Exhibit 10.1


 


EXECUTION COPY


INVESTMENT
NUMBER 24346


Subscription Agreement


by and among


BPZ ENERGY, INC.


and


INTERNATIONAL FINANCE CORPORATION


Dated December 18, 2006
















SUBSCRIPTION AGREEMENT


This SUBSCRIPTION AGREEMENT (this “Agreement”),
dated December 18, 2006, is made by and between BPZ Energy, Inc., a Colorado
corporation (the “Company”), and International Finance Corporation, an
international organization established by Articles of Agreement among its
member countries, including the United States (“IFC”).


RECITALS


WHEREAS, the Company proposes to issue and sell to
IFC, and IFC desires to purchase from the Company, shares of the Company’s
common stock, no par value (the “Common Stock”), on the terms set forth herein.


AGREEMENT


NOW, THEREFORE, in consideration of the mutual
covenants and agreements set forth herein and for good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:


Section 1.  Purchase


1.1           Purchase
and Sale of Stock.


(a)           Subject to the terms
and conditions of this Agreement, the Company will issue and sell to IFC, and
IFC agrees to purchase from the Company, 6,500,000 shares of the Company’s
authorized but unissued Common Stock (the “Shares”), at a price per share equal
to $3.00 for an aggregate purchase price of US$19,500,000.  The closing (the “Closing”) of the sale of
the Shares shall be effected at the offices of White & Case LLP in Washington,
D.C. on December 18, 2006, or as soon as practicable thereafter upon the
satisfaction of the conditions set forth in Section 4, or at such other time
and place as may be agreed to by IFC and the Company but in no event later than
December 29, 2006 (the “Closing Date”). At the Closing, subject to the terms
and conditions hereof, the Company shall cause the issuance of the Shares,
against payment of the full amount of IFC’s aggregate purchase price by wire
transfer of immediately available funds to the Company’s bank account.


(b)           Notwithstanding
anything contained in this Agreement, IFC may, at any time in its sole
discretion and without request by the Company, subscribe for the Shares by
providing three (3) days’ prior notice to the Company. Upon the date specified
in such notice, the Company shall cause the issuance of the Shares against
payment of the full amount of IFC’s aggregate purchase price by wire transfer
of immediately available funds to the Company’s bank account.


1.2           Legends.  All certificates representing the Shares
shall bear the following legend (in addition to any legend required by the blue
sky or securities laws of any state or jurisdiction to the extent such laws are
applicable to the shares represented by the certificate so legended):










 



“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION
TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS, PROVIDED THAT THE
SELLER DELIVERS TO THE COMPANY AN OPINION OF COUNSEL (WHICH OPINION AND COUNSEL
ARE REASONABLY SATISFACTORY TO THE COMPANY) CONFIRMING THE AVAILABILITY OF SUCH
EXEMPTION.”


The legend set forth above shall be removed and the
Company shall issue a certificate without such legend to the holder of the
Shares upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Shares are registered for resale under the
Securities Act of 1933, as amended (the “Securities Act”), (ii) in
connection with a sale, assignment or other transfer, such holder provides the
Company with an opinion of counsel, reasonably satisfactory to the Company, to
the effect that such sale, assignment or transfer of the Shares may be made
without registration under the applicable requirements of the Securities Act,
or (iii) such holder provides the Company with reasonable assurance that
the Shares can be sold, assigned or transferred pursuant to Rule 144 or
Rule 144A promulgated under the Securities Act.


1.3           Stop Transfer Orders.  All certificates representing the Shares will
be subject to a stop transfer order with the Depository Trust Company or with
the Company’s transfer agent that restricts the transfer of such shares except
in compliance with this Agreement.


Section 2.  Representations and Warranties of the
Company.  The Company hereby makes
the following representations and warranties to IFC:


2.1           Organization, etc. 
The Company is a corporation, duly organized, and validly existing and
in good standing under the laws of the State of Colorado, and is qualified or
licensed to do business and is in good standing as a foreign corporation in
each other jurisdiction in which the conduct of its business or the ownership
of property requires such qualification or licensing, except where failure to
be so qualified or licensed could not reasonably be expected to have a Material
Adverse Effect.  Each company listed on
Schedule 2.1 hereof is duly organized, and validly existing and in good
standing under the laws of the jurisdiction of its organization, and is
qualified or licensed to do business and is in good standing as a foreign corporation
in each other jurisdiction in which the conduct of its business or the
ownership of property requires such qualification or licensing, except where
failure to be so qualified or licensed could not reasonably be expected to have
a Material Adverse Effect.  Except for
the Subsidiaries listed on Schedule 2.1, the Company does not own, or control,
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association or other entity.


2.2           Authority. 
The Company has the corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder, and such action has
been duly authorized by all necessary action of the Company’s Board of
Directors and no other corporate action on the part of the Company is necessary
to authorize the execution, delivery and



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performance of this Agreement.  The issuance and sale of the Shares has been
duly authorized and if, as and when issued in accordance with the terms of this
Agreement and delivered to IFC, the Shares will be duly and validly issued and
outstanding, fully paid and non-assessable and will be free of any Encumbrance
and will not be subject to preemptive rights, rights of first refusal or other
restrictions on transfer, other than those imposed pursuant to this Agreement
and securities laws of general application. 
The issuance and sale of the Shares will not be subject to preemptive or
other similar rights of any holder of the Company’s securities.


