, are attached hereto as Exhibit 3.1. 3.2 AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENT. Knox Gas has the requisite power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the Transactions. The execution and delivery of this Agreement by Knox Gas and the performance by Knox Gas of its obligations hereunder and the consummation of the Transactions have been duly authorized by its Manager, all other necessary company action on the part of Knox Gas has been taken, and no other company proceedings on the part of Knox Gas are necessary to authorize this Agreement and the Transactions. This Agreement has been duly and validly executed and delivered by Knox Gas 3 and, assuming that it has been duly authorized, executed and delivered by the other parties hereto, constitutes a legal, valid and binding obligation of Knox Gas, enforceable against it in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 3.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Neither the execution and delivery of this Agreement by Knox Gas nor the performance by Knox Gas of its obligations hereunder, nor the consummation of the Transactions, will: (i) conflict with Knox Gas's Certificate of Formation or Operating Agreement; (ii) violate any statute, law, ordinance, rule or regulation applicable to Knox Gas or any of the properties or assets of Knox Gas; or (iii) violate, breach, be in conflict with or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of Knox Gas under, or result in the creation or imposition of any Liens upon any properties, assets or business of Knox Gas under, any material contract or any order, judgment or decree to which Knox Gas is a party or by which Knox Gas or any of its assets or properties is bound or encumbered except, in the case of clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a Material Adverse Effect or would not prevent the consummation of this Agreement or the Transactions. 3.4 INVESTMENT INTENT. The Interests being acquired in connection with the Transactions is being acquired for Knox Gas's own account for investment purposes only and not with a view to, or with any present intention of, distributing or reselling any of such Interests. Knox Gas acknowledges and agrees that the Interests has not been registered under the Securities Act or under any state securities laws, and that the Interests may not be, directly or indirectly, sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and applicable state securities laws, except pursuant to an available exemption from such registration. Knox Gas also acknowledges and agrees that neither the SEC nor any securities commission or other Governmental Authority has (a) approved the transfer of the Interests or passed upon or endorsed the merits of the transfer of the Interest, this Agreement or the Transactions; or (b) confirmed the accuracy of, determined the adequacy of, or reviewed this Agreement. Knox Gas has such knowledge, sophistication and experience in financial, tax and business matters in general, and investments in securities in particular, that it is capable of evaluating the merits and risks of this investment in the Interests, and Knox Gas has made such investigations in connection herewith as it deemed necessary or desirable so as to make an informed investment decision without relying upon the Company for legal or tax advice related to this investment. Knox Gas and each of its Members are "accredited investors" within the meaning of Rule 501 promulgated under the Securities Act. 4 3.5 BROKERS AND FINDERS FEES. Neither Knox Gas nor any of its officers, directors, employees or managers has employed any broker or finder or incurred any liability for any investment banking fees, brokerage fees, commissions or finders fees in connection with the Transactions for which Knox Gas has or could have any liability. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby makes the following representations and warranties to Knox Gas: 4.1 ORGANIZATION AND QUALIFICATION. The Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of its organization, with the corporate power and authority to own and operate its business as presently conducted, except where the failure to be or have any of the foregoing would not have a Material Adverse Effect. The Company is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not have a Material Adverse Effect. 4.2 AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENT. The Company has the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the Transactions. The execution and delivery of this Agreement by the Company and the performance by the Company of its obligations hereunder and the consummation of the Transactions have been duly authorized by its Board of Directors and all other necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement and the Transactions. This Agreement has been duly and validly executed and delivered by the Company and, assuming that it has been duly authorized, executed and delivered by the other parties hereto, constitutes a legal, valid and binding obligation of the Company, in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 4.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Neither the execution and delivery of the Agreement by the Company nor the performance by the Company of its obligations hereunder, nor the consummation of the Transactions, will: (i) conflict with the Company's Articles of Incorporation or Bylaws; (ii) violate any statute, law, ordinance, rule or regulation, applicable to the Company or any of the 5 properties or assets of the Company; or (iii) violate, breach, be in conflict with or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of the Company, or result in the creation or imposition of any Lien upon any properties, assets or business of the Company under, any material contract or any order, judgment or decree to which the Company is a party or by which it or any of its assets or properties is bound or encumbered except, in the case of clauses (ii) and (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a material adverse effect on its obligation to perform its covenants under this Agreement. 4.4 TITLE TO LP INTEREST. The Company has good and marketable title to the LP Interest and is the sole record and beneficial owner of the LP Interest, free and clear of any Liens. With the exception of this Agreement, there are no outstanding options, warrants, agreements, conversion rights, preemptive rights or other rights to purchase or otherwise acquire the LP Interest, nor are there any obligations of any Person to purchase, redeem or otherwise acquire the LP Interest. There are no voting trusts or other agreements or understandings to which the Company is a party with respect to the voting of the LP Interest, nor is there any indebtedness of the Company issued and outstanding that has general voting rights with respect to the LP Interest. 4.5 BROKERS AND FINDERS. Neither the Company nor any of its officers, directors, employees or managers has employed any broker or finder or incurred any liability for any investment banking fees, brokerage fees, commissions or finders' fees in connection with the Transactions for which the Company has or could have any liability. ARTICLE V CERTAIN COVENANTS 5.1 ACCESS TO INFORMATION. At all times prior to the Closing or the earlier termination of this Agreement in accordance with the provisions of Article VIII, and in each case subject to Section 5.2 below, each party hereto shall provide to the other party (and the other party's authorized representatives) reasonable access during normal business hours and upon reasonable prior notice to the premises, properties, books, records, assets, liabilities, operations, contracts, personnel, financial information and other data and information of or relating to such party (including without limitation all written proprietary and trade secret information and documents, and other written information and documents relating to intellectual property rights and matters), and will cooperate with the other party in conducting its due diligence investigation of such party, provided that the party granted such access shall not interfere unreasonably with the operation of the business conducted by the party granting access, and provided that no such access need be 6 granted to privileged information or any agreements or documents subject to confidentiality agreements. 5.2 CONFIDENTIALITY; NO SOLICITATION. (a) Confidentiality. Each party shall hold, and shall cause its respective Affiliates and representatives to hold, all Confidential Information made available to it in connection with the transactions contemplated under this Agreement in strict confidence, shall not use such information except for the sole purpose of evaluating the Transactions and shall not disseminate or disclose any of such information other than to its directors, officers, managers, employees, shareholders, interest holders, Affiliates, agents and representatives, as applicable, who need to know such information for the sole purpose of evaluating the Transactions and with respect to representatives, advisors and Affiliates of the Persons involved in the transactions described in Section 6.1, including potential investors in the contemplated private offering of the Company's common stock, par value $.001 per share ("Common Stock") (each of whom shall be informed in writing by the disclosing party of the confidential nature of such information and directed by such party in writing to treat such information confidentially). If this Agreement is terminated pursuant to the provisions of Article VIII, each party shall immediately return to the other party all such information, all copies thereof and all information prepared by the receiving party based upon the same. The above limitations on use, dissemination and disclosure shall not apply to Confidential Information that (i) is learned by the disclosing party from a third party entitled to disclose it; (ii) becomes known publicly other than through the disclosing party or any third party who received the same from the disclosing party, provided that the disclosing party had no Knowledge that the disclosing party was subject to an obligation of confidentiality; (iii) is required by law or court order to be disclosed by the parties; or (iv) is disclosed with the express prior written consent thereto of the other party. The parties shall undertake all necessary steps to ensure that the secrecy and confidentiality of such information will be maintained in accordance with the provisions of this subsection (a). Notwithstanding anything contained herein to the contrary, in the event a party is required by court order or subpoena to disclose information which is otherwise deemed to be confidential or subject to the confidentiality obligations hereunder, prior to such disclosure, the disclosing party shall: (i) promptly notify the non-disclosing party and, if having received a court order or subpoena, deliver a copy of the same to the non-disclosing party; (ii) cooperate with the non-disclosing party, at the expense of the non-disclosing party, in obtaining a protective or similar order with respect to such information; and (iii) provide only that amount of information as the disclosing party is advised by its counsel is necessary to strictly comply with such court order or subpoena. (b) No Solicitation. Except as otherwise contemplated in this Agreement, the Company shall not, directly or indirectly, solicit any inquiries or proposals for, or enter into or continue or resume any discussions with respect to or enter into any negotiations or agreements relating to the sale or exchange of the Interests. The Company shall promptly notify the Company if any such proposal or offer, or any inquiry or contact with any Person or entity with respect thereto, is made. 7 5.3 BEST EFFORTS; CONSENTS. Subject to the terms and conditions herein provided, each of the Company and Knox Gas agrees to use all reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated under this Agreement and to cooperate with the others in connection with the foregoing, including using its reasonable efforts to (i) obtain all waivers, consents and approvals from other parties to loan agreements, leases, mortgages and other contracts necessary for the consummation of such transactions, (ii) make all filings with, and obtain all consents, approvals and authorizations that are required to be obtained from, Governmental Authorities, (iii) lift or rescind any injunction, restraining order, decree or other order adversely affecting the ability of the parties hereto to consummate such transactions, (iv) effect all necessary registrations and filings and submissions of information requested by Governmental Authorities, and (v) fulfill all conditions to this Agreement. Each of the Company and Knox Gas shall use all reasonable efforts to prevent the entry, enactment or promulgation of any threatened or pending preliminary or permanent injunction or other order, decree or ruling or statute, rule, regulation or executive order that would adversely affect the ability of the parties hereto to consummate such transactions. 5.4 FURTHER ASSURANCES. Subject to Section 5.3, each of the parties hereto agrees to use its reasonable best efforts before and after the Closing Date to take or cause to be taken all action, to do or cause to be done, and to assist and cooperate with the other party hereto in doing, all things necessary, proper or advisable under applicable laws to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated under this Agreement, including, but not limited to (i) the satisfaction of the conditions precedent to the obligations of any of the parties hereto; (ii) to the extent consistent with the obligations of the parties set forth in Section 5.3, the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the performance of the obligations hereunder; and (iii) the execution and delivery of such instruments, and the taking of such other actions, as the other party hereto may reasonably require in order to carry out the intent of this Agreement. 5.5 PUBLIC ANNOUNCEMENTS. The Company and Knox Gas shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereunder, and shall not issue any other press release or make any other public statement without prior consent of the other parties, except as may be required by law or, with respect to the Company, by obligations pursuant to rule or regulation of the Exchange Act, the Securities Act, any rule or regulation promulgated thereunder or any rule or regulation of the National Association of Securities Dealers. 8 5.6 NOTIFICATION OF CERTAIN MATTERS. Each party hereto shall promptly notify the other party in writing of any events, facts or occurrences that would result in any breach of any representation or warranty or breach of any covenant by such party contained in this Agreement. 5.7 PROHIBITION ON TRADING IN SECURITIES. Knox Gas acknowledges that information concerning the matters that are the subject matter of this Agreement may constitute material non-public information under United States federal securities laws, and that United States federal securities laws prohibit any Person who has received material non-public information relating to the Company from purchasing or selling securities of the Company, or from communicating such information to any Person under circumstances in which it is reasonably foreseeable that such Person is likely to purchase or sell securities of the Company. Accordingly, until such time as any such non-public information has been adequately disseminated to the public, Knox Gas shall not purchase or sell any securities of the Company, or communicate such information to any other Person. ARTICLE VI CONDITIONS TO CONSUMMATION OF THE TRANSACTION 6.1 MUTUAL CONDITIONS TO OBLIGATIONS OF THE COMPANY AND KNOX GAS. The obligations of the Company and Knox Gas to consummate the Transactions shall be subject to the fulfillment, or written waiver by each of the Company and Knox Gas, at or prior to the Closing, of each of the following conditions: (a) Trident Growth Fund, L.P. ("Trident") shall receive (i) an aggregate of approximately 375,000 shares of common stock, $.001 per share ("Common Stock"), of the Company in full satisfaction and release of all amounts, liabilities and obligations due and owing by Parent to Trident under that certain First Amended Loan Agreement between the Company and Trident, the First Amended Security Agreement between the Company and Trident and the 6% Secured Convertible Promissory Note in the principal amount of $600,000, all dated July 29, 2003 (collectively, the "Trident 2003 Loan Documents"), and (ii) $1,500,000 cash, payable in good funds, in full satisfaction and release of all amounts, liabilities and obligations due and owing by the Company to Trident under that certain Loan Agreement between the Company and Trident, the Security Agreement between the Company and Trident and the 12% Secured Convertible Promissory Note in the principal amount of $1,500,000, all dated April 5, 2002 (the "Trident 2002 Loan Documents," and together with the Trident 2003 Loan Documents, the "Trident Loan Documents"). In connection with the foregoing, Trident shall deliver and surrender to the Company (i) the original promissory notes issued by the Company in connection with the Trident Loan Documents, (ii) a release of the Company from any and all obligations under the Trident Loan Documents, and (iii) any other documentation necessary to facilitate the termination and release of all Liens on any asset of the Company; 9 (b) Michael P. Marcus ("Marcus") shall convert the full $1,550,000 principal amount due under the 12% convertible promissory notes issued by the Company to Marcus, dated October 18 and 30, 2002, and all accrued interest due thereunder, into shares of Common Stock. In connection with the foregoing, Marcus shall deliver and surrender to the Company (i) the original promissory notes issued by the Company in connection with the underlying loan documents, (ii) a release of the Company from any and all obligations under the underlying loan documents, and (iii) any other documentation necessary to facilitate the termination and release of all Liens on any asset of the Company; (c) The holders of all of the Company's outstanding shares of Series C Convertible Preferred Stock (the "Series C Preferred Stock") shall enter into an agreement with the Company, pursuant to which, on or prior to Closing, they will convert their shares of Series C Preferred Stock, and waive certain registration rights and other rights of such holders under such agreements; (d) The Company, CSOR Acquisition Corp. and NSNV, Inc. ("North Sea") shall enter into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which, on or prior to Closing, North Sea shall merge with and into CSOR Acquisition Corp., with the separate corporate existence of North Sea ceasing and CSOR Acquisition Corp. continuing as the surviving corporation (the "Merger"); (e) The Company shall purchase from RAM Trading Limited all of the shares of Series B Convertible Preferred Stock currently owned by Lancer Offshore, Inc. and approximately 14,100,000 shares of Common Stock currently owned by Lancer Offshore, Inc. and Lancer Partners, L.P.; (f) The Company shall complete a private offering of Common Stock for a minimum of $45,000,000 of gross proceeds (the "Equity Offering"); (g) The Company shall purchase from the holders of all of the Company's outstanding shares of Series A Convertible Preferred Stock and Series B Preferred Stock not owned by Lancer Offshore, Inc., Michael Laurer or their respective Affiliates (the "Non-Lancer/Laurer Series B Preferred Stock"), all of the shares of Series A Preferred Stock and Non-Lancer/Laurer Series B Preferred Stock in exchange for certain non-core assets of the Company, and in connection therewith provide a general release of the Company and its Affiliates from any and all pre-Closing claims (h) The Company shall have entered into employment agreements with each of William L. Transier and John N. Seitz; (i) No domestic or foreign governmental or regulatory agency, authority, bureau, commission, department, official or similar body or instrumentality thereof, or any governmental court, arbitral tribunal located or having jurisdiction in the United States shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, decree, judgment, injunction or other order, whether temporary, preliminary or permanent which is then in effect and has the effect of making the Closing illegal or otherwise prohibiting consummation 10 of the Closing; provided, that the parties use reasonable commercial efforts to challenge any decree, judgment or injunction or other order that is not final and non-applicable, but in no event will any party be required to expend in excess of $25,000 with respect to such challenge; and (j) There shall not be pending, instituted or threatened by any Person or Governmental Authority any suit, action, investigation or proceeding seeking to (i) alter, prevent, materially delay, restrain or prohibit the consummation of the Merger, the Equity Offering or the other transactions contemplated by this Agreement, (ii) obtain from the Company any damages that would have, or could reasonably be expected to have, a Material Adverse Effect on the Company, or (iii) seeking to prohibit or limit the ownership or operation by the Company of its businesses or assets in a manner that would have, or could reasonably be expected to have, a Material Adverse Effect on the Company. 6.2 CONDITIONS TO OBLIGATIONS OF KNOX GAS. The obligations of Knox Gas to consummate the Transactions shall be subject to the fulfillment, or written waiver by Knox Gas, at or prior to the Closing, of each of the following conditions: (a) The representations and warranties of the Company set out in this Agreement shall be true and correct in all material respects at and as of the time of the Closing as though such representations and warranties were made at and as of such time; (b) The Company shall have performed and complied in all material respects with all covenants, conditions, obligations and agreements required by this Agreement to be performed or complied with by the Company on or prior to the Closing Date; (c) There shall be delivered to Knox Gas an officer's certificate of the Company to the effect that the conditions set forth in Section 6.2(a) and (b) have been satisfied; and (d) The Company shall have made all the deliveries required of the Company under Section 2.2(a). 6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate the Transactions shall be subject to the fulfillment, or written waiver by the Company, at or prior to the Closing of each of the following conditions: (a) The representations and warranties of Knox Gas set out in this Agreement shall be true and correct in all material respects at and as of the time of the Closing as though such representations and warranties were made at and as of such time; (b) Knox Gas shall have performed and complied in all material respects with all covenants, conditions, obligations and agreements required by this Agreement to be performed or complied with by Knox Gas on or prior to the Closing Date; 11 (c) There shall be delivered to the Company a certificate of the Manager of Knox Gas to the effect that the conditions set forth in Section 6.2(a) and (b) hereof have been satisfied; (d) Knox Gas shall have made all the deliveries required of Knox Gas under Section 2.2(b); and (e) The Company shall have completed a due diligence review of the business, operations, financial condition and prospects of Knox Gas and shall have been satisfied with the results of its due diligence review in its sole and absolute discretion. ARTICLE VII INDEMNIFICATION 7.1 INDEMNIFICATION BY THE PARTIES. From and after the Closing Date, the Company or Knox Gas, as the case may be (the "Indemnitor"), shall indemnify and hold harmless Knox Gas or the Company, as the case may be (the "Indemnitee"), and its respective officers and directors (the Indemnitee and each such officer and director an "Indemnified Party"), from and against any and all demands, claims, actions or causes of action, judgments, assessments, losses, liabilities, damages or penalties and reasonable attorneys' fees and related disbursements (collectively, "Claims") suffered by such Indemnified Party resulting from or arising out of (i) any inaccuracy in or breach of any of the representations or warranties made by the Indemnitor herein, in any certificate, or in any other document delivered herewith or otherwise required hereby at the time they were made, and, except for representations and warranties that speak as of a specific date or time (which need only be true and correct as of such date or time), on and as of the Closing Date, (ii) any breach or nonfulfillment of any covenants or agreements made by the Indemnitor, and (iii) any misrepresentation made by the Indemnitor, in each case as made herein or in the Exhibits annexed hereto or in any closing certificate, schedule or any ancillary certificates or other documents or instruments furnished by the Indemnitor pursuant hereto or in connection with the Transactions. 7.2 INDEMNIFICATION PROCEDURES FOR THIRD-PARTY CLAIMS. (a) Upon obtaining Knowledge of any Claim by a third party which has given rise to, or is expected to give rise to, a claim for indemnification hereunder, the Indemnitee shall give written notice ("Notice of Claim") of such claim or demand to the Indemnitor, specifying in reasonable detail such information as the Indemnified Party may have with respect to such indemnification claim (including copies of any summons, complaint or other pleading which may have been served on it and any written claim, demand, invoice, billing or other document evidencing or asserting the same). Subject to the limitations set forth in Section 7.2(b) hereof, no failure or delay by the Indemnitee in the performance of the foregoing shall reduce or otherwise affect the obligation of the Indemnitor to indemnify and hold the Indemnified Party harmless, except to the extent that such failure or delay shall have actually adversely affected 12 Indemnitor's ability to defend against, settle or satisfy any Claims for which the Indemnified Party entitled to indemnification hereunder. (b) If the claim or demand set forth in the Notice of Claim given by the Indemnitee pursuant to Section 7.2(a) hereof is a claim or demand asserted by a third party, the Indemnitor shall have fifteen (15) days after the date on which Notice of Claim is given to notify the Indemnitee in writing of its election to defend such third party claim or demand on behalf of the Indemnified Party. If the Indemnitor elects to defend such third party claim or demand, the Indemnitee shall make available to the Indemnitor and its agents and representatives all records and other materials that are reasonably required in the defense of such third party claim or demand and shall otherwise cooperate with, and assist the Indemnitor in the defense of, such third party claim or demand, and so long as the Indemnitor is defending such third party claim in good faith, the Indemnified Party shall not pay, settle or compromise such third party claim or demand. If the Indemnitor elects to defend such third party claim or demand, the Indemnified Party shall have the right to participate in the defense of such third party claim or demand, at such Indemnified Party's own expense. In the event, however, that such Indemnified Party reasonably determines that representation by counsel to the Indemnitor of both the Indemnitor and such Indemnified Party could reasonably be expected to present counsel with a conflict of interest, then the Indemnified Party may employ separate counsel to represent or defend it in any such action or proceeding and the Indemnitor will pay the fees and expenses of such counsel. If the Indemnitor does not elect to defend such third party claim or demand or does not defend such third party claim or demand in good faith, the Indemnified Party shall have the right, in addition to any other right or remedy it may have hereunder, at the Indemnitor's expense, to defend such third party claim or demand; provided, however, that (i) such Indemnified Party shall not have any obligation to participate in the defense of, or defend, any such third party claim or demand; (ii) such Indemnified Party's defense of or its participation in the defense of any such third party claim or demand shall not in any way diminish or lessen the obligations of the Indemnitor under the agreements of indemnification set forth in this Article VII; and (iii) such Indemnified Party may not settle any claim without the consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed. (c) The Indemnitor and the Indemnitee and the other Indemnified Party, if any, shall cooperate fully in all aspects of any investigation, defense, pre-trial activities, trial, compromise, settlement or discharge of any claim in respect of which indemnity is sought pursuant to this Article VII, including, but not limited to, by providing the other party with reasonable access to employees and officers (including as witnesses) and other information. (d) Except for third party claims being defended in good faith, the Indemnitor shall satisfy its obligations under this Article VII in respect of a valid claim for indemnification hereunder which is not contested by the Indemnitor in good faith in cash within thirty (30) days after the date on which Notice of Claim is given. 7.3 INDEMNIFICATION PROCEDURES FOR NON-THIRD PARTY CLAIMS. In the event any Indemnified Party should have an indemnification claim against the Indemnitor under this Agreement that does not involve a claim by a third party, the 13 Indemnified Party shall promptly deliver notice of such claim to the Indemnitor in writing and in reasonable detail. The failure by any Indemnified Party to so notify the Indemnitor shall not relieve the Indemnitor from any liability that it may have to such Indemnified Party, except to the extent that the Indemnitor has been actually prejudiced by such failure. If the Indemnitor does not notify the Indemnified Party within fifteen (15) Business Days following its receipt of such notice that the Indemnitor disputes such claim, such claim specified by the Indemnitor in such notice shall be conclusively deemed a liability of the Indemnitor under this Article VII and the Indemnitor shall pay the amount of such liability to the Indemnified Party on demand, or in the case of any notice in which the amount of the claim is estimated, on such later date when the amount of such claim is finally determined. If the Indemnitor disputes its liability with respect to such claim in a timely manner, the Indemnitor and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations, such dispute shall be submitted to arbitration pursuant to Section 8.12. 7.4 LIMITATIONS ON INDEMNIFICATION. No claim for indemnification under this Article VII shall be asserted by, and no liability for such indemnify shall be enforced against, the Indemnitor to the extent the Indemnified Party has theretofore received indemnification or otherwise been compensated for such Claim. In the event that an Indemnified Party shall later collect any such amounts recovered under insurance policies with respect to any Claim for which it has previously received payments under this Article VII from the Indemnitor, such Indemnified Party shall promptly repay to the Indemnitor such amount recovered. 7.5 EXCLUSIVE REMEDY. The indemnification provisions of this Article VII (i) shall be the exclusive remedy following the Closing with respect to breaches thereof, (ii) shall apply without regard to, and shall not be subject to, any limitation by reason of set-off, limitation or otherwise and (iii) are intended to be comprehensive and not to be limited by any requirements of law concerning prominence of language or waiver of any legal right under any law (including, without limitation, rights under any workers compensation statute or similar statute conferring immunity from suit). The obligations of the parties set forth in this Article VII shall be conditioned upon the Closing having occurred. ARTICLE VIII MISCELLANEOUS 8.1 ENTIRE AGREEMENT. This Agreement and the Schedules and Exhibits hereto contain the entire agreement between the parties and supercede all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 14 8.2 AMENDMENT AND MODIFICATIONS. This Agreement may not be amended, modified or supplemented except by an instrument or instruments in writing signed by the party against whom enforcement of any such amendment, modification or supplement is sought. 8.3 EXTENSIONS AND WAIVERS. At any time prior to the Closing, the parties hereto entitled to the benefits of a term or provision may (a) extend the time for the performance of any of the obligations or other acts of the parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document, certificate or writing delivered pursuant hereto, or (c) waive compliance with any obligation, covenant, agreement or condition contained herein. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument or instruments in writing signed by the party against whom enforcement of any such extension or waiver is sought. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement. 8.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that no party hereto may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other party hereto. Except as provided in Article VII, nothing in this Agreement is intended to confer upon any person not a party hereto (and their successors and assigns) any rights, remedies, obligations or liabilities under or by reason of this Agreement. 8.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties contained herein shall survive the Closing and shall thereupon terminate twelve (12) months from the Closing, except that the representations contained in Sections 3.1, 3.2, 3.4, 4.1, 4.2 and 4.4 shall survive indefinitely. All covenants, conditions, obligations and agreements contained herein which by their terms contemplate actions following the Closing shall survive the Closing and remain in full force and effect in accordance with their terms. All other covenants, conditions, obligations and agreements contained herein shall not survive the Closing and shall thereupon terminate. 8.6 HEADINGS; DEFINITIONS. The Section and Article headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections or Articles contained herein mean Sections or Articles of this Agreement unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. 15 8.7 SEVERABILITY. If any provision of this Agreement or the application thereof to any Person or circumstance is held to be invalid or unenforceable to any extent, the remainder of this Agreement shall remain in full force and effect and shall be reformed to render the Agreement valid and enforceable while reflecting to the greatest extent permissible the intent of the parties. 8.8 SPECIFIC PERFORMANCE. The parties hereto agree that in the event that any party fails to consummate the Transactions in accordance with the terms of this Agreement, irreparable damage would occur, no adequate remedy at law would exist and damages would be difficult to determine, and that the parties shall be entitled to specific performance in such event, without the necessity of proving the inadequacy of money damages as a remedy, in addition to any other remedy at law or in equity. 8.9 EXPENSES. Whether or not the Transactions are consummated, and except as otherwise expressly set forth herein, all legal and other costs and expenses incurred in connection with the Transactions shall be paid by the party incurring such expenses and shall be paid at the Closing. 8.10 NOTICES. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below. If to the Company: with a copy to: ----------------- -------------- Continental Southern Resources, Inc. Porter & Hedges, L.L.P. 1001 Fannin Street, 17th Floor 700 Louisiana, Suite 3500 Houston, Texas 77010 Houston, Texas 77002 Attention: William L. Transier Attention: Chris A. Ferazzi If to Knox Gas: -------------- Knox Gas, LLC 111 Presidential Boulevard Suite 158A Bala Cynwyd, PA 19004 Attention: Manager 16 8.11 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without regard to the laws that might otherwise govern under applicable principles of conflicts of laws thereof, except to the extent that Delaware law shall apply to the internal corporate governance of Knox Gas. 8.12 ARBITRATION. If a dispute arises as to the interpretation of this Agreement, it shall be decided in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration then in effect at the time of the dispute. The arbitration shall take place in Philadelphia, Pennsylvania. The decision of the Arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. The parties shall share equally the costs of the arbitration. 8.13 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. 8.14 CERTAIN DEFINITIONS. As used herein: (a) "Affiliate" shall have the meanings ascribed to such term in Rule 12b-2 of the Exchange Act; (b) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which federally chartered financial institutions are not open for business in the City of Philadelphia, Pennsylvania; (c) "Confidential Information" shall mean the existence and contents of this Agreement and the Schedules and Exhibits hereto, and all proprietary technical, economic, environmental, operational, financial and/or business information or material of one party which, prior to or following the Closing Date, has been disclosed by the Company, on the one hand, or Knox Gas, on the other hand, in written, oral (including by recording), electronic, or visual form to, or otherwise has come into the possession of, the other. (d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended; (e) "Governmental Authority" shall mean any nation or government, any state, municipality or other political subdivision thereof and any entity, body, agency, commission or court, whether domestic, foreign or multinational, exercising executive, legislative, judicial, 17 regulatory or administrative functions of or pertaining to government and any executive official thereof; (f) "Knowledge" shall mean (i) with respect to an individual, knowledge of a particular fact or other matter, if such individual is aware of such fact or other matter, and (ii) with respect to a Person that is not an individual, knowledge of a particular fact or other matter if any individual who is serving, or who has at any time served, as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity) has, or at any time had, knowledge of such fact or other matter; (g) "Liens" shall mean liens, pledges, charges, claims, security interests, purchase agreements, options, title defects, restrictions on transfer or other encumbrances, or any agreements (other than this Agreement) to do any of the foregoing, of any nature whatsoever, whether consensual, statutory or otherwise; (h) "Material Adverse Effect" shall mean, with respect to any Person, any adverse effect on the business, assets, liabilities, condition (financial or otherwise) or results of operation of such Person and its subsidiaries, if any, which is material to such Person and its subsidiaries, if any, taken as a whole; (i) "Person" shall mean any individual, corporation, partnership, association, trust or other entity or organization, including a governmental or political subdivision or any agency or institution thereof; (j) "SEC" shall mean the Securities and Exchange Commission; and (k) "Securities Act" shall mean the Securities Act of 1933, as amended. [Remainder of page intentionally left blank] 18 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ WILLIAM L. TRANSIER ------------------------------ William L. Transier Co-Chief Executive Officer KNOX GAS, LLC By: /s/ ERNEST BARTLETT ------------------------------ Name: Ernest Bartlett, President Title: FEQ Investments, Managing Member 19 EX-10.29 20 h13916exv10w29.txt INTEREST PLEDGE AGREEMENT DATED 2/26/2004 EXHIBIT 10.29 INTEREST PLEDGE AGREEMENT THIS INTEREST PLEDGE AGREEMENT (the "Agreement"), dated February 26, 2004, is made and entered into by and among Knox Gas, LLC, a Delaware limited liability company ("Pledgor"), and Continental Southern Resources, Inc., a Nevada corporation (the "Secured Party"). WHEREAS, pursuant to that certain Interest Purchase Agreement, dated as of even date herewith (the "Purchase Agreement"), by and between the Pledgor and the Secured Party, the Pledgor purchased the Secured Party's ninety-nine percent (99%) limited partnership interest (the "LP Interest") in Knox Miss. Partners, L.P. ("Knox Miss") and the Secured Party's one percent (1%) membership interest in Knox Miss., LLC ("Knox LLC"), the general partner in Knox Miss (the "Membership Interest"; together with the LP Interest, the "Interests"), and issued that certain Secured Promissory Note dated February 26, 2004 in the principal amount of US $4,500,000 (the "Note"); and WHEREAS, in order to secure the Pledgor's obligations under the Note, the Secured Party has requested that the Pledgor pledge and grant a security interest in and to the Interests of the Pledgor set forth on Schedule A hereto. NOW, THEREFORE, intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Defined Terms. (a) Except as otherwise expressly provided herein, capitalized terms used in this Agreement shall have the respective meanings assigned to them in the Purchase Agreement or the Note, as applicable. Where applicable and except as otherwise expressly provided herein, terms used herein (whether or not capitalized) shall have the respective meanings assigned to them in the Uniform Commercial Code, as amended from time to time (the "Code"). (b) "Pledged Collateral" shall mean and include the following: (i) the Interests listed on Schedule A attached hereto and made a part hereof, and all rights and privileges pertaining thereto, including, without limitation, all present and future securities and other ownership interests receivable in respect of, or in exchange for, such Interests, all rights under operating agreements, member agreements, security holder agreements and other similar agreements relating to such Interests, all rights to subscribe for securities and other ownership interests incident to or arising from ownership of such Interests, all cash, interest, securities and other dividends or distributions paid or payable on such Interests, and all books and records (whether paper, electronic or any other medium) pertaining to the foregoing, including, without limitation, all partnership record and transfer books, and (ii) whatever is received when any of the foregoing is sold, exchanged, replaced or otherwise disposed of, including all proceeds thereof, as such term is defined in the Code. 2. Grant of Security Interest. To secure the payment and performance of all obligations and of all indebtedness of Pledgor under the Note (collectively, the "Secured Obligations"), Pledgor hereby grants to the Secured Party a first priority security interest in and hereby pledges to the Secured Party, all of such Pledgor's now existing and hereafter acquired or arising right, title and interest in, to and under the Pledged Collateral whether now or hereafter existing and wherever located. 3. Further Assurances. Prior to or concurrently with the execution of this Agreement, and thereafter at any time and from time to time upon reasonable request of the Secured Party, Pledgor shall execute and deliver to the Secured Party all financing statements, continuation financing statements, assignments, certificates and documents of title, affidavits, reports, notices, schedules of account, letters of authority, further pledges, powers of attorney and all other documents (collectively, the "Security Documents") which the Secured Party may reasonably request, in form reasonably satisfactory to the Secured Party, and take such other action which the Secured Party may reasonably request, to perfect and continue perfected and to create and maintain the first priority status of the Secured Party's security interest in the Pledged Collateral and to fully consummate the transactions contemplated under this Agreement. Pledgor hereby irrevocably makes, constitutes and appoints the Secured Party as Pledgor's true and lawful attorney with power to sign the name of such Pledgor on all or any of the documents which the Secured Party determines must be executed, filed, recorded or sent in order to perfect or continue perfected the Secured Party' security interest in the Pledged Collateral in any jurisdiction. Such power, being coupled with an interest, is irrevocable until all of the Secured Obligations have been indefeasibly full in paid and the Note have terminated. 