ARTICLE I INTERPRETATION	1
ARTICLE II PURCHASE AND SALE OF THE SHARES	13
ARTICLE III WARRANTIES OF THE SELLER	20
ARTICLE IV WARRANTIES OF THE PURCHASER AND THE GUARANTOR	29
ARTICLE V MUTUAL WARRANTIES	29
ARTICLE VI INDEMNITIES; CLAIMS; INSURANCE	30
ARTICLE VII CONFIDENTIALITY AND PRESS RELEASES	38
ARTICLE VIII MISCELLANEOUS	39

 

 

SHARE PURCHASE AGREEMENT

 

THIS SHARE PURCHASE AGREEMENT , dated September 30, 2009 (as the same may be amended, supplemented or otherwise modified from time to time in accordance with its terms, this “ Agreement ”), is entered into by and among:

 

·                   TOREADOR RESOURCES CORPORATION , a Delaware corporation (the “ Seller ”);

 

·                   TIWAY OIL BV , a company registered, incorporated and existing under the laws of the Netherlands with an office located at Naritaweg 165 Telestone 8, 1043BW Amsterdam (the “ Purchaser ”).

 

and

 

·                   TIWAY OIL AS , a company registered under the laws of Norway (the “ Guarantor ”)

 

RECITALS :

 

WHEREAS :

 

(A)                               The Seller owns 100,000 ordinary shares of par value $1.00 each (the “ Shares ”) in Toreador Turkey Ltd., a company registered in the Cayman Islands with company registration number 147391 and whose registered office is at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands (the “ Company ”) representing the entire issued share capital of the Company;

 

(B)                                 The Company is engaged in offshore and onshore oil and natural gas exploration development, production and acquisition activities in Turkey (the “ Business ”) and holds interests in exploration and exploitation permits for such purposes; and

 

(C)                                 Upon the terms hereinafter set forth, the Seller desires to sell and the Purchaser desires to purchase, all the Shares.

 

NOW, THEREFORE , the Parties agree as follows:

 

ARTICLE I

INTERPRETATION

 

1.1                   Certain Definitions .  Whenever used in this Agreement, the following terms shall have the meanings assigned to them hereunder unless specifically defined otherwise or unless the context otherwise requires:

 

“ $/boe ” shall be the per barrel of oil equivalent value calculated as set forth on Annex A .

 

“ 1 C Economic Contingent Resources ” shall mean those Contingent Resources that are currently economically recoverable as defined in COGEH 5.3.4.a and which are the low estimate (high certainty) of such economically recoverable Contingent Resources as explained in the abbreviation of 1 C in COGEH 5.3.2.  To clarify, should sufficient wells not have been drilled to prove up the recoverable hydrocarbons by the Date of Reserve Evaluation, modern 2 and 3-D seismic, logs, test data and gas water contacts defined from pressure gradients, shall be used to define the contingent resources (while assuming a continuous reservoir with drainage area down to the gas water contact).

 

 

“ Accrued G&A ” shall mean a portion of the Company’s general and administrative charges from the Closing Date until the receipt by the Company of the first revenue resulting in a Net Profit Interest becoming payable, which shall accrue at the rate of one hundred and fifty-five thousand Dollars ($155,000) per calendar year.

 

“ Affiliate ” when used with reference to a specified Person, shall mean any Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with the specified Person; for such purposes, the term “ control ” (including the terms “ controlling ”, “ controlled by ” and “ under common control with ”) shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

“ Agreed Interest Rate ” shall mean interest compounded on a monthly basis, at the rate per annum equal to the one (1) month-term, London Inter Bank Offered Rate (LIBOR rate) for Dollar deposits, as published by The Wall Street Journal or if not so published, then such rates as published by the Financial Times of London, or if not so published, then by an equivalent source reasonably selected by the Parties, plus two (2) percentage points, applicable on the first Business Day prior to the due date of payment and thereafter on the first Business Day of each succeeding calendar month.  If the aforesaid rate is contrary to any applicable usury law, the rate of interest to be charged shall be the maximum rate permitted by such applicable law.

 

“ Agreement ” shall have the meaning ascribed to it in the Preamble.

 

“ Akcakoca Member ” shall mean the Akcakoca Member of the Lower-Middle Eocene Kusiri Formation.

 

“ Annual Cap ” shall have the meaning ascribed to it in Section 2.6(i).

 

“ Applicable Accounting Principles ” shall mean, as the context requires, the accounting principles and methodologies as consistently applied by the Company Branch in the preparation of its financial statements for fiscal years ended December 31, 2008 and December 31, 2007.

 

“ Bakuk ” shall mean the area described as such in Annex C .

 

“ Balance Sheet ” shall have the meaning ascribed to it in Section 3.6(a).

 

“ Barrel ” shall mean a volume of forty-two (42) standard U.S. gallons, liquid measure, net of basic sediments and water, corrected to a temperature of sixty degrees Fahrenheit (60°F), under one atmosphere of pressure.

 

“ Base Purchase Price ” shall have the meaning ascribed to it in Section 2.2(a).

 

“ boe ” shall mean the total volume where gas volumes, whether in-place or as production, are converted to a liquid volume such that six (6) cubic feet of gas (at one thousand (1000) BTU/cubic foot) is counted as 1 boe and is added to oil where 1 barrel of oil is one 1 boe.

 

“ bopd ” shall mean Barrels of Crude Oil per day.

 

“ BTU ” shall mean the heating quantity required to increase the temperature of one pound of pure water by one degree Fahrenheit at the standard absolute pressure of fourteen point seven three (14.73) pounds per square inch.

 

“ Business ” shall have the meaning ascribed to it in Recital (B).

 

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“ Business Day ” shall mean any day other than a Saturday, Sunday or bank or public holiday in Paris, France, or any other day on which commercial banking institutions in Paris, France are authorized or required to close.