2.3           Enforceability. 
This Agreement and all other Transaction Documents to be executed and
delivered by the Company, when delivered in accordance with the terms hereof,
shall have been duly executed and delivered by the Company and constitute a
legal, valid and binding agreement and obligation of the Company enforceable
against it in accordance with their terms subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
generally relating to or affecting creditors’ rights.


2.4           No Violation. 
Except as set forth on Schedule 2.4, the execution and the delivery
by the Company of this Agreement and the performance by the Company of its
obligations hereunder, including the issuance and sale of the Shares, does not
and will not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under,
(iii) result in a violation of, or (iv) require any authorization,
consent or approval not heretofore obtained pursuant to, (x) any material written
or oral agreement or instrument, including, without limitation, trust
instrument, indenture or evidence of indebtedness, lease, contract or other
obligation or commitment (each, a “Contractual Obligation”) binding upon the
Company or any Subsidiary or any of their respective properties or assets, to
the extent such conflict, default, violation or unobtained authorization,
consent or approval could reasonably be expected to have Material Adverse
Effect, (y) any federal, state, or local law, rule, regulation or ordinance, or
any restriction, order, writ, judgment, award, determination, injunction or
decree of any court or government, or any decision or ruling of any arbitrator
(each, a “Requirement of Law”) binding upon or applicable to the Company or any
Subsidiary or any of their respective properties or assets, or (z) any
provision of the Certificate of Incorporation, Bylaws or comparable
organizational documents of the Company or any of its Subsidiaries.


2.5           Litigation. 
Except as set forth in Schedule 2.5 or in the November Registration
Statement, there are no pending or to the Company’s knowledge after due inquiry
overtly threatened actions, claims, orders, decrees, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could reasonably be expected to have a Material
Adverse Effect, and no judgment or order has been issued which could reasonably
be expected to have a Material Adverse Effect.


2.6           Charter.  The
Company has delivered to IFC a true and correct copy of its Certificate of
Incorporation and Bylaws and such Certificate of Incorporation and Bylaws have
not been amended since October 18, 1996.


2.7           Capitalization. The authorized capital stock of the
Company consists of 250,000,000 shares of Common Stock, no par value,
47,352,217 shares of which have been validly issued and are outstanding as of
December 15, 2006 and are owned beneficially and legally of record by the
Persons indicated on Schedule 2.7 (and such issued shares are fully paid



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and non-assessable), and 25,000,000 shares of
preferred stock, no par value, none of which are issued or outstanding as of
December 15, 2006.  Except as set forth
on Schedule 2.7, the Company owns 100% of the capital stock of each of the
Subsidiaries. Except as set forth on Schedule 2.7, there do not exist any
other authorized or outstanding securities, options, warrants, calls,
commitments, rights to subscribe or other instruments, agreements or rights of
any character, or any pre-emptive rights, convertible into or exchangeable for,
or requiring or relating to the issuance, transfer or sale of, any shares of
capital stock or other securities of the Company or any Subsidiary. Schedule
2.7 contains a capitalization table showing the number of shares of Common Stock
and Stock Equivalents owned by each category of holders of Common Stock and/or
Stock Equivalents of the Company both before and after the subscription by IFC
for the Shares.


2.8           Financial Statements.  All of the consolidated financial statements
included in the November Registration Statement (the “Company Financial
Statements”): (i) have been prepared from and on the basis of, and are in
accordance with, the books and records of the Company and with United States
generally accepted accounting principles (“GAAP”) applied on a basis consistent
with prior accounting periods; (ii) fairly and accurately present in all
material respects the consolidated financial condition of the Company as of the
date of each such Company Financial Statement and the results of its operations
for the periods therein specified; and (iii) in the case of the annual
financial statements, are accompanied by the audit opinion of the Company’s
independent public accountants. Except as set forth in Schedule 2.8 or in
the Company Financial Statements, as of the date hereof and as of the Closing
Date, the Company has no liabilities other than (i) liabilities which are
reflected or reserved against in the Company Financial Statements and which
remain outstanding and undischarged as of the date hereof,
(ii) liabilities arising in the ordinary course of business of the Company
since September 30, 2006, (iii) liabilities incurred as a result of
the transactions described on Schedule 2.8, or (iv) liabilities which
were not required by GAAP to be reflected or reserved on the Company Financial
Statements.  Since September 30,
2006, except as set forth on Schedule 2.8, there has not been any event or
change which has had or could reasonably be expected to have a Material Adverse
Effect and the Company has no knowledge of any event or circumstance that would
reasonably be expected to result in such a Material Adverse Effect.