4. Representations and Warranties. Pledgor hereby represents and warrants to the Secured Party as follows: (a) Pledgor has and will continue to have (or, in the case of after-acquired Pledged Collateral, at the time such Pledgor acquires rights in such Pledged Collateral, will have and will continue to have), title to the Pledged Collateral, free and clear of all liens. (b) The securities constituting the Pledged Collateral have been duly authorized and validly issued to Pledgor (as set forth on Schedule A hereto), and are fully paid and nonassessable. (c) The security interests in the Pledged Collateral granted hereunder are valid, perfected and of first priority, subject to the lien of no other Person. (d) Except as provided in the Limited Partnership Agreement of Knox Miss (the "Limited Partnership Agreement") and the Operating Agreement of Knox LLC, there are no restrictions upon the transfer of the Pledged Collateral and Pledgor has the power and authority and 2 right to transfer the Pledged Collateral owned by Pledgor free of any encumbrances and without obtaining the consent of any other Person. (e) Pledgor has all necessary power to execute, deliver and perform this Agreement. (f) There are no actions, suits, or proceedings pending or, to Pledgor's best knowledge after due inquiry, threatened against or affecting Pledgor with respect to the Pledged Collateral, at law or in equity or before or by any governmental authority, and Pledgor is not in default with respect to any judgment, writ, injunction, decree, rule or regulation which could adversely affect Pledgor's performance hereunder. (g) This Agreement has been duly executed and delivered and constitutes the valid and legally binding obligation of Pledgor, enforceable in accordance with its terms, except to the extent that enforceability of this Agreement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or limiting the right of specific performance. (h) Neither the execution and delivery by Pledgor of this Agreement, nor the compliance with the terms and provisions hereof, will violate any provision of any law or conflict with or result in a breach of any of the terms, conditions or provisions of any judgment, order, injunction, decree or ruling of any governmental authority to which Pledgor is subject or any provision of any agreement, understanding or arrangement to which Pledgor is a party or by which Pledgor is bound. (i) The address of Pledgor's chief executive office is as set forth on the signature page hereto. (j) All rights of Pledgor in connection with its ownership of the Interests are evidenced and governed solely by the agreements, certificate of partnership, Limited Partnership Agreement and other organizational documents of Knox Miss and the agreements, certificate of organization, Operating Agreement and other organizational documents of Knox LLC, and no shareholder or other similar agreements are applicable to the Pledged Collateral. 5. General Covenants. Pledgor hereby covenants and agrees as follows: (a) Pledgor shall do all reasonable acts that may be necessary and appropriate to maintain, preserve and protect the Pledged Collateral. Pledgor shall be responsible for the risk of loss of, damage to, or destruction of the Pledged Collateral owned by Pledgor, unless such loss is the result of the gross negligence or willful misconduct of any Secured Party. Pledgor shall notify the Secured Party in writing ten (10) days prior to any change in such Pledgor's chief executive office address. 3 (b) Pledgor shall appear in and defend any action or proceeding of which Pledgor is aware which could reasonably be expected to affect Pledgor's title to, or the Secured Party's interest in, the Pledged Collateral or the proceeds thereof; provided, however, that with the consent of the Secured Party, Pledgor may settle such actions or proceedings with respect to the Pledged Collateral, which consent shall not be unreasonably withheld or delayed. (c) Pledgor shall, and shall cause Knox Miss and Knox LLC to, keep separate, accurate and complete records of the Pledged Collateral, disclosing the Secured Party's security interest hereunder. (d) Pledgor shall comply with all laws applicable to the Pledged Collateral unless any noncompliance would not individually or in the aggregate materially impair the use or value of the Pledged Collateral or the Secured Party's rights hereunder. (e) Pledgor shall pay any and all taxes, duties, fees or imposts of any nature imposed by any governmental authority on any of the Pledged Collateral, except to the extent contested in good faith by appropriate proceedings. (f) To the extent, following the date hereof, Pledgor acquires securities, shares, capital stock or other ownership interests described in the definition of Pledged Collateral, in respect of, in exchange for, or upon the conversion of, the Pledged Collateral, such securities, shares, capital stock or ownership interests shall be subject to the terms hereof and, upon such acquisition, shall be deemed to be hereby pledged to the Secured Party, and Pledgor thereupon shall deliver all such securities, shares, capital stock, and other ownership interests together with an updated Schedule A hereto, to the Secured Party. (g) Except as set forth in Section 15 hereof, during the term of this Agreement, Pledgor shall not sell, assign, replace, retire, transfer or otherwise dispose of its Pledged Collateral. 6. Other Rights With Respect to Pledged Collateral. (a) In addition to the other rights with respect to the Pledged Collateral granted to the Secured Party hereunder, at any time and from time to time, after and during the continuation of any default under the Note, the Secured Party, at its option and at the expense of the Pledgor, may (a) transfer into the name of the Secured Party or into the name of its nominee, all or any part of the Pledged Collateral, thereafter receiving all dividends, income or other distributions upon the Pledged Collateral; (b) take control of and manage all or any of the Pledged Collateral; (c) apply to the payment of any of the Secured Obligations, whether any be due and payable or not, any moneys, including cash dividends, distributions and income from any Pledged Collateral, now or hereafter in the hands of the Secured Party, on deposit or otherwise, belonging to Pledgor, as the Secured Party in its sole discretion shall determine; and (d) do anything that Pledgor is required but fails to do hereunder. (b) In the event that upon the occurrence of any default under the Note and while such default shall be continuing the Secured Party desires to exercise any of its rights or remedies 4 under this Agreement, it shall deliver written notice (a "Default Notice") to the Pledgor, which notice shall be dated and state that a default under the Note has occurred and is continuing, that it desires to exercise certain of its rights and remedies hereunder and direct the Pledgor to deliver the Pledged Collateral to the Secured Party. Unless the Secured Party is notified in writing by the Pledgor within five (5) days from the date of the Default Notice that the Pledgor disputes the Secured Party's right to exercise any of its rights or remedies hereunder, the Pledgor shall promptly deliver the Pledged Collateral to the Secured Party. If the Secured Party is notified in writing by the Pledgor within five (5) days from the date of the Default Notice that the Pledgor in good faith contests the right of the Secured Party to exercise its rights or remedies hereunder, then, and in that event, the parties shall be permitted to submit the issues in dispute to arbitration in accordance with the provisions of Section 17 of this Agreement. 7. Additional Remedies Upon Event of Default. Upon the occurrence of any default under the Note and while such default shall be continuing, the Secured Party shall have, in addition to all rights and remedies of a secured party under the Code or other applicable law, and in addition to its rights under Section 6 above, the Purchase Agreement and the Note, the following rights and remedies: (a) The Secured Party may, after ten (10) days' advance notice to the Pledgor, sell, assign, give an option or options to purchase or otherwise dispose of the Pledged Collateral or any part thereof at public or private sale, at the Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Secured Party may deem commercially reasonable. Pledgor agrees that ten (10) days' advance notice of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Secured Party shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Pledgor recognizes that the Secured Party may be compelled to resort to one or more private sales of the Pledged Collateral to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. (b) The proceeds of any collection, sale or other disposition of the Pledged Collateral, or any part thereof, shall, after the Secured Party has made all deductions of expenses, including but not limited to, attorneys' fees and other expenses incurred in connection with repossession, collection, sale or disposition of such Pledged Collateral or in connection with the enforcement of the Secured Party's rights with respect to the Pledged Collateral, including in any insolvency, bankruptcy or reorganization proceedings, be applied against the Secured Obligations, whether or not all the same be then due and payable, as follows: (i) first, to the Secured Obligations and to reimburse the Secured Party for out-of-pocket costs, expenses and disbursements, including without limitation reasonable attorneys' fees and legal expenses, incurred by the Secured Party in connection with realizing on the 5 Pledged Collateral including expenses incurred by the Secured Party for the reasonable maintenance, preservation, protection or enforcement of, or realization upon, the Pledged Collateral, including without limitation advances for taxes, insurance, and the like, and reasonable expenses incurred to sell or otherwise realize on, or prepare for sale of or other realization on, any of the Pledged Collateral, in such order as the Secured Party may determine in its discretion; and (ii) the balance, if any, as required by law. 8. Secured Party's Duties. The powers conferred on the Secured Party hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, the Secured Party shall have no duty as to any Pledged Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Pledged Collateral. 9. No Waiver; Cumulative Remedies. No failure to exercise, and no delay in exercising, on the part of any Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any further exercise thereof or the exercise of any other right, power or privilege. The remedies herein provided are cumulative and not exclusive of any remedies provided under the Note and the Purchase Agreement or by law. Pledgor waives any right to require the Secured Party to proceed against any other person or to exhaust any of the Pledged Collateral or other security for the Secured Obligations or to pursue any remedy in the Secured Party's power. 10. Assignment. All rights and obligations of the parties under this Agreement shall inure to the benefit of their respective successors and assigns. 11. Severability. Any provision of this Agreement that shall be held invalid or unenforceable shall be ineffective without invalidating the remaining provisions hereof. 12. Governing Law. This Agreement shall be construed in accordance with and governed by the internal laws of the State of Texas without regard to its conflicts of law principles, except to the extent the validity or perfection of the security interests or the remedies hereunder in respect of any Pledged Collateral are governed by the law of a jurisdiction other than the State of Texas. 6 13. Notices. All notices, requests, demands, directions and other communications (collectively, "notices") given to or made upon any party hereto under the provisions of this Agreement shall be in writing (including telex or facsimile communication) and shall be hand delivered, sent by a recognized overnight courier or sent by telex or facsimile to the respective parties at the addresses and numbers set forth in the signature page hereto or in accordance with any subsequent unrevoked written direction from any party to the others. All notices shall, except as otherwise expressly provided herein, be effective in the case of telex or facsimile, when received, or in the case of hand delivered notice, when hand delivered or, in the case of overnight couriered notice, the business day after deposit with such courier. 14. Specific Performance. The parties acknowledge and agree that, in addition to the other rights of the parties hereunder and under the Note, because a party's remedies at law for failure of any other party to comply with the provisions hereof would be inadequate and that any such failure would not be adequately compensable in damages, the parties agree that each the provisions hereof may be specifically enforced. 15. Voting Rights in Respect of the Pledged Collateral. So long as no default shall occur and be continuing under the Note, Pledgor may exercise any and all voting rights pertaining to the Pledged Collateral. 16. Release of Pledged Collateral. An agreement evidencing the Pledged Collateral shall be released and delivered to Pledgor after full payment of all principal and interest due under the Note is made to the Secured Party. In the event such full payment of all principal and interest is not so received by the Secured Party, the Secured Party shall be permitted to submit the issues in dispute to arbitration in accordance with the provisions of Section 17 of this Agreement. 17. Arbitration. If a dispute arises as to the interpretation of this Agreement, it shall be decided in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration then in effect at the time of the dispute. The arbitration shall take place in the Commonwealth of Pennsylvania. The decision of the Arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. The parties shall share equally the costs of the arbitration. 7 18. Entire Agreement; Amendments. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to a grant of a security interest in the Pledged Collateral by Pledgor. This Agreement may not be amended or supplemented except by a writing signed by the Secured Party and the Pledgor. 19. Counterparts. This Agreement may be executed in any number of counterparts and delivered via facsimile, and by different parties hereto in separate counterparts, each of which when so executed shall be deemed an original and all of which taken together shall constitute but one and the same agreement. 20. Descriptive Headings. The descriptive headings which are used in this Agreement are for the convenience of the parties only and shall not affect the meaning of any provision of this Agreement. [Remainder of page intentionally left blank] 8 SIGNATURE PAGE TO INTEREST PLEDGE AGREEMENT IN WITNESS WHEREOF, and intending to be legally bound, the parties hereto have caused this Agreement to be duly executed as of the date first above written. KNOX GAS, LLC By: /s/ ERNEST BARTLETT ---------------------------------------- Name: Ernest Bartlett Title: President, FEQ Investments, Managing Member Address: 111 Presidential Blvd. Suite 158A Bala Cynwyd, PA 19004 CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ WILLIAM L. TRANSIER ---------------------------------------- William L. Transier Co-Chief Executive Officer Address: 111 Presidential Blvd. Suite 158A Bala Cynwyd, PA 19004 SCHEDULE A TO INTEREST PLEDGE AGREEMENT DESCRIPTION OF PLEDGED COLLATERAL Pledgor Pledged Collateral - ------- ------------------ Knox Gas, LLC The ninety-nine percent (99%) limited partnership interest in Knox Miss Partners, L.P., which limited partnership interest shall be released after payment in full of the principal due under the Note in accordance with Section 16 of this Interest Pledge Agreement. The one percent (1%) membership interest in Knox Miss, LLC, the general partner in Knox Miss. Partners, L.P., which membership interest shall be released after payment in full of the principal due under the Note in accordance with Section 16 of this Interest Pledge Agreement. EX-10.30 21 h13916exv10w30.txt SECURED PROMISSORY NOTED DATED 2/26/2004 EXHIBIT 10.30 SECURED PROMISSORY NOTE $4,500,000 February 26, 2004 FOR VALUE RECEIVED, Knox Gas, LLC, a Delaware limited liability company with a principal place of business at 111 Presidential Blvd., Suite 158A, Bala Cynwyd, PA 19004 (the "Borrower"), hereby promises to pay to Continental Southern Resources, Inc., a Nevada corporation with a principal place of business at 1001 Fannin Street, Suite 1700, Houston, Texas 77010 (the "Lender"), the principal sum of Four Million Five Hundred Thousand Dollars (US $4,500,000), together with interest on the unpaid principal balance from time to time outstanding, from the date hereof until maturity at a fixed rate per annum equal to four percent (4%) (the "Stated Rate"). Interest on this Note shall be calculated at an annual rate based on the actual number of days elapsed in an actual calendar year (365 days or 366 days in a leap year, as may be applicable). Principal and interest under this Note shall be due and payable as follows: $500,000 plus accrued and unpaid interest shall be paid on or before March 27, 2004; $1,000,000 plus accrued and unpaid interest shall be paid on or before April 27, 2004; $1,000,000 plus accrued and unpaid interest shall be paid on or before June 27, 2004; and $2,000,000 plus accrued and unpaid interest shall be paid on or before August 27, 2004. All past due principal of, and interest on, this Note shall accrue interest from the date due until the date it is paid at the lower of (i) 4% plus the Stated Rate per annum and (ii) the maximum rate allowed by law. The Borrower shall have the right, from time to time, without premium or penalty, to prepay the indebtedness evidenced by this Note, in full or in part. The obligation of the Borrower for payment of principal, interest and all other sums hereunder is secured by that certain Interest Pledge Agreement, dated as of even date herewith, between the Borrower and the Lender (the "Pledge Agreement"). All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest or otherwise, shall be made without set off or counterclaim and shall be made on or prior to the due date set forth above to the Lender at the address set forth above, or such other place as the Lender may from time to time designate in writing. If any payment or action to be made or taken hereunder shall be stated to be or become due on a day that is not a business day, such payment or action shall be made or taken on the next following business day and such extension of time shall be included in computing interest or fees, if any, in connection with such payment or action. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any governmental authority): (a) default in the payment of the principal sum of this Note, and any interest accrued thereon, when such principal and interest becomes due and payable (whether by acceleration or otherwise), or (b) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Borrower in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Borrower a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Borrower under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Borrower or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or (c) the commencement by the Borrower of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Borrower in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Borrower or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Borrower in furtherance of any such action. Upon the occurrence of an Event of Default, the entire amount of the indebtedness evidenced by this Note shall be immediately due and payable. Upon the acceleration of the obligations evidenced by this Note and failure by the Borrower to pay amounts then due hereunder, Lender may proceed to protect, exercise and enforce all of its rights and remedies under this Note, the Pledge Agreement and that certain Interest Purchase Agreement, dated as of even date herewith, between the Borrower and the Lender and applicable law. The remedies provided in this Note are cumulative and concurrent, may be pursued in any order, separately, successively or together, may be exercised as often as occasion therefor may arise, and shall be in addition to, and not in substitution for, the rights and remedies that would otherwise be vested in the Lender for the recovery of damages, or otherwise, in the event of a breach of any of the undertakings of the Borrower hereunder. This Note may not be modified, altered or amended, except by an agreement in writing signed by the Borrower and the Lender. It is the intention of the parties hereto to conform strictly to usury laws applicable to the holder of this Note. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the laws of the United States of America and the State of Texas), then, in that event, notwithstanding anything to the contrary in this Note, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to the holder of this Note that is contracted for, taken, reserved, charged or received under this Note shall under no circumstances exceed the maximum amount allowed by such applicable law; (ii) in the event that the maturity of this Note is accelerated by reason of an election of the holder of this Note resulting from any Event of Default, or in the event of any permitted prepayment, then such consideration that constitutes interest under law applicable to the holder of this Note may never include more than the maximum amount allowed by such applicable law, and (iii) excess interest, if any, provided for 2 in this Note or otherwise shall be canceled automatically and, if theretofore paid, shall be credited by the holder of this Note on the principal amount of this Note (or, to the extent that the principal amount of this Note shall have been or would thereby be paid in full, refunded by the holder of this Note to the Borrower). The right to accelerate the maturity of this Note does not include the right to accelerate any interest that has not otherwise accrued on the date of such acceleration, and the holder of this Note does not intend to collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to the holder of this Note for the use, forbearance or detention of sums included in this Note shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of this Note until payment in full so that the rate or amount of interest on account of the indebtedness under this Note does not exceed the applicable usury ceiling, if any. As used in this paragraph, the term "applicable law" shall mean the law of the State of Texas. All reasonable attorney's fees and expenses and other reasonable out-of-pocket costs incurred by the Payee in connection with the collection of this Note subsequent to an Event of Default (as defined herein) shall become amounts due and owing under the terms of this Note in addition to all other amounts owing pursuant to the other provisions of this Note. Borrower hereby waives demand, presentment for payment, protest, notice of protest, notice of intention to accelerate the indebtedness hereunder, notice of the acceleration of the indebtedness hereunder and filing of suit and diligence in collecting this Note or enforcing of any of the rights of Lender. This Note shall bind the Borrower and its successors and assigns, and the benefits hereof shall inure to the benefit of the Lender and its successors and assigns, except that Borrower may not sell, assign or transfer this Note or any portion hereof without obtaining the prior written consent of the Lender. All references herein to the "Borrower" and the "Lender" shall be deemed to apply to the Borrower and the Lender, respectively, and their respective successors and assigns. This Note and any other documents delivered in connection herewith and the rights and obligations of the parties hereto and thereto shall for all purposes be governed by and construed and enforced in accordance with the internal laws of the State of Texas without giving effect to its conflicts of law principles. IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, has executed this Note as of the date first written above with the intention that this Note shall constitute a sealed instrument. KNOX GAS, LLC By: /s/ ERNEST BARTLETT ---------------------------------------- Name: Ernest Bartlett Title: FEQ Investments, Managing Member EX-10.31 22 h13916exv10w31.txt SECURITIES PURCHASE AGREEMENT DATED 10/28/2003 EXHIBIT 10.31 CONFIDENTIALITY AGREEMENT RAM Trading Ltd. ("Purchaser") understand and acknowledges that the Securities Purchase Agreement and related documents (the "Offering Documents") contain information that may be regarded as material non-public information under Regulation FD under the Securities Act of 1933, as amended. Applicable securities laws prohibit the Company from distributing the Offering Documents without obtaining Purchaser's agreement to maintain the confidentiality of such information and to not disclose such information to any person. In consideration of the Company providing the Offering Documents to Purchaser, Purchaser hereby acknowledges and agrees that the Offering Documents are confidential, are being provided to Purchaser solely for the purpose of aiding Purchaser in Purchaser's consideration of the terms thereof, and that other than as otherwise required by law, rule or regulation, neither the Offering Documents nor any of the information contained therein shall be disclosed to any person. You are strongly cautioned that Federal law provides severe civil and criminal penalties for trading in the public market on the basis of material non-public information. IN WITNESS WHEREOF, Purchaser acknowledges and agrees to abide by the terms of this Confidentiality Agreement. RAM TRADING LTD: By: /s/ JAMES R. PARK ---------------------------------------- Name: James R. Park Title: VP Ritchie Capital Management LLC Investment Advisor to RAM Trading Ltd. SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (the "Agreement"), is made this 28th day of October 2003, by and between Continental Southern Resources, Inc., a Nevada corporation, ("Seller"), and RAM Trading, Ltd., a (the "Purchaser"), WITNESSETH: WHEREAS, the Seller owns beneficially and of record 99 Units of Limited Partnership Interest in Knox Miss Partners, LP., a Delaware limited partnership (the "Company"); and WHEREAS, the Seller desires to sell, and Purchaser desires to purchase, 10 Units of Limited Partnership Interest from Seller (the "Interest") and 150,000 shares (the "Shares") of common stock, $.001 par value per share, of the Seller (the "Common Stock") for the consideration and on the terms set forth herein. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I SALE AND TRANSFER OF SECURITIES 1.1 Sale and Purchase of the Interest and Shares. In reliance upon the representations, warranties and covenants contained in this Agreement, the Purchaser agrees to purchase the Interest and Shares from the Seller, and the Seller agrees to sell, transfer, convey, assign and deliver the Interest and Shares to the Purchaser, on the terms and conditions set forth in this Agreement, such sale, transfer, conveyance, assignment and delivery of the Interest and Shares causing the entire right, title and interest in and to the Interest and Shares to be transferred beneficially and of record to Purchaser, free and clear of any Encumbrances or Rights of any kind or nature whatsoever. 1.2 Purchase Price. The aggregate purchase price for the Interest and the Shares (the "Purchase Price") shall be One Million Two Hundred Thousand Dollars ($1,200,000). ARTICLE II CLOSING 2.1 Closing Date. The closing of the transactions described in this Agreement (the "Closing") shall take place at the office of the Seller or any other location agreed to by the parties concurrent with the execution and delivery of this Agreement. 2 2.2 Closing Transactions. At the Closing, the following transactions shall occur, all of such transactions being deemed to occur simultaneously: (a) The Seller shall deliver to the Purchaser the following: (1) A certificate or certificates, if any, representing all of the Interest duly endorsed by the Seller in blank or accompanied by assignments separate from the certificate duly endorsed in blank; (2) A certificate or certificates registered in the name of the Purchaser evidencing the Shares; and (3) such other documents, agreements, consents, and approvals as are required under this Agreement or as may be reasonably requested by the Purchaser. (b) Purchaser will deliver to the Seller the following: (1) the Purchase Price by wire transfer of immediately available funds; and (2) such other documents, agreements, consents, and approvals as are required under this Agreement or as may be reasonably requested by the Seller. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER As a material inducement to Purchaser to execute this Agreement and consummate the transactions contemplated hereby, the Seller represents to the Purchaser that the following representations and warranties are true and correct. 3.1 Organization, Qualification and Status. The Seller is a duly organized and validly existing corporation in good standing under the laws of the State of Nevada with adequate power and authority to conduct the business in which it is now engaged, has the corporate power and authority to execute, deliver and perform this Agreement, and is duly qualified and licensed to do business as a foreign corporation in such other states or jurisdictions as is necessary to enable it to carry on its business, except where the failure to do so would not have a material adverse effect on its business. 3.2 Authority; Valid and Binding Obligation. The execution and delivery of this Agreement and the transactions contemplated hereby have been duly authorized by the Board of Directors of the Seller. No other corporate act or proceeding on the part of the Seller is necessary to authorize this Agreement or the consummation of the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by Seller and constitutes a legal, valid and binding obligation 3 of Seller enforceable against it in accordance with the terms hereof, except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium, reorganization or other similar laws and legal and equitable principles limiting or affecting the rights of creditors generally; and/or (ii) general principles of equity, regardless of whether considered in a proceeding in equity or at law. 3.3 Ownership of Interest. The Seller owns and holds, beneficially and of record, the entire right, title and interest in and to the Interest and the Shares, free and clear of Rights or Encumbrances of any kind or nature whatsoever. The Seller has the full power and authority to vote, transfer and dispose of the Interest and the Shares, free and clear of any Right or Encumbrance of any kind or nature whatsoever other than restrictions under the Securities Act and applicable state securities laws, and under the LP Agreement (as defined below). Other than the transactions contemplated by this Agreement, there is no outstanding vote, plan, pending proposal, or other right of any Person to acquire, or to cause the redemption of, the Interest or the Shares or to effect the merger or consolidation of the Company with or into any other Person. 3.4 Limited Partnership Agreement. The copy of the Limited Partnership Agreement of the Company (the "LP Agreement"), attached hereto as Exhibit A and made a part hereof is true, correct and complete, and includes all amendments to the date hereof. 3.5 Reservation of Shares. The Shares have been duly and validly authorized and when issued and paid for in accordance with the terms hereof, shall be fully paid and non assessable. An additional 685,000 shares of restricted Common Stock (the "Additional Shares') have been duly authorized and reserved for issuance upon the exercise of the Option (as defined in Section 7.1 hereof). Upon issuance and payment therefore in accordance with the terms hereof, the Additional Shares shall be duly and validly issued and fully paid and non assessable. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER As a material inducement to the Seller to execute this Agreement and to consummate the transactions contemplated hereby, Purchaser represents to the Seller that the following representations and warranties are true and correct. 4.1 Organization and Qualification. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Purchaser has the corporate power and authority to carry on its business as presently conducted. Purchaser is duly qualified or licensed to do business and in good standing as a foreign corporation in each of the jurisdictions in which the nature of its business or the character of the properties and assets which it owns or leases makes such qualification or licensing necessary except where failure to do so would not have a material adverse effect on its business. 4 4.2 Authorization; Valid and Binding Obligation. Purchaser has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and thereunder. This Agreement has been duly authorized, executed and delivered by Purchaser and constitutes a legal, valid and binding obligation of Purchaser, enforceable against it in accordance with the terms hereof except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium, reorganization or other similar laws and legal and equitable principles limiting or affecting the rights of creditors generally; and/or (ii) general principles of equity, regardless of whether considered in a proceeding in equity or at law. 4.5 Accredited Investor. The Purchaser has such knowledge and experience in business and financial matters such that it is capable of evaluating the merits and risks of purchasing the Interest and the Shares. Purchaser is an "accredited investor" as that term is defined in Rule 501 of Regulation D of the Act. 4.6 Investment Intent. The Purchaser hereby acknowledges that it has been advised that neither the transfer of the Interest or the issuance of the Shares has been registered with, or reviewed by, the Securities and Exchange Commission ("SEC"), as such transactions are intended to be private transactions exempt from the registration provisions of the Securities Act. The Purchaser represents that the Interest and the Shares are being acquired for its own account and not on behalf of any other person, for investment purposes only and not with a view towards distribution. The Purchaser agrees that it will not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Interest or the Shares unless they are registered under the Securities Act and applicable state securities laws or an exemption from such registration is available. The Purchaser understands that neither the Interest nor the Shares has been registered under the Securities Act and applicable state securities laws by reason of a claimed exemption under the provisions of the Securities Act and applicable state securities laws that depends, in part, upon the Seller's investment intention. 4.7 Access to Company Information. The Purchaser hereby acknowledges that it has had access to all material and relevant information concerning the Company and its management, financial condition, capitalization, market information, properties and prospects, necessary to enable it to make an informed investment decision with respect to its purchase of the Interests. The Purchaser acknowledges that it has had the opportunity to ask questions of and receive answers from, and to obtain additional information from, representatives of the Company concerning the acquisition of the Interest, and the present and proposed business and financial condition of the Company, and has had all such questions answered to its satisfaction and has been supplied with all information requested. 5 4.8 Access to Seller Information. The Seller hereby acknowledges that it has had access to all material and relevant information concerning the Seller) and its management, financial condition) capitalization, market information, properties and prospects) necessary to enable it to make an informed investment decision with respect to an investment in the Shares) including but not limited to, the Seller's Annual Report on Form l0-KSB for the fiscal year ended December 31, 2002, which was filed with the SEC on or about April 17, 2003 (the "Form 10-KSB") and the Seller's Quarterly Report on Form 10-QSB for the three months ended March 31, 2003, which was filed with the SEC on May 16, 2003 (the "Form 10-QSB"). The Purchaser has carefully read and reviewed) and is familiar with and understands the contents of) the Form 10-KSB and Form 10- QSB, including) without limitation, the "Risk Factors" set forth in the Form 10-KSB. The Purchaser acknowledges that it has had the opportunity to ask questions of and receive answers from, and to obtain additional information from, representatives of the Seller concerning the present and proposed business and financial condition of the Seller) and has had all such questions answered to its satisfaction and has been supplied with all information requested. 4.9 Legend on Certificates. The Purchaser understands and acknowledges that the Shares and any certificates issued in replacement therefor shall bear the following legend) in addition to any other legend required by law or otherwise: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR DISPOSED OF IN THE ABSENCE OF REGISTRATION OF THE SECURITIES UNDER THE SECURITIES ACT OF 1933) AS AMENDED, AND REGISTRATION OR QUALIFICATION OF THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED. The Purchaser further understands that the Interest is uncertificated and that in the event certificates are issued to evidence the Interest) such certificates will bear restrictive legends setting forth the transfer restrictions imposed by the Securities Act and the LP Agreement. 4.10 Disclosure. No representation or warranty of Purchaser in this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the factual statements contained herein, in light of the circumstances under which such statements are made, not misleading. Neither this Agreement nor any other document, certificate, exhibit, statement or schedule furnished or to be furnished by or on behalf of the Purchaser to the Seller in connection with the transactions contemplated hereby contains or will contain any untrue statement of a 6 material fact, or omits or will omit to state a material fact necessary to make the factual statements contained therein, in light of the circumstances under which they were made, not misleading. ARTICLE V INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES The representations and warranties contained herein shall survive the execution and delivery of this Agreement. Purchaser agrees to indemnify, hold harmless and defend the Seller and its respective affiliates and agents with respect to any and all loss, damage, expense, claim, action or liability any of them may incur as a result of the breach or untruth of any representations or warranties made by Purchaser herein, and Purchaser agrees that in the event of any breach or untruth of any representations or warranties made by Purchaser herein, the Seller may, at its option, forthwith rescind the sale of the Interest and the Shares to Purchaser. ARTICLE VI REGISTRATION RIGHTS The Purchaser shall be entitled to the rights and subject to the obligations set forth in Article 6 of that certain Securities Purchase Agreement dated May 23, 2003 by and between the Seller and Purchaser (the "SPA") with respect to the Shares. If, in the judgment of Seller's counsel, the Purchaser is not permitted by federal or state securities laws to participate in the registration contemplated by Article 6 of the SPA, the Shares will be included in the next registration statement filed by the Company (other than registration statements on Form S-8, S-4 or any other SEC Form relating to compensatory plans or business combinations) in accordance with the provisions of Article 6 of the SPA. ARTICLE VII ADDITIONAL AGREEMENTS OF THE PARTIES 7.1 Option; Prohibition on Transfer. The Seller and Purchaser shall have the following additional rights with respect to the Interest: (a) Option. Commencing at 9:00 a.m. on the 46th day after the date of this Agreement (the "Commencement Date") and ending at 5:00 p.m. Eastern Standard Time on January [___], 2004 (the "Termination Date"), Seller shall have the right, exercisable in its sole discretion, to purchase the Interest from the Purchaser (the "Call") and Purchaser shall have the right, exercisable in its sole discretion, to sell the Interest to the Seller (the .'Put" and together with the Call, the "Option") at an exercise price (the "Exercise Price") equal to $1,200,000, as appropriately adjusted to reflect any additional capital contributions paid by Purchaser with respect to the Interest, by delivering written notice ("Notice of Exercise") to the other party of its intention to exercise this Option. The Notice of Exercise shall set forth a date on which the Exercise Price shall be delivered to the Purchaser and the Interest transferred to the Seller, which date shall be not less than five (5) nor more than ten (10) days after the date of the Notice of Exercise. The Exercise Price shall be paid by the issuance of the Additional Shares, subject to proportional adjustment in the event that the Seller (i) pays a dividend or makes a distribution on its shares of Common Stock in shares of Common Stock, (ii) subdivides or reclassifies its outstanding Common Stock into a greater number of shares, or (iii) combines or reclassifies its 7 outstanding Common Stock into a smaller number of shares, unless both parties mutually agree that the loan will be repaid by wire transfer from Seller to Purchaser. (b) Commencing on the date hereof and ending on the Termination Date, the Purchaser shall not and shall not enter into any agreement to sell, assign, pledge, hypothecate, grant any other property interest, whether contingent or otherwise, with respect to, or otherwise transfer, all or any part of the Interest and shall not grant and shall not enter into any agreement to grant any subscription, warrant, option, voting agreement, voting trust, proxy, or other arrangement or commitment obligating or which may obligate it to dispose of or vote the Interest in whole or in part to any Person. 7.2 Consent of General Partner. Knox Miss, LLC, the general partner of the Partnership, hereby consents to the transfer of the Interest by Seller pursuant to the terms of this Agreement and the issuance and any exercise of the Option by the Seller or Purchaser. 7.3 Prohibition on Trading in Purchaser Common Stock. The Purchaser acknowledges that the United States securities laws prohibit any person who has received material non-public information concerning the matters which are the subject matter of this Agreement from purchasing or selling the securities of the Seller, or from communicating such information to any person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell securities of Seller. Accordingly, the "Purchaser agrees that it will comply with such securities laws. 7.4 Further Acts and Assurances. The parties agree that, at any time and from time to time, on and after the Closing, upon the reasonable request of the other party, they will do or cause to be done all such further acts and things and execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all papers, documents, instruments, agreements, assignments, transfers, assurances and conveyances as may be necessary or desirable to carry out and give effect to the provisions and intent of this Agreement. 