 

“ Calendar Quarter ” shall mean any of the four periods of three (3) calendar months each within a calendar year, commencing on January 1st, April 1st, July 1st, and October 1st.

 

“ Calling Notice ” shall mean the calling notice disseminated to the shareholders of the Guarantor on September 23, 2009 seeking to solicit the vote of the shareholders of the Guarantor necessary to obtain the Required Shareholder Approval, as attached in Annex D .

 

“ Cash Value ” shall mean, in respect of a Divestiture, the market value (expressed in Dollars) of the Participating Interest subject to that Divestiture, based upon the amount in cash a willing buyer would pay a willing seller in an arm’s length transaction.

 

“ Cendere ” shall mean the area described as such in Annex C .

 

“ Claim Notice ” shall have the meaning ascribed to it in Section 6.3(a).

 

“ Closing ” shall have the meaning ascribed to it in Section 2.5(a).

 

“ Closing Date ” shall have the meaning ascribed to it in Section 2.5(a).

 

“ Closing Expenditures ” shall mean the Expenditures minus (x) the Petrol Ofisi Payments, (y) the Stratic Royalty Payments and (z) the Pre-Interim Period Production Payments, as set forth on Annex F .

 

“ Closing Purchase Price ” shall have the meaning ascribed to it in Section 2.2(a).

 

“ Closing Revenues ” shall mean the Revenues minus (x) the Petrol Ofisi Receivables, (y) the Stratic Royalty Receivables and (z) the Pre-Interim Period Production Receivables, as set forth on Annex F .

 

“ COGEH ” shall mean the Society of Petroleum Evaluation Engineers Canadian Oil and Gas Evaluation Handbook.

 

“ Commercial Discovery ” shall have the meaning ascribed to it in Section 2.6(c).

 

“ Company ” shall have the meaning ascribed to it in Recital (A).

 

“ Company Branch ” shall mean Toreador Turkey Limited (Merkezi Cayman Adalari) Ankara Turkiye Subesi, being the wholly-owned branch of the Company operating in Turkey.

 

“ Company’s Share ” shall mean the Company’s Participating Interest in the Licence in which the Commercial Discovery occurs, as determined in accordance with the applicable Licence JOA, which for the purposes of calculating Exploration Success Payments only, shall be capped at a fifty percent (50%) Participating Interest for any given Licence.

 

“ Confidentiality Agreement ” shall mean the Confidentiality Agreement that the Guarantor and the Purchaser entered into on 6 April 2009.

 

“ Contingent Resources ” as defined in COGEH 5.2, shall mean those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include

 

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factors such as economic, legal, environmental, political, and regulatory matters, or a lack of markets.  It is also appropriate to classify as “Contingent Resources” the estimated discovered recoverable quantities associated with a project in the early evaluation stage.  Contingent Resources are further classified in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by their economic status.

 

“ Contract ” shall mean any written contract, agreement, obligation, promise, commitment or other undertaking.

 

“ Crude Oil ” shall mean crude mineral oil, distillates, asphalt, ozocerite, and all kinds of hydrocarbons and bitumen regardless of gravity, either solid or liquid, in their natural condition.

 

“ Cumulative Claim Threshold Amount ” shall have the meaning ascribed to it in Section 6.6(b).

 

“ Damages ” shall mean any damages, liabilities or losses or expenses excluding (i) fees of attorneys and other professionals, (ii) any damages or losses which are contingent such as loss of future revenues, income or profits or loss in opportunity and (iii) any reduction in the Company’s available tax loss carry-forwards other than as a result of a breach of Section 3.6(b).

 

“ Data Room Documentation ” shall mean the documents previously made available to the Purchaser on electronic and optical media and documents for the Purchaser’s review in the electronic data room set out in the hard-drive provided to the Purchaser by Stellar Energy Advisors Limited on behalf of the Seller on 22 June 2009, as updated or supplemented by the Seller or by Stellar Energy Advisors Limited thereafter.

 

“ Date of Reserve Evaluation ” shall mean, in respect of each discovery which is the subject of an evaluation by the Independent Expert of Contingent Resources and Reserves in accordance with Section 2.6(c), the date of completion of that evaluation.

 

“ Deep Water ” shall mean (x) any well located offshore Turkey in water too deep to be drilled by a conventional jack up rig available within the area of the Black Sea at the time of spudding or (y) where a locally available jack up rig is not available within the area of the Black Sea when required, any well located offshore Turkey would be classified as a deep water well as the result of the higher cost of mobilizing a rig from outside the Black Sea.

 

“ Depreciation Charge ” shall mean a depreciation charge calculated in respect of each Net Profit Interest which shall equal:

 

(a)                                  the sum of:

 

(i)                                     any direct capital expenditures incurred in or on the applicable Licence area prior to the beginning of the period in respect of which such Net Profit Interest is being calculated that have not yet been depreciated as at the date of that calculation; and

 

(ii)                                  direct capital expenditures incurred in or on the applicable Licence area during the period in respect of which such Net Profit Interest is being calculated,

 

multiplied by

 

(b)                                 the lesser of 25% or straight-line depreciation of the estimated remaining production life of the applicable field.

 

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“ Direct Claim ” shall have the meaning ascribed to it in Section 6.3(a).

 

“ Direct Claim Review Period ” shall have the meaning ascribed to it in Section 6.3(c).

 

“ Disclosure Letter ” shall mean the disclosure letter delivered separately to the Purchaser by the Seller on the date hereof in relation to and qualifying the Seller Warranties.

 

“ Divestiture ” shall have the meaning ascribed to it in Section 2.9(a).

 

“ $ ” or “ Dollar ” shall mean United States dollars, being the currency of the United States of America.

 

“ Encumbrance ” shall mean any charge, claim, community property interest, lien, deed of trust, attachment, easement, right of way, encumbrance, mortgage, option, pledge, security interest, right of first refusal, any Third Party rights of any nature or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership, and “ Encumbers ” has a corresponding meaning.