2.9           Absence of Certain Changes.  Since September 30, 2006 (the “Balance
Sheet Date”), except as set forth on Schedule 2.8 hereto, and in the
November Registration Statement, neither the Company nor any of its
Subsidiaries has:


(a)           redeemed,
purchased or otherwise acquired directly or indirectly any shares of any class
or series of its capital stock, or any instrument or security which consists of
or includes a right to acquire such shares;


(b)           paid,
discharged or satisfied any claim, liability or obligation (whether absolute,
accrued, contingent or otherwise) other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities and obligations reflected or reserved against in the
Company Financial Statements in the November Registration Statement or incurred
in the ordinary course of business and consistent with past practice since the
Balance Sheet Date;



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(c)           permitted
or allowed any of its material properties or assets (real, personal or mixed,
tangible or intangible) to be subjected to any mortgage, pledge, claim, lien,
security interest, encumbrance, restriction or charge of any kind outside of
the ordinary course of business;


(d)           cancelled
any debt or waived any claim or right of substantial value;


(e)           sold,
transferred, licensed, leased, pledged, mortgaged or otherwise disposed of any
of its material properties or assets (real, personal or mixed, tangible or
intangible) or any material amount of property or assets, except in the
ordinary course of business;


(f)            disposed
of or permitted to lapse any right to the use of any Proprietary Rights, or
disposed of or disclosed to any person or entity, other than representatives of
IFC and persons subject to a nondisclosure agreement, any trade secret,
formula, process, know-how or other Proprietary Right not yet a matter of
public knowledge;


(g)           granted
any material increase or accrual in or accelerated, any benefit or compensation
payable or to become payable to any officer, director, employee or consultant,
including any such increase, accrual or acceleration pursuant to any benefit
plan except in connection with a promotion or job change or any general
increase in the compensation payable or to become payable to officers,
employees or directors in the ordinary course of business, or entered into or
amended in any material way any employment, material consulting, severance, termination
or material benefit plan agreement or arrangement other than in the ordinary
course of business;


(h)           declared,
paid or set aside for payment any dividend or other distribution in respect of
its capital stock or redeemed, purchased or otherwise acquired, directly or
indirectly, any shares of capital stock or other securities of the Company or
any of its Subsidiaries;


(i)            made
any change in any method of tax or financial statement accounting or accounting
practice that would or would reasonably be expected to result in any material
change in the Company Financial Statements;


(j)            paid,
loaned or advanced any amount to, or sold, transferred or leased any material
properties or assets (real, personal or mixed, tangible or intangible) to, or
entered into any agreement or arrangement with, any of its officers or
directors or employees or any Affiliate of any of its officers or directors or
employees, except for directors’ fees and compensation to officers in the
ordinary course of business;


(k)           amended
its certificate of incorporation or by-laws or similar organizational
documents;


(l)            issued,
sold, transferred, pledged, disposed of or encumbered any shares of any class
or series of its capital stock, or securities convertible into or exchangeable
for, or options, warrants, calls, commitments or rights of any kind to acquire,
any shares of any class



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or series of its capital stock, other than shares of Common Stock
reserved for issuance on the date of this Agreement pursuant to the Company’s
2005 Long-Term Incentive Compensation Plan, the exercise of any warrants or
options to purchase Common Stock described on Schedule 2.7 or existing
agreements described on Schedule 2.7 that require the Company to issue shares
of Common Stock;


(m)          terminated
or materially modified or amended any of its material contracts or waived,
released or assigned any material rights under any material contract or claims,
except in the ordinary course of business and consistent with past practice;


(n)           revalued
in any material respect any of its assets, including writing down the value of
inventory or writing-off notes or accounts receivable, other than in the
ordinary course of business consistent with past practice or as required by
GAAP;


(o)           adopted
a plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any
of its Subsidiaries; or


(p)           agreed,
whether in writing or otherwise, to take any action described in this section.


2.10         Income Tax Returns. 
Except as set forth on Schedule 2.10, the Company and the
Subsidiaries have filed all federal and state income tax returns which are
required to be filed, and have paid, or made provision for the payment of all
taxes which have become due pursuant to said returns or pursuant to any
assessment received by the Company or any Subsidiary, except such taxes, if
any, as are being contested in good faith and as to which adequate reserves
have been provided. The Company has no knowledge of any pending assessments or
adjustments of the income tax payable by the Company or its Subsidiaries with
respect to any year.


2.11         Permits; Compliance With Law.  Except as disclosed on Schedule 2.4, the
Company and each Subsidiary possesses, and will hereafter possess, all permits,
consents, approvals, franchises and licenses required and rights to all
trademarks, trade names, patents, and fictitious names, if any, necessary to
enable them to conduct the business in which it is now engaged in compliance
with applicable law and comply with the obligations under this Agreement.  To the Company’s knowledge after due inquiry,
the Company and each Subsidiary are in compliance with all Requirements of Law
in the conduct of its business and corporate affairs, except where failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.  Neither the
Company nor any of its Subsidiaries has received any written notice that any
violation of the foregoing is being or may be alleged.


2.12         Prohibited Payments. 
Neither the Company nor any Affiliates, nor any Person acting on its or
their behalf, has made, with respect to the business of the Company or any
transaction contemplated by this Agreement, any Prohibited Payment.