7.5 Public Announcements. Neither the Seller nor the Purchaser shall disclose to the public or to any third party the existence of this Agreement, the terms hereof or the transactions contemplated hereby, or any other material non-public information concerning or relating to the other party hereto, other than with the express prior written consent of the other party hereto, except as may be required by law or court order. except to enforce the rights of such disclosing party under this Agreement; and "except that Seller shall have the right to make such public disclosures of this Agreement and the transactions contemplated hereby as it determines are necessary or appropriate under federal or state securities laws; provided, however, that notwithstanding anything to the contrary contained in this Agreement, any party hereto may disclose this Agreement to any of its directors, officers, employees, shareholders, affiliates, agents and representatives who need to know such information for the sole purpose of evaluating, or performing the party's obligations or exercising 8 the party's rights under, this Agreement, and to any party whose consent is required in connection with this Agreement. ARTICLE VIII MISCELLANEOUS 8.1 Definitions. For purposes of this Agreement, the following terms have the meanings specified: "Encumbrance" means and includes: (i) with respect to any personal property, any intangible property or any property other than real property, any security or other property interest or right, claim lien, pledge, option, charge, including, without limitation, any outstanding additional capital contribution with respect to the Interest, security interest, contingent or conditional sale, or other title claim or retention agreement or lease or use agreement in the nature thereof, interest or other right or claim of third parties, whether voluntarily incurred or arising by operation of law, and including any agreement to grant or submit to any of the foregoing in the future; and (ii) with respect to any real property (whether and including owned real estate or leased real estate) any mortgage, lien, easement, interest right-of-way, condemnation or eminent domain proceeding, encroachment, any building, use or other form of restriction, encumbrance or other claim (including adverse or prescriptive) or right of third parties (including Governmental Authorities) any lease or sublease, boundary dispute, and agreements with respect to any real property including: purchase, sale, right of first refusal, option, construction, building or property service, maintenance, property management, conditional or contingent sale, use or occupancy, franchise or concession, whether voluntarily incurred or arising by operation of law, and including any agreement to grant or submit to any of the foregoing in the future. "Governmental Authority" means any: (i) nation, state, county, city, town, village, district or other jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or other government; (iii) governmental or quasi-governmental authority of any nature (including any governmental agency, branch board commission, department, instrumentality office or other entity and any court or other tribunal); (iv) multi-national organization or body; and/or (v) body exercising, or entitled or purporting to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature. "Indebtedness" means (i) all outstanding bank and other loans, notes, lines of credit, capital leases or debt instruments, and (ii) all other indebtedness, excluding trade payables, operating leases and other current liabilities 9 "Liability" or "Liabilities" means any and all debts, liabilities and/or obligations of any type, nature or description (whether known or unknown, asserted or unasserted, secured or unsecured, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due). "Person" means any individual, corporation (including any non-profit corporation), general, limited or limited liability partnership, limited liability company, joint venture, estate, trust, association, organization, or other entity or Governmental Authority. "Rights" means any and all outstanding subscriptions, warrants, options, voting agreements, voting trusts, proxies, or other arrangements or commitments obligating or which may obligate a Person to dispose of or vote any securities, including, without limitation, the Interest or the Shares. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. 8.2 Notices. All notices, requests, consents or other communications required or permitted hereunder shall be in writing and shall be hand delivered or mailed, first class postage prepaid, by registered or certified mail to the following addresses: If to the Seller: ---------------- Continental Southern Resources, Inc. 111 Presidential Boulevard, Suite 158-A Bala Cynwyd, P A 19004 Attention: Chief Executive Officer and With a copy to: -------------- Spector Gadon & Rosen, P.C. Seven Penn Center 1635 Market Street, 7th Floor Philadelphia, PA 19103 Attention: Vincent A. Vietti, Esquire In the case of Purchaser: ------------------------ To that address indicated on the signature page hereof Unless specified otherwise, such notices and other communications shall for all purposes of this Agreement be treated as being effective upon being delivered personally or, if sent by mail, five days after the same has been deposited in a regularly maintained receptacle for the deposit of United States mail, addressed as set forth above, and postage prepaid. 10 8.3 Entire Agreement; Assignment. This Agreement, including all Exhibits hereto, constitutes the entire Agreement between the parties with respect to its subject matter and supersedes all prior agreements and understandings, both written and oral, among the parties or any of them with respect to such subject matter. Neither party may assign this Agreement or any of its or his rights hereunder without the prior written consent of the other parties. 8.4 Binding Effect; Benefit. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and assigns. Nothing in this Agreement is intended to confer on any person other than the parties to this Agreement or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 8.5 Headings. The descriptive headings of the sections of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. 8.6 Counterparts. This Agreement may be executed in two or more counterparts and delivered via facsimile, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. 8.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the laws that might otherwise govern under principles of conflicts of laws applicable thereto. 8.8 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 8.9 Amendment and Modification. This Agreement may not be amended except by an instrument in writing signed on behalf of Purchaser and the Seller. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 11 IN WITNESS WHEREOF, each of the parties has executed or caused this Agreement to be executed as of the date first above written. CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ STEPHEN P. HARRINGTON ------------------------------------------- Authorized Executive Officer RAM TRADING LTD. By: /s/ JAMES R. PARK -------------------------------------------- Authorized Executive Officer Address: VP Ritchie Capital Management, LLC, Investment Advisor to RAM Trading Ltd. KNOX MISS PARTNERS, L.P. solely for the purpose of Section 7.2 hereof By: Knox Miss, LLC, its General Partner By: /s/ MARK BUSH -------------------------------------------- Manager 12 EX-10.32 23 h13916exv10w32.txt 1ST AMEND. TO SECURITY PURCH. AGMT. 12/10/2003 EXHIBIT 10.32 FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT THIS FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT (this "Amendment"), is made and entered into as of December 10, 2003, by and between CONTINENTAL SOUTHERN RESOURCES, INC. a Nevada corporation ("Seller"), and RAM TRADING, LTD. a Cayman Islands corporation (the "Purchaser") for the purpose of amending the Securities Purchase Agreement (the "Purchase Agreement") dated October 28, 2003, by and between the Seller and Purchaser. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. RECITALS WHEREAS, the parties hereto desire to amend certain provisions of the Purchase Agreement to reflect the intent of all of the parties thereto by making the Option exercisable as of December 10, 2003 and by increasing the number of shares reserved for issuance upon exercise of the Option. NOW, THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Section 3.5 is hereby deleted in its entirety and replaced with the following provision: Section 3.5 Reservation of Shares The Shares have been duly and validly authorized and when issued and paid for in accordance with the terms hereof, shall be fully paid and non assessable. An additional 835,000 shares of restricted Common Stock (the "Additional Shares") have been duly authorized and reserved for issuance upon the exercise of the Option (as defined in Section 7.1 hereof). Upon issuance and payment therefore in accordance with the terms hereof, the Additional Shares shall be duly and validly issued and fully paid and non assessable. 2. Section 7.1(a) is hereby deleted in its entirety and replaced with the following provision: (a) Option. Commencing on December 10, 2003 and ending at 5:00 p.m. Eastern Standard Time on April 30, 2004 (the "Termination Date"), Seller shall have the right, exercisable in its sole discretion, to purchase the Interest from the Purchaser (the "Call") and Purchaser shall have the right, exercisable in its sole discretion, to sell the Interest to the Seller (the "Put" and together with the Call, the "Option") at an exercise price (the "Exercise Price") equal to $1,200,000, as appropriately adjusted to reflect any additional capital contributions paid by Purchaser with respect to the Interest, by delivering written notice ("Notice of Exercise") to the other party of its intention to exercise this Option. The Notice of Exercise shall set forth a date on which the Exercise Price shall be delivered to the Purchaser and the Interest transferred to the Seller, which date shall be not less than five (5) nor more than (10) days after the date of the Notice of Exercise. The Exercise Price shall be paid by the issuance of the Additional Shares, subject to proportional adjustment in the event that the Seller (i) pays a dividend or makes a distribution on its shares of Common Stock in shares of Common Stock, (ii) subdivides or reclassifies its outstanding Common Stock into a greater number of shares, or (ii) combines or reclassifies its outstanding Common Stock into a smaller number of shares, unless both parties mutually agree that the loan will be repaid by wire transfer from Seller to Purchaser. 3. Except as expressly provided herein, the Purchase Agreement shall remain in full force and effect. 4. This Amendment may be executed in counterpart, each of which shall be deemed to be an original, and both of which together shall constitute one and the same agreement. 5. This Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the laws that might otherwise govern under applicable principles of conflicts of laws thereof. IN WITNESS WHEREOF, Purchaser and Seller have caused this Amendment to be signed by their respective officers hereunto duly authorized, all as of the date first written above. CONTINENTAL SOUTHERN RESOURCES, INC. By:______________________________________ Name: Title: RAM TRADING, LTD. By:______________________________________ Name: Title: 2 EX-10.33 24 h13916exv10w33.txt SECURITIES PURCHASE AGREEMENT DATED 8/27/2003 EXHIBIT 10.33 CONFIDENTIALITY AGREEMENT RAM Trading Ltd. ("Purchaser") understand and acknowledges that the Securities Purchase Agreement and related documents (the "Offering Documents") contain information that may be regarded as material non-public information under Regulation FD under the Securities Act of 1933, as amended. Applicable securities laws prohibit the Company from distributing the Offering Documents without obtaining Purchaser's agreement to maintain the confidentiality of such information and to not disclose such information to any person. In consideration of the Company providing the Offering Documents to Purchaser, Purchaser hereby acknowledges and agrees that the Offering Documents are confidential, are being provided to Purchaser solely for the purpose of aiding Purchaser in Purchaser's consideration of the terms thereof, and that other than as otherwise required by law, rule or regulation, neither the Offering Documents nor any of the information contained therein shall be disclosed to any person. You are strongly cautioned that Federal law provides severe civil and criminal penalties for trading in the public market on the basis of material non-public information. IN WITNESS WHEREOF, Purchaser acknowledges and agrees to abide by the terms of this Confidentiality Agreement. RAM TRADING LTD: By: /s/JAMES R. PARK ------------------------------------- Name: James R. Park Title: Authorized Signatory Address: 2100 Enterprise Avenue ------------------------------------- Geneva, IL 60134 ------------------------------------- August 27, 2003 - -------------------------------- Date SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (the "Agreement"), is made this 27th day of August 2003, by and between Continental Southern Resources, Inc., a Nevada corporation, ("Seller"), and RAM Trading, Ltd., a Cayman Island company (the "Purchaser"), WITNESSETH: WHEREAS, the Seller owns beneficially and of record 25.25 Units of Limited Partnership Interest in Louisiana Shelf Partners, L.P., a Delaware limited partnership (the "Company"); and WHEREAS, the Seller desires to sell, and Purchaser desires to purchase, 7 Units of Limited Partnership Interest from Seller (the "Interest") and 150,000 shares (the "Shares") of common stock, $.001 par value per share, of the Seller (the "Common Stock") for the consideration and on the terms set forth herein. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I SALE AND TRANSFER OF SECURITIES 1.1. Sale and Purchase of the Interest and Shares. In reliance upon the representations, warranties and covenants contained in this Agreement, the Purchaser agrees to purchase the Interest and Shares from the Seller, and the Seller agrees to sell, transfer, convey, assign and deliver the Interest and Shares to the Purchaser, on the terms and conditions set forth in this Agreement, such sale, transfer, conveyance, assignment and delivery of the Interest and Shares causing the entire right, title and interest in and to the Interest and Shares to be transferred beneficially and of record to Purchaser, free and clear of any Encumbrances or Rights of any kind or nature whatsoever. 1.2. Purchase Price. The aggregate purchase price for the Interest and the Shares (the "Purchase Price") shall be One Million Dollars ($1,000,000). ARTICLE II CLOSING 2.1 Closing Date. The closing of the transactions described in this Agreement (the "Closing") shall take place at the office of the Seller or any other location agreed to by the parties concurrent with the execution and delivery of this Agreement. 2 2.2 Closing Transactions. At the Closing, the following transactions shall occur, all of such transactions being deemed to occur simultaneously: (a) The Seller shall deliver to the Purchaser the following: (1) A certificate or certificates, if any, representing all of the Interest duly endorsed by the Seller in blank or accompanied by assignments separate from the certificate duly endorsed in blank; (2) A certificate or certificates registered in the name of the Purchaser evidencing the Shares; and (3) such other documents, agreements, consents, and approvals as are required under this Agreement or as may be reasonably requested by the Purchaser. (b) Purchaser will deliver to the Seller the following: (1) the Purchase Price by wire transfer of immediately available funds; and (2) such other documents, agreements, consents, and approvals as are required under this Agreement or as may be reasonably requested by the Seller. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER As a material inducement to Purchaser to execute this Agreement and consummate the transactions contemplated hereby, the Seller represents to the Purchaser that the following representations and warranties are true and correct. 3.1 Organization, Qualification and Status. The Seller is a duly organized and validly existing corporation in good standing under the laws of the State of Nevada with adequate power and authority to conduct the business in which it is now engaged, has the corporate power and authority to execute, deliver and perform this Agreement, and is duly qualified and licensed to do business as a foreign corporation in such other states or jurisdictions as is necessary to enable it to carry on its business, except where the failure to do so would not have a material adverse effect on its business. 3.2 Authority; Valid and Binding Obligation. The execution and delivery of this Agreement and the transactions contemplated hereby have been duly authorized by the Board of Directors of the Seller. No other corporate act or proceeding on the part of the Seller is necessary to authorize this Agreement or the consummation of the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by Seller and constitutes a legal, valid and binding obligation of Seller enforceable against it in accordance with the terms hereof, except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium, reorganization or other similar laws 3 and legal and equitable principles limiting or affecting the rights of creditors generally; and/or (ii) general principles of equity, regardless of whether considered in a proceeding in equity or at law. 3.3 Ownership of Interest. The Seller owns and holds, beneficially and of record, the entire right, title and interest in and to the Interest and the Shares, free and clear of Rights or Encumbrances of any kind or nature whatsoever. The Seller has the full power and authority to vote, transfer and dispose of the Interest and the Shares, free and clear of any Right or Encumbrance of any kind or nature whatsoever other than restrictions under the Securities Act and applicable state securities laws, and under the LP Agreement (as defined below). Other than the transactions contemplated by this Agreement, there is no outstanding vote, plan, pending proposal, or other right of any Person to acquire, or to cause the redemption of, the Interest or the Shares or to effect the merger or consolidation of the Company with or into any other Person. 3.4 Limited Partnership Agreement. The copy of the Limited Partnership Agreement of the Company (the "LP Agreement"), attached hereto as Exhibit A and made a part hereof is true, correct and complete, and includes all amendments to the date hereof. 3.5 Reservation of Shares. The Shares have been duly and validly authorized and when issued and paid for in accordance with the terms hereof, shall be fully paid and non assessable. An additional 650,000 shares of restricted Common Stock (the "Additional Shares") have been duly authorized and reserved for issuance upon the exercise of the Option (as defined in Section 7.1 hereof). Upon issuance and payment therefore in accordance with the terms hereof, the Additional Shares shall be duly and validly issued and fully paid and non assessable. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER As a material inducement to the Seller to execute this Agreement and to consummate the transactions contemplated hereby, Purchaser represents to the Seller that the following representations and warranties are true and correct. 4.1 Organization and Qualification. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Purchaser has the corporate power and authority to carry on its business as presently conducted. Purchaser is duly qualified or licensed to do business and in good standing as a foreign corporation in each of the jurisdictions in which the nature of its business or the character of the properties and assets which it owns or leases makes such qualification or licensing necessary except where failure to do so would not have a material adverse effect on its business. 4.2 Authorization; Valid and Binding Obligation. 4 Purchaser has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and thereunder. This Agreement has been duly authorized, executed and delivered by Purchaser and constitutes a legal, valid and binding obligation of Purchaser, enforceable against it in accordance with the terms hereof except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium, reorganization or other similar laws and legal and equitable principles limiting or affecting the rights of creditors generally; and/or (ii) general principles of equity, regardless of whether considered in a proceeding in equity or at law. 4.5 Accredited Investor. The Purchaser has such knowledge and experience in business and financial matters such that it is capable of evaluating the merits and risks of purchasing the Interest and the Shares. Purchaser is an "accredited investor" as that term is defined in Rule 501 of Regulation D of the Act 4.6 Investment Intent. The Purchaser hereby acknowledges that it has been advised that neither the transfer of the Interest or the issuance of the Shares has been registered with, or reviewed by, the Securities and Exchange Commission ("SEC"), as such transactions are intended to be private transactions exempt from the registration provisions of the Securities Act. The Purchaser represents that the Interest and the Shares are being acquired for its own account and not on behalf of any other person, for investment purposes only and not with a view towards distribution. The Purchaser agrees that it will not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Interest or the Shares unless they are registered under the Securities Act and applicable state securities laws or an exemption from such registration is available. The Purchaser understands that neither the Interest nor the Shares has been registered under the Securities Act and applicable state securities laws by reason of a claimed exemption under the provisions of the Securities Act and applicable state securities laws that depends, in part, upon the Seller's investment intention. 4.7 Access to Company Information. The Purchaser hereby acknowledges that it has had access to all material and relevant information concerning the Company and its management, financial condition, capitalization, market information, properties and prospects, necessary to enable it to make an informed investment decision with respect to its purchase of the Interests. The Purchaser acknowledges that it has had the opportunity to ask questions of and receive answers from, and to obtain additional information from, representatives of the Company concerning the acquisition of the Interest, and the present and proposed business and financial condition of the Company, and has had all such questions answered to its satisfaction and has been supplied with all information requested. 4.8 Access to Seller Information. 5 The Seller hereby acknowledges that it has had access to all material and relevant information concerning the Seller, and its management, financial condition, capitalization, market information, properties and prospects, necessary to enable it to make an informed investment decision with respect to an investment in the Shares, including but not limited to, the Seller's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002, which was filed with the SEC on or about April 17, 2003 (the " Form 10-KSB") and the Seller's Quarterly Report on Form 10-QSB for the three months ended March 31, 2003, which was filed with the SEC on May 16, 2003 (the "Form 10-QSB"). The Purchaser has carefully read and reviewed, and is familiar with and understands the contents of, the Form 10-KSB and Form 10-QSB, including, without limitation, the "Risk Factors" set forth in the Form 10-KSB. The Purchaser acknowledges that it has had the opportunity to ask questions of and receive answers from, and to obtain additional information from, representatives of the Seller concerning the present and proposed business and financial condition of the Seller, and has had all such questions answered to its satisfaction and has been supplied with all information requested. 4.9 Legend on Certificates. The Purchaser understands and acknowledges that the Shares and any certificates issued in replacement therefor shall bear the following legend, in addition to any other legend required by law or otherwise: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR DISPOSED OF IN THE ABSENCE OF REGISTRATION OF THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND REGISTRATION OR QUALIFICATION OF THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED. The Purchaser further understands that the Interest is uncertificated and that in the event certificates are issued to evidence the Interest, such certificates will bear restrictive legends setting forth the transfer restrictions imposed by the Securities Act and the LP Agreement. 4.10 Disclosure. No representation or warranty of Purchaser in this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the factual statements contained herein, in light of the circumstances under which such statements are made, not misleading. Neither this Agreement nor any other document, certificate, exhibit, statement or schedule furnished or to be furnished by or on behalf of the Purchaser to the Seller in connection with the transactions contemplated hereby contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the 6 factual statements contained therein, in light of the circumstances under which they were made, not misleading. ARTICLE V INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES The representations and warranties contained herein shall survive the execution and delivery of this Agreement. Purchaser agrees to indemnify, hold harmless and defend the Seller and its respective affiliates and agents with respect to any and all loss, damage, expense, claim, action or liability any of them may incur as a result of the breach or untruth of any representations or warranties made by Purchaser herein, and Purchaser agrees that in the event of any breach or untruth of any representations or warranties made by Purchaser herein, the Seller may, at its option, forthwith rescind the sale of the Interest and the Shares to Purchaser. ARTICLE VI REGISTRATION RIGHTS The Purchaser shall be entitled to the rights and subject to the obligations set forth in Article 6 of that certain Securities Purchase Agreement dated May 23, 2003 by and between the Seller and Purchaser (the "SPA") with respect to the Shares. If, in the judgment of Seller's counsel, the Purchaser is not permitted by federal or state securities laws to participate in the registration contemplated by Article 6 of the SPA, the Shares will be included in the next registration statement filed by the Company (other than registration statements on Form S-8, S-4 or any other SEC Form relating to compensatory plans or business combinations) in accordance with the provisions of Article 6 of the SPA. ARTICLE VII ADDITIONAL AGREEMENTS OF THE PARTIES 7.1 Option; Prohibition on Transfer. The Seller and Purchaser shall have the following additional rights with respect to the Interest: (a) Option. Commencing at 9:00 a.m. on the 91st day after the date of this Agreement (the "Commencement Date") and ending at 5:00 p.m. Eastern Standard Time on August [___], 2004 (the "Termination Date"), Seller shall have the right, exercisable in its sole discretion, to purchase the Interest from the Purchaser (the "Call") and Purchaser shall have the right, exercisable in its sole discretion, to sell the Interest to the Seller (the "Put" and together with the Call, the "Option") at an exercise price (the "Exercise Price") equal to $1,300,000, as appropriately adjusted to reflect any additional capital contributions paid by Purchaser with respect to the Interest, by delivering written notice ("Notice of Exercise") to the other party of its intention to exercise this Option. The Notice of Exercise shall set forth a date on which the Exercise Price shall be delivered to the Purchaser and the Interest transferred to the Seller, which date shall be not less than five (5) nor more than ten (10) days after the date of the Notice of Exercise. The Exercise Price shall be paid by the issuance of the Additional Shares, subject to proportional adjustment in the event that the Seller (i) pays a dividend or makes a distribution on its shares of Common Stock in shares of Common Stock, (ii) subdivides or reclassifies its outstanding Common Stock into a greater number of shares, or (iii) combines or reclassifies its 7 outstanding Common Stock into a smaller number of shares, unless both parties mutually agree that the loan will be repaid by wire transfer from Seller to Purchaser. (b) Commencing on the date hereof and ending on the Termination Date, the Purchaser shall not and shall not enter into any agreement to sell, assign, pledge, hypothecate, grant any other property interest, whether contingent or otherwise, with respect to, or otherwise transfer, all or any part of the Interest and shall not grant and shall not enter into any agreement to grant any subscription, warrant, option, voting agreement, voting trust, proxy, or other arrangement or commitment obligating or which may obligate it to dispose of or vote the Interest in whole or in part to any Person. 7.2 Consent of General Partner. LS Gas, LLC, the general partner of the Company, hereby consents to the transfer of the Interest by Seller pursuant to the terms of this Agreement and the issuance and any exercise of the Option by the Seller or Purchaser. 7.3 Prohibition on Trading in Purchaser Common Stock. The Purchaser acknowledges that the United States securities laws prohibit any person who has received material non-public information concerning the matters which are the subject matter of this Agreement from purchasing or selling the securities of the Seller, or from communicating such information to any person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell securities of Seller. Accordingly, the Purchaser agrees that it will comply with such securities laws. 7.4 Further Acts and Assurances. The parties agree that, at any time and from time to time, on and after the Closing, upon the reasonable request of the other party, they will do or cause to be done all such further acts and things and execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all papers, documents, instruments, agreements, assignments, transfers, assurances and conveyances as may be necessary or desirable to carry out and give effect to the provisions and intent of this Agreement. 7.5 Public Announcements. Neither the Seller nor the Purchaser shall disclose to the public or to any third party the existence of this Agreement, the terms hereof or the transactions contemplated hereby, or any other material non-public information concerning or relating to the other party hereto, other than with the express prior written consent of the other party hereto, except as may be required by law or court order, except to enforce the rights of such disclosing party under this Agreement; and except that Seller shall have the right to make such public disclosures of this Agreement and the transactions contemplated hereby as it determines are necessary or appropriate under federal or state securities laws; provided, however, that notwithstanding anything to the contrary contained in this Agreement, any party hereto may disclose this Agreement to any of its directors, officers, 8 employees, shareholders, affiliates, agents and representatives who need to know such information for the sole purpose of evaluating, or performing the party`s obligations or exercising the party's rights under, this Agreement, and to any party whose consent is required in connection with this Agreement. ARTICLE VIII MISCELLANEOUS 8.1 Definitions For purposes of this Agreement, the following terms have the meanings specified: "Encumbrance" means and includes: (i) with respect to any personal property, any intangible property or any property other than real property, any security or other property interest or right, claim, lien, pledge, option, charge, including, without limitation, any outstanding additional capital contribution with respect to the Interest, security interest, contingent or conditional sale, or other title claim or retention agreement or lease or use agreement in the nature thereof, interest or other right or claim of third parties, whether voluntarily incurred or arising by operation of law, and including any agreement to grant or submit to any of the foregoing in the future; and (ii) with respect to any real property (whether and including owned real estate or leased real estate), any mortgage, lien, easement, interest, right-of-way, condemnation or eminent domain proceeding, encroachment, any building, use or other form of restriction, encumbrance or other claim (including adverse or prescriptive) or right of third parties (including Governmental Authorities), any lease or sublease, boundary dispute, and agreements with respect to any real property including: purchase, sale, right of first refusal, option, construction, building or property service, maintenance, property management, conditional or contingent sale, use or occupancy, franchise or concession, whether voluntarily incurred or arising by operation of law, and including any agreement to grant or submit to any of the foregoing in the future. "Governmental Authority" means any: (i) nation, state, county, city, town, village, district or other jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or other government; (iii) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, board, commission, department, instrumentality, office or other entity, and any court or other tribunal); (iv) multi-national organization or body; and/or (v) body exercising, or entitled or purporting to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature. 9 "Indebtedness" means (i) all outstanding bank and other loans, notes, lines of credit, capital leases or debt instruments, and (ii) all other indebteness, excluding trade payables, operating leases and other current liabilities. "Liability" or "Liabilities" means any and all debts, liabilities and/or obligations of any type, nature or description (whether known or unknown, asserted or unasserted, secured or unsecured, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due). "Person" means any individual, corporation (including any non-profit corporation), general, limited or limited liability partnership, limited liability company, joint venture, estate, trust, association, organization, or other entity or Governmental Authority. "Rights" means any and all outstanding subscriptions, warrants, options, voting agreements, voting trusts, proxies, or other arrangements or commitments obligating or which may obligate a Person to dispose of or vote any securities, including, without limitation, the Interest or the Shares. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. 8.2 Notices. All notices, requests, consents or other communications required or permitted hereunder shall be in writing and shall be hand delivered or mailed, first class postage prepaid, by registered or certified mail to the following addresses: If to the Seller: ---------------- Continental Southern Resources, Inc. 111 Presidential Boulevard, Suite 158-A Bala Cynwyd, PA 19004 Attention: Chief Executive Officer and With a copy to: -------------- Spector Gadon & Rosen, P.C. Seven Penn Center 1635 Market Street, 7th Floor Philadelphia, PA 19103 Attention: Vincent A. Vietti, Esquire In the case of Purchaser: ------------------------ To that address indicated on the signature page hereof. Unless specified otherwise, such notices and other communications shall for all purposes of this Agreement be treated as being effective upon being delivered personally or, if sent by 10 mail, five days after the same has been deposited in a regularly maintained receptacle for the deposit of United States mail, addressed as set forth above, and postage prepaid. 8.3 Entire Agreement; Assignment. This Agreement, including all Exhibits hereto, constitutes the entire Agreement between the parties with respect to its subject matter and supersedes all prior agreements and understandings, both written and oral, among the parties or any of them with respect to such subject matter. Neither party may assign this Agreement or any of its or his rights hereunder without the prior written consent of the other parties. 8.4 Binding Effect; Benefit. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and assigns. Nothing in this Agreement is intended to confer on any person other than the parties to this Agreement or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 8.5 Headings. The descriptive headings of the sections of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. 8.6 Counterparts. This Agreement may be executed in two or more counterparts and delivered via facsimile, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. 8.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the laws that might otherwise govern under principles of conflicts of laws applicable thereto. 8.8 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 8.9 Amendment and Modification. This Agreement may not be amended except by an instrument in writing signed on behalf of Purchaser and the Seller. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, each of the parties has executed or caused this Agreement to be executed as of the date first above written. CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ STEPHEN P. HARRINGTON ------------------------------------------ Authorized Executive Officer RAM TRADING LTD. By: /s/JAMES R. PARK ------------------------------------------ Authorized Signatory Address: 2100 Enterprise Avenue --------------------------------------------- Geneva, IL 60134 --------------------------------------------- LOUISIANA SHELF PARTNERS, L.P. solely for the purpose of Section 7.2 hereof By: LS Gas, LLC., its General Partner By: /s/ MARK A. BUSH ------------------------------------------ Manager 12 EXHIBIT A LIMITED PARTNERSHIP AGREEMENT OF LOUISIANA SHELF PARTNERS, L.P. EX-10.34 25 h13916exv10w34.txt FORM OF LOCK UP AGREEMENT EXHIBIT 10.34 CONFIDENTIAL LOCK-UP AGREEMENT FEBRUARY 26, 2004 Continental Southern Resources, Inc. 111 Presidential Blvd. Suite 158A Bala Cynwyd, PA 19004 Attention: Board of Directors Gentlemen: Continental Southern Resources, Inc., a Nevada corporation (the "Parent"), CSOR Acquisition Corp., a Delaware corporation and subsidiary of the Parent ("Merger Sub"), NSNV, Inc., a Texas corporation (the "Company"), have entered into the Agreement and Plan of Merger (the "Merger Agreement") dated as of February 26, 2004, which provides, among other things, that the Company will merge with and into the Merger Sub (the "Merger") upon the terms and subject to the conditions set forth in the Merger Agreement (capitalized terms not defined in this Certificate shall have the meanings ascribed to them in the Merger Agreement). The undersigned understands and acknowledges that immediately before or contemporaneously with the Closing of the Merger Agreement, Parent will close a private placement of shares of its common stock with gross proceeds of at least $45,000,000 and that in order to complete the private placement, the Company's placement agent has requested that certain holders of shares of Company common stock agree not to sell, transfer or otherwise dispose of their shares for a certain period of time, as more fully described below. The undersigned acknowledges that completion of the private placement will be of material benefit to the Parent and to the undersigned as a beneficial owner of the Parent's common stock. In addition, under the terms of the Merger Agreement, the undersigned is required to execute and deliver this Lock-Up Agreement as a condition to Parent's closing of the transactions contemplated by the Merger Agreement, including the Merger. In order to facilitate both the Merger and the private placement described above, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby agrees to the restrictions set forth below with respect to __________ shares (the "Shares") of Company common stock of which the undersigned is the sole record and beneficial owner. Commencing upon the closing (the "Closing") of the Merger Agreement and terminating on the date one (1) year from the Closing, the undersigned will not, without the prior written approval of the Company, directly or indirectly (i) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise transfer or dispose of, or offer or contract to do any of the forgoing with respect to (A) any of the Shares, (B) any securities convertible into or exchangeable or exercisable for Company common stock, or (C) any interest in (including any option to buy or sell) any of the Shares or securities convertible into or exchangeable or exercisable for Company common stock, in whole or in part; or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Shares, whether any of the transactions described in clause (A), (B) or (C) above is to be settled by delivery of Shares, in cash or otherwise (any such transaction, whether or not for consideration, shall be referred to as a "Transaction"); provided, however, that this "Lock-Up Agreement" shall not restrict any transfer of any Shares or securities convertible into or exchangeable or exercisable for Company common stock in a privately negotiated transaction that is not executed on the OTCBB or any other market or exchange on which the Company's common stock is then traded, to the Company or any of its subsidiaries or to any of the undersigned's Related Persons (as defined below) who agree in writing to be bound by the provisions of this Lock-Up Agreement. The undersigned acknowledges and understands that the Company's prior approval may require the concurrence of the Company's placement agent and the investors in the private placement. As used in this Lock-Up Agreement, "Related Persons" means: (a) if the undersigned is a natural person, (i) any Immediate Family Member of the undersigned, (ii) any Estate of the undersigned or of any Immediate Family Member of the undersigned, (iii) the trustee of any inter vivos or testamentary trust of which all the beneficiaries are Immediate Family Members of the undersigned, and (iv) any Entity the entire equity interest in which is owned by any one or more of the undersigned and Immediate Family Members of the undersigned; and (b) if the undersigned is an Entity, Estate or trust, (i) any Person who owns an equity interest in the undersigned on the date hereof, (ii) any Person who would be a Related Person under clause (a) of this definition of a natural person who is an ultimate beneficial owner of the undersigned, or (iii) any other Entity the entire equity interest in which is owned by any one or more of the undersigned and Immediate Family Members of the undersigned. As used in this Lock-Up Agreement; (A) "Estate" means, as to any natural person who has died or been adjudicated mentally incompetent by a court of competent jurisdiction, (i) that person's estate or (ii) the administrator, conservator, executor, guardian or representative of that person's estate; (B) "Immediate Family Member" means, (i) if the undersigned is a natural person, any child or grandchild (by blood or legal adoption) or spouse of the undersigned at that time, or any child of the undersigned's spouse; and (ii) if the undersigned is an Entity which has as an ultimate beneficial owner one or more natural persons, any child or grandchild (by blood or legal adoption) or spouse at that time (if not then an ultimate beneficial owner of the Entity), or any child of the spouse, of the ultimate beneficial owner or owners of the Entity; (C) "Entity" means any sole proprietorship, corporation, partnership of any kind having a separate legal status, limited liability company, business trust, unincorporated organization or association, mutual company, joint stock company or joint venture; (D) "Person" means any natural person, Entity, estate, trust, union or employee organization or Governmental Authority; and (E) "Governmental Authority" means any national, state, county, municipal or other government, domestic or foreign, or any agency, board, bureau, commission, court, department or other instrumentality of any such government. The undersigned understands that the Company will take such steps as may be necessary to enforce the foregoing provisions and restrict the sale or transfer of the Shares as provided herein including, but not limited to, notifying its transfer agent to place stop transfer instructions reflecting the foregoing restrictions on the Company's stock transfer records, and the undersigned hereby agrees to and authorize any such actions and acknowledge that the Company is relying upon this Lock-Up Agreement in taking any such actions. The undersigned understands that certain of the information contained herein may be regarded as material non-public information under Regulation FD under the Securities Exchange Act of 1934, as amended, the improper use of which would violate applicable United States securities laws. Accordingly, the undersigned will not publish, disclose or disseminate the existence or contents of this Lock-Up Agreement to any Person, and will maintain the confidentiality of the existence and contents of this Lock-Up Agreement. The undersigned further understand that United States securities laws provide for severe civil and criminal penalties for those persons trading securities while in possession of material non-public information. This Lock-Up Agreement shall become effective upon the Closing. The terms and conditions of this Lock-Up Agreement shall inure to the benefit of and be binding upon the respective successors, assigns, heirs and personal representative of the undersigned. The undersigned represents that its signatory hereto has the full power and authority to execute and deliver this Lock-Up Agreement on its behalf. This Lock-Up Agreement may be executed and delivered via facsimile Intending to be legally bound hereby, the undersigned has executed this Lock-Up Agreement on and as of the date set forth above. Very truly yours, By: ______________________________ Address: EX-10.35 26 h13916exv10w35.txt FORM OF LOCK-UP AGMT. BY CERTAIN STOCKHOLDERS EXHIBIT 10.35 CONFIDENTIAL LOCK-UP AGREEMENT FEBRUARY 26, 2004 Continental Southern Resources, Inc. 111 Presidential Blvd. Suite 158A Bala Cynwyd, PA 19004 Attention: Board of Directors Gentlemen: The undersigned understands and acknowledges that Continental Southern Resources, Inc., a Nevada corporation (the "Company"), will be conducting a private placement of shares of its common stock intended to raise gross proceeds of at least $45,000,000 and that in order to complete the private placement, the Company's placement agent has requested that certain holders of shares of Company common stock agree not to sell, transfer or otherwise dispose of their shares for a certain period of time, as more fully described below. The undersigned acknowledges that completion of the private placement will be of material benefit to the Company and to the undersigned as a beneficial owner of the Company's common stock. In order to facilitate the private placement described above, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby agrees to the restrictions set forth below with respect to ___________________________ shares (the "Shares") of Company common stock of which the undersigned is the sole record and beneficial owner. Commencing upon the closing (the "Closing") of the private placement and terminating on the earlier of (i) one (1) year from the Closing or (ii) the effective date of a registration statement filed with the Securities and Exchange Commission to permit the public resale of the shares of common stock issued in the private placement, the undersigned will not, without the prior written approval of the Company, directly or indirectly (i) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise transfer or dispose of, or offer or contract to do any of the forgoing with respect to (A) any of the Shares, (B) any securities convertible into or exchangeable or exercisable for Company common stock, or (C) any interest in (including any option to buy or sell) any of the Shares or securities convertible into or exchangeable or exercisable for Company common stock, in whole or in part; or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Shares, whether any of the transactions described in clause (A), (B) or (C) above is to be settled by delivery of Shares, in cash or otherwise (any such transaction, whether or not for consideration, shall be referred to as a "Transaction"); provided, however, that this "Lock-Up Agreement" shall not restrict any transfer of any Shares or securities convertible into or exchangeable or exercisable for Company common stock in a privately negotiated transaction that is not executed on the OTCBB or any other market or exchange on which the Company's common stock is then traded, to the Company or any of its subsidiaries or to any of the undersigned's Related Persons (as defined below) who agree in writing to be bound by the provisions of this Lock-Up Agreement. The undersigned acknowledges and understands that the Company's prior approval may require the concurrence of the Company's placement agent and the investors in the private placement. As used in this Lock-Up Agreement, "Related Persons" means: (a) if the undersigned is a natural person, (i) any Immediate Family Member of the undersigned, (ii) any Estate of the undersigned or of any Immediate Family Member of the undersigned, (iii) the trustee of any inter vivos or testamentary trust of which all the beneficiaries are Immediate Family Members of the undersigned, and (iv) any Entity the entire equity interest in which is owned by any one or more of the undersigned and Immediate Family Members of the undersigned; and (b) if the undersigned is an Entity, Estate or trust, (i) any Person who owns an equity interest in the undersigned on the date hereof, (ii) any Person who would be a Related Person under clause (a) of this definition of a natural person who is an ultimate beneficial owner of the undersigned, or (iii) any other Entity the entire equity interest in which is owned by any one or more of the undersigned and Immediate Family Members of the undersigned. As used in this Lock-Up Agreement; (A) "Estate" means, as to any natural person who has died or been adjudicated mentally incompetent by a court of competent jurisdiction, (i) that person's estate or (ii) the administrator, conservator, executor, guardian or representative of that person's estate; (B) "Immediate Family Member" means, (i) if the undersigned is a natural person, any child or grandchild (by blood or legal adoption) or spouse of the undersigned at that time, or any child of the undersigned's spouse; and (ii) if the undersigned is an Entity which has as an ultimate beneficial owner one or more natural persons, any child or grandchild (by blood or legal adoption) or spouse at that time (if not then an ultimate beneficial owner of the Entity), or any child of the spouse, of the ultimate beneficial owner or owners of the Entity; (C) "Entity" means any sole proprietorship, corporation, partnership of any kind having a separate legal status, limited liability company, business trust, unincorporated organization or association, mutual company, joint stock company or joint venture; (D) "Person" means any natural person, Entity, estate, trust, union or employee organization or Governmental Authority; and (E) "Governmental Authority" means any national, state, county, municipal or other government, domestic or foreign, or any agency, board, bureau, commission, court, department or other instrumentality of any such government. Notwithstanding anything contained herein to the contrary, this Lock-Up Agreement shall not prohibit the undersigned from engaging in a Transaction involving up to __________ Shares commencing six (6) months after the Closing or from engaging in a Transaction involving up to an additional __________ Shares commencing nine (9) months after the Closing. The undersigned understands that the Company will take such steps as may be necessary to enforce the foregoing provisions and restrict the sale or transfer of the Shares as provided herein including, but not limited to, notifying its transfer agent to place stop transfer instructions reflecting the foregoing restrictions on the Company's stock transfer records, and the undersigned hereby agrees to and authorize any such actions and acknowledge that the Company is relying upon this Lock-Up Agreement in taking any such actions. The undersigned understands that certain of the information contained herein may be regarded as material non-public information under Regulation FD under the Securities Exchange Act of 1934, as amended, the improper use of which would violate applicable United States securities laws. Accordingly, the undersigned will not publish, disclose or disseminate the existence or contents of this Lock-Up Agreement to any Person, and will maintain the confidentiality of the existence and contents of this Lock-Up Agreement. The undersigned further understand that United States securities laws provide for severe civil and criminal penalties for those persons trading securities while in possession of material non-public information. This Lock-Up Agreement shall become effective upon the Closing. Accordingly, in the event that the Closing does not occur, this Lock-Up Agreement shall be null and void The terms and conditions of this Lock-Up Agreement shall inure to the benefit of and be binding upon the respective successors, assigns, heirs and personal representative of the undersigned. The undersigned represents that its signatory hereto has the full power and authority to execute and deliver this Lock-Up Agreement on its behalf. This Lock-Up Agreement may be executed and delivered via facsimile Intending to be legally bound hereby, the undersigned has executed this Lock-Up Agreement on and as of the date set forth above. Very truly yours, --------------------------------- Print Name of Entity By: _____________________________ Name: Title: --------------------------------- --------------------------------- --------------------------------- Address EX-10.36 27 h13916exv10w36.txt 2004 INCENTIVE PLAN EFFECTIVE 2/26/2004 EXHIBIT 10.36 CONTINENTAL SOUTHERN RESOURCES, INC. 2004 INCENTIVE PLAN (EFFECTIVE FEBRUARY 26, 2004) . . . TABLE OF CONTENTS
PAGE Section 1. GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE, COVERAGE AND BENEFITS..................................1 1.1 Purpose.........................................................................................1 1.2 Definitions.....................................................................................1 1.3 Plan Administration.............................................................................7 1.4 Shares of Common Stock Available for Incentive Awards...........................................9 1.5 Share Pool Adjustments for Awards and Payouts..................................................10 1.6 Common Stock Available.........................................................................11 1.7 Participation..................................................................................11 1.8 Types of Incentive Awards......................................................................11 Section 2. STOCK OPTIONS.........................................................................................11 2.1 Grant of Stock Options.........................................................................11 2.2 Stock Option Terms.............................................................................12 2.3 Stock Option Exercises.........................................................................13 2.4 Supplemental Payment on Exercise of Nonstatutory Stock Options or Stock Appreciation Rights...................................................................15 Section 3. RESTRICTED STOCK......................................................................................15 3.1 Award of Restricted Stock......................................................................15 3.2 Restrictions...................................................................................16 3.3 Delivery of Shares of Common Stock.............................................................17 3.4 Supplemental Payment on Vesting of Restricted Stock............................................18 Section 4. OTHER STOCK-BASED AWARDS..............................................................................18 4.1 Grant of Other Stock-Based Awards..............................................................18 4.2 Other Stock-Based Award Terms..................................................................18 4.3 Performance Awards.............................................................................19 Section 5. PROVISIONS RELATING TO PLAN PARTICIPATION.............................................................21 5.1 Plan Conditions................................................................................21 5.2 Transferability and Exercisability.............................................................22 5.3 Rights as a Stockholder........................................................................23 5.4 Listing and Registration of Shares of Common Stock.............................................23 5.5 Change in Stock and Adjustments................................................................24 5.6 Termination of Employment, Death, Disability and Retirement....................................27 5.7 Change in Control..............................................................................28 5.8 Exchange of Incentive Awards...................................................................29 5.9 Financing......................................................................................30 Section 6. GENERAL...............................................................................................30 6.1 Effective Date and Grant Period................................................................30 6.2 Funding and Liability of Company...............................................................30 6.3 Withholding Taxes..............................................................................30
i
6.4 No Guarantee of Tax Consequences...............................................................31 6.5 Designation of Beneficiary by Participant......................................................31 6.6 Deferrals......................................................................................31 6.7 Amendment and Termination......................................................................32 6.8 Requirements of Law............................................................................32 6.9 Rule 16b-3 Securities Law Compliance and Compliance with Company Policies...............................................................................32 6.10 Compliance with Code Section 162(m)............................................................33 6.11 Successors.....................................................................................33 6.12 Miscellaneous Provisions.......................................................................33 6.13 Severability...................................................................................33 6.14 Gender, Tense and Headings.....................................................................34 6.15 Governing Law..................................................................................34
ii CONTINENTAL SOUTHERN RESOURCES, INC. 2004 INCENTIVE PLAN SECTION 1. GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE, COVERAGE AND BENEFITS 1.1 PURPOSE The purpose of the Plan is to foster and promote the long-term financial success of Continental Southern Resources, Inc. (the "COMPANY") and its Subsidiaries and to increase stockholder value by: (a) encouraging the commitment of selected key Employees, Consultants and Outside Directors, (b) motivating superior performance of key Employees, Consultants and Outside Directors by means of long-term performance related incentives, (c) encouraging and providing key Employees, Consultants and Outside Directors with a program for obtaining ownership interests in the Company which link and align their personal interests to those of the Company's stockholders, (d) attracting and retaining key Employees, Consultants and Outside Directors by providing competitive incentive compensation opportunities, and (e) enabling key Employees, Consultants and Outside Directors to share in the long-term growth and success of the Company. The Plan provides for payment of various forms of incentive compensation and it is not intended to be a plan that is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan shall be interpreted, construed and administered consistent with its status as a plan that is not subject to ERISA. Subject to approval by the Company's stockholders pursuant to Section 6.1, the Plan is established effective as of February 26, 2004 (the "EFFECTIVE DATE"). The Plan shall commence on the Effective Date, and shall remain in effect, subject to the right of the Board to amend or terminate the Plan at any time pursuant to Section 6.7, until all Shares subject to the Plan have been purchased or acquired according to its provisions. However, in no event may an Incentive Award be granted under the Plan after the expiration of ten (10) years from the Effective Date. 1.2 Definitions The following terms shall have the meanings set forth below: (a) AUTHORIZED OFFICER. The Chairman of the Board, the Chief Executive Officer or any other senior officer of the Company to whom either of them delegate the authority to execute any Incentive Agreement for and on behalf of the Company. No officer or director shall be an Authorized Officer with respect to any Incentive Agreement for himself. (b) BOARD. The Board of Directors of the Company. 1 (c) CAUSE. Unless otherwise expressly provided in the Grantee's Incentive Agreement, when used in connection with the termination of a Grantee's Employment, shall mean the termination of the Grantee's Employment by the Company by reason of (i) the conviction of the Grantee by a court of competent jurisdiction as to which no further appeal can be taken of a crime involving moral turpitude or a felony; (ii) the proven commission by the Grantee of an act of fraud upon the Company; (iii) the willful and proven misappropriation of any funds or property of the Company by the Grantee; (iv) the willful, continued and unreasonable failure by the Grantee to perform the material duties assigned to him; (v) the knowing engagement by the Grantee in any direct, material conflict of interest with the Company without compliance with the Company's conflict of interest policy, if any, then in effect; or (vi) the knowing engagement by the Grantee, without the written approval of the Board, in any activity which competes with the business of the Company or which would result in a material injury to the business, reputation or goodwill of the Company. (d) CHANGE IN CONTROL. Unless otherwise expressly provided in the Grantee's Incentive Agreement, any of the events described in and subject to Section 5.7. (e) CODE. The Internal Revenue Code of 1986, as amended, and the regulations and other authority promulgated thereunder by the appropriate governmental authority. References herein to any provision of the Code shall refer to any successor provision thereto. (f) COMMITTEE. A committee appointed by the Board consisting of not less than two directors as appointed by the Board to administer the Plan. During such period that the Company is a Publicly Held Corporation, the Plan shall be administered by a committee appointed by the Board consisting of not less than two directors who fulfill the "non-employee director" requirements of Rule 16b-3 under the Exchange Act and the "outside director" requirements of Section 162(m) of the Code. In either case, the Committee may be the Compensation Committee of the Board, or any subcommittee of the Compensation Committee, provided that the members of the Committee satisfy the requirements of the previous provisions of this paragraph. Notwithstanding the foregoing, if the composition of the Board does not provide the Company the ability to establish a committee meeting the foregoing requirements, the Plan shall be administered by the full Board. The Board shall have the power to fill vacancies on the Committee arising by resignation, death, removal or otherwise. The Board, in its sole discretion, may bifurcate the powers and duties of the Committee among one or more separate committees, or retain all powers and duties of the Committee in a single Committee. The members of the Committee shall serve at the discretion of the Board. Notwithstanding the preceding paragraphs, the term "Committee" as used in the Plan with respect to any Incentive Award for an Outside Director shall refer to the entire Board. In the case of an Incentive Award for an Outside Director, the Board shall have all the powers and responsibilities of the Committee hereunder as to such Incentive Award, and any actions as to such Incentive Award may be acted upon only by the Board 2 (unless it otherwise designates in its discretion). When the Board exercises its authority to act in the capacity as the Committee hereunder with respect to an Incentive Award for an Outside Director, it shall so designate with respect to any action that it undertakes in its capacity as the Committee. (g) COMMON STOCK. The common stock of the Company, $.001 par value per share, and any class of common stock into which such common shares may hereafter be converted, reclassified or recapitalized. (h) COMPANY. Continental Southern Resources, Inc., a corporation organized under the laws of the State of Nevada, and any successor in interest thereto. (i) CONSULTANT. An independent agent, consultant, attorney, an individual who has agreed to become an Employee within the next six (6) months, or any other individual who is not an Outside Director or employee of the Company (or any Parent or Subsidiary) and who (i), in the opinion of the Committee, is in a position to contribute to the growth or financial success of the Company (or any Parent or Subsidiary), (ii) is a natural person and (iii) provides bona fide services to the Company (or any Parent or Subsidiary), which services are not in connection with the offer or sale of securities in a capital raising transaction, and do not directly or indirectly promote or maintain a market for the Company's securities. (j) COVERED EMPLOYEE. A named executive officer who is one of the group of covered employees, as defined in Section 162(m) of the Code and Treasury Regulation ss. 1.162-27(c) (or its successor), during such period that the Company is a Publicly Held Corporation. (k) DISABILITY. Unless otherwise expressly provided in the Grantee's Incentive Agreement, as determined by the Committee in its discretion exercised in good faith, a physical or mental condition of the Employee that would entitle him to payment of disability income payments under the Company's long term disability insurance policy or plan for employees, as then effective, if any; or in the event that the Grantee is not covered, for whatever reason, under the Company's long-term disability insurance policy or plan, "Disability" means a permanent and total disability as defined in Section 22(e)(3) of the Code. A determination of Disability may be made by a physician selected or approved by the Committee and, in this respect, the Grantee shall submit to an examination by such physician upon request. (l) EMPLOYEE. Any employee of the Company (or any Parent or Subsidiary) within the meaning of Section 3401(c) of the Code who, in the opinion of the Committee, is in a position to contribute to the growth, development and financial success of the Company (or any Parent or Subsidiary), including, without limitation, officers who are members of the Board. (m) EMPLOYMENT. Employment by the Company (or any Parent or Subsidiary), or by any corporation issuing or assuming an Incentive Award in any transaction described in Section 424(a) of the Code, or by a parent corporation or a 3 subsidiary corporation of such corporation issuing or assuming such Incentive Award, as the parent-subsidiary relationship shall be determined at the time of the corporate action described in Section 424(a) of the Code. In this regard, neither the transfer of a Grantee from Employment by the Company to Employment by any Parent or Subsidiary, nor the transfer of a Grantee from Employment by any Parent or Subsidiary to Employment by the Company, shall be deemed to be a termination of Employment of the Grantee. Moreover, the Employment of a Grantee shall not be deemed to have been terminated because of an approved leave of absence from active Employment on account of temporary illness, authorized vacation or granted for reasons of professional advancement, education, health, or government service, or military leave, or during any period required to be treated as a leave of absence by virtue of any applicable statute, Company personnel policy or agreement. Whether an authorized leave of absence shall constitute termination of Employment hereunder shall be determined by the Committee in its discretion. Unless otherwise provided in the Incentive Agreement, the term "Employment" for purposes of the Plan is also defined to include (i) compensatory or advisory services performed by a Consultant for the Company (or any Parent or Subsidiary) and (ii) membership on the Board by an Outside Director. (n) EQUITY OFFERING. The private placement of up to 25,000,000 shares of Common Stock solely to accredited investors pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder and that certain Company Confidential Private Placement Memorandum dated January 23, 2004, as supplemented. (o) EXCHANGE ACT. The Securities Exchange Act of 1934, as amended. (p) FAIR MARKET VALUE. Except as set forth below, the Fair Market Value of one share of Common Stock on the date in question is deemed to be (i) the closing sales price on the immediately preceding business day of a share of Common Stock as reported on the consolidated reporting system for the securities exchange(s) on which Shares are then listed or admitted to trading (as reported in the Wall Street Journal or other reputable source), or (ii) if not so reported, the closing sale price for a Share on the immediately preceding business day as quoted on the Nasdaq Stock Market, Inc. ("NASDAQ"), or (iii) if not quoted on NASDAQ, the average of the closing bid and asked prices for a Share as quoted by the National Quotation Bureau's "Pink Sheets" or the National Association of Securities Dealers' OTC Bulletin Board System. If there was no public trade of Common Stock on the date in question, Fair Market Value shall be determined by reference to the last preceding date on which such a trade was so reported. Notwithstanding the foregoing, the Fair Market Value of one share of Common Stock as of the grant date of any Incentive Award granted within 30 days after the Equity Offering is consummated shall be the price paid per share of Common Stock by the investors in such Equity Offering. If the Company is not a Publicly Held Corporation at the time a determination of the Fair Market Value of the Common Stock is required to be made hereunder, the 4 determination of Fair Market Value for purposes of the Plan shall be made by the Committee in its discretion exercised in good faith. In this respect, the Committee may rely on such financial data, valuations, experts, and other sources, in its discretion, as it deems advisable under the circumstances. (q) GRANTEE. Any Employee, Consultant or Outside Director who is granted an Incentive Award under the Plan. (r) IMMEDIATE FAMILY. With respect to a Grantee, the Grantee's spouse, children or grandchildren (including legally adopted and step children and grandchildren) (s) INCENTIVE AGREEMENT. The written agreement entered into between the Company and the Grantee setting forth the terms and conditions pursuant to which an Incentive Award is granted under the Plan, as such agreement is further defined in Section 5.1(a). (t) INCENTIVE AWARD. A grant of an award under the Plan to a Grantee, including any Nonstatutory Stock Option, Incentive Stock Option, Reload Option, Restricted Stock Award, Other Stock-Based Award or Performance Award. (u) INCENTIVE STOCK OPTION OR ISO. A Stock Option granted by the Committee to an Employee under Section 2 which is designated by the Committee as an Incentive Stock Option and intended to qualify as an Incentive Stock Option under Section 422 of the Code. (v) INSIDER. An individual who is, on the relevant date, an officer, director or ten percent (10%) beneficial owner of any class of the Company's equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act. (w) NONSTATUTORY STOCK OPTION. A Stock Option granted by the Committee to a Grantee under Section 2 that is not designated by the Committee as an Incentive Stock Option. (x) OPTION PRICE. The exercise price at which a Share may be purchased by the Grantee of a Stock Option. (y) OTHER STOCK-BASED AWARD. An award granted by the Committee to a Grantee under Section 4.1 that is valued in whole or in part by reference to, or is otherwise based upon, Common Stock. (z) OUTSIDE DIRECTOR. A member of the Board who is not, at the time of grant of an Incentive Award, an employee of the Company or any Parent or Subsidiary. (aa) PARENT. Any corporation (whether now or hereafter existing) which constitutes a "parent" of the Company, as defined in Section 424(e) of the Code. 5 (bb) PERFORMANCE AWARD. An award granted by the Committee to the Grantee under Section 4.3. (cc) PERFORMANCE-BASED EXCEPTION. The performance-based exception from the tax deductibility limitations of Section 162(m) of the Code, as prescribed in Code ss. 162(m) and Treasury Regulation ss. 1.162-27(e) (or its successor), which is applicable during such period that the Company is a Publicly Held Corporation. (dd) PERFORMANCE PERIOD. A period of time, as may be determined in the discretion of the Committee and set out in the Incentive Agreement, over which performance is measured for the purpose of determining a Grantee's right to and the payment value of an Incentive Award. (ee) PERFORMANCE SHARE OR PERFORMANCE UNIT. An Incentive Award that is a Performance Award under Section 4.3 representing a contingent right to receive cash or Shares of Common Stock (which may be Restricted Stock) at the end of a Performance Period and which, in the case of Performance Shares, is denominated in Common Stock, and in the case of Performance Units is denominated in cash values. (ff) PLAN. The Continental Southern Resources, Inc. 2004 Incentive Plan as set forth herein and as it may be amended from time to time. (gg) PUBLICLY HELD CORPORATION. A corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act. (hh) RESTRICTED STOCK. Shares of Common Stock issued or transferred to a Grantee pursuant to Section 3. (ii) RESTRICTED STOCK AWARD. An authorization by the Committee to issue or transfer Restricted Stock to a Grantee. (jj) RESTRICTION PERIOD. The period of time determined by the Committee and set forth in the Incentive Agreement during which the transfer of Restricted Stock by the Grantee is restricted. (kk) RETIREMENT. The voluntary termination of Employment from the Company or any Parent or Subsidiary constituting retirement for age on any date after the Employee attains the normal retirement age of sixty-five (65) years, or such other age as may be designated by the Committee in the Employee's Incentive Agreement. (ll) SHARE. A share of the Common Stock. (mm) SHARE POOL. The number of shares authorized for issuance under Section 1.4, as adjusted for awards and payouts under Section 1.5 and as adjusted for changes in corporate capitalization under Section 5.5. (nn) STOCK OPTION OR OPTION. Pursuant to Section 2, (i) an Incentive Stock Option granted to an 6 Employee or (ii) a Nonstatutory Stock Option granted to an Employee, Consultant or Outside Director, whereunder such stock option the Grantee has the right to purchase Shares of Common Stock. In accordance with Section 422 of the Code, only an Employee may be granted an Incentive Stock Option. (oo) SUBSIDIARY. Any corporation (whether now or hereafter existing) which constitutes a "subsidiary" of the Company, as defined in Section 424(f) of the Code. (pp) SUPPLEMENTAL PAYMENT. Any amount, as described in Sections 2.4, 3.4 or 4.3, that is dedicated to payment of income taxes which are payable by the Grantee resulting from an Incentive Award. 1.3 Plan Administration (a) AUTHORITY OF THE COMMITTEE. Except as may be limited by law and subject to the provisions herein, the Committee shall have full power to (i) select Grantees who shall participate in the Plan; (ii) determine the sizes, duration and types of Incentive Awards; (iii) determine the terms and conditions of Incentive Awards and Incentive Agreements; (iv) determine whether any Shares subject to Incentive Awards will be subject to any restrictions on transfer; (v) construe and interpret the Plan and any Incentive Agreement or other agreement entered into under the Plan; and (vi) establish, amend, or waive rules for the Plan's administration. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan including, without limitation, correcting any defect, supplying any omission or reconciling any inconsistency in the Plan or any Incentive Agreement. The determinations of the Committee shall be final and binding. (b) MEETINGS. The Committee shall designate a chairman from among its members who shall preside at all of its meetings, and shall designate a secretary, without regard to whether that person is a member of the Committee, who shall keep the minutes of the proceedings and all records, documents, and data pertaining to its administration of the Plan. Meetings shall be held at such times and places as shall be determined by the Committee and the Committee may hold telephonic meetings. The Committee may take any action otherwise proper under the Plan by the affirmative vote, taken with or without a meeting, of a majority of its members. The Committee may authorize any one or more of their members or any officer of the Company to execute and deliver documents on behalf of the Committee. (c) DECISIONS BINDING. All determinations and decisions made by the Committee shall be made in its discretion pursuant to the provisions of the Plan, and shall be final, conclusive and binding on all persons including the Company, its stockholders, Employees, Grantees, and their estates and beneficiaries. The Committee's decisions and determinations with respect to any Incentive Award need not be uniform and may be made selectively among Incentive Awards and Grantees, whether or not such Incentive Awards are similar or such Grantees are similarly situated. (d) MODIFICATION OF OUTSTANDING INCENTIVE AWARDS. Subject to the stockholder approval requirements of Section 6.7 if applicable, the Committee may, in its 7 discretion, provide for the extension of the exercisability of an Incentive Award, accelerate the vesting or exercisability of an Incentive Award, eliminate or make less restrictive any restrictions contained in an Incentive Award, waive any restriction or other provisions of an Incentive Award, or otherwise amend or modify an Incentive Award in any manner that is either (i) not adverse to the Grantee to whom such Incentive Award was granted or (ii) consented to by such Grantee. With respect to an Incentive Award that is an incentive stock option (as described in Section 422 of the Code), no adjustment to such option shall be made to the extent constituting a "modification" within the meaning of Section 424(h)(3) of the Code unless otherwise agreed to by the optionee in writing. (e) DELEGATION OF AUTHORITY. The Committee may delegate to designated officers or other employees of the Company any of its duties under this Plan pursuant to such conditions or limitations as the Committee may establish from time to time; provided, however, while the Company is a Publicly Held Corporation, the Committee may not delegate to any person the authority to (i) grant Incentive Awards, or (ii) take any action which would contravene the requirements of Rule 16b-3 under the Exchange Act or the Performance-Based Exception under Section 162(m) of the Code. (f) EXPENSES OF COMMITTEE. The Committee may employ legal counsel, including, without limitation, independent legal counsel and counsel regularly employed by the Company, and other agents as the Committee may deem appropriate for the administration of the Plan. The Committee may rely upon any opinion or computation received from any such counsel or agent. All expenses incurred by the Committee in interpreting and administering the Plan, including, without limitation, meeting expenses and professional fees, shall be paid by the Company. (g) SURRENDER OF PREVIOUS INCENTIVE AWARDS. The Committee may, in its absolute discretion, grant Incentive Awards to Grantees on the condition that such Grantees surrender to the Committee for cancellation such other Incentive Awards (including, without limitation, Incentive Awards with higher exercise prices) as the Committee directs. Incentive Awards granted on the condition precedent of surrender of outstanding Incentive Awards shall not count against the limits set forth in Section 1.4 until such time as such previous Incentive Awards are surrendered and canceled. (h) INDEMNIFICATION. EACH PERSON WHO IS OR WAS A MEMBER OF THE COMMITTEE, OR OF THE BOARD, SHALL BE INDEMNIFIED BY THE COMPANY AGAINST AND FROM ANY DAMAGE, LOSS, LIABILITY, COST AND EXPENSE THAT MAY BE IMPOSED UPON OR REASONABLY INCURRED BY HIM IN CONNECTION WITH OR RESULTING FROM ANY CLAIM, ACTION, SUIT, OR PROCEEDING TO WHICH HE MAY BE A PARTY OR IN WHICH HE MAY BE INVOLVED BY REASON OF ANY ACTION TAKEN OR FAILURE TO ACT UNDER THE PLAN (INCLUDING SUCH INDEMNIFICATION FOR A PERSON'S OWN, SOLE, CONCURRENT OR JOINT NEGLIGENCE OR STRICT LIABILITY), EXCEPT FOR ANY SUCH ACT OR OMISSION CONSTITUTING WILLFUL MISCONDUCT OR GROSS NEGLIGENCE. SUCH PERSON SHALL BE INDEMNIFIED BY THE COMPANY FOR ALL AMOUNTS 9 PAID BY HIM IN SETTLEMENT THEREOF, WITH THE COMPANY'S APPROVAL, OR PAID BY HIM IN SATISFACTION OF ANY JUDGMENT IN ANY SUCH ACTION, SUIT, OR PROCEEDING AGAINST HIM, PROVIDED HE SHALL GIVE THE COMPANY AN OPPORTUNITY, AT ITS OWN EXPENSE, TO HANDLE AND DEFEND THE SAME BEFORE HE UNDERTAKES TO HANDLE AND DEFEND IT ON HIS OWN BEHALF. THE FOREGOING RIGHT OF INDEMNIFICATION SHALL NOT BE EXCLUSIVE OF ANY OTHER RIGHTS OF INDEMNIFICATION TO WHICH SUCH PERSONS MAY BE ENTITLED UNDER THE COMPANY'S ARTICLES OF INCORPORATION OR BYLAWS, AS A MATTER OF LAW, OR OTHERWISE, OR ANY POWER THAT THE COMPANY MAY HAVE TO INDEMNIFY THEM OR HOLD THEM HARMLESS. 1.4 SHARES OF COMMON STOCK AVAILABLE FOR INCENTIVE AWARDS Subject to adjustment under Section 5.5, there shall be available for Incentive Awards under the Plan that are granted wholly or partly in Common Stock (including rights or Stock Options that may be exercised for or settled in Common Stock) 6,200,000 Shares of Common Stock; of this amount 6,200,000 Shares of Common Stock reserved under the Plan shall be available for Nonstatutory Stock Options; 6,200,000 of the Shares of Common Stock reserved under the Plan shall be available for grants of Incentive Stock Options; 3,100,000 Shares of Common Stock shall be available for Restricted Stock; and 6,200,000 Shares of Common Stock shall be available for each of the types of the stock based awards individually under Section 4 including each of the Other Stock Based Awards which are authorized under Section 4.1 including, without limitation, purchase rights, Shares of Common Stock awarded which are not subject to any restrictions or conditions, convertible or exchangeable debentures, other rights convertible into Shares, Incentive Awards valued by reference to the value of securities of, or the performance of, the Company or a specified Subsidiary, division or department, and settlement in cancellation of rights of any person with a vested interest in any other plan, fund, program or arrangement that is or was sponsored, maintained or participated in by the Company or any Parent or Subsidiary and the Performance Awards under Section 4.3. The number of Shares of Common Stock that are the subject of Incentive Awards under this Plan, that are forfeited or terminated, expire unexercised, withheld for tax withholding requirements, are settled in cash in lieu of Common Stock or in a manner such that all or some of the Shares covered by an Incentive Award are not issued to a Grantee or are exchanged for Incentive Awards that do not involve Common Stock, shall again immediately become available for Incentive Awards hereunder. The Committee may from time to time adopt and observe such procedures concerning the counting of Shares against the Plan maximum as it may deem appropriate. The Board and the appropriate officers of the Company shall from time to time take whatever actions are necessary to file any required documents with governmental authorities, stock exchanges and transaction reporting systems to ensure that Shares are available for issuance pursuant to Incentive Awards. During such period that the Company is a Publicly Held Corporation, then unless and until the Committee determines that a particular Incentive Award granted to a Covered Employee is not intended to comply with the Performance-Based Exception, the following rules shall apply to grants of Incentive Awards to Covered Employees: 9 (a) Subject to adjustment as provided in Section 5.5, the maximum aggregate number of Shares of Common Stock (including Stock Options, Restricted Stock, or Other Stock-Based Awards paid out in Shares) that may be granted in any calendar year pursuant to any Incentive Award held by any individual Covered Employee shall be 1,000,000 Shares. (b) The maximum aggregate cash payout (including Other Stock-Based Awards paid out in cash) with respect to Incentive Awards granted in any calendar year which may be made to any Covered Employee shall be five million dollars ($5,000,000). (c) With respect to any Stock Option granted to a Covered Employee that is canceled or repriced, the number of Shares subject to such Stock Option shall continue to count against the maximum number of Shares that may be the subject of Stock Options granted to such Covered Employee hereunder and, in this regard, such maximum number shall be determined in accordance with Section 162(m) of the Code. (d) The limitations of subsections (a), (b) and (c) above shall be construed and administered so as to comply with the Performance-Based Exception. 1.5 SHARE POOL ADJUSTMENTS FOR AWARDS AND PAYOUTS. The following Incentive Awards and payouts shall reduce, on a one Share for one Share basis, the number of Shares authorized for issuance under the Share Pool: (a) Stock Options; (b) Restricted Stock Awards; and (c) A payout of an Other Stock-Based Award or Performance Awards in Shares. The following transactions shall restore, on a one Share for one Share basis, the number of Shares authorized for issuance under the Share Pool: (a) A payout of an Other Stock-Based Award or Performance Awards in the form of cash; (b) A cancellation, termination, expiration, forfeiture, or lapse for any reason of any Shares subject to an Incentive Award; and (c) Payment of an Option Price or Restricted Stock purchase price as provided in the Incentive Agreement or as determined by the Compensation Committee in its sole discretion with previously acquired Shares or by withholding Shares that otherwise would be acquired on exercise or grant (i.e., the Share Pool shall be increased by the number of Shares turned in or withheld as payment of the Option Price or Restricted Stock purchase price). 10 1.6 COMMON STOCK AVAILABLE. The Common Stock available for issuance or transfer under the Plan shall be made available from Shares now or hereafter (a) held in the treasury of the Company, (b) authorized but unissued shares, or (c) shares to be purchased or acquired by the Company. No fractional shares shall be issued under the Plan; payment for fractional shares shall be made in cash. 1.7 Participation (a) ELIGIBILITY. The Committee shall from time to time designate those Employees, Consultants and/or Outside Directors, if any, to be granted Incentive Awards under the Plan, the type of Incentive Awards granted, the number of Shares or Stock Options, as the case may be, which shall be granted to each such person, and any other terms or conditions relating to the Incentive Awards as it may deem appropriate to the extent not inconsistent with the provisions of the Plan. A Grantee who has been granted an Incentive Award may, if otherwise eligible, be granted additional Incentive Awards at any time. (b) INCENTIVE STOCK OPTION ELIGIBILITY. No Consultant or Outside Director shall be eligible for the grant of any Incentive Stock Option. In addition, no Employee shall be eligible for the grant of any Incentive Stock Option who owns or would own immediately before the grant of such Incentive Stock Option, directly or indirectly, stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or any Parent or Subsidiary. This restriction does not apply if, at the time such Incentive Stock Option is granted, the Option Price with respect to the Incentive Stock Option is at least one hundred and ten percent (110%) of the Fair Market Value on the date of grant and the Incentive Stock Option by its terms is not exercisable after the expiration of five (5) years from the date of grant. For the purpose of the immediately preceding sentence, the attribution rules of Section 424(d) of the Code shall apply for the purpose of determining an Employee's percentage ownership in the Company or any Parent or Subsidiary. This paragraph shall be construed consistent with the requirements of Section 422 of the Code. 1.8 TYPES OF INCENTIVE AWARDS The types of Incentive Awards that may be granted under the Plan are Stock Options as described in Section 2, Restricted Stock as described in Section 3, Other Stock-Based Awards as described in Section 4, or any combination of the foregoing. SECTION 2. STOCK OPTIONS 2.1 GRANT OF STOCK OPTIONS The Committee is authorized to grant (a) Nonstatutory Stock Options to Employees, Consultants and/or Outside Directors and (b) Incentive Stock Options to Employees only, in accordance with the terms and 11 conditions of the Plan, and with such additional terms and conditions, not inconsistent with the Plan, as the Committee shall determine in its discretion. Successive grants may be made to the same Grantee whether or not any Stock Option previously granted to such person remains unexercised. 