 

“ Entity ” shall mean any company, partnership (limited or general), joint venture, trust, association, economic interest group or other organization, enterprise or entity.

 

“ Environmental Claim ” shall mean any claim, proceeding or investigation by any Person in respect of any Environmental Law.

 

“ Environmental Laws ” shall mean any Law which, by its terms, is expressly designed to minimize, prevent, punish or remedy the consequences of actions or omissions that damage or threaten the environment or human, animal or plant health or safety, and notably, all Laws relating to air, water, soil and sub-soil, asbestos, pollution or protection of the environment or human, animal or plant health and/or the disposal, release, use, storage, packaging or transport of any substance which alone or in combination with other substances causes significant harm to environment or human, animal or plant health or safety.

 

“ Existing Directors ” shall have the meaning ascribed to it in Section 2.5(b)(i)(B).

 

“ Expenditures ” shall mean the total expenditures and cash calls made or paid by the Company, or on the Company’s behalf in the Interim Period.

 

“ Exploitation Lease ” shall mean a lease issued under the Petroleum Law and conferring on the holder the rights set out in Article 60 of the Petroleum Law.

 

“ Exploration Licence ” shall mean a licence issued under the Petroleum Law and conferring on the holder the rights set out in Article 50 of the Petroleum Law.

 

“ Exploration Success Payment ” and “ Exploration Success Payments ” shall have the meaning ascribed to those terms in Section 2.6(a).

 

“ Final Expenditures ” shall mean the Expenditures minus (x) the Petrol Ofisi Payments, (y) the Stratic Royalty Payments and (z) the Pre-Interim Period Production Payments, as determined in accordance with Section 2.4.

 

“ Final Figures ” shall have the meaning ascribed to it in Section 2.4(c).

 

“ Final Revenues ” shall mean the Revenues minus each of the following:  (x) the Petrol Ofisi Receivables, (y) the Stratic Royalty Receivables and (z) the Pre-Interim Period Production Receivables, as determined in accordance with Section 2.4.

 

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“ GDPA ” shall mean the General Directorate of Petroleum Affairs of Turkey.

 

“ Governmental Authority ” shall mean any domestic, foreign or supranational court or other judicial authority or governmental, administrative or regulatory body, department, agency, commission, authority or instrumentality.

 

“ Governmental Authorization ” shall mean any approval, consent, permit, ruling, waiver, exemption, licence or other authorization (including the lapse, without objection, of a prescribed time under a statute or regulation that states that a transaction may be implemented if a prescribed time lapses following the giving of notice without an objection being made) issued, granted, given or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Law.

 

“ Guarantor EGM ” shall mean the extraordinary general meeting of the shareholders of Guarantor held on September 30, 2009.

 

“ Guarantor ” shall have the meaning ascribed to it in the Preamble.

 

“ Hydrocarbon ” shall mean any of oil, bitumen and products derived therefrom, synthetic crude oil, petroleum, natural gas, natural gas liquids, and any other substances produced in association with any of the forgoing, whether liquid, solid or gaseous.

 

“ Hydrocarbon Agreement ” shall mean a Hydrocarbon production sharing contract, association agreement, concession agreement, incremental production contract, lease or licence, permit or other similar agreement or right permitting the Company (either alone or with other Persons) to explore for, develop, use, produce, sever, process, operate and occupy Hydrocarbon interests and associated fixtures or structures for a specified period of time, as well as any farm-out or farm-in agreement, association agreement, operating agreement, unit agreement, pooling or communitization agreement, technical evaluation agreement, declaration or order, joint venture, option or acquisition agreement, any oil and gas production, sales, marketing, transportation, exchange and processing contract or agreement, or any other contract affecting the ownership or operation of properties held for exploration or production of Hydrocarbons, or the disposition of Hydrocarbons produced therefrom, in each case to which the Company is a party.  For the avoidance of doubt, Hydrocarbon Agreements shall include (i) the Licences and (ii) the JOAs.

 

“ Indemnified Party ” shall have the meaning ascribed to it in Section 6.3.

 

“ Indemnifying Party ” shall have the meaning ascribed to it in Section 6.3.

 

“ Independent Accountant ” shall have the meaning ascribed to it in Section 2.4(d).

 

“ Independent Expert ” shall mean Gaffney, Cline & Associates, provided that if Gaffney, Cline & Associates are unavailable to carry-out the relevant evaluation for the purposes of Section 2.6, the Parties shall agree upon an alternate independent expert from among (w) Ryder Scott Company, (x) Sproule Associates, (y) Miller & Lents, or (z) TRACS International Ltd.

 

“ Individual Claim Threshold Amount ” shall have the meaning ascribed to it in Section 6.6(a).

 

“ Intellectual Property Right ” shall mean any registered patent, trademark, copyright, design right, service mark, domain name, trade name or other intellectual property right (in each case whether registered or unregistered and including applications taken from any such rights).

 

“ Interim Period ” shall mean the period beginning on July 1, 2009 and ending on the Closing Date.

 

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“ JOA ” shall mean each joint operating agreement, joint venture agreement or other similar document entered into between the Company and other Persons having an interest in a Licence which defines those parties’ respective rights and obligations with respect to their operations in respect of that Licence, and “ JOAs ” shall mean all such agreements collectively.

 

“ Judgment ” shall mean any award, decision, injunction, judgment, order or ruling entered, issued, made or rendered by any court, administrative agency or other Governmental Authority or by any arbitrator.

 

“ Knowledge ” when used with respect to an individual, shall mean such individual’s actual knowledge of a fact or other matter or such facts or matters that a prudent person could be expected to have discovered or otherwise become aware of in the course of conducting a due and careful investigation concerning the existence of such fact or other matter.

 

“ Knowledge of the Seller ” shall mean the Knowledge of the following individuals:

 

(a)                                   each of the Listed Employees;

 

(b)                                  Mr Craig McKenzie; and

 

(c)                                   Mr Charles Campise.