2.13         Insurance.  The
Company’s insurance policies cover such risks and contain such policy limits,
types of coverage and deductibles as are, in the Company’s judgment, adequate
to insure fully (subject to the deductibles and retention amounts described in
Schedule



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2.13) against risks to which the Company and
its employees, business, properties and other assets may be exposed in the
operation of the business as currently conducted.  All of the Company’s insurance policies are
valid and enforceable policies, all premiums due and payable under all such
policies have been paid and the Company is otherwise in compliance in all
material respects with the terms of such policies.  The Company has no knowledge of any
threatened termination of, or material change with respect to the terms and
conditions of such policies.


2.14         Restrictions on Business Activities.  There is no agreement, judgment, injunction
order or decree binding upon the Company which has or could reasonably be
expected to have the effect of prohibiting or impairing in any material respect
any of its current or future business practices, its acquisition of property or
the conduct of its business as it is currently conducted or as proposed to be
conducted.


2.15         ERISA.  Except
as set forth on Schedule 2.15, the Company and each Subsidiary is in
compliance in all material respects with any applicable provisions of ERISA;
the Company and each Subsidiary has not violated any provision of any Plan
maintained or contributed to by it; no Reportable Event (as defined in ERISA)
has occurred and is continuing with respect to any employee benefit plan (“Plan”)
initiated by the Company or any Subsidiary; the Company and each Subsidiary has
met its minimum funding requirements under ERISA with respect to any Plan; and
any Plan will be able to fulfill its benefit obligations as they come due in
accordance with the Plan documents and under GAAP. Schedule 2.15 describes
each Plan maintained by the Company and each of its Subsidiaries; provided each
description is intended as a summary and is subject to the terms and conditions
of each Plan.


2.16         Contracts. 
Schedule 2.16 sets forth a description of each Contractual
Obligation to which the Company or any Subsidiary is a party (except
Contractual Obligations filed as exhibits to the November Registration
Statement) that provides for payments to or by the Company or any Subsidiary in
excess of $1,000,000, or is otherwise material to the operations of the Company
or any Subsidiary.  With respect to each
Contractual Obligation to which the Company or any Subsidiary is a party or to
which any of its properties are subject (i) the agreement is legal, valid,
binding and enforceable and in full force and effect, in each case except for
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditor’s rights generally; (ii) the agreement will
continue to be legal, valid, binding and enforceable and in full force and
effect immediately following the date hereof in accordance with the terms
thereof as in effect prior to the date hereof; (iii) to the knowledge of the
Company after due inquiry, the Company and each Subsidiary has performed all
the obligations required to be performed by it and is entitled to all benefits
thereunder, in each case, except where failure to perform individually or in
the aggregate could not reasonably be expected to have a Material Adverse
Effect, and except for bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditor’s rights generally; and (iv)
neither the Company nor, to the knowledge of the Company, any other party is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default by the Company or, to the knowledge of the
Company, by any such other party, or permit termination, modification or
acceleration, under the agreement.



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2.17         Environmental Matters.


(a)           To
the best of the Company’s knowledge and belief, after due inquiry, there are no
material social or environmental risks or issues in respect of the Company’s or
any Subsidiaries’ Operations other than those identified by the S&EA.


(b)           The
Company has not received nor is aware of (i) any existing or threatened
complaint, order, directive, claim, citation or notice from any Authority or
(ii) any material written communication from any Person, in either case,
concerning the Operations’ failure to comply with any matter covered by the IFC
Performance Standards which has, or could reasonably be expected to have, a
Material Adverse Effect or any material impact on the implementation or
operation of the Operations in accordance with the IFC Performance Standards.


2.18         Trademarks, etc. 
The Company and the Subsidiaries own, have sufficient title to, or have
the right to use (or can obtain the right to use on reasonable commercial
terms), all patents, trademarks, service marks, trade names, copyrights,
licenses, trade secrets or other proprietary rights (collectively, the “Proprietary
Rights”) necessary to their business as now conducted without infringing upon
the right of any person. Except for employee confidentiality agreements with
employees and consultants, there are no outstanding material options, licenses
or agreements relating to intellectual property rights of the Company or any
Subsidiary necessary to their business as now conducted, nor is the Company or
any Subsidiary bound by or a party to any material options, licenses or
agreements with respect to the Proprietary Rights of any other person or
entity. To the Company’s knowledge, neither the Company nor any Subsidiary has
violated or is in current violation of, and neither the Company nor any
Subsidiary has received any communications alleging that the Company or any
Subsidiary has violated or, by conducting its business as proposed, would
violate, any of the Proprietary Rights of any other person or entity. The
Company and the Subsidiaries are not aware of any material violation by a third
party of any of their Proprietary Rights necessary to their business as now
conducted.


2.19         Employees. 
Except as set forth on Schedule 2.19, all employees of the Company
and each Subsidiary are employed “at will” and may be terminated without
payment of severance or incurrence of any other liability of the Company or the
Subsidiaries; no employee of the Company is in violation of any material term
of any employment contract, confidentiality agreement or any other material
Contractual Obligation relating to the right of any such employee to be
employed by the Company or any Subsidiary; and neither the Company nor any
Subsidiary has any employee severance agreement covering any of its employees.  Except as set forth on Schedule 2.19, neither
the Company nor any Subsidiary is a party to any collective bargaining
agreement or other labor union contract, nor are any union organization
proceedings pending or threatened against the Company or any of the
Subsidiaries.  There is no labor strike,
slowdown or work stoppage or lockout against the Company or any of the
Subsidiaries.