2.2 Stock Option Terms (a) WRITTEN AGREEMENT. Each grant of a Stock Option shall be evidenced by a written Incentive Agreement. Among its other provisions, each Incentive Agreement shall set forth the extent to which the Grantee shall have the right to exercise the Stock Option following termination of the Grantee's Employment. Such provisions shall be determined in the discretion of the Committee, shall be included in the Grantee's Incentive Agreement and need not be uniform among all Stock Options issued pursuant to the Plan. (b) NUMBER OF SHARES. Each Stock Option shall specify the number of Shares of Common Stock to which it pertains. (c) EXERCISE PRICE. The Option Price with respect to each Stock Option shall be determined by the Committee; provided, however, that in the case of an Incentive Stock Option, the Option Price shall not be less than one hundred percent (100%) of the Fair Market Value per Share on the date the Incentive Stock Option is granted (110% for 10% or greater stockholders pursuant to Section 1.7(b)). To the extent that the Company is a Publicly Held Corporation and the Stock Option is intended to qualify for the Performance-Based Exception, the Option Price shall not be less than one hundred percent (100%) of the Fair Market Value per Share on the date the Stock Option is granted. Each Stock Option shall specify the method of exercise which shall be consistent with the requirements of Section 2.3(a). (d) TERM. In the Incentive Agreement, the Committee shall fix the term of each Stock Option (which shall be not more than ten (10) years from the date of grant for ISO grants; five (5) years for ISO grants to ten percent (10%) or greater stockholders pursuant to Section 1.7(b)). In the event no term is fixed, such term shall be ten (10) years from the date of grant. (e) EXERCISE. The Committee shall determine the time or times at which a Stock Option may be exercised in whole or in part. Each Stock Option may specify the required period of continuous Employment and/or the performance objectives to be achieved before the Stock Option or portion thereof will become exercisable. Each Stock Option, the exercise of which, or the timing of the exercise of which, is dependent, in whole or in part, on the achievement of designated performance objectives, may specify a minimum level of achievement in respect of the specified performance objectives below which no Stock Options will be exercisable and a method for determining the number of Stock Options that will be exercisable if performance is at or above such minimum but short of full achievement of the performance objectives. All such terms and conditions shall be set forth in the Incentive Agreement. 12 (f) $100,000 ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. Notwithstanding any contrary provision in the Plan, to the extent that the aggregate Fair Market Value (determined as of the time the Incentive Stock Option is granted) of the Shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Grantee during any single calendar year (under the Plan and any other stock option plans of the Company and its Subsidiaries or Parent) exceeds the sum of $100,000, such Incentive Stock Option shall be treated as a Nonstatutory Stock Option to the extent in excess of the $100,000 limit, and not an Incentive Stock Option, but all other terms and provisions of such Stock Option shall remain unchanged. This paragraph shall be applied by taking Incentive Stock Options into account in the order in which they were granted and shall be construed in accordance with Section 422(d) of the Code. In the absence of such regulations or other authority, or if such regulations or other authority require or permit a designation of the Options which shall cease to constitute Incentive Stock Options, then such Incentive Stock Options, only to the extent of such excess, shall automatically be deemed to be Nonstatutory Stock Options but all other terms and conditions of such Incentive Stock Options, and the corresponding Incentive Agreement, shall remain unchanged. 2.3 STOCK OPTION EXERCISES (a) METHOD OF EXERCISE AND PAYMENT. Stock Options shall be exercised by the delivery of a signed written notice of exercise to the Company as of a date set by the Company in advance of the effective date of the proposed exercise. The notice shall set forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Stock Option shall be payable to the Company in full either: (i) in cash or its equivalent, or (ii) subject to prior approval by the Committee in its discretion, by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares which are tendered must have been held by the Grantee for at least six (6) months prior to their tender to satisfy the Option Price), or (iii) subject to prior approval by the Committee in its discretion, by withholding Shares which otherwise would be acquired on exercise having an aggregate Fair Market Value at the time of exercise equal to the total Option Price, or (iv) subject to prior approval by the Committee in its discretion, by a combination of (i), (ii), and (iii) above. Any payment in Shares shall be effected by the surrender of such Shares to the Company in good form for transfer and shall be valued at their Fair Market Value on the date when the Stock Option is exercised. Unless otherwise permitted by the Committee in its discretion, the Grantee shall not surrender, or attest to the ownership of, Shares in payment of the Option Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Stock Option for financial reporting purposes. The Committee, in its discretion, also may allow the Option Price to be paid with such other consideration as shall constitute lawful consideration for the issuance of Shares (including, without limitation, effecting a "cashless exercise" with a broker of the Option), subject to applicable securities law restrictions and tax withholdings, or by any 13 other means which the Committee determines to be consistent with the Plan's purpose and applicable law. A "cashless exercise" of an Option is a procedure by which a broker provides the funds to the Grantee to effect an Option exercise, to the extent consented to by the Committee in its discretion. At the direction of the Grantee, the broker will either (i) sell all of the Shares received when the Option is exercised and pay the Grantee the proceeds of the sale (minus the Option Price, withholding taxes and any fees due to the broker) or (ii) sell enough of the Shares received upon exercise of the Option to cover the Option Price, withholding taxes and any fees due the broker and deliver to the Grantee (either directly or through the Company) a stock certificate for the remaining Shares. Dispositions to a broker effecting a cashless exercise are not exempt under Section 16 of the Exchange Act (if the Company is a Publicly Held Corporation). In no event will the Committee allow the Option Price to be paid with a form of consideration, including a loan or a "cashless exercise," if such form of consideration would violate the Sarbanes-Oxley Act of 2002 as determined by the Committee in its discretion. The Committee, in its discretion, may also allow an Option to be exercised by a broker-dealer acting on behalf of the Grantee if (i) the broker-dealer has received from the Grantee a duly endorsed Incentive Agreement evidencing such Option and instructions signed by the Grantee requesting the Company to deliver the shares of Common Stock subject to such Option to the broker-dealer on behalf of the Grantee and specifying the account into which such shares should be deposited, (ii) adequate provision has been made with respect to the payment of any withholding taxes due upon such exercise, and (iii) the broker-dealer and the Grantee have otherwise complied with Section 220.3(e)(4) of Regulation T, 12 CFR Part 220 (or its successor). As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver, or cause to be delivered, to or on behalf of the Grantee, in the name of the Grantee or other appropriate recipient, Share certificates for the number of Shares purchased under the Stock Option. Such delivery shall be effected for all purposes when the Company or a stock transfer agent of the Company shall have deposited such certificates in the United States mail, addressed to Grantee or other appropriate recipient. Subject to Section 5.2, during the lifetime of a Grantee, each Option granted to him shall be exercisable only by the Grantee (or his legal guardian in the event of his Disability) or by a broker-dealer acting on his behalf pursuant to a cashless exercise under the foregoing provisions of this Section 2.3(a). (b) RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such restrictions on any grant of Stock Options or on any Shares acquired pursuant to the exercise of a Stock Option as it may deem advisable, including, without limitation, restrictions under (i) any buy/sell agreement or right of first refusal, non-competition, and any other agreement between the Company and any of its securities holders or employees, (ii) any applicable federal securities laws, (iii) the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, or (iv) any blue sky or state securities law applicable to such Shares. Any certificate issued to evidence Shares issued upon the exercise of an Incentive Award may bear such legends and 14 statements as the Committee shall deem advisable to assure compliance with federal and state laws and regulations. Any Grantee or other person exercising an Incentive Award may be required by the Committee to give a written representation that the Incentive Award and the Shares subject to the Incentive Award will be acquired for investment and not with a view to public distribution; provided, however, that the Committee, in its sole discretion, may release any person receiving an Incentive Award from any such representations either prior to or subsequent to the exercise of the Incentive Award. (c) NOTIFICATION OF DISQUALIFYING DISPOSITION OF SHARES FROM INCENTIVE STOCK OPTIONS. Notwithstanding any other provision of the Plan, a Grantee who disposes of Shares of Common Stock acquired upon the exercise of an Incentive Stock Option by a sale or exchange either (i) within two (2) years after the date of the grant of the Incentive Stock Option under which the Shares were acquired or (ii) within one (1) year after the transfer of such Shares to him pursuant to exercise, shall promptly notify the Company of such disposition, the amount realized and his adjusted basis in such Shares. (d) PROCEEDS OF OPTION EXERCISE. The proceeds received by the Company from the sale of Shares pursuant to Stock Options exercised under the Plan shall be used for general corporate purposes. 2.4 SUPPLEMENTAL PAYMENT ON EXERCISE OF NONSTATUTORY STOCK OPTIONS OR STOCK APPRECIATION RIGHTS. The Committee, either at the time of grant or as of the time of exercise of any Nonstatutory Stock Option or stock appreciation right, may provide in the Incentive Agreement for a Supplemental Payment by the Company to the Grantee with respect to the exercise of any Nonstatutory Stock Option or stock appreciation right. The Supplemental Payment shall be in the amount specified by the Committee, which amount shall not exceed the amount necessary to pay the federal and state income tax payable with respect to both the exercise of the Nonstatutory Stock Option and/or stock appreciation right and the receipt of the Supplemental Payment, assuming the holder is taxed at either the maximum effective income tax rate applicable thereto or at a lower tax rate as deemed appropriate by the Committee in its discretion. The Committee shall have the discretion to grant Supplemental Payments that are payable solely in cash or Supplemental Payments that are payable in cash, Common Stock, or a combination of both, as determined by the Committee at the time of payment. SECTION 3. RESTRICTED STOCK 3.1 AWARD OF RESTRICTED STOCK (a) GRANT. In consideration of the performance of Employment by any Grantee who is an Employee, Consultant or Outside Director, Shares of Restricted Stock 15 may be awarded under the Plan by the Committee with such restrictions during the Restriction Period as the Committee may designate in its discretion, any of which restrictions may differ with respect to each particular Grantee. Restricted Stock shall be awarded for no additional consideration or such additional consideration as the Committee may determine, which consideration may be less than, equal to or more than the Fair Market Value of the shares of Restricted Stock on the grant date. The terms and conditions of each grant of Restricted Stock shall be evidenced by an Incentive Agreement. (b) IMMEDIATE TRANSFER WITHOUT IMMEDIATE DELIVERY OF RESTRICTED STOCK. Unless otherwise specified in the Grantee's Incentive Agreement, each Restricted Stock Award shall constitute an immediate transfer of the record and beneficial ownership of the Shares of Restricted Stock to the Grantee in consideration of the performance of services as an Employee, Consultant or Outside Director, as applicable, entitling such Grantee to all voting and other ownership rights in such Shares. As specified in the Incentive Agreement, a Restricted Stock Award may limit the Grantee's dividend rights during the Restriction Period in which the shares of Restricted Stock are subject to a "substantial risk of forfeiture" (within the meaning given to such term under Code Section 83) and restrictions on transfer. In the Incentive Agreement, the Committee may apply any restrictions to the dividends that the Committee deems appropriate. Without limiting the generality of the preceding sentence, if the grant or vesting of Shares of Restricted Stock granted to a Covered Employee, if applicable, is designed to comply with the requirements of the Performance-Based Exception, the Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to such Shares of Restricted Stock, such that the dividends and/or the Shares of Restricted Stock maintain eligibility for the Performance-Based Exception. In the event that any dividend constitutes a derivative security or an equity security pursuant to the rules under Section 16 of the Exchange Act, if applicable, such dividend shall be subject to a vesting period equal to the remaining vesting period of the Shares of Restricted Stock with respect to which the dividend is paid. Shares awarded pursuant to a grant of Restricted Stock may be (i) issued in the name of the Grantee and held, together with a stock power endorsed in blank, by the Committee or Company (or their delegates) or in trust or in escrow pursuant to an agreement satisfactory to the Committee or (ii) issued in "book entry" form or other means of evidencing uncertificated Shares, as determined by the Committee, until such time as the restrictions on transfer have expired. All such terms and conditions shall be set forth in the particular Grantee's Incentive Agreement. The Company or Committee (or their delegates) shall issue to the Grantee a receipt evidencing the certificates held by it which are registered in the name of the Grantee. 3.2 Restrictions (a) FORFEITURE OF RESTRICTED STOCK. Restricted Stock awarded to a Grantee may be subject to the following restrictions until the expiration of the Restriction Period: (i) a restriction that constitutes a "substantial risk of forfeiture" (as defined in Code 16 Section 83), or a restriction on transferability; (ii) unless otherwise specified by the Committee in the Incentive Agreement, the Restricted Stock that is subject to restrictions which are not satisfied shall be forfeited and all rights of the Grantee to such Shares shall terminate; and (iii) any other restrictions that the Committee determines in advance are appropriate, including, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Stock to a continuing substantial risk of forfeiture in the hands of any transferee. Any such restrictions shall be set forth in the particular Grantee's Incentive Agreement. (b) ISSUANCE OF CERTIFICATES. Reasonably promptly after the date of grant with respect to Shares of Restricted Stock, the Company shall cause to be issued a stock certificate, registered in the name of the Grantee to whom such Shares of Restricted Stock were granted, evidencing such Shares; provided, however, that the Company shall not cause to be issued such a stock certificate unless it has received a stock power duly endorsed in blank with respect to such Shares; provided, further, in lieu of issuing such a stock certificate, the Committee may arrange to make "book entries" or other means of evidencing uncertificated Shares of Restricted Stock. Each such stock certificate shall bear the following legend or any other legend approved by the Company: The transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including forfeiture and restrictions against transfer) contained in the Continental Southern Resources, Inc. 2004 Incentive Plan and an Incentive Agreement entered into between the registered owner of such shares and Continental Southern Resources, Inc. A copy of the Plan and Incentive Agreement are on file in the corporate offices of Continental Southern Resources, Inc. Such legend shall not be removed from the certificate evidencing such Shares of Restricted Stock until such Shares vest pursuant to the terms of the Incentive Agreement. (c) REMOVAL OF RESTRICTIONS. The Committee, in its discretion, shall have the authority to remove any or all of the restrictions on the Restricted Stock if it determines that, by reason of a change in applicable law or another change in circumstance arising after the grant date of the Restricted Stock, such action is appropriate. 3.3 DELIVERY OF SHARES OF COMMON STOCK Subject to withholding taxes under Section 6.3 and to the terms of the Incentive Agreement, a stock certificate evidencing the Shares of Restricted Stock with respect to which the restrictions in the Incentive Agreement have been satisfied shall be delivered to the Grantee or other appropriate recipient free of restrictions. Such delivery shall be effected for all purposes when the Company shall have deposited such certificate in the United States mail, addressed to the Grantee or other appropriate recipient. 17 3.4 Supplemental Payment on Vesting of Restricted Stock The Committee, either at the time of grant or vesting of Restricted Stock, may provide for a Supplemental Payment by the Company to the holder in an amount specified by the Committee, which amount shall not exceed the amount necessary to pay the federal and state income tax payable with respect to both the vesting of the Restricted Stock and receipt of the Supplemental Payment, assuming the Grantee is taxed at either the maximum effective income tax rate applicable thereto or at a lower tax rate as deemed appropriate by the Committee in its discretion. The Committee shall have the discretion to grant Supplemental Payments that are payable solely in cash or Supplemental Payments that are payable in cash, Common Stock, or a combination of both, as determined by the Committee at the time of payment. SECTION 4. OTHER STOCK-BASED AWARDS 4.1 GRANT OF OTHER STOCK-BASED AWARDS Other Stock-Based Awards may be awarded by the Committee to selected Grantees that are denominated or payable in, valued in whole or in part by reference to, or otherwise related to, Shares of Common Stock, as deemed by the Committee to be consistent with the purposes of the Plan and the goals of the Company. Types of Other Stock-Based Awards include, without limitation, purchase rights, Shares of Common Stock awarded which are not subject to any restrictions or conditions, convertible or exchangeable debentures, other rights convertible into Shares, Incentive Awards valued by reference to the value of securities of, or the performance of, the Company or a specified Subsidiary, division or department, and settlement in cancellation of rights of any person with a vested interest in any other plan, fund, program or arrangement that is or was sponsored, maintained or participated in by the Company or any Parent or Subsidiary. As is the case with other Incentive Awards, Other Stock-Based Awards may be awarded either alone or in addition to or in tandem with any other Incentive Awards. 4.2 OTHER STOCK-BASED AWARD TERMS (a) WRITTEN AGREEMENT. The terms and conditions of each grant of an Other Stock-Based Award shall be evidenced by an Incentive Agreement. (b) PURCHASE PRICE. Except to the extent that an Other Stock-Based Award is granted in substitution for an outstanding Incentive Award or is delivered upon exercise of a Stock Option, the amount of consideration required to be received by the Company shall be either (i) no consideration other than services actually rendered (in the case of authorized and unissued shares) or to be rendered, or (ii) in the case of an Other Stock-Based Award in the nature of a purchase right, consideration (other than services rendered or to be rendered) at least equal to fifty percent (50%) of the Fair Market Value of the Shares covered by such grant on the date of grant (or such percentage higher than 50% that is required by any applicable tax or securities law). To the extent that the Company is a Publically Held Corporation and that a stock appreciation right is intended 18 to qualify for the Performance-Based Exception, the exercise price per share of Common Stock shall not be less than one hundred percent (100%) of Fair Market Value of a share of Common Stock on the date of the grant of the stock appreciation right. (c) PERFORMANCE CRITERIA AND OTHER TERMS. In its discretion, the Committee may specify such criteria, periods or goals for vesting in Other Stock-Based Awards and payment thereof to the Grantee as it shall determine; and the extent to which such criteria, periods or goals have been met shall be determined by the Committee. All terms and conditions of Other Stock-Based Awards shall be determined by the Committee and set forth in the Incentive Agreement. (d) PAYMENT. Other Stock-Based Awards may be paid in Shares of Common Stock or other consideration related to such Shares, in a single payment or in installments on such dates as determined by the Committee, all as specified in the Incentive Agreement. (e) DIVIDENDS. The Grantee of an Other Stock-Based Award shall not be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the number of Shares covered by the Other Stock-Based Award, unless (and to the extent) otherwise as determined by the Committee and set forth in the Incentive Agreement. The Committee may also provide in the Incentive Agreement that the amounts of any dividends or dividend equivalent shall be deemed to have been reinvested in additional Shares of Common Stock. 4.3 Performance Awards (a) GRANT. During the period the Company is a Publicly Held Corporation, the Committee is authorized to grant Performance Awards to selected Grantees who are Employees or Consultants. Performance Awards may be by reference to Performance Shares or Performance Units. Each grant of Performance Awards shall he evidenced by an Incentive Agreement in such amounts and upon such terms as shall be determined by the Committee. The Committee may make grants of Performance Awards in such a manner that more than one Performance Period is in progress concurrently. For each Performance Period, the Committee shall establish the number of Performance Awards and their contingent values which may vary depending on the degree to which performance criteria established by the Committee are met. (b) PERFORMANCE CRITERIA. The Committee may establish performance goals applicable to Performance Awards based upon criteria in one or more of the following categories: (i) performance of the Company as a whole, (ii) performance of a segment of the Company's business, and (iii) individual performance. Performance criteria for the Company shall relate to the achievement of predetermined financial objectives for the Company and its Subsidiaries on a consolidated basis. Performance criteria for a segment of the Company's business shall relate to the achievement of financial and operating objectives of the segment for which the participant is accountable. Examples of performance criteria shall include (but are not limited to) pre-tax or after-tax profit levels, including: earnings per share, earnings before interest and taxes, earnings before interest, 19 taxes, depreciation and amortization, net operating profits after tax, and net income; total stockholder return; return on assets, equity, capital or investment; cash flow and cash flow return on investment; economic value added and economic profit; growth in earnings per share; levels of operating expense and maintenance expense or measures of customer satisfaction and customer service as determined from time to time including the relative improvement therein. Individual performance criteria shall relate to a participants overall performance, taking into account, among other measures of performance, the attainment of individual goals and objectives. The performance goals may differ among participants. (c) MODIFICATION. If the Committee determines, in its discretion exercised in good faith, that the established performance measures or objectives are no longer suitable to the Company's objectives because of a change in the Company's business, operations, corporate structure, capital structure, or other conditions the Committee deems to be appropriate, the Committee may modify the performance measures and objectives to the extent it considers such modification to be necessary. The Committee shall not permit any such modification that would cause the Performance Awards to fail to qualify for the Performance-Based Exception, if applicable. (d) PAYMENT. The basis for payment of Performance Awards for a given Performance Period shall be the achievement of those performance objectives determined by the Committee at the beginning of the Performance Period as specified in the Grantee's Incentive Agreement. If minimum performance is not achieved for a Performance Period, no payment shall be made and all contingent rights shall cease. If minimum performance is achieved or exceeded, the number of Performance Awards may be based on the degree to which actual performance exceeded the pre-established minimum performance standards. The amount of payment shall be determined by multiplying the number of Performance Awards granted at the beginning of the Performance Period times the final Performance Award value. Payments shall be made, in the discretion of the Committee as specified in the Incentive Agreement. (e) SPECIAL RULE FOR COVERED EMPLOYEES. No later than the ninetieth (90th) day following the beginning of a Performance Period (or twenty-five percent (25%) of the Performance Period) the Committee shall establish performance goals as described in Section 4.3 applicable to Performance Awards awarded to Covered Employees in such a manner as shall permit payments with respect thereto to qualify for the Performance-Based Exception, if applicable. If a Performance Award granted to a Covered Employee is intended to comply with the Performance-Based Exception, the Committee in establishing performance goals shall comply with Treasury Regulationss. l.162-27(e)(2) (or its successor). As soon as practicable following the Company's determination of the Company's financial results for any Performance Period, the Committee shall certify in writing: (i) whether the Company achieved its minimum performance for the objectives for the Performance Period, (ii) the extent to which the Company achieved its performance objectives for the Performance Period, (iii) any other terms that are material to the grant of Performance Awards, and (iv) the calculation of the payments, if any, to be paid to each Grantee for the Performance Period. 20 (f) SUPPLEMENTAL PAYMENT ON VESTING OF PERFORMANCE UNITS OR PERFORMANCE SHARES. The Committee, either at the time of grant or at the time of vesting of Performance Units or Performance Shares, may provide for a Supplemental Payment by the Company to the Grantee in an amount specified by the Committee, which amount shall not exceed the amount necessary to pay the federal and state income tax payable with respect to both the vesting of such Performance Units or Performance Shares and receipt of the Supplemental Payment, assuming the Grantee is taxed at either the maximum effective income tax rate applicable thereto or at a lower tax rate as seemed appropriate by the Committee in its discretion. The Committee shall have the discretion to grant Supplemental Payments that are payable in cash, Common Stock, or a combination of both, as determined by the Committee at the time of payment. SECTION 5. PROVISIONS RELATING TO PLAN PARTICIPATION 5.1 Plan Conditions (a) INCENTIVE AGREEMENT. Each Grantee to whom an Incentive Award is granted shall be required to enter into an Incentive Agreement with the Company, in such a form as is provided by the Committee. The Incentive Agreement shall contain specific terms as determined by the Committee, in its discretion, with respect to the Grantee's particular Incentive Award. Such terms need not be uniform among all Grantees or any similarly situated Grantees. The Incentive Agreement may include, without limitation, vesting, forfeiture and other provisions particular to the particular Grantee's Incentive Award, as well as, for example, provisions to the effect that the Grantee (i) shall not disclose any confidential information acquired during Employment with the Company, (ii) shall abide by all the terms and conditions of the Plan and such other terms and conditions as may be imposed by the Committee, (iii) shall not interfere with the employment or other service of any employee, (iv) shall not compete with the Company or become involved in a conflict of interest with the interests of the Company, (v) shall forfeit an Incentive Award if terminated for Cause, (vi) shall not be permitted to make an election under Section 83(b) of the Code when applicable, and (vii) shall be subject to any other agreement between the Grantee and the Company regarding Shares that may be acquired under an Incentive Award including, without limitation, an agreement restricting the transferability of Shares by Grantee. An Incentive Agreement shall include such terms and conditions as are determined by the Committee, in its discretion, to be appropriate with respect to any individual Grantee. The Incentive Agreement shall be signed by the Grantee to whom the Incentive Award is made and by an Authorized Officer. (b) NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any instrument executed pursuant to the Plan shall create any Employment rights (including without limitation, rights to continued Employment) in any Grantee or affect the right of the Company to terminate the Employment of any Grantee at any time without regard to the existence of the Plan. 21 (c) SECURITIES REQUIREMENTS. The Company shall be under no obligation to effect the registration pursuant to the Securities Act of 1933 of any Shares of Common Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing Shares pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities, and the requirements of any securities exchange on which Shares are traded. The Committee may require, as a condition of the issuance and delivery of certificates evidencing Shares of Common Stock pursuant to the terms hereof, that the recipient of such Shares make such covenants, agreements and representations, and that such certificates bear such legends, as the Committee, in its discretion, deems necessary or desirable. If the Shares issuable on exercise of an Incentive Award are not registered under the Securities Act of 1933, the Company may imprint on the certificate for such Shares the following legend or any other legend which counsel for the Company considers necessary or advisable to comply with the Securities Act of 1933: THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR TRANSFER. 5.2 TRANSFERABILITY AND EXERCISABILITY Incentive Awards granted under the Plan shall not be transferable or assignable other than: (a) by will or the laws of descent and distribution or (b) pursuant to a qualified domestic relations order (as defined by Section 414(p) of the Code); provided, however, only with respect to Incentive Awards of Nonstatutory Stock Options, the Committee may, in its discretion, authorize all or a portion of the Nonstatutory Stock Options to be granted on terms which permit transfer by the Grantee to (i) the members of the Grantee's Immediate Family, (ii) a trust or trusts for the exclusive benefit of such Immediate Family, or (iii) a partnership in which such members of such Immediate Family are the only partners, provided that (A) there may be no consideration for any such transfer, (B) the Incentive Agreement pursuant to which such Nonstatutory Stock Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section 5.2, and (C) subsequent transfers of transferred Options shall be prohibited except in accordance with clauses (a) and (b) (above) of this sentence. Following any permitted transfer, any Incentive Award shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that the term "Grantee" shall be deemed to refer to the 22 transferee. The termination of employment events of Section 5.6 and in the Incentive Agreement shall continue to be applied with respect to the original Grantee, and the Incentive Award shall be exercisable by the transferee only to the extent, and for the periods, specified in the Incentive Agreement. Except as may otherwise be permitted under the Code, in the event of a permitted transfer of a Nonstatutory Stock Option hereunder, the original Grantee shall remain subject to withholding taxes upon exercise. In addition, the Company shall have no obligation to provide any notices to a transferee including, for example, of the termination of an Incentive Award following the original Grantee's termination of employment. In the event that a Grantee terminates employment with the Company to assume a position with a governmental, charitable, educational or other nonprofit institution, the Committee may, in its discretion, subsequently authorize a third party, including but not limited to a "blind" trust, to act on behalf of and for the benefit of such Grantee regarding any outstanding Incentive Awards held by the Grantee subsequent to such termination of employment. If so permitted by the Committee, a Grantee may designate a beneficiary or beneficiaries to exercise the rights of the Grantee and receive any distribution under the Plan upon the death of the Grantee. No transfer by will or by the laws of descent and distribution shall be effective to bind the Company unless the Committee has been furnished with a copy of the deceased Grantee's enforceable will or such other evidence as the Committee deems necessary to establish the validity of the transfer. Any attempted transfer in violation of this Section 5.2 shall be void and ineffective. All determinations under this Section 5.2 shall be made by the Committee in its discretion. 5.3 RIGHTS AS A STOCKHOLDER (a) NO STOCKHOLDER RIGHTS. Except as otherwise provided in Section 3.1(b) for grants of Restricted Stock, a Grantee of an Incentive Award (or a permitted transferee of such Grantee) shall have no rights as a stockholder with respect to any Shares of Common Stock until the issuance of a stock certificate for such Shares. (b) REPRESENTATION OF OWNERSHIP. In the case of the exercise of an Incentive Award by a person or estate acquiring the right to exercise such Incentive Award by reason of the death or Disability of a Grantee, the Committee may require reasonable evidence as to the ownership of such Incentive Award or the authority of such person and may require such consents and releases of taxing authorities as the Committee may deem advisable. 5.4 LISTING AND REGISTRATION OF SHARES OF COMMON STOCK The exercise of any Incentive Award granted hereunder shall only be effective at such time as counsel to the Company shall have determined that the issuance and delivery of Shares of Common Stock pursuant to such exercise is in compliance with all applicable laws, regulations of governmental authorities and the requirements of any securities exchange on which Shares of 23 Common Stock are traded. The Committee may, in its discretion, defer the effectiveness of any exercise of an Incentive Award in order to allow the issuance of Shares of Common Stock to be made pursuant to a registration statement, or an exemption from registration, or other methods for compliance available under federal or state securities laws. The Committee shall inform the Grantee in writing of its decision to defer the effectiveness of the exercise of an Incentive Award. During the period that the effectiveness of the exercise of an Incentive Award has been deferred, the Grantee may, by written notice to the Committee, withdraw such exercise and obtain the refund of any amount paid with respect thereto. 5.5 CHANGE IN STOCK AND ADJUSTMENTS (a) CHANGES IN LAW OR CIRCUMSTANCES. Subject to Section 5.7 (which only applies in the event of a Change in Control), in the event of any change in applicable law or any change in circumstances which results in or would result in any dilution of the rights granted under the Plan, or which otherwise warrants an equitable adjustment because it interferes with the intended operation of the Plan, then, if the Committee should so determine, in its absolute discretion, that such change equitably requires an adjustment in the number or kind of shares of stock or other securities or property theretofore subject, or which may become subject, to issuance or transfer under the Plan or in the terms and conditions of outstanding Incentive Awards, such adjustment shall be made in accordance with such determination. Such adjustments may include changes with respect to (i) the aggregate number of Shares that may be issued under the Plan, (ii) the number of Shares subject to Incentive Awards, and (iii) the Option Price or other price per Share for outstanding Incentive Awards. Any adjustment under this paragraph of an outstanding Incentive Stock Option shall be made only to the extent not constituting a "modification" within the meaning of Section 424(h)(3) of the Code unless otherwise agreed to by the Grantee in writing. The Committee shall give notice to each applicable Grantee of such adjustment which shall be effective and binding. (b) EXERCISE OF CORPORATE POWERS. The existence of the Plan or outstanding Incentive Awards hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalization, reorganization or other changes in the Company's capital structure or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding whether of a similar character or otherwise. (c) RECAPITALIZATION OF THE COMPANY. Subject to Section 5.7 (which only applies in the event of a Change in Control), if while there are Incentive Awards outstanding, the Company shall effect any subdivision or consolidation of Shares of Common Stock or other capital readjustment, the payment of a stock dividend, stock split, combination of Shares, recapitalization or other increase or reduction in the number of Shares outstanding, without receiving compensation therefor in money, services or property, then the number of Shares available under the Plan and the number of Incentive Awards which may thereafter be exercised shall (i) in the event of an increase in the 24 number of Shares outstanding, be proportionately increased and the Option Price or Fair Market Value of the Incentive Awards awarded shall be proportionately reduced; and (ii) in the event of a reduction in the number of Shares outstanding, be proportionately reduced, and the Option Price or Fair Market Value of the Incentive Awards awarded shall be proportionately increased. The Committee shall take such action and whatever other action it deems appropriate, in its discretion, so that the value of each outstanding Incentive Award to the Grantee shall not be adversely affected by a corporate event described in this subsection (c). (d) ISSUE OF COMMON STOCK BY THE COMPANY. Except as hereinabove expressly provided in this Section 5.5 and subject to Section 5.7 in the event of a Change in Control, the issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon any conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of, or Option Price or Fair Market Value of, any Incentive Awards then outstanding under previously granted Incentive Awards; provided, however, in such event, outstanding Shares of Restricted Stock shall be treated the same as outstanding unrestricted Shares of Common Stock. (e) ASSUMPTION UNDER THE PLAN OF OUTSTANDING STOCK OPTIONS. Notwithstanding any other provision of the Plan, the Committee, in its absolute discretion, may authorize the assumption and continuation under the Plan of outstanding and unexercised stock options or other types of stock-based incentive awards that were granted under a stock option plan (or other type of stock incentive plan or agreement) that is or was maintained by a corporation or other entity that was merged into, consolidated with, or whose stock or assets were acquired by, the Company as the surviving corporation. Any such action shall be upon such terms and conditions as the Committee, in its discretion, may deem appropriate, including provisions to preserve the holder's rights under the previously granted and unexercised stock option or other stock-based incentive award, such as, for example, retaining an existing exercise price under an outstanding stock option. Any such assumption and continuation of any such previously granted and unexercised incentive award shall be treated as an outstanding Incentive Award under the Plan and shall thus count against the number of Shares reserved for issuance pursuant to Section 1.4. In addition, any Shares issued by the Company through the assumption or substitution of outstanding grants from an acquired company shall reduce the Shares available for grants under Section 1.4. (f) ASSUMPTION OF INCENTIVE AWARDS BY A SUCCESSOR. Subject to the accelerated vesting and other provisions of Section 5.7 that apply in the event of a Change in Control, in the event of a Corporate Event (defined below), each Grantee shall be entitled to receive, in lieu of the number of Shares subject to Incentive Awards, such shares of capital stock or other securities or property as may be issuable or payable with respect to or in exchange for the number of Shares which Grantee would have received had he exercised the Incentive Award immediately prior to such Corporate Event, together with any adjustments (including, without limitation, adjustments to the Option 25 Price and the number of Shares issuable on exercise of outstanding Stock Options). For this purpose, Shares of Restricted Stock shall be treated the same as unrestricted outstanding Shares of Common Stock. A "CORPORATE EVENT" means any of the following: (i) a dissolution or liquidation of the Company, (ii) a sale of all or substantially all of the Company's assets, or (iii) a merger, consolidation or combination involving the Company (other than a merger, consolidation or combination (A) in which the Company is the continuing or surviving corporation and (B) which does not result in the outstanding Shares being converted into or exchanged for different securities, cash or other property, or any combination thereof). The Committee shall take whatever other action it deems appropriate to preserve the rights of Grantees holding outstanding Incentive Awards. Notwithstanding the previous paragraph of this Section 5.5(f), but subject to the accelerated vesting and other provisions of Section 5.7 that apply in the event of a Change in Control, in the event of a Corporate Event (described in the previous paragraph), the Committee, in its discretion, shall have the right and power to: (i) cancel, effective immediately prior to the occurrence of the Corporate Event, each outstanding Incentive Award (whether or not then exercisable) and, in full consideration of such cancellation, pay to the Grantee an amount in cash equal to the excess of (A) the value, as determined by the Committee, of the property (including cash) received by the holders of Common Stock as a result of such Corporate Event over (B) the exercise price of such Incentive Award, if any; provided, however, this subsection (i) shall be inapplicable to an Incentive Award granted within six (6) months before the occurrence of the Corporate Event but only if the Grantee is an Insider and such disposition is not exempt under Rule 16b-3 (or other rules preventing liability of the Insider under Section 16(b) of the Exchange Act) and, in that event, the provisions hereof shall be applicable to such Incentive Award after the expiration of six (6) months from the date of grant; or (ii) provide for the exchange or substitution of each Incentive Award outstanding immediately prior to such Corporate Event (whether or not then exercisable) for another award with respect to the Common Stock or other property for which such Incentive Award is exchangeable and, incident thereto, make an equitable adjustment as determined by the Committee, in its discretion, in the Option Price or exercise price of the Incentive Award, if any, or in the number of Shares or amount of property (including cash) subject to the Incentive Award; or (iii) provide for assumption of the Plan and such outstanding Incentive Awards by the surviving entity or its parent. The Committee, in its discretion, shall have the authority to take whatever action it deems to be necessary or appropriate to effectuate the provisions of this subsection (f). 