 

“ Law ” shall mean any law, statute, regulation, rule, ordinance, principle, order or decree of any Governmental Authority (including any judicial or administrative interpretation thereof) in force, fully implemented and enforceable (including, for the avoidance of doubt, the Petroleum Law and the Environmental Laws).

 

“ Licence ” shall mean each Exploitation Lease or Exploration Licence listed in Annex C , and “ Licences ” shall mean all of them collectively.

 

“ Listed Employees ” shall mean the key management members of the Company as of the date hereof, being the following individuals:

 

(a)                                   Mr Roy Barker;

 

(b)                                  Mr Kubilay Yildirim;

 

(c)                                   Mr Senol Yanmaz; and

 

(d)                                  Mr Cuneyt Ozdil.

 

“ Material Adverse Effect ” when used with respect to any change, situation, development or other event, shall mean that such change, situation, development or other event has a material adverse effect on (a) the business, financial or results of operations of the Company, (b) one or more of the Licences, or (c) any of the Company’s Participating Interests; other than an effect resulting from or arising out of an Excluded Matter; for such purposes, an “ Excluded Matter ” shall mean any matter or change out of the control and independent from the Parties which materially and adversely effects the condition of the financial markets, the economy, the industry or business sectors in which the Company operates.

 

“ Material Contracts ” and “ Material Contract ” shall have the meanings ascribed to those terms in Section 3.15(a).

 

“ MMboe ” shall mean one million (1,000,000) boe.

 

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“ MMscf ” shall mean one million (1,000,000) standard cubic feet.

 

“ MMscfd ” shall mean a flow rate of one million (1,000,000) standard cubic feet per day.

 

“ Natural Gas ” shall mean all hydrocarbons that are in gaseous phase at Standard Conditions; including casing head gas and residue gas remaining after the extraction or separation of liquid hydrocarbons from wet gas, and all non-hydrocarbon gas or other substances (including carbon dioxide, sulphur and helium) which are produced in association with gaseous hydrocarbons.

 

“ Net Profit ” shall mean, in respect of each Net Profit Interest payable in respect of a Licence per Calendar Quarter, the gross revenue earned by the Company (before corporate income Taxes) from the sale of Hydrocarbons from the applicable Licence in the applicable Calendar Quarter minus (x) the direct costs or expenses associated with extracting such Hydrocarbons, including Turkish government royalty, transportation and other direct costs in such Calendar Quarter, (y) a portion of the Company’s general and administration charges that shall be twenty five thousand Dollars ($25,000) per Calendar Quarter and which shall be allocated between all Licences in respect of which a Net Profit Interest is paid in the ratio of the Calendar Quarterly revenue received for each such Licence, and (z) all Expenditures made or paid by the Company in the Interim Period in respect of the field; provided that , no portion of the Base Purchase Price shall in any case be deducted from gross revenue for the purpose of calculating Net Profit.  For the avoidance of doubt, in no case shall Net Profit be less than zero Dollars ($0).

 

“ Net Profit Interest ” and “ Net Profit Interests ” shall have the meaning ascribed to those terms in Section 2.7(a).

 

“ Onshore ” shall mean any field located in an area onshore Turkey which is not in Van or Bakuk.

 

“ Ordinary Course of Business ” or “ Ordinary Course ” shall mean the normal operation of the Company, consistent with its past practice.

 

“ Organizational Documents ” shall mean when used with respect to the Company or other incorporated Entity, the memorandum and articles of association, charter or similar constitutive document of such company or other incorporated Entity, as filed with the relevant commercial registry, company registrar or other Governmental Authority, as the same may be amended, supplemented or otherwise modified from time to time.

 

“ Overriding Royalty ” shall mean the one and one-half percent (1.5%) overriding royalty interest due to Netherby Investments Limited on overall production from SASB Licences pursuant to the agreement between the Company and Netherby Investments Limited dated 16 October 2003.

 

“ Participating Interest ” shall mean, in respect of each Licence, the undivided interest of the Company (expressed as a percentage of the total interests of all parties) in the rights and obligations in respect of that Licence and the JOA in respect of that Licence as at the Closing Date, as listed in Annex C , and “ Participating Interests ” shall mean all of them collectively.

 

“ Party ” shall mean each of the Seller, the Guarantor and the Purchaser individually, as the case may be, and “Parties” shall mean all of them.

 

“ Permitted Encumbrance ” shall mean (i) any retention of title provision applicable to any machinery, equipment or inventory purchased by the Company, (ii) any (x) easement or right of way or similar Encumbrance, or (y) Encumbrance arising by operation of Law and incurred or arising in the Ordinary Course of Business which, in either case, does not individually or in the aggregate with other such Encumbrances materially impair the transferability or use of the relevant asset by the Company in the conduct of its business as presently conducted, and (iii) any

 

8

 

rights, limitations, reservations or Encumbrance to the benefit of any Person under the Hydrocarbon Agreements and (iv) any Encumbrances disclosed in Schedule to the Disclosure Letter.

 

“ Permitted Transfer ” shall have the meaning ascribed to it in Section 2.7(e).

 

“ Person ” shall mean a natural person, Entity, or Governmental Authority.

 

“ Petrol Ofisi Payments ” shall mean amounts paid by the Company in connection with the Petrol Ofisi Sale, including (x) any expenditures or cash calls made or paid by the Company on behalf of Petrol Ofisi, (y) any payments made by the Company to the Seller (or any of its Affiliates) in respect of the five million Dollars ($5,000,000) paid to the Company by Petrol Ofisi on September 1, 2009 in respect of the Petrol Ofisi Sale purchase price; and (z) any payments made by the Company to Petrol Ofisi in respect of post-closing Petrol Ofisi Sale purchase price adjustments.