2.20         Title to Properties. 
The assets owned or leased by the Company and its Subsidiaries are all
of the assets necessary to conduct the business of the Company and its
Subsidiaries as currently being conducted. 
The Company and its Subsidiaries have good and marketable title to
substantially all of the assets they own, real and personal, movable and
immovable, tangible and intangible, free and clear of any charge, claim, lien,
pledge, security



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interest or other encumbrance, except for:
(a) liens for taxes not yet due and payable, (b) artisan’s or
mechanic’s liens arising in the ordinary course of business,
(c) encumbrances described on Schedule 2.20 hereto, or (d) minor
imperfections of title and encumbrances, if any, which (i) are not
substantial in amount, (ii) do not detract from the value of the property
subject thereto, impair the operations of the business of the Company, or the
use or license of certain of the assets of the Company, and (iii) have
arisen in the ordinary course of business consistent with past practice.


2.21         Books and Records. 
Since September 10, 2004, the books and records of the Company,
including, without limitation, its stock record books and minute books, are
complete and correct in all material respects and accurately and fairly reflect
all meetings and other corporate actions of the Company’s stockholders and its
Board of Directors and committees thereof and all material information relating
to its business, the nature, acquisition, maintenance, location and character
of its assets, and the nature of all transactions giving rise to its
obligations or accounts receivable.


2.22         Related Party Transactions.  Except for those contracts described in the
November Registration Statement or on Schedule 2.22 hereto, no existing
Contractual Obligation of the Company or its Subsidiaries is with or for the
direct benefit of (i) any party owning, or formerly owning, beneficially
or of record, directly or indirectly, in excess of five percent (5%) of the
outstanding capital stock of the Company, (ii) any director, officer or
similar representative of the Company, (iii) any natural person related by
blood, adoption or marriage to any party described in (i) or (ii), or
(iv) any entity in which any of the foregoing parties has, directly or
indirectly, at least a five percent (5%) beneficial interest (a “Related Party”).
Without limiting the generality of the foregoing, no Related Party, directly or
indirectly, owns or controls any material assets or material properties which
are used in the Company’s business and to the actual knowledge of the Company,
no Related Party, directly or indirectly, engages in or has any significant
interest in or connection with any business which is, or has been within the
last two years, a competitor, customer or supplier of the Company or has done
business with the Company or which currently sells or provides products or
services which are similar or related to the products or services sold or
provided in connection with the business of the Company.


2.23         Brokers.  The
Company has not agreed to pay or incurred any obligation in respect of any
finder’s fee, brokerage fee or other commission in connection with the sale of
Shares contemplated by this Agreement.


2.24         Securities Law Matters.  Except as set forth on Schedule 2.8,
since January 1, 2005, the Company has filed in a timely manner all
reports, registration statements, proxy statements and other materials,
together with any amendments required to be made with respect thereto (the “Public
Filings”), that were required to be filed with (i) the SEC under the
Securities Act, or the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and (ii) any applicable state securities authorities (the “Public
Filing Rules”). The Public Filings complied as to form in all material respects
with the Public Filing Rules as of their respective filing dates, and the
information contained therein as of the date thereof did not contain an 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, in light of the
circumstances under which they were made, not misleading, except to the extent
that information contained in any such document has



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been revised or superseded by a later filed
Public Filing. The Company is in compliance in all material respects with the
applicable requirements of the Public Filing Rules, as amended, and the rules
and regulations thereunder.  Subject to
the accuracy of the representations and warranties of IFC set forth in Section
3, the offer, sale and issuance of the Shares to IFC will be exempt from registration
under the Securities Act.


2.25         Registration Statement; AMEX Listing.  The Company has filed a Registration
Statement with the SEC on Form S-1 (the “November Registration Statement”) for
the Common Stock issued in connection with the July 19, 2005, March 10, 2006
and June 30, 2006 private placements, and for which Notice of Effectiveness was
received by the Company on November 8, 2006. 
The Company has further filed a Registration Statement with the SEC on
Form S-1 on November 30, 2006 (as amended on December 7, 2006) for securities
issued to shareholders of the Company prior to September 9, 2004, along with
certain other shareholders, and for which Notice of Effectiveness was received
by the Company on December 15, 2006.  The
Company has submitted an application for listing its Common Stock on the
American Stock Exchange.


2.26         No Anti-Dilution Rights.  Except as set forth on Schedule 2.26,
the transactions contemplated hereby will not trigger any anti-dilution
provisions contained in any existing agreements.


2.27         Full Disclosure. 
None of this Agreement, any schedule, exhibit or certificate of the
Company made or delivered pursuant to this Agreement contains or will contain
any untrue statement of fact, or omits or will omit to state a material fact
the absence of which makes such representation, warranty or other statement
misleading.