26 5.6 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT (a) TERMINATION OF EMPLOYMENT. Unless otherwise expressly provided in the Grantee's Incentive Agreement, if the Grantee's Employment is terminated for any reason other than due to his death, Disability, Retirement or for Cause, any non-vested portion of any Stock Option or other applicable Incentive Award at the time of such termination shall automatically expire and terminate and no further vesting shall occur after the termination date. In such event, except as otherwise expressly provided in his Incentive Agreement, the Grantee shall be entitled to exercise his rights only with respect to the portion of the Incentive Award that was vested as of the termination date for a period that shall end on the earlier of (i) the expiration date set forth in the Incentive Agreement with respect to the vested portion of such Incentive Award or (ii) the date that occurs ninety (90) calendar days after his termination date (not to exceed three (3) months in the case of an ISO). Unless otherwise expressly provided in his Incentive Agreement, a Grantee's Employment shall not be deemed to have been terminated if a Grantee who is an Employee becomes a Consultant or Outside Director immediately upon his termination of employment with the Company, or if a Grantee's status otherwise changes between or among Employee, Consultant or Outside Director without a gap in service for the Company in any such capacity. All determinations regarding whether and when there has been a termination of Employment shall be made by the Committee. (b) TERMINATION OF EMPLOYMENT FOR CAUSE. Unless otherwise expressly provided in the Grantee's Incentive Agreement, in the event of the termination of a Grantee's Employment for Cause, all non-vested Stock Options and other Incentive Awards granted to such Grantee shall immediately expire, and shall not be exercisable to any extent, as of 12:01 a.m. (CST) on the date of such termination of Employment. (c) RETIREMENT. Unless otherwise expressly provided in the Grantee's Incentive Agreement, upon the Retirement of any Employee who is a Grantee: (i) any non-vested portion of any outstanding Option or other Incentive Award shall immediately terminate and no further vesting shall occur; and (ii) any vested Option or other Incentive Award shall expire on the earlier of (A) the expiration date set forth in the Incentive Agreement for such Incentive Award; or (B) the expiration of (1) six (6) months after the date of Retirement in the case of any Incentive Award other than an Incentive Stock Option, or (2) three (3) months after termination of employment in the case of an Incentive Stock Option. (d) DISABILITY OR DEATH. Unless otherwise expressly provided in the Grantee's Incentive Agreement, upon termination of Employment as a result of the Grantee's Disability or death: (i) any nonvested portion of any outstanding Option or other applicable Incentive Award shall immediately terminate upon termination of Employment and no further vesting shall occur; and 27 (ii) any vested Incentive Award shall expire on the earlier of either (A) the expiration date set forth in the Incentive Agreement or (B) the one (1) year anniversary date of the Grantee's termination of Employment date. In the case of any vested Incentive Stock Option held by an Employee following termination of Employment, notwithstanding the definition of "Disability" in Section 1.2, whether the Employee has incurred a "Disability" for purposes of determining the length of the Option exercise period following termination of Employment under this paragraph (d) shall be determined by reference to Section 22(e)(3) of the Code to the extent required by Section 422(c)(6) of the Code. The Committee shall determine whether a Disability for purposes of this subsection (d) has occurred. (e) CONTINUATION. Subject to the conditions and limitations of the Plan and applicable law and regulation in the event that a Grantee ceases to be an Employee, Outside Director or Consultant, as applicable, for whatever reason, the Committee and Grantee may mutually agree with respect to any outstanding Option or other Incentive Award then held by the Grantee (i) for an acceleration or other adjustment in any vesting schedule applicable to the Incentive Award, (ii) for a continuation of the exercise period following termination for a longer period than is otherwise provided under such Incentive Award, or (iii) to any other change in the terms and conditions of the Incentive Award. In the event of any such change to an outstanding Inventive Award, a written amendment to the Grantee's Incentive Agreement shall be required. 5.7 Change in Control Notwithstanding any contrary provision in the Plan, in the event of a Change in Control (as defined below) the following actions shall automatically occur as of the day immediately preceding the Change in Control date unless expressly provided otherwise in the Grantee's Incentive Agreement: (a) all of the Stock Options then outstanding shall become one hundred percent (100%) vested and immediately and fully exercisable; (b) all of the restrictions and conditions of any Restricted Stock and any Other Stock-Based Awards then outstanding shall be deemed satisfied, and the Restriction Period with respect thereto shall be deemed to have expired; and (c) all of the Other Stock-Based Awards shall become fully vested, deemed earned in full, and promptly paid within thirty (30) days to the affected Grantees without regard to payment schedules and notwithstanding that the applicable performance cycle, retention cycle or other restrictions and conditions have not been completed or satisfied. Notwithstanding any other provision of the Plan, unless otherwise expressly provided in the Grantee's Incentive Agreement, the provisions of this Section 5.7 may not be terminated, amended, or modified to adversely affect any Incentive Award theretofore granted under the Plan without the prior written consent of the Grantee with respect to his outstanding Incentive Awards subject, however, to the last paragraph of this Section 5.7. 28 For all purposes of this Plan, a "CHANGE IN CONTROL" of the Company shall be deemed to occur if: (a) the Company (A) shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company) or (B) is to be dissolved and liquidated, and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board, or (b) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 30% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board, or (c) the Company sells all or substantially all of the assets of the Company to any other person or entity (other than a wholly-owned subsidiary of the Company) in a transaction that requires shareholder approval pursuant to applicable corporate law; or (d) During a period of two consecutive calendar years, individuals who at the beginning of such period constitute the Board, and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office, who either were directors at the beginning of the two (2) year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (e) any other event that a majority of the Board, in its sole discretion, shall determine constitutes a Change in Control hereunder. Notwithstanding the occurrence of any of the foregoing events of this Section 5.7 which would otherwise result in a Change in Control, the Board may determine in its discretion, if it deems it to be in the best interest of the Company, that an event or events otherwise constituting a Change in Control shall not be deemed a Change in Control hereunder. Such determination shall be effective only if it is made by the Board prior to the occurrence of an event that otherwise would be a Change in Control, or after such event if made by the Board a majority of which is composed of directors who were members of the Board immediately prior to the event that otherwise would be or probably would lead to a Change in Control. 5.8 EXCHANGE OF INCENTIVE AWARDS The Committee may, in its discretion, permit any Grantee to surrender outstanding Incentive Awards in order to exercise or realize his rights under other Incentive Awards or in exchange for the grant of new Incentive Awards, or require holders of Incentive Awards to surrender outstanding Incentive Awards (or comparable rights under other plans or arrangements) as a condition precedent to the grant of new Incentive Awards. 29 5.9 Financing To the extent permitted by the Sarbanes-Oxley Act of 2002 or other applicable law, the Company may extend and maintain, or arrange for and guarantee, the extension and maintenance of financing to any Grantee to purchase Shares pursuant to exercise of an Incentive Award upon such terms as are approved by the Committee and the Board in their discretion. SECTION 6. GENERAL 6.1 EFFECTIVE DATE AND GRANT PERIOD This Plan is adopted by the Board effective as of the Effective Date subject to the approval of the stockholders of the Company within twelve (12) months from the Effective Date. Incentive Awards may be granted under the Plan at any time prior to receipt of such stockholder approval; provided, however, if the requisite stockholder approval is not obtained within the permissible time frame, then the Plan and any Incentive Awards granted hereunder shall automatically become null and void and of no force or effect. Unless sooner terminated by the Board pursuant to Section 6.7, no Incentive Award shall be granted under the Plan after ten (10) years from the Effective Date. 6.2 FUNDING AND LIABILITY OF COMPANY No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made, or otherwise to segregate any assets. In addition, the Company shall not be required to maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for purposes of the Plan. Although bookkeeping accounts may be established with respect to Grantees who are entitled to cash, Common Stock or rights thereto under the Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Stock or rights thereto. The Plan shall not be construed as providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto. Any liability or obligation of the Company to any Grantee with respect to an Incentive Award shall be based solely upon any contractual obligations that may be created by this Plan and any Incentive Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company, the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by the Plan. 6.3 Withholding Taxes (a) TAX WITHHOLDING. The Company shall have the power and the right to deduct or withhold, or require a Grantee to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to 30 be withheld with respect to any taxable event arising as a result of the Plan or an Incentive Award hereunder. (b) SHARE WITHHOLDING. With respect to tax withholding required upon the exercise of Stock Options, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of any Incentive Awards, Grantees may elect, subject to the approval of the Committee in its discretion, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the statutory total tax which could be imposed on the transaction. All such elections shall be made in writing, signed by the Grantee, and shall be subject to any restrictions or limitations that the Committee, in its discretion, deems appropriate. Any fraction of a Share required to satisfy such obligation shall be disregarded and the amount due shall instead be paid in cash by the Grantee. (c) INCENTIVE STOCK OPTIONS. With respect to Shares received by a Grantee pursuant to the exercise of an Incentive Stock Option, if such Grantee disposes of any such Shares within (i) two (2) years from the date of grant of such Option or (ii) one (1) year after the transfer of such shares to the Grantee, the Company shall have the right to withhold from any salary, wages or other compensation payable by the Company to the Grantee an amount sufficient to satisfy federal, state and local tax withholding requirements attributable to such disqualifying disposition. 6.4 NO GUARANTEE OF TAX CONSEQUENCES Neither the Company nor the Committee makes any commitment or guarantee that any federal, state or local tax treatment will apply or be available to any person participating or eligible to participate hereunder. 6.5 DESIGNATION OF BENEFICIARY BY PARTICIPANT Each Grantee may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Grantee, shall be in a form prescribed by the Committee, and will be effective only when filed by the Grantee in writing with the Committee during the Grantee's lifetime. In the absence of any such designation, benefits remaining unpaid at the Grantee's death shall be paid to the Grantee's estate. 6.6 Deferrals The Committee may permit a Grantee to defer such Grantee's receipt of the payment of cash or the delivery of Shares that would, otherwise be due to such Grantee by virtue of the lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or goals with respect to Other Stock-Based Awards. If any such deferral election is permitted, the Committee shall, in its discretion, establish rules and procedures for such payment deferrals to the extent consistent with the Code. 31 6.7 AMENDMENT AND TERMINATION The Board shall have complete power and authority to terminate or amend the Plan at any time; provided, however, if the Company is a Publicly Held Corporation, the Board shall not, without the approval of the stockholders of the Company within the time period required by applicable law, (a) except as provided in Section 5.5, increase the maximum number of Shares which may be issued under the Plan pursuant to Section 1.4, (b) amend the requirements as to the class of Employees eligible to purchase Common Stock under the Plan, (c) to the extent applicable, increase the maximum limits on Incentive Awards to Covered Employees as set for compliance with the Performance-Based Exception, (d) extend the term of the Plan, or (e) to the extent applicable, decrease the authority granted to the Committee under the Plan in contravention of Rule 16b-3 under the Exchange Act. No termination, amendment, or modification of the Plan shall adversely affect in any material way any outstanding Incentive Award previously granted to a Grantee under the Plan, without the written consent of such Grantee or other designated holder of such Incentive Award. In addition, to the extent that the Committee determines that (a) the listing for qualification requirements of any national securities exchange or quotation system on which the Common Stock is then listed or quoted, if applicable, or (b) the Code (or regulations promulgated thereunder), require stockholder approval in order to maintain compliance with such listing requirements or to maintain any favorable tax advantages or qualifications, then the Plan shall not be amended in such respect without approval of the Company's stockholders. 6.8 Requirements of Law The granting of Incentive Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. The Committee may refuse to issue or transfer any Shares or other consideration under an Incentive Award if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or other consideration might violate applicable laws. Certificates evidencing shares of Common Stock delivered under this Plan (to the extent that such shares are so evidenced) may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules and regulations of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Common Stock is then listed or to which it is admitted for quotation, and any applicable federal or state securities law, if applicable. The Committee may cause a legend or legends to be placed upon such certificates (if any) to make appropriate reference to such restrictions. 6.9 RULE 16B-3 SECURITIES LAW COMPLIANCE AND COMPLIANCE WITH COMPANY POLICIES With respect to Insiders to the extent applicable, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act. With respect to all Grantees, transactions under the Plan are intended to comply with Securities Regulation BTR and the Company's insider trading policies as revised from time to time or such other similar Company policies, including but not limited to, policies relating to black out periods. Any 32 ambiguities or inconsistencies in the construction of an Incentive Award or the Plan shall be interpreted to give effect to such intention. However, to the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void to the extent deemed advisable by the Committee in its discretion. 6.10 COMPLIANCE WITH CODE SECTION 162(M) While the Company is a Publicly Held Corporation, unless otherwise determined by the Committee with respect to any particular Incentive Award, it is intended that the Plan shall comply fully with the applicable requirements so that any Incentive Awards subject to Section 162(m) that are granted to Covered Employees shall qualify for the Performance-Based Exception. If any provision of the Plan or an Incentive Agreement would disqualify the Plan or would not otherwise permit the Plan or Incentive Award to comply with the Performance-Based Exception as so intended, such provision shall be construed or deemed to be amended to conform to the requirements of the Performance-Based Exception to the extent permitted by applicable law and deemed advisable by the Committee; provided, however, no such construction or amendment shall have any adverse effect on the prior grant of an Incentive Award, or the economic value to a Grantee of any outstanding Incentive Award, unless consented to in writing by the Grantee. 6.11 Successors All obligations of the Company under the Plan with respect to Incentive Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 6.12 MISCELLANEOUS PROVISIONS (a) No Employee, Consultant, Outside Director, or other person shall have any claim or right to be granted an Incentive Award under the Plan. Neither the Plan, nor any action taken hereunder, shall be construed as giving any Employee, Consultant, or Outside Director any right to be retained in the Employment or other service of the Company or any Parent or Subsidiary. (b) No Shares of Common Stock shall be issued hereunder unless counsel for the Company is then reasonably satisfied that such issuance will be in compliance with federal and state securities laws, if applicable. (c) The expenses of the Plan shall be borne by the Company. (d) By accepting any Incentive Award, each Grantee and each person claiming by or through him shall be deemed to have indicated his acceptance of the Plan. 6.13 Severability In the event that any provision of this Plan shall be held illegal, invalid or unenforceable for any reason, such provision shall be fully severable, but shall not affect the remaining 33 provisions of the Plan, and the Plan shall be construed and enforced as if the illegal, invalid, or unenforceable provision was not included herein. 6.14 GENDER, TENSE AND HEADINGS Whenever the context so requires, words of the masculine gender used herein shall include the feminine and neuter, and words used in the singular shall include the plural. Section headings as used herein are inserted solely for convenience and reference and constitute no part of the interpretation or construction of the Plan. 6.15 Governing Law The Plan shall be interpreted, construed and constructed in accordance with the laws of the State of Texas without regard to its conflicts of law provisions, except as may be superseded by applicable laws of the United States. [SIGNATURE PAGE FOLLOWS] 34 IN WITNESS WHEREOF, Continental Southern Resources, Inc. has caused this Plan to be duly executed in its name and on its behalf by its duly authorized officer. CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ STEPHEN P. HARRINGTON ------------------------------------ Name: Stephen P. Harrington --------------------------------- Title: President --------------------------------- 35 EX-10.37 28 h13916exv10w37.txt EMPLOYMENT AGREEMENT - WILLIAM L. TRANSIER EXHIBIT 10.37 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into effective as of February 26, 2004 (the "Effective Date"), by and between Continental Southern Resources, Inc., a Nevada corporation (the "Company"), and William L. Transier ("Employee"). WHEREAS, the Company wishes to employ Employee and Employee wishes to be employed by the Company; and WHEREAS, the Company and Employee desire to enter into an agreement reflecting the terms of the employment relationship, including the termination thereof; NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties, and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: 1. Effect of Agreement. Effective as of the Effective Date, this Agreement supersedes and replaces any pre-existing employment agreements between the Company and the Employee. 2. Employment. The Company hereby employs Employee, and Employee hereby accepts employment by the Company, on the terms and conditions set forth in this Agreement. 3. Term of Employment. Subject to the provisions for earlier termination provided in this Agreement, the term of this Agreement (the "Term") shall be three (3) years commencing on the Effective Date. 4. Employee's Duties. During the Term of this Agreement, Employee shall serve as Co-Chief Executive Officer, with such duties and responsibilities as may from time to time be assigned to him by the board of directors of the Company (the "Board"), provided that such duties are consistent with the customary duties of such position. During the term of this Agreement, Employee shall also serve as a member of the Board. Employee agrees to devote all of his business time, skill and attention to the business and affairs of the Company and to use reasonable best efforts to perform faithfully and efficiently his duties and responsibilities. Employee shall not, either directly or indirectly, enter into any business or employment with or for any person, firm, association or corporation other than the Company during the Term of this Agreement; provided, however, that Employee shall not be prohibited from making financial investments in any other company or business, or, with notice to the Board, from serving on the board of directors of any other company if such service does not materially interfere with the performance of his duties or responsibilities hereunder. Employee shall at all times observe and comply with all lawful directions and instructions of the Board. 5. Compensation. (a) Inducement Stock. As inducement to the Employee to enter into this Agreement, the Company will issue 500,000 shares ("Inducement Stock") of Company restricted common stock ("Restricted Stock") to the Employee as of the Effective Date. The Inducement Stock grants shall be evidenced by the forms of Inducement Stock Agreement attached hereto as Exhibits "A" and "B." (b) Base Compensation. Beginning on January 1, 2005, for services rendered by Employee under this Agreement, the Company shall pay to Employee a base salary of $500,000 per annum ("Base Compensation"). Subject to the availability of stock under the Company's 2004 Incentive Plan or any similar plan then in effect (the "Incentive Plan"), the Employee may make an annual election to take between 0% and 100% of his Base Compensation in the form of Restricted Stock (the "Salary Stock"), provided that he notifies the Company of his decision prior to the first pay period of each applicable year. For purposes hereof, the Salary Stock shall be valued at Fair Market Value, as that term is defined in the Incentive Plan and issued pursuant to the form of Restricted Stock Agreement attached hereto as Exhibit "B". Should insufficient shares be available under the Incentive Plan to grant the full amount of the Salary Stock, the remaining Base Compensation shall be paid in cash. The Base Compensation is payable in accordance with the Company's customary pay periods and subject to customary withholdings, including share withholdings as described in Section 15(b) hereof. Issuance of the Salary Stock shall be accomplished in a manner to provide the most favorable accounting treatment for the Company. The amount of Base Compensation shall be reviewed by the Board on an annual basis as of the close of each fiscal year of the Company and may be increased as the Board may deem appropriate. In the event the Board (or, if established, the compensation committee thereof) deems it appropriate to increase Employee's annual base salary, said increased amount shall thereafter be the "Base Compensation." Employee's Base Compensation, as increased from time to time, may not thereafter be decreased unless agreed to by Employee. Nothing contained herein shall prevent the Board from paying additional compensation to Employee in the form of bonuses or otherwise during the Term of this Agreement. 6. Bonus. With respect to each full fiscal year during the Employment Term, the Board in its sole discretion may grant the Employee a discretionary bonus ("Bonus"). The target bonus for each year shall be equal to the Base Compensation; however, the Board may grant a maximum Bonus of up to 200% of the Base Compensation payable in the form and in accordance with the Company's customary pay periods for its annual bonuses for its executives and subject to customary withholdings. 7. Additional Benefits. In addition to the Base Compensation provided for in Section 5 herein, Employee shall be entitled to the following: (a) Expenses. The Company shall, in accordance with any rules and policies that it may establish from time to time for executive officers, reimburse Employee for business expenses reasonably incurred in the performance of his duties. It is understood that Employee is authorized to incur reasonable business expenses for promoting the business of the Company, including reasonable expenditures for travel, lodging, meals and client or business associate entertainment. Request for reimbursement for such expenses must be accompanied by appropriate documentation. 2 (b) Vacation. Employee shall be entitled to five (5) weeks of vacation per year, without any loss of compensation or benefits. Employee shall not be entitled to compensation for, or to carry forward, any unused vacation time. (c) General Benefits. Employee shall be entitled to participate in the various employee benefit plans or programs, if any, provided to the officers of the Company in general, including but not limited to, health, dental, disability and life insurance plans, subject to the eligibility requirements with respect to each of such benefit plans or programs, and such other benefits or perquisites as may be approved by the Board during the Term of this Agreement. Nothing in this paragraph shall be deemed to prohibit the Company from making any changes in any of the plans, programs or benefits described in this Section 7, provided the change similarly affects all executive officers of the Company similarly situated. (d) Corporate Change. Upon the occurrence of a "Corporate Change" as hereinafter defined, Employee shall be considered as immediately and totally vested in any and all Restricted Stock, stock options or other similar awards previously made to Employee by the Company or its subsidiaries under a "Long Term Incentive Plan" or other grant duly adopted by the Board or the Compensation Committee thereof (such Restricted Stock, options or similar awards are hereinafter collectively referred to as "Options"). For purposes of this Agreement, a "Corporate Change" shall occur if (i) the Company (A) shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company) or (B) is to be dissolved and liquidated, and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board, or (ii) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 30% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board, or (iii) the Company sells all or substantially all of the assets of the Company to any other person or entity (other than a wholly-owned subsidiary of the Company) in a transaction that requires shareholder approval pursuant to applicable corporate law; or (iv) during a period of two consecutive calendar years, individuals who at the beginning of such period constitute the Board, and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office, who either were directors at the beginning of the two (2) year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (v) any other event that a majority of the Board, in its sole discretion, shall determine constitutes a Corporate Change hereunder. 8. Confidential Information. Employee, during the Term, will have access to and become familiar with confidential information, secrets and proprietary information concerning the business and affairs of the Company, its controlled subsidiaries and other controlled entities, 3 including client and customer information, information concerning their products, patent rights and know-how, and other technical information, business strategies and pricing information, and other confidential and/or proprietary information (collectively, "Confidential Information"). Confidential Information shall not include (i) any information that is or becomes generally available to the public other than as a result of Employee's improper or unauthorized disclosure of such information in violation of this Agreement or (ii) was within Employee's possession prior to its affiliation with the Company or its controlled subsidiaries or other controlled entities (including his affiliation with Endeavour International Operating Company, f/k/a NSNV, Inc. prior to its acquisition by the Company). As to such Confidential Information, Employee agrees as follows: (a) During the term of this Agreement or at any time following the termination of this Agreement, Employee will not, directly or indirectly, without the prior written consent of the Company (1) disclose or permit the disclosure of any such Confidential Information, or (2) use, reproduce or distribute, or make or permit any use, reproduction or distribution of, directly or indirectly, any such Confidential Information, except for any disclosure, use, reproduction or distribution that is required in the course of his employment with the Company, its controlled subsidiaries or other controlled entities. (b) If, during the term of this Agreement or at any time following the termination of this Agreement, Employee is requested or required (by oral question or request for information or documents, in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, Employee agrees to notify the Company immediately in writing of the request or requirement so that the Company may seek an appropriate protection order or waive compliance with the provisions of this Section. If, in the absence of a protective order or the receipt of a waiver under this Agreement, Employee is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, Employee may disclose such Confidential Information to the tribunal; provided, however, that Employee shall use his commercially reasonable best efforts to obtain a court order or other assurance that confidential treatment will be accorded to such Confidential Information. (c) Upon termination of employment of Employee, for whatever reason, Employee shall surrender to the Company any and all documents, manuals, correspondence, reports, records and similar items then or thereafter coming into the possession of Employee which contain any Confidential Information of the Company or its controlled subsidiaries or other controlled entities. (d) Employee recognizes and acknowledges that the obligations of Employee contained in Section 8 of this Agreement are reasonable and necessary to protect the legitimate business interests of the Company, and that any breach or violation of any of the provisions of such Section is likely to result in irreparable injury to the Company for which the Company would have no adequate remedy at law. Employee agrees that if Employee shall breach or violate Section 8 of this Agreement, the Company shall be entitled, if it so elects, to institute and prosecute proceedings at law or in equity, 4 including, but not limited to, a proceeding seeking injunctive relief, to obtain damages with respect to such breach or violation, to enforce the specific performance of Section 8 this Agreement by Employee, or to enjoin Employee from engaging in any activity in violation of Section 8 of this Agreement. Employee acknowledges that in the event of any such breach or violation, the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages or posting a bond, and to an equitable accounting of all earnings, profits, and other benefits arising from any such breach or violation, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. Employee agrees that in the event of any such violation, an action may be commenced for preliminary or permanent injunctive relief and other equitable relief in any federal or state court of competent jurisdiction sitting in Harris County, Texas, or in any other court of competent jurisdiction. Employee waives, to the fullest extent permitted by law, any objection that Employee may now or hereafter have to such jurisdiction or to the laying of the venue of any such suit, action, or proceeding brought in such a court and any claim that such suit, action or proceeding has been brought in an inconvenient forum. Employee agrees that effective service of process may be made upon Employee under the notice provisions contained in Section 12 of this Agreement. Employee further agrees that the existence of any claim or cause of action against the Company, whether predicated upon a breach or violation by the Company of this Agreement or any other contract or agreement between Employee and the Company, shall not constitute or be asserted as a defense to the enforcement by the Company to the provisions of this Section relating to the Company's right to injunctive or other equitable relief for Employee's breach or violation of Section 8 of this Agreement. 9. Termination. This Agreement may be terminated prior to the end of its Term as set forth below: (a) Resignation (other than for Good Reason). Employee may resign, including by reason of retirement, his position at any time by providing written notice of resignation to the Company in accordance with Section 12 hereof. In the event of such resignation, except in the case of resignation for Good Reason (as defined below), this Agreement shall terminate and Employee shall not be entitled to further compensation pursuant to this Agreement other than the payment of any unpaid Base Compensation or Bonus accrued hereunder as of the date of Employee's resignation. (b) Death. If Employee's employment is terminated due to his death, this Agreement shall terminate and the Company shall have no obligations to Employee or his legal representatives with respect to this Agreement other than the payment of any unpaid Base Compensation or Bonus previously accrued hereunder. (c) Discharge. (i) The Company may terminate Employee's employment only in the event of Employee's Misconduct or Disability (both as defined below) upon written notice thereof delivered to Employee in accordance with Section 9(f) and Section 12 hereof. In the event that Employee's employment is terminated during 5 the Term by the Company for any reason other than his Misconduct or Disability (both as defined below), then (A) the Company shall pay in lump sum in cash to Employee, within fifteen (15) days following the date of termination, an amount equal to the product of (i) Employee's Base Compensation as in effect immediately prior to Employee's termination (in the event a Corporate Change occurs prior to January 1, 2005, the Base Compensation shall be $500,000), multiplied by (ii) three, (B) for three years following the date of termination, the Company, at its cost, shall provide or arrange to provide Employee (and, as applicable, Employee's dependents) with accident and group health insurance benefits substantially similar to those which Employee (and Employee's dependents) were receiving immediately prior to Employee's termination (if any); however, the welfare benefits otherwise receivable by Employee pursuant to this clause (B) shall be reduced to the extent comparable welfare benefits are actually received by Employee (and/or Employee's dependents) during such period under any other employer's welfare plan(s) or program(s), with Employee being obligated to promptly disclose to the Company any such comparable welfare benefits, (C) in addition to the aforementioned compensation and benefits, the Company shall pay in lump sum in cash to Employee within fifteen (15) days following the date of termination an amount equal to the product of (i) Employee's average Bonus paid by the Company during the most recent two (2) years immediately prior to the date of termination (in the event that the date of termination is on or before December 31, 2004 and no Bonus has been paid with respect to the fiscal year ending December 31, 2004 as of the date of termination, the Bonus shall be equal to the Base Compensation for purposes of this section and in the event that the date of termination is after December 31, 2004 and on or before December 31, 2005 and no Bonus has been paid with respect to the fiscal year ending December 31, 2005, the Bonus with respect to the fiscal year ending December 31, 2005 shall be equal to the Base Compensation for purposes of this section), multiplied by (ii) three and (D) Employee shall be considered as immediately and totally vested in any and all Options previously made to Employee by Company or its subsidiaries. (ii) In the event Employee is terminated because of Misconduct, the Company shall have no obligations pursuant to this Agreement after the Date of Termination other than the payment of any unpaid Base Compensation or Bonus accrued through the Date of Termination. As used herein, "Misconduct" means (A) the continued failure by Employee to substantially perform his duties with the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by Employee for Good Reason), after a written demand for substantial performance is delivered to Employee by the Board, which demand specifically identifies the manner in which the Board believes that Employee has not substantially performed his duties, and the Employee fails to cure such failure within ten (10) days after receipt of such demand, (B) the engaging by Employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise (other than such conduct resulting from Employee's incapacity due to physical or mental illness or 6 any such actual or anticipated conduct after the issuance of a Notice of Termination by Employee for Good Reason), (C) Employee's conviction for the commission of a felony or (D) action by Employee toward the Company involving dishonesty. Anything contained in this Agreement to the contrary notwithstanding, the Board shall have the sole power and authority to terminate the employment of Employee on behalf of the Company (d) Disability. If Employee shall have been absent from the full-time performance of Employee's duties with the Company for ninety (90) consecutive calendar days as a result of Employee's incapacity due to physical or mental illness, Employee's employment may be terminated by the Company for "Disability" and Employee shall not be entitled to further compensation pursuant to this Agreement, except that Employee shall be considered as immediately and totally vested in any and all Options and restricted stock grants previously granted to Employee by Company or its subsidiaries. (e) Resignation for Good Reason. Employee shall be entitled to terminate his employment for Good Reason as defined herein. If Employee terminates his employment for Good Reason he shall be entitled to the compensation and benefits provided in Paragraph 9(c)(i) hereof. "Good Reason" shall mean the occurrence of any of the following circumstances without Employee's express written consent unless such breach or circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination given in respect hereof: (i) the material breach of any of the Company's obligations under this Agreement without Employee's express written consent; (ii) the continued assignment to Employee of any duties inconsistent with the office of Co-Chief Executive Officer not remedied within fifteen (15) days after the Company receives written notice of same from Employee; (iii) the failure by the Company to pay to Employee any portion of Employee's compensation and such failure is not remedied within fifteen (15) days after the Company receives written notice of same from Employee; (iv) the failure by the Company to continue to provide Employee with benefits substantially similar to those enjoyed by other executive officers who have entered into similar employment agreements with Employer under any of the Company's medical, health, accident, and/or disability plans in which Employee was participating immediately prior to such time; (v) a change in the location of Employee's principal place of employment by the Company by more than 50 miles from the location where he was principally employed immediately prior to the date of such change; or (vi) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 14 hereof. 7 In addition, the occurrence of a Corporate Change, shall constitute "Good Reason" hereunder, but only if Employee terminates his employment within ninety (90) days following the effective date of such Corporate Change. (f) Notice of Termination. Any purported termination of Employee's employment by the Company under Sections 9(c)(ii) or 9(d), or by Employee under Section 9(e), shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which, if by the Company and is for Misconduct or Disability, shall set forth in reasonable detail the reason for such termination of Employee's employment, or in the case of resignation by Employee for Good Reason, said notice must specify in reasonable detail the basis for such resignation. A Notice of Termination given by Employee pursuant to Section 9(e) shall be effective even if given after the receipt by Employee of notice that the Board has set a meeting to consider terminating Employee for Misconduct. Any purported termination for which a Notice of Termination is required which is not effected pursuant to this Section 9(f) shall not be effective. (g) Date of Termination. "Date of Termination" shall mean the date specified in the Notice of Termination, provided that the Date of Termination shall be at least 15 days following the date the Notice of Termination is given. Notwithstanding the foregoing, in the event Employee is terminated for Misconduct, the Company may refuse to allow Employee access to the Company's offices (other than to allow Employee to collect his personal belongings under the Company's supervision) prior to the Date of Termination. (h) Mitigation. Employee shall not be required to mitigate the amount of any payment provided for in this Section 9 by seeking other employment or otherwise, nor (except as set forth in Section 9(c)(i)(B)) shall the amount of any payment provided for in this Agreement be reduced by any compensation earned or benefits received by Employee as a result of employment by another employer, except that any severance amounts payable to Employee pursuant to the Company's severance plan or policy for employees in general shall reduce the amount otherwise payable pursuant to Sections 9(c)(i) or 9(e). (i) Excess Parachute Payments. Notwithstanding anything in this Agreement to the contrary, to the extent that any payment or benefit received or to be received by Employee hereunder in connection with the termination of Employee's employment would, as determined by tax counsel selected by the Company, constitute an "Excess Parachute Payment" (as defined in Section 280G of the Internal Revenue Code), the Company shall fully "gross-up" such payment so that Employee is in the same "net" after-tax position he would have been if such payment and gross-up payments had not constituted Excess Parachute Payments. (j) Resignation from Board. In the event Employee's employment by the Company is terminated for any reason (other than Employee's death), Employee shall immediately resign as a member of the Board and the board of directors of any of the 8 Company's subsidiaries he may be a member of upon the written request of the Chairman of the Board. Nothing herein shall be deemed to limit the power of the shareholders of the Company to at any time remove any director, including, without limitation, Employee, in accordance with applicable law. All payments to Employees pursuant to this Agreement shall be conditioned upon Employee's compliance with his obligations under this Section 9(j). 10. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Employee's continuing or future participation in any benefit, bonus, incentive, or other plan or program provided by the Company or any of its affiliated companies and for which Employee may qualify, nor shall anything herein limit or otherwise adversely affect such rights as Employee may have under any Options with the Company or any of its affiliated companies. 11. Assignability. The obligations of Employee hereunder are personal and may not be assigned or delegated by him or transferred in any manner whatsoever, nor are such obligations subject to involuntary alienation, assignment or transfer. The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder, either in whole or in part, to any parent, affiliate, successor or subsidiary organization or company of the Company, so long as the obligations of the Company under this Agreement remain the obligations of the Company. 12. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Company at its principal office address, directed to the attention of the Board with a copy to the Secretary of the Company, and to Employee at Employee's residence address on the records of the Company or to such other address as either party may have furnished to the other in writing in accordance herewith except that notice of change of address shall be effective only upon receipt. 13. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 14. Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used herein, the term "Company" shall include any successor to its 9 business and/or assets as aforesaid which executes and delivers the Agreement provided for in this Section 14 or which otherwise becomes bound by all terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of Employee hereunder shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee, or other designee or, if there be no such designee, to Employee's estate. 15. Withholding Taxes. (a) Tax Withholding. The Company shall have the power and the right to deduct or withhold from any benefits payable under this Agreement an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld. (b) Share Withholding. With respect to tax withholding required upon the upon the lapse of restrictions on the Inducement Stock and the Salary Stock, or upon any other taxable event arising as a result of any stock awards pursuant to this Agreement, Employee may elect, to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction. All such elections shall be made in writing, signed by the Employee, and shall be subject to any restrictions or limitations that the Company, in its discretion, deems appropriate. Any fraction of a share required to satisfy such obligation shall be disregarded and the Employee shall instead pay the amount due in cash. 16. No Restraints. As an inducement to the Company to enter into this Agreement, Employee represents and warrants that he is not a party to any other agreement or obligation for personal services, and that there exist no impediments or restraints, contractual or otherwise, on Employee's powers right or ability to enter into this Agreement and to perform his duties and obligations hereunder. 17. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Employee and such officer as may be specifically authorized by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement is an integration of the parties' agreement; no agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party, except those which are set forth expressly in this Agreement. THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS. 10 18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 19. Arbitration. Either party may elect that any dispute or controversy arising under or in connection with this Agreement be settled by arbitration in Houston, Texas in accordance with the rules of the American Arbitration Association then in effect. If the parties cannot mutually agree on an arbitrator, then the arbitration shall be conducted by a three arbitrator panel, with each party selecting one arbitrator and the two arbitrators so selected selecting a third arbitrator. The findings of the arbitrator(s) shall be final and binding, and judgment may be entered thereon in any court having jurisdiction. The findings of the arbitrator(s) shall not be subject to appeal to any court, except as otherwise provided by applicable law. The arbitrator(s) may, in his or her (or their) own discretion, award legal fees and costs to the prevailing party. [SIGNATURE PAGE FOLLOWS] 11 IN WITNESS WHEREOF, the parties have executed this Agreement on February 26, 2004 effective for all purposes as provided above. CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ STEPHEN P. HARRINGTON ------------------------------------ Name: Stephen P. Harrington --------------------------------- Title: President --------------------------------- EMPLOYEE: /s/ WILLIAM L. TRANSIER ----------------------------------------- William L. Transier 12 EX-10.38 29 h13916exv10w38.txt EMPLOYMENT AGREEMENT - JOHN N. SEITZ EXHIBIT 10.38 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into effective as of February 26, 2004 (the "Effective Date"), by and between Continental Southern Resources, Inc., a Nevada corporation (the "Company"), and John N. Seitz ("Employee"). WHEREAS, the Company wishes to employ Employee and Employee wishes to be employed by the Company; and WHEREAS, the Company and Employee desire to enter into an agreement reflecting the terms of the employment relationship, including the termination thereof; NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties, and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: 1. Effect of Agreement. Effective as of the Effective Date, this Agreement supersedes and replaces any pre-existing employment agreements between the Company and the Employee. 2. Employment. The Company hereby employs Employee, and Employee hereby accepts employment by the Company, on the terms and conditions set forth in this Agreement. 3. Term of Employment. Subject to the provisions for earlier termination provided in this Agreement, the term of this Agreement (the "Term") shall be three (3) years commencing on the Effective Date. 4. Employee's Duties. During the Term of this Agreement, Employee shall serve as Co-Chief Executive Officer, with such duties and responsibilities as may from time to time be assigned to him by the board of directors of the Company (the "Board"), provided that such duties are consistent with the customary duties of such position. During the term of this Agreement, Employee shall also serve as a member of the Board. Employee agrees to devote all of his business time, skill and attention to the business and affairs of the Company and to use reasonable best efforts to perform faithfully and efficiently his duties and responsibilities. Employee shall not, either directly or indirectly, enter into any business or employment with or for any person, firm, association or corporation other than the Company during the Term of this Agreement; provided, however, that Employee shall not be prohibited from (i) making financial investments in any other company or business, (ii) acting as a consultant or director (or functionally equivalent position of a director) of Fischer-Seitz Capital Partners LLC or (iii) with notice to the Board, from serving on the board of directors of any other company, provided that in the case of clauses (ii) and (iii) above only if such service does not materially interfere with the performance of his duties or responsibilities hereunder. Employee shall at all times observe and comply with all lawful directions and instructions of the Board. 5. Compensation. (a) Inducement Stock. As inducement to the Employee to enter into this Agreement, the Company will issue 500,000 shares ("Inducement Stock") of Company restricted common stock ("Restricted Stock") to the Employee as of the Effective Date. The Inducement Stock grants shall be evidenced by the forms of Inducement Stock Agreement attached hereto as Exhibits "A" and "B." (b) Base Compensation. Beginning on January 1, 2005, for services rendered by Employee under this Agreement, the Company shall pay to Employee a base salary of $500,000 per annum ("Base Compensation"). Subject to the availability of stock under the Company's 2004 Incentive Plan or any similar plan then in effect (the "Incentive Plan"), the Employee may make an annual election to take between 0% and 100% of his Base Compensation in the form of Restricted Stock (the "Salary Stock"), provided that he notifies the Company of his decision prior to the first pay period of each applicable year. For purposes hereof, the Salary Stock shall be valued at Fair Market Value, as that term is defined in the Incentive Plan and issued pursuant to the form of Restricted Stock Agreement attached hereto as Exhibit "B". Should insufficient shares be available under the Incentive Plan to grant the full amount of the Salary Stock, the remaining Base Compensation shall be paid in cash. The Base Compensation is payable in accordance with the Company's customary pay periods and subject to customary withholdings, including share withholdings as described in Section 15(b) hereof. Issuance of the Salary Stock shall be accomplished in a manner to provide the most favorable accounting treatment for the Company. The amount of Base Compensation shall be reviewed by the Board on an annual basis as of the close of each fiscal year of the Company and may be increased as the Board may deem appropriate. In the event the Board (or, if established, the compensation committee thereof) deems it appropriate to increase Employee's annual base salary, said increased amount shall thereafter be the "Base Compensation." Employee's Base Compensation, as increased from time to time, may not thereafter be decreased unless agreed to by Employee. Nothing contained herein shall prevent the Board from paying additional compensation to Employee in the form of bonuses or otherwise during the Term of this Agreement. 6. Bonus. With respect to each full fiscal year during the Employment Term, the Board in its sole discretion may grant the Employee a discretionary bonus ("Bonus"). The target bonus for each year shall be equal to the Base Compensation; however, the Board may grant a maximum Bonus of up to 200% of the Base Compensation payable in the form and in accordance with the Company's customary pay periods for its annual bonuses for its executives and subject to customary withholdings. 7. Additional Benefits. In addition to the Base Compensation provided for in Section 5 herein, Employee shall be entitled to the following: (a) Expenses. The Company shall, in accordance with any rules and policies that it may establish from time to time for executive officers, reimburse Employee for business expenses reasonably incurred in the performance of his duties. It is understood that Employee is authorized to incur reasonable business expenses for promoting the business of the Company, including reasonable expenditures for travel, lodging, meals and client or business associate entertainment. Request for reimbursement for such expenses must be accompanied by appropriate documentation. 2 (b) Vacation. Employee shall be entitled to five (5) weeks of vacation per year, without any loss of compensation or benefits. Employee shall not be entitled to compensation for, or to carry forward, any unused vacation time. (c) General Benefits. Employee shall be entitled to participate in the various employee benefit plans or programs, if any, provided to the officers of the Company in general, including but not limited to, health, dental, disability and life insurance plans, subject to the eligibility requirements with respect to each of such benefit plans or programs, and such other benefits or perquisites as may be approved by the Board during the Term of this Agreement. Nothing in this paragraph shall be deemed to prohibit the Company from making any changes in any of the plans, programs or benefits described in this Section 7, provided the change similarly affects all executive officers of the Company similarly situated. (d) Corporate Change. Upon the occurrence of a "Corporate Change" as hereinafter defined, Employee shall be considered as immediately and totally vested in any and all Restricted Stock, stock options or other similar awards previously made to Employee by the Company or its subsidiaries under a "Long Term Incentive Plan" or other grant duly adopted by the Board or the Compensation Committee thereof (such Restricted Stock, options or similar awards are hereinafter collectively referred to as "Options"). For purposes of this Agreement, a "Corporate Change" shall occur if (i) the Company (A) shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company) or (B) is to be dissolved and liquidated, and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board, or (ii) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 30% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board, or (iii) the Company sells all or substantially all of the assets of the Company to any other person or entity (other than a wholly-owned subsidiary of the Company) in a transaction that requires shareholder approval pursuant to applicable corporate law; or (iv) during a period of two consecutive calendar years, individuals who at the beginning of such period constitute the Board, and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office, who either were directors at the beginning of the two (2) year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (v) any other event that a majority of the Board, in its sole discretion, shall determine constitutes a Corporate Change hereunder. 8. Confidential Information. Employee, during the Term, will have access to and become familiar with confidential information, secrets and proprietary information concerning the business and affairs of the Company, its controlled subsidiaries and other controlled entities, 3 including client and customer information, information concerning their products, patent rights and know-how, and other technical information, business strategies and pricing information, and other confidential and/or proprietary information (collectively, "Confidential Information"). Confidential Information shall not include (i) any information that is or becomes generally available to the public other than as a result of Employee's improper or unauthorized disclosure of such information in violation of this Agreement or (ii) was within Employee's possession prior to its affiliation with the Company or its controlled subsidiaries or other controlled entities (including his affiliation with Endeavour International Operating Company, f/k/a NSNV, Inc. prior to its acquisition by the Company). As to such Confidential Information, Employee agrees as follows: (a) During the term of this Agreement or at any time following the termination of this Agreement, Employee will not, directly or indirectly, without the prior written consent of the Company (1) disclose or permit the disclosure of any such Confidential Information, or (2) use, reproduce or distribute, or make or permit any use, reproduction or distribution of, directly or indirectly, any such Confidential Information, except for any disclosure, use, reproduction or distribution that is required in the course of his employment with the Company, its controlled subsidiaries or other controlled entities. (b) If, during the term of this Agreement or at any time following the termination of this Agreement, Employee is requested or required (by oral question or request for information or documents, in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, Employee agrees to notify the Company immediately in writing of the request or requirement so that the Company may seek an appropriate protection order or waive compliance with the provisions of this Section. If, in the absence of a protective order or the receipt of a waiver under this Agreement, Employee is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, Employee may disclose such Confidential Information to the tribunal; provided, however, that Employee shall use his commercially reasonable best efforts to obtain a court order or other assurance that confidential treatment will be accorded to such Confidential Information. (c) Upon termination of employment of Employee, for whatever reason, Employee shall surrender to the Company any and all documents, manuals, correspondence, reports, records and similar items then or thereafter coming into the possession of Employee which contain any Confidential Information of the Company or its controlled subsidiaries or other controlled entities. (d) Employee recognizes and acknowledges that the obligations of Employee contained in Section 8 of this Agreement are reasonable and necessary to protect the legitimate business interests of the Company, and that any breach or violation of any of the provisions of such Section is likely to result in irreparable injury to the Company for which the Company would have no adequate remedy at law. Employee agrees that if Employee shall breach or violate Section 8 of this Agreement, the Company shall be entitled, if it so elects, to institute and prosecute proceedings at law or in equity, 4 including, but not limited to, a proceeding seeking injunctive relief, to obtain damages with respect to such breach or violation, to enforce the specific performance of Section 8 this Agreement by Employee, or to enjoin Employee from engaging in any activity in violation of Section 8 of this Agreement. Employee acknowledges that in the event of any such breach or violation, the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages or posting a bond, and to an equitable accounting of all earnings, profits, and other benefits arising from any such breach or violation, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. Employee agrees that in the event of any such violation, an action may be commenced for preliminary or permanent injunctive relief and other equitable relief in any federal or state court of competent jurisdiction sitting in Harris County, Texas, or in any other court of competent jurisdiction. Employee waives, to the fullest extent permitted by law, any objection that Employee may now or hereafter have to such jurisdiction or to the laying of the venue of any such suit, action, or proceeding brought in such a court and any claim that such suit, action or proceeding has been brought in an inconvenient forum. Employee agrees that effective service of process may be made upon Employee under the notice provisions contained in Section 12 of this Agreement. Employee further agrees that the existence of any claim or cause of action against the Company, whether predicated upon a breach or violation by the Company of this Agreement or any other contract or agreement between Employee and the Company, shall not constitute or be asserted as a defense to the enforcement by the Company to the provisions of this Section relating to the Company's right to injunctive or other equitable relief for Employee's breach or violation of Section 8 of this Agreement. 9. Termination. This Agreement may be terminated prior to the end of its Term as set forth below: (a) Resignation (other than for Good Reason). Employee may resign, including by reason of retirement, his position at any time by providing written notice of resignation to the Company in accordance with Section 12 hereof. In the event of such resignation, except in the case of resignation for Good Reason (as defined below), this Agreement shall terminate and Employee shall not be entitled to further compensation pursuant to this Agreement other than the payment of any unpaid Base Compensation or Bonus accrued hereunder as of the date of Employee's resignation. (b) Death. If Employee's employment is terminated due to his death, this Agreement shall terminate and the Company shall have no obligations to Employee or his legal representatives with respect to this Agreement other than the payment of any unpaid Base Compensation or Bonus previously accrued hereunder. (c) Discharge. (i) The Company may terminate Employee's employment only in the event of Employee's Misconduct or Disability (both as defined below) upon written notice thereof delivered to Employee in accordance with Section 9(f) and Section 12 hereof. In the event that Employee's employment is terminated during 5 the Term by the Company for any reason other than his Misconduct or Disability (both as defined below), then (A) the Company shall pay in lump sum in cash to Employee, within fifteen (15) days following the date of termination, an amount equal to the product of (i) Employee's Base Compensation as in effect immediately prior to Employee's termination (in the event a Corporate Change occurs prior to January 1, 2005, the Base Compensation shall be $500,000), multiplied by (ii) three, (B) for three years following the date of termination, the Company, at its cost, shall provide or arrange to provide Employee (and, as applicable, Employee's dependents) with accident and group health insurance benefits substantially similar to those which Employee (and Employee's dependents) were receiving immediately prior to Employee's termination (if any); however, the welfare benefits otherwise receivable by Employee pursuant to this clause (B) shall be reduced to the extent comparable welfare benefits are actually received by Employee (and/or Employee's dependents) during such period under any other employer's welfare plan(s) or program(s), with Employee being obligated to promptly disclose to the Company any such comparable welfare benefits, (C) in addition to the aforementioned compensation and benefits, the Company shall pay in lump sum in cash to Employee within fifteen (15) days following the date of termination an amount equal to the product of (i) Employee's average Bonus paid by the Company during the most recent two (2) years immediately prior to the date of termination (in the event that the date of termination is on or before December 31, 2004 and no Bonus has been paid with respect to the fiscal year ending December 31, 2004 as of the date of termination, the Bonus shall be equal to the Base Compensation for purposes of this section and in the event that the date of termination is after December 31, 2004 and on or before December 31, 2005 and no Bonus has been paid with respect to the fiscal year ending December 31, 2005, the Bonus with respect to the fiscal year ending December 31, 2005 shall be equal to the Base Compensation for purposes of this section), multiplied by (ii) three and (D) Employee shall be considered as immediately and totally vested in any and all Options previously made to Employee by Company or its subsidiaries. (ii) In the event Employee is terminated because of Misconduct, the Company shall have no obligations pursuant to this Agreement after the Date of Termination other than the payment of any unpaid Base Compensation or Bonus accrued through the Date of Termination. As used herein, "Misconduct" means (A) the continued failure by Employee to substantially perform his duties with the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by Employee for Good Reason), after a written demand for substantial performance is delivered to Employee by the Board, which demand specifically identifies the manner in which the Board believes that Employee has not substantially performed his duties, and the Employee fails to cure such failure within ten (10) days after receipt of such demand, (B) the engaging by Employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise (other than such conduct resulting from Employee's incapacity due to physical or mental illness or 6 any such actual or anticipated conduct after the issuance of a Notice of Termination by Employee for Good Reason), (C) Employee's conviction for the commission of a felony or (D) action by Employee toward the Company involving dishonesty. Anything contained in this Agreement to the contrary notwithstanding, the Board shall have the sole power and authority to terminate the employment of Employee on behalf of the Company (d) Disability. If Employee shall have been absent from the full-time performance of Employee's duties with the Company for ninety (90) consecutive calendar days as a result of Employee's incapacity due to physical or mental illness, Employee's employment may be terminated by the Company for "Disability" and Employee shall not be entitled to further compensation pursuant to this Agreement, except that Employee shall be considered as immediately and totally vested in any and all Options and restricted stock grants previously granted to Employee by Company or its subsidiaries. (e) Resignation for Good Reason. Employee shall be entitled to terminate his employment for Good Reason as defined herein. If Employee terminates his employment for Good Reason he shall be entitled to the compensation and benefits provided in Paragraph 9(c)(i) hereof. "Good Reason" shall mean the occurrence of any of the following circumstances without Employee's express written consent unless such breach or circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination given in respect hereof: (i) the material breach of any of the Company's obligations under this Agreement without Employee's express written consent; (ii) the continued assignment to Employee of any duties inconsistent with the office of Co-Chief Executive Officer not remedied within fifteen (15) days after the Company receives written notice of same from Employee; (iii) the failure by the Company to pay to Employee any portion of Employee's compensation and such failure is not remedied within fifteen (15) days after the Company receives written notice of same from Employee; (iv) the failure by the Company to continue to provide Employee with benefits substantially similar to those enjoyed by other executive officers who have entered into similar employment agreements with Employer under any of the Company's medical, health, accident, and/or disability plans in which Employee was participating immediately prior to such time; (v) a change in the location of Employee's principal place of employment by the Company by more than 50 miles from the location where he was principally employed immediately prior to the date of such change; or (vi) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 14 hereof. 7 In addition, the occurrence of a Corporate Change, shall constitute "Good Reason" hereunder, but only if Employee terminates his employment within ninety (90) days following the effective date of such Corporate Change. (f) Notice of Termination. Any purported termination of Employee's employment by the Company under Sections 9(c)(ii) or 9(d), or by Employee under Section 9(e), shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which, if by the Company and is for Misconduct or Disability, shall set forth in reasonable detail the reason for such termination of Employee's employment, or in the case of resignation by Employee for Good Reason, said notice must specify in reasonable detail the basis for such resignation. A Notice of Termination given by Employee pursuant to Section 9(e) shall be effective even if given after the receipt by Employee of notice that the Board has set a meeting to consider terminating Employee for Misconduct. Any purported termination for which a Notice of Termination is required which is not effected pursuant to this Section 9(f) shall not be effective. (g) Date of Termination. "Date of Termination" shall mean the date specified in the Notice of Termination, provided that the Date of Termination shall be at least 15 days following the date the Notice of Termination is given. Notwithstanding the foregoing, in the event Employee is terminated for Misconduct, the Company may refuse to allow Employee access to the Company's offices (other than to allow Employee to collect his personal belongings under the Company's supervision) prior to the Date of Termination. (h) Mitigation. Employee shall not be required to mitigate the amount of any payment provided for in this Section 9 by seeking other employment or otherwise, nor (except as set forth in Section 9(c)(i)(B)) shall the amount of any payment provided for in this Agreement be reduced by any compensation earned or benefits received by Employee as a result of employment by another employer, except that any severance amounts payable to Employee pursuant to the Company's severance plan or policy for employees in general shall reduce the amount otherwise payable pursuant to Sections 9(c)(i) or 9(e). (i) Excess Parachute Payments. Notwithstanding anything in this Agreement to the contrary, to the extent that any payment or benefit received or to be received by Employee hereunder in connection with the termination of Employee's employment would, as determined by tax counsel selected by the Company, constitute an "Excess Parachute Payment" (as defined in Section 280G of the Internal Revenue Code), the Company shall fully "gross-up" such payment so that Employee is in the same "net" after-tax position he would have been if such payment and gross-up payments had not constituted Excess Parachute Payments. (j) Resignation from Board. In the event Employee's employment by the Company is terminated for any reason (other than Employee's death), Employee shall immediately resign as a member of the Board and the board of directors of any of the 8 Company's subsidiaries he may be a member of upon the written request of the Chairman of the Board. Nothing herein shall be deemed to limit the power of the shareholders of the Company to at any time remove any director, including, without limitation, Employee, in accordance with applicable law. All payments to Employees pursuant to this Agreement shall be conditioned upon Employee's compliance with his obligations under this Section 9(j). 10. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Employee's continuing or future participation in any benefit, bonus, incentive, or other plan or program provided by the Company or any of its affiliated companies and for which Employee may qualify, nor shall anything herein limit or otherwise adversely affect such rights as Employee may have under any Options with the Company or any of its affiliated companies. 11. Assignability. The obligations of Employee hereunder are personal and may not be assigned or delegated by him or transferred in any manner whatsoever, nor are such obligations subject to involuntary alienation, assignment or transfer. The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder, either in whole or in part, to any parent, affiliate, successor or subsidiary organization or company of the Company, so long as the obligations of the Company under this Agreement remain the obligations of the Company. 12. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Company at its principal office address, directed to the attention of the Board with a copy to the Secretary of the Company, and to Employee at Employee's residence address on the records of the Company or to such other address as either party may have furnished to the other in writing in accordance herewith except that notice of change of address shall be effective only upon receipt. 13. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 14. Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used herein, the term "Company" shall include any successor to its 9 business and/or assets as aforesaid which executes and delivers the Agreement provided for in this Section 14 or which otherwise becomes bound by all terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of Employee hereunder shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee, or other designee or, if there be no such designee, to Employee's estate. 15. Withholding Taxes. (a) Tax Withholding. The Company shall have the power and the right to deduct or withhold from any benefits payable under this Agreement an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld. (b) Share Withholding. With respect to tax withholding required upon the upon the lapse of restrictions on the Inducement Stock and the Salary Stock, or upon any other taxable event arising as a result of any stock awards pursuant to this Agreement, Employee may elect, to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction. All such elections shall be made in writing, signed by the Employee, and shall be subject to any restrictions or limitations that the Company, in its discretion, deems appropriate. Any fraction of a share required to satisfy such obligation shall be disregarded and the Employee shall instead pay the amount due in cash. 16. No Restraints. As an inducement to the Company to enter into this Agreement, Employee represents and warrants that he is not a party to any other agreement or obligation for personal services, and that there exist no impediments or restraints, contractual or otherwise, on Employee's powers right or ability to enter into this Agreement and to perform his duties and obligations hereunder. 17. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Employee and such officer as may be specifically authorized by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement is an integration of the parties' agreement; no agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party, except those which are set forth expressly in this Agreement. THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS. 10 18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 19. Arbitration. Either party may elect that any dispute or controversy arising under or in connection with this Agreement be settled by arbitration in Houston, Texas in accordance with the rules of the American Arbitration Association then in effect. If the parties cannot mutually agree on an arbitrator, then the arbitration shall be conducted by a three arbitrator panel, with each party selecting one arbitrator and the two arbitrators so selected selecting a third arbitrator. The findings of the arbitrator(s) shall be final and binding, and judgment may be entered thereon in any court having jurisdiction. The findings of the arbitrator(s) shall not be subject to appeal to any court, except as otherwise provided by applicable law. The arbitrator(s) may, in his or her (or their) own discretion, award legal fees and costs to the prevailing party. [SIGNATURE PAGE FOLLOWS] 11 IN WITNESS WHEREOF, the parties have executed this Agreement on February 26, 2004 effective for all purposes as provided above. CONTINENTAL SOUTHERN RESOURCES, INC. By: /s/ STEPHEN P. HARRINGTON ----------------------------------- Name: Stephen P. Harrington ----------------------------------- Title: President ----------------------------------- EMPLOYEE: /s/ JOHN N. SEITZ ---------------------------------------- John N. Seitz EX-10.39 30 h13916exv10w39.txt FORM OF RESTRICTED STOCK AWARD AGREEMENT EXHIBIT 10.39 CONTINENTAL SOUTHERN RESOURCES, INC. RESTRICTED STOCK AWARD AGREEMENT THIS RESTRICTED STOCK AGREEMENT (this "AGREEMENT") is made and entered into by and between Continental Southern Resources, Inc. (the "COMPANY") and __________, an Employee of the Company ("GRANTEE") effective as of the grant date(s) shown in APPENDIX A attached hereto. WHEREAS, effective February 26, 2004 Grantee shall be an employee of Continental Southern Resources, Inc. (the "Company") and as an inducement for such employment, the Company desires to grant to Grantee a number of restricted shares of the Company's common stock, par value $.001 per share (the "COMMON STOCK"), subject to the terms and conditions of this Agreement, with a view to increasing Grantee's interest in the Company's welfare and growth; and WHEREAS, Grantee desires to receive shares of the Common Stock as inducement stock pursuant to the employment agreement between Grantee and Company dated February 26, 2004. NOW, THEREFORE, in consideration of the premises, mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. GRANT OF COMMON STOCK. Subject to the restrictions, forfeiture provisions and other terms and conditions set forth herein (a) the Company hereby grants to Grantee the number of shares of Common Stock ("RESTRICTED SHARES") as set out in Appendix A hereto, and (b) subject to the terms hereof, Grantee shall have and may exercise rights and privileges of ownership of such Restricted Shares, including, without limitation, the voting rights of such shares and the right to receive dividends declared in respect thereof. This Agreement and the grant of Restricted Shares are subject to administration by and the rules and procedures established by the Board of Directors of the Company (the "Board") or a committee appointed by the Board to administer this Agreement (the "Committee") and the Board or the Committee, if so appointed, shall have the authority to construe and interpret the terms of this Agreement and to provide omitted terms to carry out this Agreement. Except with respect to Section 3(v), any authority provided to the Company, the Board or Committee herein shall also be provided to the Committee, if one is appointed by the Board. The Committee shall have the authority to take all actions that it deems advisable for the administration of this Agreement. 2. TRANSFER RESTRICTIONS; VESTING. (a) Generally. Grantee shall not sell, assign, transfer, exchange, pledge, encumber, gift, devise, hypothecate or otherwise dispose of (collectively, "TRANSFER") any Restricted Shares prior to their vesting in accordance with the Vesting Schedule set out in Appendix A. Further, even after such Restricted Shares become vested, such vested Restricted Shares may not be sold or otherwise disposed of in any manner which would constitute a violation of any applicable federal or state securities or other applicable law or Company policies as determined by Company on advice of counsel chosen by the Company in its sole discretion. Restricted Shares shall vest as of each of the Vesting Dates set out in Appendix A provided that Grantee remains an Employee through the Vesting Date, except as may otherwise be provided herein. (b) Dividends, etc. If the Company (i) declares a dividend or makes a distribution on Common Stock in shares of Common Stock or (ii) subdivides or reclassifies outstanding shares of Common Stock into a greater number of shares of Common Stock or (iii) combines or reclassifies outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the number of shares of Grantee's Common Stock subject to the transfer restrictions in this Agreement shall be proportionally increased or reduced as to prevent enlargement or dilution of Grantee's rights and duties hereunder. The determination of the Company's Board of Directors regarding such adjustment should be final and binding. 3. VESTING ON CHANGE IN CONTROL. Notwithstanding the provisions in Section 2, on the date immediately preceding the date of a Change in Control of the Company (as defined below), the Restricted Shares shall be 100% vested. For purposes of this Agreement, a "CHANGE IN CONTROL" shall mean the occurrence of any of the following events: (i) the Company (A) shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company) or (B) is to be dissolved and liquidated, and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board, or (ii) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 30% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board, or (iii) the Company sells all or substantially all of the assets of the Company to any other person or entity (other than a wholly-owned subsidiary of the Company) in a transaction that requires shareholder approval pursuant to applicable corporate law; or (iv) During a period of two consecutive calendar years, individuals who at the beginning of such period constitute the Board, and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office, who either were directors at the beginning of the two (2) year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (v) any other event that a majority of the Board, in its sole discretion, shall determine constitutes a Change in Control hereunder. 2 4. FORFEITURE. (a) Termination of Employment. If Grantee's employment with the Company is terminated by the Company or Grantee for any reason, then Grantee shall immediately forfeit all Restricted Shares which are unvested unless the Board of Directors, in its sole discretion, determines that any or all of such unvested Restricted Shares shall not be so forfeited. (b) Forfeited Shares. Any Restricted Shares forfeited under this Section 5 shall automatically revert to the Company and become canceled. Any certificate(s) representing Restricted Shares which include forfeited shares shall only represent that number of Restricted Shares which have not been forfeited hereunder. Upon the Company's request, Grantee agrees for himself and any other holder(s) to tender to the Company any certificate(s) representing Restricted Shares which include forfeited shares for a new certificate representing the unforfeited number of Restricted Shares. 5. ISSUANCE OF CERTIFICATE. (a) The Company shall cause to be issued a stock certificate, registered in the name of the Grantee, evidencing the Restricted Shares upon receipt of a stock power duly endorsed in blank with respect to such shares. In addition to any other legends that may be required by the Shareholders' Agreement or otherwise, each such stock certificate shall bear the following legend: THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS AND CONDITIONS (INCLUDING FORFEITURE AND RESTRICTIONS AGAINST TRANSFER) CONTAINED IN THE RESTRICTED STOCK AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER OF SUCH SHARES AND CONTINENTAL SOUTHERN RESOURCES, INC.. COPIES OF THE RESTRICTED STOCK AGREEMENT ARE ON FILE IN THE OFFICE OF THE SECRETARY OF CONTINENTAL SOUTHERN RESOURCES, INC., LOCATED AT 1001 FANNIN, SUITE 1700, HOUSTON, TEXAS 77002. Such legend shall not be removed from the certificate evidencing Restricted Shares until such time as the restrictions thereon have lapsed. (b) The certificate issued pursuant to this Section 6, together with the stock powers relating to the Restricted Shares evidenced by such certificate, shall be held by the Company. The Company may issue to the Grantee a receipt evidencing the certificates held by it which are registered in the name of the Grantee. 6. TAX REQUIREMENTS. (a) Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy 3 federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this grant. (b) Share Withholding. With respect to tax withholding required upon any taxable event arising as a result of this grant, Participant may elect, subject to the approval of the Board or Committee in its sole discretion, to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares of common stock having a Fair Market Value on the date the tax is to be determined equal to the statutory total tax which could be imposed on the transaction. All such elections shall be made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its discretion, deems appropriate. Any fraction of a share of common stock required to satisfy such obligation shall be disregarded and the amount due shall instead be paid in cash by the Participant. 