 

“ Petrol Ofisi Receivables ” shall mean amounts received by the Company in connection with the Petrol Ofisi Sale, including (x) the five million Dollars ($5,000,000) paid to the Company by Petrol Ofisi on September 1, 2009 in respect of the Petrol Ofisi Sale purchase price, (y) any payments received by the Company from Petrol Ofisi in respect of post-closing Petrol Ofisi Sale purchase price adjustments and (z) any gas revenues invoiced and received by the Company on behalf of Petrol Ofisi.

 

“ Petrol Ofisi Sale ” shall mean the Company’s sale on March 3, 2009 to Petrol Ofisi of a 26.75% interest in SASB Licences.

 

“ Petroleum Law ” shall mean the Petroleum Law of Turkey, as amended from time to time.

 

“ Petroleum Registry ” shall mean the petroleum registry maintained by the GDPA in accordance with the Petroleum Law.

 

“ Post-Closing Addition ” shall have the meaning ascribed to it in Section 2.4(a)(ii).

 

“ Post-Closing Reduction ” shall have the meaning ascribed to it in Section 2.4(a)(i).

 

“ Pre-Interim Period Production Payments ” shall mean any expenditures or cash calls made by the Company in the Interim Period relating to production prior to July 1, 2009.

 

“ Pre-Interim Period Production Receivables ” shall mean any revenues received by the Company in the Interim Period relating to production prior to July 1, 2009.

 

“ Proceeding ” shall mean any litigation, arbitration, dispute, hearing, investigation, control, audit, verification or other legal proceeding (civil or criminal) commenced, brought, conducted or heard by or before any Governmental Authority or arbitrator.

 

“ Prohibited Payment ” shall mean any offer, gift, payment, promise to pay, or authorization of the payment of any money or anything of value, including charitable contributions, to a Public Official, or to any person, while knowing that all or a portion of the money or thing of value will be paid, offered, promised, or given, directly or indirectly, to a Public Official, for the purposes of (i) influencing any act or decision of the Public Official in his capacity as such; (ii) inducing the Public Official to do or omit to do any act in violation of his lawful duty; (iii) securing any improper advantage; or (iv) inducing the Public Official to use his influence with a government or instrumentality thereof to affect or influence any act or decision of such

 

9

 

government or instrumentality, in order to assist in obtaining or retaining business or in directing business to any party.

 

“ Proven Reserves ” shall mean “Proved Reserves” defined according to COGEH section 5.4.1.a.

 

“ Public Official ” shall mean any officer, employee or representative, whether elected or appointed, of any federal, state or local government or any department, agency or instrumentality thereof (including, but not limited to, any government-owned or -controlled commercial enterprise, such as a government-controlled oil company) or of any public international organization, any person acting in an official capacity on behalf for or on behalf of such government or department, agency or instrumentality or any public international organization, or any political party or any officer or candidate thereof.

 

“ Purchaser ” shall have the meaning ascribed to it in the Preamble.

 

“ Purchaser’s Representatives ” shall have the meaning ascribed to it in Section 8.12(c).

 

“ Purchaser Warranties ” shall mean the warranties in ARTICLE IV and the warranties given by the Purchaser and the Guarantor in ARTICLE V.

 

“ Reference Financial Statements ” shall have the meaning ascribed to it in Section 3.6(a).

 

“ Required Shareholder Approval ” shall mean the resolution of the Guarantor EGM to increase the capital of the Guarantor in accordance with the Calling Notice.

 

“ Reserves ” shall mean, in respect of the applicable Commercial Discovery, Proven Reserves plus 1 C Economic Contingent Resources per the classification of reserves prepared by the Standing Committee on Reserves Definitions of the Petroleum Society of the CIM, incorporated COGEH and specified by National Instrument 51-101.

 

“ Retention Agreement ” shall have the meaning ascribed to it in Section 6.13(a).

 

“ Revenues ” shall mean the total revenues received by the Company during the Interim Period.

 

“ Samsun ” shall mean the area described as such in Annex C .

 

“ SASB ” shall mean the area described as such in Annex C .

 

“ SASB Licences ” shall have the meaning ascribed to it in Annex C .

 

“ scf ” shall mean the volume of Natural Gas contained in one cubic foot at Standard Conditions.

 

“ Seller ” shall have the meaning ascribed to it in the Preamble.

 

“ Seller Warranties ” shall mean the warranties in Article III and the warranties given by the Seller in ARTICLE V.

 

“ Seller’s Account ” shall mean a bank account of the Seller, the details of which have been provided by the Seller to the Purchaser.

 

“ Seller’s Representatives ” shall have the meaning ascribed to it in Section 8.12(b).

 

“ Settlement Offer ” shall have the meaning ascribed to it in Section 6.3(d)(iii).

 

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“ Shallow Water ” shall mean any well located in shallow water offshore Turkey that can be drilled with a conventional jack up rig available within the area of the Black Sea.

 

“ Shares ” shall have the meaning ascribed to it in Recital (A).

 

“ Standard Conditions ” shall mean a temperature of fifteen degrees Celsius (15ºC) and pressure of one (1) atmosphere (equivalent to 1.01325 Bar or 101.325 kilopascal (kPa) or 14.696 pounds per square inch (psi), or as mutually agreed by the Parties from time to time.

 

“ Stratic Royalty Payments ” shall mean any payments made by the Company to the Seller (or any of its Affiliates) in respect of royalty payments received by the Company from Stratic Energy Corporation in the Interim Period.

 

“ Stratic Royalty Receivables ” shall mean any royalty payments received by the Company from Stratic Energy Corporation in the Interim Period.

 

“ Subsidiary ” when used with reference to a specified Person, shall mean any incorporated Entity of which more than 50% of the issued share capital and voting rights exercisable at a shareholders meeting of that Entity are at the time owned, directly or indirectly through one or more intermediaries, or both, by such Person.