Section 3.  Representations and Warranties of IFC.  IFC hereby makes the following
representations and warranties:


3.1           Organization. 
IFC is duly organized and validly existing.


3.2           Authority. 
IFC has the corporate authority to execute and deliver this Agreement
and to perform its obligations hereunder.


3.3           Investment Intent. 
IFC is acquiring the Shares for its own account for investment and not
with a view to, or for resale in connection with, any “distribution” thereof
for purposes of the Securities Act.  IFC
is an “accredited investor” as such term is defined in Regulation D under
the Securities Act.  IFC acknowledges
that the Shares shall be “restricted securities” within the meaning of
Rule 144 (“Rule 144”) under the Securities Act, will contain a
transfer restriction legend and may only be resold pursuant to an effective
registration statement filed with the SEC under the Securities Act, or pursuant
to Rule 144 or another valid exemption from the registration requirements
of the Act as established by an opinion of counsel reasonably acceptable to the
Company.


3.4           Investigation. 
IFC acknowledges that it has been given full access by the Company to
all information concerning the business and financial condition, properties,
operations and prospects of the Company that IFC has deemed relevant for
purposes of making the investment contemplated by this Agreement. By reason of
IFC’s knowledge and experience



 10
 






 



in financial and business matters in general,
the business of the Company and investments of the type contemplated by this
Agreement in particular, IFC is capable of evaluating the merits and risks of
making the investment in the Shares and is able to bear the economic risk of
the investment (including a complete loss of its investment in the Shares).
Subject to the truth and accuracy of the representations and warranties made by
the Company hereunder (which IFC has relied upon in entering into this
Agreement), IFC has conducted such investigation as it deems relevant in
connection with its consummation of the transactions contemplated by this
Agreement.


Section 4.  Conditions to the Obligations of IFC.  The obligations of IFC to consummate the
transactions under this Agreement on the Closing Date shall be subject to the
satisfaction of each of the conditions set forth in this Section 4, unless
waived by IFC, on or prior to the Closing Date.


4.1           Representations and Warranties.  The representations and warranties of the
Company set forth in Section 2 shall be true and correct in all respects
as of the Closing Date as though made on and as of such date; the Company shall
have performed all obligations and complied with all covenants required to be
performed or complied with by the Company under this Agreement on or prior to
the Closing Date, and no breach (or any event which would, with notice, lapse
of time, the making of a determination or any combination thereof, become a
breach) under any Transaction Document shall have occurred and be continuing;
and IFC shall have received on the Closing Date from the Company a certificate
or certificates, dated the Closing Date, to such effect, which certificate or
certificates shall be signed by an authorized officer of the Company.


4.2           No Proceedings. 
No order, injunction, decree or other action or legal, administrative,
arbitration or other proceeding by any person or investigation by any Authority
shall be pending or, to the knowledge of the Company, threatened, challenging
or imposing a material limitation on the execution, delivery or performance of
this Agreement, the consummation of any of the transactions contemplated
thereby or the operation by the Company of its businesses as now conducted.


4.3           Authorizations. 
All authorizations, approvals, consents or permits, if any, of any
Authority or any third party that are required in connection with the lawful
issuance and sale of the Shares pursuant to this Agreement shall have been duly
obtained and shall be effective on and as of the Closing Date.


4.4           Compliance with Laws.  The purchase of the Shares by IFC hereunder
shall be legally permitted by all laws and regulations to which IFC or the
Company is subject.


4.5           No Material Adverse Change.  Except as described in Schedule 2.8, there
shall have been no event that has had or could reasonably be expected to have a
Material Adverse Effect since December 31, 2005.


4.6           Opinion of Counsel. 
IFC shall have received an opinion of counsel to the Company covering
the matters set forth in Annex D hereto and in form reasonably satisfactory to
IFC.



 11
 






 



4.7           Expenses. 
IFC shall have received the reimbursement of all fees and expenses of
IFC, and the invoiced fees and expenses of its counsel, as provided in
Section 8.4 of this Agreement, or confirmation that those fees and expenses
have been paid directly to that counsel.


4.8           Insurance. 
IFC shall have received copies of all insurance policies which are
appropriate and necessary to the Company’s business operations as of the
Closing pursuant to Section 5.8 of this Agreement, and a certification of the
Company’s insurers or insurance agents confirming that those policies are in
full force and effect and all premiums then due and payable under those
policies have been paid.


4.9           Transaction Documents.  IFC shall have received each of the Transaction
Documents, duly executed and delivered by the parties thereto.


4.10         Proceedings; Documents.  IFC shall have received all documents
incident to all corporate and other proceedings in connection with the
transactions contemplated in relation to the subscription by  IFC contemplated in this Agreement, in form
and substance satisfactory to IFC and its legal counsel.


4.11         Use of Proceeds. 
The Company shall have certified to IFC in writing that the proceeds of
the subscription of the Shares by IFC shall not be used in reimbursement of,
nor shall be used for, expenditures in the territories of any country which is
not a member of the World Bank or for goods produced in or services supplied
from any such country.