7. MISCELLANEOUS. (a) Certain Transfers Void. Any purported transfer of Restricted Shares in breach of any provision of this Agreement shall be void and ineffectual, and shall not operate to transfer any interest or title in the purported transferee. (b) No Fractional Shares. All provisions of this Agreement concern whole shares of Common Stock. If the application of any provision hereunder would yield a fractional share, the value of such fractional share shall be paid to the Grantee in cash. (c) Not an Employment Agreement. This Agreement is not an employment agreement, and this Agreement shall not be, and no provision of this Agreement shall be construed or interpreted to create any employment relationship or right to continued employment with the Company, Company affiliates, parent, subsidiary or their affiliates. (d) Dispute Resolution. (i) Arbitration. All disputes and controversies of every kind and nature between any parties hereto arising out of or in connection with this Agreement or the transactions described herein as to the construction, validity, interpretation or meaning, performance, non-performance, enforcement, operation or breach, shall be submitted to arbitration pursuant to the following procedures: (1) After a dispute or controversy arises, any party may, in a written notice delivered to the other parties to the dispute, demand such arbitration. Such notice shall designate the name of the arbitrator (who shall be an impartial person) appointed by such party demanding arbitration, together with a statement of the matter in controversy. (2) Within 30 days after receipt of such demand, the other parties shall, in a written notice delivered to the first party, name such parties' arbitrator (who shall be an impartial person). If such parties fail to name an arbitrator, then the second arbitrator shall be named by the American Arbitration Association (the "AAA"). The two arbitrators so selected shall name a third arbitrator (who shall be an impartial person) within 30 days, or in lieu of such agreement on a third arbitrator by the two arbitrators so appointed, the third arbitrator shall be appointed by the AAA. If any arbitrator appointed 4 hereunder shall die, resign, refuse or become unable to act before an arbitration decision is rendered, then the vacancy shall be filled by the method set forth in this Section for the original appointment of such arbitrator. (3) Each party shall bear its own arbitration costs and expenses. The arbitration hearing shall be held in Houston, Texas at a location designated by a majority of the arbitrators. The Commercial Arbitration Rules of the American Arbitration Association shall be incorporated by reference at such hearing and the substantive laws of the State of Texas (excluding conflict of laws provisions) shall apply. (4) The arbitration hearing shall be concluded within ten (10) days unless otherwise ordered by the arbitrators and the written award thereon shall be made within fifteen (15) days after the close of submission of evidence. An award rendered by a majority of the arbitrators appointed pursuant to this Agreement shall be final and binding on all parties to the proceeding, shall resolve the question of costs of the arbitrators and all related matters, and judgment on such award may be entered and enforced by either party in any court of competent jurisdiction. (5) Except as set forth in Section 7(d)(ii), the parties stipulate that the provisions of this Section shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court or before any administrative tribunal with respect to any controversy or dispute arising out of this Agreement or the transactions described herein. The arbitration provisions hereof shall, with respect to such controversy or dispute, survive the termination or expiration of this Agreement. No party to an arbitration may disclose the existence or results of any arbitration hereunder without the prior written consent of the other parties; nor will any party to an arbitration disclose to any third party any confidential information disclosed by any other party to an arbitration in the course of an arbitration hereunder without the prior written consent of such other party. (ii) Emergency Relief. Notwithstanding anything in this Section 7(d) to the contrary, any party may seek from a court any provisional remedy that may be necessary to protect any rights or property of such party pending the establishment of the arbitral tribunal or its determination of the merits of the controversy or to enforce a party's rights under Section 7(d). (e) Notices. Any notice, instruction, authorization, request or demand required hereunder shall be in writing, and shall be delivered either by personal in-hand delivery, by telecopy or similar facsimile means, by certified or registered mail, return receipt requested, or by courier or delivery service, addressed to the Company at the address indicated beneath its signature on the execution page of this Agreement, and to Grantee at his address indicated on the Company's stock records, or at such other address and number as a party shall have previously designated by written notice given to the other party in the manner herein set forth. Notices shall be deemed given when received, if sent by facsimile means (confirmation of such receipt by confirmed facsimile transmission being deemed receipt of communications sent by facsimile means), and when delivered and receipted for (or upon the date of attempted delivery where 5 delivery is refused), if hand-delivered, sent by express courier or delivery service, or sent by certified or registered mail, return receipt requested. (f) Amendment and Waiver. This Agreement may be amended, modified or superseded only by written instrument executed by the Company and Grantee. Any waiver of the terms or conditions hereof shall be made only by a written instrument executed and delivered by the party waiving compliance. Any amendment or waiver agreed to by the Company shall be effective only if executed and delivered by a duly authorized executive officer of the Company other than Grantee. The failure of any party at any time or times to require performance of any provisions hereof shall in no manner effect the right to enforce the same. No waiver by any party of any term or condition in this Agreement, or breach thereof, in one or more instances shall be deemed a continuing waiver of any such condition or breach, a waiver of any other condition, or the breach of any other term or condition. (g) Independent Legal and Tax Advice. The Grantee has been advised and Grantee hereby acknowledges that he or she has been advised to obtain independent legal and tax advice regarding this grant of Restricted Shares and the disposition of such shares, including, without limitation, the election available under Section 83(b) of the Internal Revenue Code. (h) Governing Law and Severability. This Agreement shall be governed by the internal laws, and not the laws of conflict, of the State of Texas. The invalidity of any provision of this Agreement shall not affect any other provision of this Agreement which shall remain in full force and effect. (i) Successors and Assigns. Subject to the limitations which this Agreement imposes upon transferability of Restricted Shares, this Agreement shall bind, be enforceable by and inure to the benefit of the Company and its successors and assigns, and Grantee, and, upon his death, on his estate and beneficiaries thereof (whether by will or the laws of descent and distribution). (j) Community Property. Each spouse individually is bound by, and such spouse's interest, if any, in any shares is subject to, the terms of this Agreement. Nothing in this Agreement shall create a community property interest where none otherwise exists. (k) Entire Agreement. This Agreement supersedes any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to the said subject matter. All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement and that any agreement, statement or promise that is not contained in this Agreement shall not be valid or binding or of any force or effect. [SIGNATURE PAGE FOLLOWS] 6 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date first above written. COMPANY: CONTINENTAL SOUTHERN RESOURCES, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Address: Continental Southern Resources, Inc. 1001 Fannin, Suite 1700 Houston, Texas 77002 Telecopy No.: (713) 307-8793 Attention: Secretary GRANTEE: ------------------------------------------------ 7 APPENDIX A TO RESTRICTED STOCK AGREEMENT GRANTEE'S NAME: NUMBER OF GRANT DATE: RESTRICTED SHARES GRANTED - ----------- ------------------------- February 26, 2004 VESTING SCHEDULE: DATE NUMBER OF SHARES VESTED ---- ----------------------- Note: All vesting is subject to the terms and conditions of the Agreement. 8 EX-14.1 31 h13916exv14w1.txt CODE OF ETHICS EXHIBIT 14.1 ENDEAVOUR INTERNATIONAL CORPORATION CODE OF ETHICS FOR THE CHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS Endeavour International Corporation (the "Company") requires its senior officers, including its Chief Executive Officer(s), Chief Financial Officer, Chief Accounting Officer or Controller of the Company, or person(s) performing similar functions as the foregoing (the "Senior Officers"), to maintain the highest ethical and legal standards while performing their duties and responsibilities to the Company, with particular emphasis on those duties that relate to the preparation and reporting of the financial information of the Company. The following principles and responsibilities shall govern the professional conduct of these officers. I. Honest and ethical conduct. The Senior Officers shall act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional relationships, and shall report any material transaction or relationship that reasonably could be expected to give rise to such a conflict between their interests and those of the Company to the Audit Committee of the Board of Directors. The Senior Officers shall act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing their independent judgment to be subordinated. II. Financial Records and Reporting. The Senior Officers shall provide full, fair, accurate, timely and understandable disclosure in the reports and other documents to be filed by the Company with the Securities and Exchange Commission or otherwise publicly disclosed and shall comply with applicable rules and regulations of federal, state and local governments, and other appropriate private and public regulatory agencies. The Senior Officers shall respect the confidentiality of information acquired in the course of their work and shall not disclose such information except when authorized or legally obligated to disclose. The Senior Officers will not use confidential information acquired in the course of employment at the Company for personal advantage. The Senior Officers shall share knowledge and maintain skills important and relevant to the Company's needs; shall proactively promote ethical behavior of the Company's employees and as a partner with industry peers and associates; and shall maintain control over and responsibly manage assets and resources employed or entrusted to them by the Company. III. Compliance with Laws, Rules and Regulations Senior Officers shall establish and maintain mechanisms to oversee the compliance of the Company with applicable federal, state or local law, statute, regulation or administrative rule and to identify, report and correct in a swift and certain manner, any detected deviations from applicable federal, state or local law, statute, regulation or administrative rule. IV. Compliance with this Code Senior Officers shall promptly report any violations of this Code of Ethics to the Audit Committee of the Board of Directors of the Company; and shall be held accountable for adherence to this Code of Ethics. A proven failure to uphold the standards stated herein shall be grounds for such employment sanctions as shall be imposed by the Board of Directors, up to and including termination of employment. 2 EX-21.1 32 h13916exv21w1.txt LIST OF SUBSIDIARIES . . . EXHIBIT 21.1 SUBSIDIARIES
Name: Jurisdiction of Organization 1. Knox Miss., L.P Delaware 2. Endeavour Operating Corporation, Delaware formerly NSNV, Inc. 3. PHT Partners, L.P. Delaware 4. PHT Holding GP, LLC Texas 5. Louisiana Shelf Partners, L.P. Delaware
EX-31.1 33 h13916exv31w1.txt CERT. OF WILLIAM L. TRANSIER PURS. TO RULE 13A-14A EXHIBIT 31.1 CERTIFICATIONS I, William L. Transier, certify that: 1. I have reviewed this annual report on Form 10-KSB of Endeavour International Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: March 30, 2004 /s/ William L. Transier --------------------------- William L. Transier Co-Chief Executive Officer EX-31.2 34 h13916exv31w2.txt CERT. OF JOHN N. SEITZ PURSUANT TO RULE 13A-14A EXHIBIT 31.2 CERTIFICATIONS I, John N. Seitz, certify that: 1. I have reviewed this annual report on Form 10-KSB of Endeavour International Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: March 30, 2004 /s/ John N. Seitz --------------------------- John N. Seitz Co-Chief Executive Officer EX-31.3 35 h13916exv31w3.txt CERT. OF ROBERT L. THOMPSON PURS. TO RULE 13A-14A EXHIBIT 31.3 CERTIFICATIONS I, Robert L. Thompson, certify that: 1. I have reviewed this annual report on Form 10-KSB of Endeavour International Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: March 30, 2004 /s/ Robert L. Thompson --------------------------- Robert L. Thompson Chief Accounting Officer EX-32.1 36 h13916exv32w1.txt CERTIFICATION OF CO-CEO PURSUANT TO 18 USC SEC1350 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Endeavour International Corporation (the "Company") on Form 10-KSB for the period ending December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William L. Transier, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ William L. Transier ---------------------------- William L. Transier Co-Chief Executive Officer Date: March 30, 2004 A signed original of this written statement required by Section 906 has been provided to Endeavour International Corporation and will be retained by Endeavour International Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 37 h13916exv32w2.txt CERTIFICATE OF CO-CEO PURSU. TO 18 USC SEC. 1350 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Endeavour International Corporation (the "Company") on Form 10-KSB for the period ending December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John N. Seitz, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ John N. Seitz ---------------------------- John N. Seitz Co-Chief Executive Officer Date: March 30, 2004 A signed original of this written statement required by Section 906 has been provided to Endeavour International Corporation and will be retained by Endeavour International Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.3 38 h13916exv32w3.txt CERTIFICATION OF CAO PURSUANT TO 18 USC SEC. 1350 EXHIBIT 32.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Endeavour International Corporation (the "Company") on Form 10-KSB for the period ending December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert L. Thompson, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Robert L. Thompson ---------------------------- Robert L. Thompson Chief Accounting Officer Date: March 30, 2004 A signed original of this written statement required by Section 906 has been provided to Endeavour International Corporation and will be retained by Endeavour International Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.1 39 h13916exv99w1.txt AUDITED FINANCIAL STATEMENTS OF NSNV FOR 12/16/03 EXHIBIT 99.1 AUDITED FINANCIAL STATEMENTS OF NSNV, INC. (A DEVELOPMENT STAGE ENTITY) FOR THE PERIOD OCTOBER 16, 2003 (INCEPTION) TO DECEMBER 31, 2003 INDEPENDENT AUDITOR'S REPORT Board of Directors and Shareholders NSNV, Inc. Houston, Texas We have audited the accompanying balance sheet of NSNV, Inc. (a development stage entity), and the related statements of operations, shareholders' equity, and cash flows for the period October 16, 2003 (date of inception) through December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NSNV, Inc. as of December 31, 2003, and the results of operations, changes in shareholders' equity and its cash flows for the period October 16, 2003 (date of inception) through December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. L J SOLDINGER ASSOCIATES LLC Deer Park, Illinois March 26, 2004 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) STATEMENT OF OPERATIONS
October 16, 2003 (Inception) to December 31, 2003 ----------------------- Revenues $ - Costs of Operations: Amortization of Intangible Assets 5,181 General and Administrative Expenses 130,450 --------- Total Expenses 135,631 --------- Net Loss to Common Shareholders (135,631) ========= Loss per Share - Basic and Diluted $ (1.36) ========= Weighted Average Shares Outstanding - Basic and Diluted 100,000 =========
The accompanying notes are an integral part of these financial statements. 2 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) BALANCE SHEET
December 31, 2003 ----------------- ASSETS Current Assets: Cash and Cash Equivalents $ 1,000 Deferred Current Assets 1,000,000 ----------- Total Current Assets 1,001,000 Intangible Assets, Net of Amortization 1,238,335 Other Assets 3,500,000 ----------- Total Assets $ 5,739,335 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 146,745 Accounts Payable - Related Parties 2,000,000 ----------- Total Current Liabilities 2,146,745 Long-term Liabilities - Related Party 3,500,000 ----------- Total Liabilities 5,646,745 Shareholders' Equity: Common Stock, $0.01 par value; 100,000 shares authorized and outstanding 1,000 Paid In Capital 1,227,221 Less: Subscription Receivable (1,000,000) Deficit Accumulated During the Development Stage (135,631) ----------- Total Shareholders' Equity 92,590 ----------- Total Liabilities and Shareholders' Equity $ 5,739,335 ===========
The accompanying notes are an integral part of these financial statements. 3 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) STATEMENT OF CASH FLOWS
October 16, 2003 (Inception) to December 31, 2003 ----------------------- OPERATING ACTIVITIES: Net loss $ (135,631) Amortization of Intangible Assets 5,181 Adjustments to reconcile net loss to net cash used in operating activities: Change in Deferred Current Assets (1,000,000) Change in Accounts Payable 130,450 Change in Accounts Payable - Related Party 1,000,000 --------------- Net Cash Provided By Operating Activities - FINANCING ACTIVITIES: Contributions by Shareholders' 1,000 --------------- Net Cash Provided By Financing Activities 1,000 --------------- Net Increase in Cash and Cash Equivalents 1,000 Cash and Cash Equivalents at the Beginning of the Period - --------------- Cash and Cash Equivalents at the End of the Period $ 1,000 ===============
The accompanying notes are an integral part of these financial statements. 4 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) STATEMENT OF SHAREHOLDERS' EQUITY
Deficit Accumulated Common Stock During the Total ----------------- Paid In Subscription Development Shareholders' Shares Amount Capital Receivable Stage Equity ------- ---------------------------------------------------- ------------- Initial Contribution by Shareholders 81,500 $ 815 $ 1,000,185 $ (1,000,000) $ - $ 1,000 Purchase of Intangible Asset 18,500 185 227,036 $ - - 227,221 Net Loss - - - - (135,631) (135,631) ------- -------- ------------ ------------ ------------ ------------ Balance, December 31, 2003 100,000 $ 1,000 $ 1,227,221 $ (1,000,000) $ (135,631) $ 92,590 ======= ======== ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 5 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO FINANCIAL STATEMENTS NOTE 1 - DESCRIPTION OF BUSINESS NSNV, Inc., a Texas corporation (the "Company" or "NSNV") was formed on October 16, 2003 as a wholly owned subsidiary of North Sea New Ventures, L.L.C. We are presently engaged in the business of acquiring, exploring, and developing natural gas and oil properties with a initial focus on the North Sea. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP"). DEVELOPMENT STAGE ENTERPRISE The Company is a Development Stage Enterprise, as defined in Statement of Financial Accounting Standards ("SFAS") No. 7, Accounting and Reporting for Development Stage Enterprises. Under SFAS No. 7, certain additional financial information is required to be included in the financial statements for the period from inception of the Company to the current balance sheet date. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 6 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO FINANCIAL STATEMENTS CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions or unsecured loans. At various times during the year, the Company may exceed the federally insured limits. To mitigate this risk, the Company places its cash deposits only with high credit quality institutions. Management believes the risk of loss is minimal. INTANGIBLES ASSETS The Company accounts for intangible assets in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." Intangible assets with a finite useful life are amortized over the useful life. Additionally, intangible assets that are being amortized are reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, whenever the events or circumstances (as specified in SFAS No. 144) indicate that the carrying amount may not be recoverable. INCOME TAXES The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as part of the provision for income taxes in the period that includes the enactment date. 7 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO FINANCIAL STATEMENTS LOSS PER SHARE Loss per common share is calculated in accordance with SFAS No. 128, Earnings Per Share. Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted loss per share is computed similarly to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued and if the additional common shares were dilutive. The Company currently has no potentially dilutive common shares outstanding. SEGMENT INFORMATION The Company has determined it has one reportable operating segment as defined by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. NOTE 3 - LIQUIDITY AND CAPITAL RESOURCES The Company is in the development stage and has significant obligations to pay in future years and its liabilities exceed its assets. The Company will be required to raise funds through additional offerings of its securities or issuance of debt in order to have the funds necessary to complete these acquisitions and continue its operations. See Note 9 - Subsequent Events for discussion of the merger and acquisitions that occurred in 2004. NOTE 4 - INTANGIBLE ASSETS On December 16, 2003, NSNV and PGS Exploration (UK) Limited ("PGS"), a United Kingdom corporation that is a provider of geophysical services, entered into an agreement where, in exchange for certain consideration including, among other things, a cash payment of $ 1,000,000 paid in January 2004 and 18.5% of the outstanding stock of NSNV, PGS granted NSNV the right to use 79,200 square kilometers of 3-D seismic and related data in the North Sea region. Under the agreement, PGS may not license all or part of the data on a non-cash basis for a period of two to three years, depending on the area the data covers. In connection with 8 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO FINANCIAL STATEMENTS this, the Company recorded an intangible asset of approximately $1.2 million. The intangible asset is being amortized over its estimated useful life of 10 years on a straight-line basis, with no residual value. While we have a license to the seismic data in perpetuity, the seismic data will become part of the public domain in the United Kingdom in 10 years. The unamortized balance of the intangible asset as of December 31, 2003 is as follows: License fee $ 1,243,516 Less accumulated amortization (5,181) ----------- $ 1,238,335 ===========
The Company recorded amortization expense of $5,181 for 2003. Estimated amortization expense for each of the five years through December 31, 2008 is $124,352. See Note 8 related to NSNV's purchase commitment of services from PGS. NOTE 5 - INCOME TAXES Deferred income taxes result from the net tax effects of temporary timing differences between the carrying amounts of assets and liabilities reflected on the financial statements and the amounts recognized for income tax purposes. The tax effects of temporary differences and net operating loss carryforwards that give rise to significant portions of deferred tax assets and liabilities are as follows at December 31:
2003 --------- Deferred tax asset: Tax benefit arising from net operating loss carryforward $ 46,000 Less valuation allowance (46,000) --------- Net deferred tax asset $ - =========
9 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO FINANCIAL STATEMENTS Income tax benefit consists of the following:
December 31, 2003 ----------------- Deferred: Federal $ 46,000 State - ----------- Federal and state benefit of net operating loss carryforward 46,000 Less valuation allowance (46,000) ----------- Net deferred tax asset $ - ===========
As of December 31, 2003, the Company had losses which resulted in net operating loss carryforwards for tax purposes amounting to approximately $46,000 that may be offset against future taxable income. These NOL carryforwards expire in 2024. However, these carryforwards may be significantly limited due to changes in the ownership of the Company as a result of future equity offerings. Recognition of the benefits of the deferred tax assets and liabilities will require that the Company generate future taxable income. There can be no assurance that the Company will generate any earnings or any specific level of earning in future years. Therefore, the Company has established a valuation allowance for deferred tax assets (net of liabilities) of approximately $46,000 as of December 31, 2003. The following table presents the principal reasons for the difference between the Company's effective tax rates and of United States federal statutory income tax rate of 34%. 10 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO FINANCIAL STATEMENTS
Period From Inception December 31, 2003 --------------------- Federal income tax benefit at statutory rate $ 46,000 State income tax benefit (net of effect of federal benefit) - Less valuation allowance (46,000) ---------- Income Tax Benefit $ - ========== Effective Income Tax Rate 0% ==========
NOTE 6 - SHAREHOLDERS' EQUITY The Company has 100,000 shares of its common stock outstanding with a par value of $0.01 per share. The common stockholders are entitled to one vote per share and have the right to elect all directors. On December 16, 2003, the Company issued 81,500 shares of its common stock to North Sea New Ventures, L.L.C., a Texas Limited Partnership owned by William L. Transier and John N. Seitz. The Company received $1,000 cash and promissory notes aggregating $1,000,000. The promissory notes were paid in full, with accrued interest, in January 2004. As discussed previously, in December 2003, the Company also issued 18,500 shares of its common stock to PGS in connection with the acquisition of the certain seismic data. NOTE 7 - SUPPLEMENTARY CASH FLOW DISCLOSURES During 2003, the Company had no cash payments for interest or income taxes. The Company acquired an intangible asset through issuing 18,500 shares of common stock valued at $227,221 and recording a payable due to PGS of $1,000,000 plus a payable for legal fees of $16,295. 11 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO FINANCIAL STATEMENTS NOTE 8 - COMMITMENTS AND CONTINGENCIES GENERAL The oil and gas industry is subject to regulation by federal, state and local authorities. In particular, gas and oil production operations and economics are affected by environmental protection statutes, tax statutes and other laws and regulations relating to the petroleum industry. The Company believes it is in compliance with all federal, state and local laws, regulations applicable to the Company and its properties and operations, the violation of which would have a material adverse effect on the Company or its financial condition. COMMITMENTS Related Party As a part of the Agreement entered into with PGS on December 16, 2003, the Company has an obligation to purchase products and services from PGS or its affiliates for a period of three years commencing on December 16, 2003 as follows: Year 1 $ 1,000,000 Year 2 1,500,000 Year 3 2,000,000 ------------ $ 4,500,000 ============
PGS has agreed to provide NSNV with product discounts and certain consulting services during the term of the agreement. Unrelated Party The Company has contracted with an unrelated party to provide engineering and other services related to acquisition of oil and gas assets, development and production business in the North Sea for a maximum consideration of $400,000 cash and shares and options, to be valued at $400,000 per year, to purchase shares in NSNV's successor company. The contract may be terminated with six months notice by the Company or three months notice by the other party. In addition, both parties may elect to participate in the 12 NSNV, INC. (A DEVELOPMENT STAGE ENTITY) NOTES TO FINANCIAL STATEMENTS acquisition of any exploration or development projects initiated by the other party, up to 15% of the asset to be acquired. NOTE 9 - SUBSEQUENT EVENTS On January 5, 2004, the Company issued two 4.0% promissory notes for $50,000 each to two members of North Sea New Ventures, L.L.C. The notes were repaid on February 26, 2004 with the accrued interest. On January 27, 2004, the Company issued two 4.0% promissory notes for $75,000 each to two members of North Sea New Ventures, L.L.C. The notes were repaid on February 26, 2004 with the accrued interest. On February 24, 2044, the Company (the "Surviving Company") merged with North Sea New Ventures, L.L.C. (the "Merged Company"). The 81,500 shares of the Company's common stock owned by North Sea New Ventures, L.L.C. were equally distributed to two members, each member had a 50% interest in North Sea New Ventures, L.L.C. On February 27, 2004, the Company was acquired (the "Merger") by Continental Southern Resources, Inc., a Nevada corporation, ("CSOR") through a merger with newly created subsidiary of CSOR resulting in NSNV becoming a wholly-owned subsidiary of the Company. The former shareholders of NSNV received an aggregate of 12.5 million common shares of CSOR in the merger, representing 18.9% of CSOR's outstanding common stock immediately after the closing of the merger. The Merger is intended to provide the expanded company with the following competitive advantages: (i) a pre-eminent seismic and geological database of the North Sea region and (ii) a proven and experienced management team comprised of Messrs. Transier and Seitz, each pursuant to three-year employment agreements, and certain other former executives of Ocean Energy, Inc. and Anadarko Petroleum Corporation. 13 EX-99.2 40 h13916exv99w2.txt UNAUDITED PRO FORMA CONDENSED COMB. FIN. STMTS. EXHIBIT 99.2 UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS OF ENDEAVOUR INTERNATIONAL CORPORATION (FORMERLY CONTINENTAL SOUTHERN RESOURCES, INC.) TO REFLECT THE OFFERING, MERGER AND RESTRUCTURING UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS OF ENDEAVOUR INTERNATIONAL CORPORATION (FORMERLY CONTINENTAL SOUTHERN RESOURCES, INC.) The accompanying pro forma financial statements are presented in accordance with Article 11 of Regulation S-X. The following unaudited pro forma condensed combined financial information reflects adjustments to give affect to the following: - The issuance by Continental Southern Resources, Inc. (the "Company" or "CSOR") of 25 million shares of common stock at $2.00 per share in a private placement (the "Offering"). - The Company's restructuring of various financial and shareholder related items (the "Restructuring") as follows: - Repayment of $1,500,000 principal amount of our outstanding convertible notes; - Issuance of 1,026,624 shares of our common stock in exchange for the $1,550,000 principal balance and accrued interest due under the Michael P. Marcus convertible debenture at a conversion price of $1.75; - Issuance of 375,000 shares of our common stock in exchange for the $600,000 principal balance and accrued interest due under the Trident convertible debenture at a conversion price of $1.60; - Issuance of 2,808,824 shares of our common stock upon conversion of all of the outstanding Series C Preferred Stock, and accrued dividends, at a conversion price of $1.70 per share; - Purchase of all outstanding shares of Series A Preferred Stock and 20,212.86 shares of Series B Preferred Stock in exchange for certain of our non-core assets ; - Purchase of 14.1 million shares of common stock and 103,500.07 shares of Series B Preferred Stock from RAM Trading, Ltd. for $5,330,948 in cash; and - Sale of the Company's entire limited partnership interest in Knox Miss. Partners, L.P. for $500,000 in cash and a $4.5 million short-term note. - The acquisition (the "Merger") of NSNV, Inc. ("NSNV"), whereby the former shareholders of NSNV received an aggregate of 12.5 million common shares of the Company. Subsequent to the Merger, the Company was renamed Endeavour International Corporation ("Endeavour"). - The income statement data assume that the Offering and Restructuring transactions were consummated on January 1, 2003. The income statement data assume that the Merger transactions were consummated on October 16, 2003, the inception of NSNV. The balance sheet data assume that all transactions were consummated on December 31, 2003. The unaudited pro forma condensed combining financial data are not necessarily indicative of the results of operations or the financial position which would have occurred had the transactions been consummated at January 1, 2003, nor are they necessarily indicative of future results of operations or financial position. The unaudited pro forma combined financial data should be read in conjunction with the historical consolidated financial statements and related notes thereto of CSOR and NSNV. 2 ENDEAVOUR INTERNATIONAL CORPORATION (FORMERLY CONTINENTAL SOUTHERN RESOURCES, INC.) UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET AS OF DECEMBER 31, 2003
Historical Continental Pro Forma Southern Pro Forma The for the Resources, The Offering for the Restructuring Restructuring Inc. Adjustments Offering Adjustments and Offering ----------- ------------ ----------- ------------- ------------- ASSETS CURRENT ASSETS: Cash $ 56,680 $ 46,250,000 (A) $46,306,680 $ (5,943,007)(B), (D), (E) $40,363,673 Notes Receivable 847,928 847,928 3,652,072 (C), (D) 4,500,000 Marketable Securities 719,480 719,480 (719,480)(C) - Interest Receivables 225,186 225,186 (225,186)(C), (D) - Other Current Assets 1,471,470 1,471,470 (1,338,401)(B), (E) 133,069 ----------- ------------ ----------- ------------- ----------- Total Current Assets 3,320,744 46,250,000 49,570,744 (4,574,002) 44,996,742 Oil and Gas Properties, Costs Not Being Amortized 6,428,227 6,428,227 (6,428,227)(C), (D) - Equity Interests in Entities with Oil and Gas Properties 2,838,536 2,838,536 2,838,536 Intangible Assets - - - Goodwill - - - Other Assets 80,407 80,407 (71,037)(E) 9,370 ----------- ------------ ----------- ------------- ----------- Total Assets $12,667,914 $ 46,250,000 $58,917,914 $ (11,073,266) $47,844,648 =========== ============ =========== ============= =========== Endeavour - Pro Forma for the Offering, Historical The Merger Restructuring, NSNV Adjustments and Merger ---------- ----------- -------------- ASSETS CURRENT ASSETS: Cash $ 1,000 $ $ 40,364,673 Notes Receivable - 4,500,000 Marketable Securities - - Interest Receivables - - Other Current Assets 1,000,000 (87,640) (M) 1,045,429 ----------- ----------- ------------ Total Current Assets 1,001,000 (87,640) 45,910,102 Oil and Gas Properties, Costs Not Being Amortized - - Equity Interests in Entities with Oil and Gas Properties - 2,838,536 Intangible Assets 1,238,335 7,686,665 (H) 8,925,000 Goodwill - 16,745,745 (H) 16,745,745 Other Assets 3,500,000 3,509,370 ----------- ----------- ------------ Total Assets $5,739,335 $24,344,770 $ 77,928,753 =========== =========== ============
3 ENDEAVOUR INTERNATIONAL CORPORATION (FORMERLY CONTINENTAL SOUTHERN RESOURCES, INC.) UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET AS OF DECEMBER 31, 2003
Historical Continental Pro Forma Southern Pro Forma The for the Resources, The Offering for the Restructuring Restructuring Inc. Adjustments Offering Adjustments and Offering ----------- ------------ ----------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable and Accrued Expenses $ 5,235,725 $ 250,000 (A) $ 5,485,725 $ (4,168,329)(B), (C), (E), (F) $ 1,317,396 Convertible Debentures 3,242,654 3,242,654 (3,242,654)(B) - Deferred Equity Option 870,000 870,000 (870,000)(G) - Other Current Liabilities 23,643 23,643 (23,643)(C), (D) - ------------ ------------ ----------- ------------- ----------- Total Current Liabilities 9,372,022 250,000 9,622,022 (8,304,626) 1, 317,396 Other Liabilities - - - ------------ ------------ ----------- ------------- ----------- Total Liabilities 9,372,022 250,000 9,622,022 (8,304,626) 1,317,396 Minority Interest 29,505 29,505 29,505 STOCKHOLDERS' EQUITY: Preferred Stock, Series A, B and C 4,713 4,713 (4,693)(C), (E), (F) 20 Common Stock 37,145 25,000 (A) 62,145 (8,752)(B), (E), (F), (G) 53,393 Additional Paid In Capital 50,175,898 45,975,000 (A) 96,150,898 (4,430,960)(B), (E), (F), (G) 91,719,938 Less: Stock Subscription Receivables (425,000) (425,000) 425,000 (C) - Other Equity (490,036) (490,036) 489,036 (C) (1,000) Deficit Accumulated During the Development Stage (46,036,333) (46,036,333) 761,729 (B), (C), (D) (45,274,604) ------------ ------------ ----------- ------------- ----------- Total Stockholders' Equity 3,266,387 46,000,000 49,266,387 (2,768,640) 46,497,747 ------------ ------------ ----------- ------------- ----------- Total Liabilities and Stockholders' Equity $ 12,667,914 $ 46,250,000 $58,917,914 $ (11,073,266) $47,844,648 ============ ============ =========== ============= =========== Endeavour - Pro Forma for the Offering, Historical The Merger Restructuring, NSNV Adjustments and Merger ---------- ----------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable and Accrued Expenses $2,146,745 $ 337,360 (H) $ 3,801,501 Convertible Debentures - - Deferred Equity Option - - Other Current Liabilities - - ---------- ----------- ------------ Total Current Liabilities 2,146,745 337,360 3,801,501 Other Liabilities 3,500,000 3,500,000 ---------- ----------- ------------ Total Liabilities 5,646,745 337,360 7,301,501 Minority Interest - 29,505 STOCKHOLDERS' EQUITY: Preferred Stock, Series A, B and C - 20 Common Stock 1,000 11,675 (H) 66,068 Additional Paid In Capital 1,227,221 23,860,104 (H) 116,807,263 Less: Stock Subscription Receivables (1,000,000) (1,000,000) Other Equity - (1,000) Deficit Accumulated During the Development Stage (135,631) 135,631 (H) (45,274,604) ---------- ----------- ------------ Total Stockholders' Equity 92,590 24,007,410 70,597,747 ---------- ----------- ------------ Total Liabilities and Stockholders' Equity $5,739,335 $24,344,770 $ 77,928,753 ========== =========== ============
4 ENDEAVOUR INTERNATIONAL CORPORATION (FORMERLY CONTINENTAL SOUTHERN RESOURCES, INC.) UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
Historical Continental Pro Forma for Southern The the Resources, The Offering Pro Forma for Restructuring Restructuring Inc. Adjustments the Offering Adjustments and Offering ------------ ------------ ------------- ------------- ------------- Revenues $ 27,305 $ $ 27,305 $ (27,305)(I) $ - Expenses: Operating Expenses 920,494 920,494 (920,494)(I), (N) - Depletion and Amortization 1,496,725 1,496,725 (1,496,725)(I) - Impairment of oil and gas properties 21,502,321 21,502,321 (10,117,867)(I) 11,384,454 Bad Debt Expense - Related Party 1,800,000 1,800,000 1,800,000 General and Administrative 2,261,451 2,261,451 (297,249)(I), (N) 1,964,202 ------------ ------------ ------------ ------------- ------------ Total Expenses 27,980,991 27,980,991 (12,832,335) 15,148,656 ------------ ------------ ------------ ------------- ------------ Loss from Operations (27,953,686) (27,953,686) 12,805,030 (15,148,656) Other (Income) Expense: Equity interest in oil and gas partnerships 1,217,317 1,217,317 1,217,317 Interest Income (239,950) (239,950) 1,408 (I), (N) (238,542) Interest Expense 3,569,992 3,569,992 (3,554,547)(E), (I) 15,445 (J), (N) Gain on Sale of Oil and Gas Interest (1,235,248) (1,235,248) (1,235,248) Loss on Sale of Marketable Securities 1,659,220 1,659,220 1,659,220 ------------ ------------ ------------ ------------- ------------ Total Other (Income) Expense 4,971,331 4,971,331 (3,553,139) 1,418,192 ------------ ------------ ------------ ------------- ------------ Loss Before Minority Interest (32,925,017) (32,925,017) 16,358,169 (16,566,848) Minority Interest 82,260 82,260 (77,459)(I), (N) 4,801 ------------ ------------ ------------ ------------- ------------ Net Loss (32,842,757) (32,842,757) 16,280,710 (16,562,047) Preferred Stock Dividends (4,405,708) (4,405,708) 4,245,836 (I), (K) (159,872) ------------ ------------ ------------ ------------- ------------ Net Loss to Common Stockholders $(37,248,465) $(37,248,465) $ 20,526,546 $(16,721,919) ============ ============ ============ ============= ============ Net Loss Per Share - Basic and Diluted $ (1.06) $ (0.62) $ (0.33) ============ ============ ============ ============ Weighted Average Number of Common Share Outstanding - Basic and Diluted 35,076,435 25,000,000 (A) 60,076,435 (8,752,224)(I), (J), (K) 51,324,211 ============ ============ ============ ============= ============ Endeavour - Pro Forma for the Offering, Historical The Merger Restructuring, NSNV Adjustments and Merger ---------- ----------- -------------- Revenues $ - $ $ - Expenses: Operating Expenses - - Depletion and Amortization 5,181 32,007 (L) 37,188 Impairment of oil and gas properties - 11,384,454 Bad Debt Expense - Related Party - 1,800,000 General and Administrative 130,510 2,094,712 ------------ ----------- ------------- Total Expenses 135,691 32,007 15,316,354 ------------ ----------- ------------- Loss from Operations (135,691) (32,007) (15,316,354) Other (Income) Expense: Equity interest in oil and gas partnerships - 1,217,317 Interest Income - (238,542) Interest Expense - 15,445 Gain on Sale of Oil and Gas Interest - (1,235,248) Loss on Sale of Marketable Securities - 1,659,220 ------------ ----------- ------------- Total Other (Income) Expense - - 1,418,192 ------------ ----------- ------------- Loss Before Minority Interest (135,691) (32,007) (16,734,546) Minority Interest - 4,801 ------------ ----------- ------------- Net Loss (135,691) (32,007) (16,729,745) Preferred Stock Dividends - (159,872) ------------ ----------- ------------- Net Loss to Common Stockholders $ (135,691) $ (32,007) (16,889,617) ============ =========== ============= Net Loss Per Share - Basic and Diluted $ (1.36) $ (0.31) ============ ============= Weighted Average Number of Common Share Outstanding - Basic and Diluted 100,000 2,539,178 (L) 53,963,389 ============ =========== =============
5 ENDEAVOUR INTERNATIONAL CORPORATION (FORMERLY CONTINENTAL SOUTHERN RESOURCES, INC.) NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS (A) To record the Offering by the issuance of 25,000,000 shares of common stock for proceeds of $46,000,000, net of placement agent commissions of $2,500,000, financial advisory fees of $1,250,000 and accrued offering expenses of $250,000. (B) To record the repayment of $1,500,000 principal amount of our outstanding convertible notes and the conversion of all remaining convertible notes into common stock. (C) To record the sale of BWP Gas LLC and various other non-core assets to the holders of the Series A Preferred Stock and certain holders of the Series B Preferred Stock as follows: - Cash of $5,589; - Notes receivable of $817,500; - Interest receivables of $223,778; - Accounts receivable of $10,276; - Marketable securities of $719,480; - Oil and gas properties not being amortized of $679,649; - Developed oil and gas interests of $71,037; - Accounts payable of $844,950; - Deferred revenue of $20,143; and - Subscription receivables of $425,000. (D) To record the sale of all the limited partnership units in Knox Miss. Partners, L.P. for $5.0 million. The $5.0 million was payable $500,000 in cash and by the issuance of a $4.5 million short-term note that is secured by a pledge of the limited partnership interest. The assets and liabilities sold included the following: - Cash of $6,470; - Notes receivable of $30,428; - Interest receivable of $1,408; - Oil and gas properties not being amortized of $5,748,578; - Payables for oil and gas interest of $2,018,913; and - Note payable of $3,500. (E) To record the purchase and retirement of 14.1 million shares of common stock and 103,500.07 shares of Series B Preferred Stock from RAM Trading, Ltd. for $5,330,948 in cash, and issuance of 300,000 shares of our common stock issued as compensation for related legal and consulting services. (F) To record the issuance 2,808,824 shares of our common stock upon conversion of all of the outstanding Series C Preferred Stock, and accrued dividends of $165,625, at a conversion price of $1.70 per share, net of deferred expenses of $712,910. 6 ENDEAVOUR INTERNATIONAL CORPORATION (FORMERLY CONTINENTAL SOUTHERN RESOURCES, INC.) NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS (G) To record the Company's exercise of its call option to buy back the Knox Miss limited partnership interest from RAM Trading Ltd. and issuance of 835,000 shares of common stock in full payment of the option. (H) To record the preliminary allocation of the purchase price of the Merger, including estimated merger costs to property and goodwill. The following is a calculation and allocation of the purchase price to the acquired assets and liabilities based on their relative fair values. Calculation of Purchase Price: Shares of common stock to be issued............. 12,500,000 Common stock price of the Offering.............. $ 2.00 ---------------- Fair value of stock issued...................... 25,000,000 Add: Estimated merger cost...................... 525,000 ---------------- Purchase price $ 25,525,000 ================ Allocation of Purchase Price: Equity.......................................... $ 24,100,000 Working Capital................................. (1,570,745) Intangible assets............................... 8,925,000 Goodwill........................................ 16,745,745
The purchase price allocation is subject to change in the fair value of the acquired's working capital on the effective date and the actual merger costs incurred. These items will not be known until the effective date of the merger. Management does not believe the final purchase price allocation will differ materially from the preliminary purchase price allocation. (I) To reverse the revenues and expenses of BWP Gas LLC and the other non-core assets sold. (J) To reverse the historical interest expense of the convertible notes that were retired or converted. (K) To reverse the historical preferred stock dividends of the Series A, Series B and Series C preferred stock that were converted to common or surrendered as payment for BWP Gas LLC and other non-core assets. (L) To adjust the historical amortization of the intangible asset of NSNV to the amortization of the fair value of the intangible asset recorded in the purchase price allocation over its useful life of 10 years. (M) To reverse the prepaid legal fees related to the Merger incurred in 2003 by CSOR. (N) To reverse the expenses of Knox Miss-Partners, L.P. -----END PRIVACY-ENHANCED MESSAGE-----