 

“ Tax” or “ Taxes ” shall mean all taxes, duties, assessments and governmental charges of any kind, whether payable directly or by withholding, including income, transfer, real and personal property, sales, customs, registration, value added, excise, franchise, employment, payroll and social security taxes, charges and contributions, together with any interest, penalties (civil or criminal) or additions to tax with respect thereto, imposed by or due to any Governmental Authority having authority in respect of the Company.

 

“ Tax Return ” shall mean any return, declaration, report, estimate, form, schedule, information statement, notice or other documentation (including any additional or supporting material) filed or maintained, submitted or required to be filed, submitted or maintained, in connection with the calculation, determination, assessment, collection or payment of any Tax.

 

“ TDF ” shall mean, in relation to the date on which a well that is the subject of a Commercial Discovery is spudded, (v) in Year 1, 100%, (w) in Year 2, 75%, (x) in Year 3, 50%, (y) in Year 4, 25%, and (z) after Year 4, 0%.

 

“ Third Party ” shall mean any Person (including any Governmental Authority and any Affiliate of a Party) other than the Parties hereto.

 

“ Third Party Claim ” shall have the meaning ascribed to it in Section 6.3(a).

 

“ Third Party Claim Review Period ” shall have the meaning ascribed to it in Section 6.3(d).

 

“ Thrace Black Sea ” shall mean the area described as such in Annex C .

 

“ Toreador Name and Toreador Marks ” shall have the meaning ascribed to it in Section 8.1(a).

 

“ TPAO ” shall mean Türkiye Petrolleri Anonim Ortaklığı (also known as Turkey Petroleum Corporation).

 

“ TPAO Receivable ” shall have the meaning ascribed to it in Section 6.15.

 

“ Trabzon ” shall mean the area described as such in Annex C .

 

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“ Transfer NPI ” shall have the meaning ascribed to it in Section 2.7(c).

 

“ Turkey ” shall mean the Republic of Turkey.

 

“ Van ” shall mean the area described as such in Annex C .

 

“ Warranties ” shall mean the Seller Warranties or the Purchaser Warranties (as the context requires).

 

“ Wells ” shall have the meaning ascribed to it in Section 6.11.

 

“ Year ” shall mean each of Year 1, Year 2, Year 3 and Year 4, and “ Years ” shall mean Year 1, Year 2, Year 3 and Year 4 collectively.

 

“ Year 1 ” shall mean the period commencing on the Closing Date and concluding on the eve of the first anniversary of the Closing Date.

 

“ Year 2 ” shall mean the period commencing on the first anniversary of the Closing Date and concluding on the eve of the second anniversary of the Closing Date.

 

“ Year 3 ” shall mean the period commencing on the second anniversary of the Closing Date and concluding on the eve of the third anniversary of the Closing Date.

 

“ Year 4 ” shall mean the period commencing the third anniversary of the Closing Date and concluding on the eve of the fourth anniversary of the Closing Date.

 

1.2       Principles of Construction .  In this Agreement:

 

(a)                                  All references herein to Articles and Sections shall be deemed references to articles and sections of this Agreement unless the context shall otherwise require.  The descriptive headings to Articles and Sections are inserted for convenience only, and shall have no legal effect.

 

(b)                                 When calculating the period of time within which or following which any act is to be done or step taken, the date which is the reference day in calculating such period shall be excluded and if the last day of such period is not a Business Day, the period shall end on the next day which is a Business Day.

 

(c)                                  The following rules of interpretation shall apply unless the context shall require otherwise:

 

(i)                                     Definitions used in this Agreement shall apply equally to both the singular and plural forms of the terms defined.

 

(ii)                                  Whenever used in this Agreement:

 

(A)                              the words “ include ”, “ includes ” and “ including ” shall be deemed to be followed by the phrase “ without limitation ”; and

 

(B)                                the words “ hereof ”, “ herein ” and similar words shall be construed as references to this Agreement as a whole and not just to the particular Section or subsection in which the reference appears.

 

(iii)                               A reference to a specific time of day shall be to local time in Paris, France.

 

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(iv)                              A reference to any Party to this Agreement or any party to any other agreement or document includes such Party or party’s successors and permitted assigns.

 

(v)                                 The word “or” shall have a disjunctive and not alternative meaning (i.e., where two items or qualities are separated by the word “or”, the existence of one item or quality shall not be deemed to be exclusive of the existence of the other).

 

(vi)                              The headings used in this Agreement are inserted for convenience only and shall not affect the construction of this Agreement.

 

(vii)                           Any reference in this Agreement to a Hydrocarbon Agreement (or any agreement entered into pursuant to a Hydrocarbon Agreement) shall be deemed to include any variation, modification, extension, renewal or re-enactment of such Hydrocarbon Agreement or agreement.

 

(viii)                        Reference to any Law includes a reference to that Law provision as from time to time modified or re-enacted.

 

ARTICLE II

PURCHASE AND SALE OF THE SHARES

 

2.1       Agreement to Purchase and to Sell the Shares .  Upon the terms set forth in this Agreement, at the Closing:

 

(a)                                  the Purchaser shall purchase from the Seller; and

 

(b)                                 the Seller shall sell and deliver to the Purchaser,

 

the Shares free and clear of all Encumbrances together with all rights and benefits now and hereafter attaching thereto.

 

2.2       Consideration for the Shares .  The aggregate consideration to be paid for the Shares shall be:

 

(a)                                  seven million and five hundred thousand Dollars ($7,500,000) to be paid on the Closing Date in cash (the “ Base Purchase Price ”), subject to adjustments pursuant to and in accordance with Section 2.3 (the Base Purchase Price, after giving effect to any such adjustment, the “ Closing Purchase Price ”);

 

(b)                                 all Exploration Success Payments (if any) that become payable in accordance with Section 2.6; and

 

(c)                                  all Net Profit Interest payments (if any) that become payable in accordance with Section 2.7, subject to offset of the Exploration Success Payments paid in respect of each such Net Profit Interest as further described in that Section.