4.12         S&EA; Action Plan.  The Company has completed an S&EA and
delivered to IFC an Action Plan, each in form and substance acceptable to IFC,
(ii) the Company and IFC have agreed on the form of Annual Monitoring Report
and (iii) the Company has implemented an S&EA Management System acceptable
to IFC.


Section 5.  Certain
Covenants of the Company.


5.1           Listing of Common Stock.  The Company shall use its reasonable best
efforts to cause the Common Stock to be listed on the American Stock Exchange
(or, if such listing cannot be obtained, upon NASDAQ or another exchange
acceptable to IFC) as soon as practicable following the date hereof.  The Company shall use its reasonable best
efforts to cause the Shares to be listed or included on each securities
exchange or automated quotation system on which similar securities issued by
the Company are then listed or included.


5.2           Shelf Registration. 
The Company shall prepare and file or cause to be prepared and filed
with the SEC, as soon as practicable but in any event no later than sixty
(60) days after the Closing Date (the “Registration Statement Filing
Deadline”), a Registration Statement on Form S-1 (or such other form as the
Company is then eligible to use) for an offering to be made on a delayed or
continuous basis pursuant to Rule 415 of the Securities Act registering
the resale from time to time by IFC of the Shares pursuant to plans of
distribution acceptable to IFC (the “Registration Statement”). IFC agrees to
promptly provide to the Company, in writing, such information as the Company
may reasonably request for inclusion in the Registration Statement. The Company
shall use its reasonable best efforts to cause the Registration Statement to be
declared effective under the Securities Act no later than sixty



 12
 






 



(60) days after its filing date or in
the event of SEC review, ninety (90) days from the date of filing (the “Effectiveness
Deadline”), and to keep such Registration Statement continuously effective
under the Securities Act until the earlier of (i) the date on which all
Shares covered by the Registration Statement may be sold without volume
restrictions pursuant to either Rule 144 or Rule 144(k) as determined by
counsel to the Company pursuant to a written opinion letter to such effect,
addressed to the Company’s transfer agent and to IFC, or (ii) such date as
all Shares registered on such Registration Statement have been resold (the
earlier to occur of (i) or (ii) is the “Registration Termination Date”).


(a)           If
a Registration Statement ceases to be effective for any reason at any time
prior to the applicable Registration Termination Date, the Company shall use
its reasonable best efforts to reinstate the effectiveness thereof.


(b)           The
Company shall supplement and amend the Registration Statement if required by
the rules, regulations or instructions applicable to the registration form used
by the Company for such Registration Statement, if required by the Securities
Act or, to the extent to which the Company does not reasonably object, as
requested by IFC.


(c)           All
Registration Expenses incurred in connection with the registrations pursuant to
this Section 5.2 shall be borne by the Company. “Registration Expenses”
shall mean all expenses incurred by the Company in complying with this
Section 5.2  including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company and Selling Expenses, as defined
hereinafter). All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by IFC. “Selling Expenses” shall mean
all brokerage and selling commissions applicable to a sale of the Shares
pursuant to the Registration Statement.


(d)           The
Company may suspend sales of Shares pursuant to the Registration Statement for
a period of not more than thirty (30) days during any six (6) month
period in the event it determines in good faith that such Registration
Statement contains or may contain an untrue statement of material fact or omits
or may omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided that the Company shall
promptly amend such Registration Statement in order to correct any untrue
statement and/or ensure that such Registration Statement is not misleading;
provided further that subject to the time limitations set forth above, the Company
may delay such amendment if the Company determines that such delay is in the
best interest of the Company in order to avoid premature public announcements
of potential acquisitions or other extraordinary transactions. At the time the
Registration Statement is declared effective, IFC shall be named as a selling
securityholder in the Registration Statement and the related prospectus in such
a manner as to permit IFC to deliver such prospectus to purchasers of Shares in
accordance with applicable law.


(e)           The
Company shall promptly furnish to IFC, upon request and without charge, (A) any
correspondence from the SEC or the staff of the SEC to the Company or its
representatives relating to any Registration Statement, and (B) after the
same is prepared and filed with the SEC, one copy of any Registration Statement
and any amendment(s) thereto,



 13
 






 



including financial statements and schedules, all documents
incorporated therein by reference and all exhibits.


(f)            The
Company shall furnish to IFC such numbers of copies of a prospectus, including
a preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as it may reasonably request in order to
facilitate the disposition of the Shares owned by it.


(g)           The
Company shall use its reasonable best efforts to register and qualify the
securities covered by such registration statement under such other securities
or blue sky laws of such jurisdictions as shall be reasonably requested by IFC,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.


(h)           The
Company shall immediately notify IFC at any time when a prospectus relating to
a Registration Statement which covers the Shares is required to be delivered
under the Securities Act regarding the happening of any event as a result of
which the prospectus included in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits 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 then existing;
provided, however, that, subject to Section 5.2(d) the Company shall
promptly amend such Registration Statement in order to correct any untrue
statement and/or ensure that such Registration Statement is not misleading.