 

The Closing Purchase Price shall be subject to adjustment after Closing in accordance with Section 2.4 below.

 

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2.3       Closing Adjustment Amount .  The Seller’s good faith estimate of the Closing Revenues, the Closing Expenditures and the Closing Purchase Price is set forth in Annex F and represents the agreed basis for the Closing Purchase Price.  At the Closing, the Base Purchase Price shall be adjusted as follows:

 

(a)                                  reduced by the Closing Revenues; and

 

(b)                                 increased by the Closing Expenditures.

 

2.4       Post-Closing Adjustment to Closing Purchase Price .

 

(a)                                  After the Closing, the Closing Purchase Price shall be adjusted as follows:

 

(i)                                     reduced by the amount, if any, by which the Final Revenues exceeds the Closing Revenues set forth on Annex F (the “ Post-Closing Reduction ”); and

 

(ii)                                  increased by the amount, if any, by which the Final Expenditures exceeds the Closing Expenditures set forth on Annex F (the “ Post-Closing Addition ”),

 

each as determined pursuant to Sections 2.4(c) to 2.4(e) inclusive.

 

(b)                                 After the calculation of each of the Final Revenues and the Final Expenditures becomes final and binding upon the Parties in accordance with the remaining provisions of this Section 2.4, then, within five (5) Business Days following such calculation:

 

(i)                                     if a Post-Closing Reduction is required, the Seller shall deliver such amount in immediately available funds by wire transfer to an account specified by the Purchaser; and

 

(ii)                                  if a Post-Closing Addition is required, Purchaser shall deliver such amount in immediately available funds by wire transfer to the Seller’s Account (or such other account as may be designated by the Seller).

 

(c)                                  As soon as practicable after the Closing Date, but no later than forty-five (45) days after the Closing Date, the Purchaser will deliver to the Seller a statement setting forth its proposed calculation of each of the Final Revenues, the Final Expenditures, the Post-Closing Reduction, if any, and the Post-Closing Addition, if any (collectively the “ Final Figures ”).

 

If the Seller does not object to the Purchaser’s calculation of the Final Figures within forty-five (45) days after receipt thereof, such calculation shall be final, conclusive and binding on the Parties.

 

If the Seller objects to the Purchaser’s calculations of the Final Figures, the Seller shall within such forty-five (45)-day period notify Purchaser of the same and deliver its proposed modifications of such calculations to Purchaser.  If the Purchaser disagrees with any of the Seller’s proposed modifications of the calculation of the Final Figures, delivered to the Purchaser pursuant to this Section 2.4(c), the Parties shall negotiate in good faith to reach an agreement with respect to the disputed items during the fifteen (15)-day period following delivery of such proposed modification.

 

(d)                                 If, upon completion of the fifteen (15)-day period described in Section 2.4(c), the Seller and the Purchaser are unable to reach an agreement, they shall promptly cause

 

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an internationally recognized accounting firm (the “ Independent Accountant ”) reasonably satisfactory to the Seller and the Purchaser to review this Agreement and the disputed items or the amounts for the purpose of calculating the Final Figures.

 

In making such calculation, the Independent Accountant shall consider only those items or amounts in the calculation of the Final Figures, as to which the Seller and the Purchaser have disagreed.

 

The Independent Accountant shall deliver to the Seller and Purchaser, as promptly as practicable, a report setting forth its calculations.  Such report shall be binding and final upon the Seller and the Purchaser.  The cost of such review and report shall be paid one-half by the Seller and one-half by the Purchaser.

 

(e)                                  The Parties hereto agree that they will cooperate and assist in the preparation of the calculation of the Final Figures, and in the conduct of the reviews set forth in Section 2.4(c) and 2.4(d), including, without limitation, by making available, to the extent necessary, relevant books, records, information, work papers or other documents and personnel.

 

2.5       Closing .

 

(a)                                  The consummation of the sale and purchase of the Shares (the “ Closing ”) shall take place on October 7, 2009 at the offices of Willkie Farr & Gallagher LLP, Paris, France or at such other location as the Purchaser and the Seller may agree in writing.  The date on which the Closing shall take place is referred to herein as the “ Closing Date ”.

 

(b)                                 At the Closing:

 

(i)                                     the Seller shall deliver to the Purchaser:

 

(A)                              transfer form in respect of the Shares duly executed by the Seller in favor of the Purchaser;

 

(B)                                Board of Directors resolution approving the entry of the Purchaser into the Company’s Register of Members after the passing of which Mr. Campise, Mr. Lovett and Mr. Fitzgerald (the “ Existing Directors ”) shall resign as directors of the Company;

 

(C)                                resignation letters of the Existing Directors with effect as from the Closing;

 

(D)                               Board of Directors resolution in respect of (i) the removal of Mr. Roy A. Barker from his position as the resident representative of the Company in Turkey with effect as from the Closing and (ii) revocation of his power of attorney dated July 27, 2005 to that effect;

 

(E)                                 release letter of Mr. Barker which shall include Mr. Barker’s irrevocable release towards the Company and his unconditional undertaking that he shall have no claims whatsoever against the Company in relation to his removal from the position as the resident representative of the Company in Turkey;

 

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(F)                                 Board of Directors resolution in respect of (i) appointment of Mr. Robert Healey as the new resident representative of the Company in Turkey with effect as from the Closing and (ii) execution under the common seal of the Company of the power of attorney for Mr. Robert Healey to that effect;

 

(G)                                copies of all existing powers of attorney previously granted by the Company; provided the Seller shall procure that the originals of those documents are promptly delivered to such Person as the Purchaser shall notify the Seller following the Closing Date;

 

(H)                               certified copies of the resolutions and minutes of the Company and certified extracts from the corporate registers of the Company, provided that the Seller shall procure that the original minutes books and corporate registers of the Company are promptly delivered to such Person in the Cayman Islands as the Purchaser shall notify the Seller following the Closing Date;

 

(I)                                    copies of any share certificates that have been issued in respect of the Shares if any of the Shares are held in certificated form, together with a declaration of lost certificate; and

 

(J)                                   other documents, computer files or records in the possession of the Seller relating to the Company, provided the Seller shall procure that any remaining such documents, computer files or records are promptly delivered to the Purchaser following the Closing Date; and

 

(ii)                                  the Purchaser shall pay to the Seller an amount equal to the Closing Purchase Price by wire transfer of immediately available funds to the Seller’s Account.

 

All matters at the Closing will be considered to take place simultaneously, and no delivery of any document will be deemed complete until all transactions and deliveries of documents required by this Agreement are completed, and title to the Shares shall not be transferred and the Purchaser shall have no property rights or interest in the Shares unless and until the Closing actually takes place and the payment referenced in subsection 2.5(b)(ii) has been effectively made.

 

2.6       Exploration Success Payments .

 

(a)                                  Subject to the remaining provisions of this Section 2.6, if a Commercial Discovery has occurred, the Purchaser shall pay to the Seller an exploration success payment in respect of such Commercial Discovery calculated in accordance with Section 2.6(b) and paid in accordance with Section 2.6(f) (each an “ Exploration Success Payment ” and collectively the “ Exploration Success Payments ”).

 

(b)                                 Each Exploration Success Payment shall, in respect of the Commercial Discovery to which it applies, equal Reserves multiplied by $/boe multiplied by TDF multiplied by Company’s Share.

 

(c)                                  A “ Commercial Discovery ” shall mean a discovery that has Contingent Resources, as determined by the Independent Expert, that are in excess of the amounts set forth in Annex B .

 

(d)                                 Subject to Section 2.8, the Purchaser shall provide prompt written notice to the Seller:

 

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(i)                                     upon the commencement of the spudding of an exploration well in any of the Licences in the period commencing on the Closing Date and concluding at the end of Year 4; and

 

(ii)                                  following any material developments with respect thereto.

 

(e)                                  The Purchaser shall instruct the Independent Expert to complete its evaluation of the Contingent Resources and the Reserves within twelve (12) weeks of receiving the data pertaining to each successful exploration well, and the Purchaser shall provide prompt notice to the Seller upon such instruction.  The fees of the Independent Expert appointed pursuant to Section 2.6(e) in respect of that evaluation shall be paid one-half by the Seller and one-half by the Purchaser.

 

(f)                                    The Exploration Success Payment for the first Commercial Discovery following the Closing Date shall become payable immediately following the date of first production from such Commercial Discovery. For each subsequent Commercial Discovery the Exploration Success Payment shall become payable one (1) calendar month after receipt of the determination of Reserves by the Independent Expert in respect of such Commercial Discovery.  The Purchaser shall make each Exploration Success Payment by wire transfer of immediately available funds to the Seller’s Account (or such other account as may be designated by the Seller), such payment to be accompanied by a detailed statement setting forth the Purchaser’s calculation of the Exploration Success Payment (subject always to Section 2.8).  Exploration Success Payments shall be made by the Purchaser in the order in which they become due.

 

(g)                                 No Exploration Success Payment shall be due in the event the Purchaser declares a field unviable and declines to move forward with development of Contingent Resources.

 

(h)                                 Notwithstanding any other provision of this Section 2.6, no Exploration Success Payment shall be payable in respect of any:

 

(i)             existing discoveries in SASB or Cendere;

 

(ii)            discoveries in the sands of the Akcakoca Member by a well drilled from a SASB platform either currently in place, or currently planned in SASB Phase II; or

 

(iii)           Hydrocarbons produced from an existing well which are at any time after the Closing Date tied back to a platform described in Section 2.6(h)(ii).

 

(i)                                     In no circumstances shall the aggregate Exploration Success Payments exceed forty million Dollars ($40,000,000) in the period commencing on the Closing Date and concluding at the end of Year 4 nor ten million Dollars ($10,000,000) in any Year (the “ Annual Cap ”).   Where the Annual Cap is reached in any given Year, any Exploration Success Payments that became payable in such Year in excess of the Annual Cap shall become payable on the last day of the sixth (6 th ) month of the subsequent Year (subject to the Annual Cap for that subsequent Year), provided that no Exploration Success Payments shall accrue or be carried over after the end of Year 4.

 

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2.7                               Net Profit Interest .

 

(a)         If a field goes into production that was discovered by an exploration well drilled prior to the end of Year 4 on any of the Licences still held by the Purchaser as at the date at which that well is drilled/field goes into production, the Purchaser shall:

 

(i)             subject to Section 2.8, promptly provide written notice to the Seller;

 

(ii)            subject to Section 2.8, provide to the Seller at the end of each Calendar Quarter a detailed statement setting forth the Purchaser’s calculation of the Net Profit Interest for that Calendar Quarter; and

 

(iii)           pay to the Seller at the end of each Calendar Quarter a net profit interest in respect of such discovery, calculated in accordance with Section 2.7(b) (each a “ Net Profit Interest ” and collectively the “ Net Profit Interests ”).

 

The Purchaser shall make each Net Profit Interest payment, without any deductions being made for Taxes other than withholding taxes required by Law in any or all of the jurisdictions in which the payment passes, by wire transfer of immediately available funds to the Seller’s Account (or such other account designated by the Seller).

 

(b)        Each Net Profit Interest shall, in respect of the discovery to which it applies, equal (x) 10% multiplied by (a) Net Profit minus (b) Depreciation Charge minus (y) the sum of Accrued G&A not deducted in any previous Net Profit Interest calculation and any and all Exploration Success Payments paid by the Purchaser in respect of that discovery, if any, not deducted in any previous Net Profit Interest calculation.

 

(c)         Subject to Section 2.7(e), in the event the Seller seeks to sell, assign or otherwise dispose of all or part of its rights derived from any Net Profit Interest payable to it under thi