5.3           Piggyback Registration.


(a)           Whenever
the Company proposes to file a registration statement under the Securities Act
with respect to an offering of Common Stock (i) following the first anniversary
of the Closing Date, for the Company’s own account (other than a registration
statement on Form S-4 or S-8 (or any substitute form that may be adopted by the
SEC)), or (ii) at any time, for the account of any of its holders of Common
Stock, the Company shall give notice of such proposed filing to IFC as soon as
practicable (but in no event less than thirty (30) days before the anticipated
filing date); provided, however, if any Person other than the Company is
permitted to participate in an offering described in clause (i) prior to the
first anniversary of the Closing Date, the Company shall give notice of such
proposed filing to IFC.  Such notice shall
offer to IFC the opportunity to register such Shares as IFC may request on the
same terms and conditions as the Company’s or such holders’ Common Stock.  At the request of IFC received by the Company
within twenty days after the receipt of such notice by the Company, the Company
shall include, subject to the terms and conditions hereof, the number of Shares
that IFC shall have requested to be so included (a “Piggyback Registration”).  The Company shall require the lead or
managing underwriter, if any, of any proposed underwritten offering to permit
the Shares requested to be included in the Piggyback Registration to include
such securities on the same terms and conditions as are applicable to the other
securities included therein.


(b)           If
the registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise the IFC as a
part of the written notice given pursuant to Section 5.3(a).  In such event the right of IFC to



 14
 






 



registration pursuant to Section 5.3 shall be conditioned upon IFC’s
participation in such underwriting and the inclusion of IFC’s Shares in the
underwriting to the extent provided herein. 
IFC and all other Persons proposing to distribute their securities
through such under­writing shall (together with the Company and the other
Persons distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with a nation­ally recognized
underwriter selected for underwriting by the Company.  Notwithstanding anything to the contrary
contained herein, if the managing underwriter or underwriters of an offering
described in Section 5.3(a) shall advise the Company that the size of the
offering that IFC, the Company and/or any other Persons intend to make is such
that the success of the offering would be materially and adversely affected,
then the amount of securities to be offered for the account of IFC and for the
account of Persons other than the Company shall be reduced pro  rata
to the extent necessary to reduce the total amount of securities to be included
in such offering to the amount recommended by such managing underwriter or
underwriters.


5.4           Termination of Registration Rights.  All rights and obligations provided for in
Section 5.2 shall terminate on the date on which the Company has no
obligation to maintain the effectiveness of the Registration Statement;
provided that the rights of IFC under Section 5.2 shall terminate on the
earlier of (i) the date on which all Shares covered by the Registration
Statement may be sold without volume restrictions pursuant to either
Rule 144 or Rule 144(k) as determined by counsel to the Company pursuant
to a written opinion letter to such effect, addressed to the Company’s transfer
agent and to IFC, or (ii) such date as all Shares registered on such
Registration Statement have been resold.


5.5           Reports Under Securities Exchange Act of 1934.  With a view to making available to IFC the
benefits of Rule 144 and any other rule or regulation of the SEC that may
at any time permit IFC to sell securities of the Company to the public without
registration or pursuant to a Registration Statement, the Company agrees to:


(a)           use
its reasonable best efforts to make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times so
long as the Company remains subject to the periodic reporting requirements
under Sections 13 or 15(d) of the Exchange Act;


(b)           use
its reasonable best efforts to take such action as is necessary to enable IFC
to utilize Form S-1 or such other registration statement form as may be
applicable for the sale of its Shares;


(c)           use
its reasonable best efforts to file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act; and


(d)           furnish
to IFC, so long as IFC owns any Shares, forthwith upon request (i) a
written statement by the Company that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, or that it qualifies
as a registrant whose securities may be resold pursuant to Form S-1 (or such
other form as the Company is then eligible to use), (ii) a copy of the
most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as
may be



 15
 






 



reasonably requested in availing IFC of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.


5.6           Preemptive Right. 
IFC shall have the right to purchase its pro rata share of New
Securities (as defined in this Section 5.6) which the Company may, from time to
time, propose to sell and issue.  IFC’s
pro rata share, for purposes of this right, is the ratio of the Common Stock
and Stock Equivalents owned by it immediately prior to the issuance of New
Securities to all Common Stock and Stock Equivalents outstanding immediately
prior to the issuance of New Securities. 
This pre-emptive right shall be subject to the following provisions:


(a)           “New
Securities” shall mean any Common Stock or Stock Equivalents of the Company
whether now authorized or not, and securities of any type whatsoever that are,
or may become, convertible into, or exchangeable or exercisable for, Common
Stock or Stock Equivalents; provided that the term “New Securities” does not
include: (i) the Shares and any Common Stock issuable upon conversion, exercise
or exchange of Stock Equivalents issued as of the date hereof; (ii) Common
Stock issued or issuable in connection with any pro rata stock split or stock
dividend of the Company; (iii) Common Stock or Stock Equivalents issued
pursuant to the acquisition of another Person by the Company by merger,
purchase of all or substantially all of the assets of such Person or other
transaction whereby the Company shall become directly or indirectly the owner
of more than 50% of the voting power of such Person; or (iv) Common Stock
issued or issuable under the Company’s current Long-Term Incentive Compensation
Plan.


(b)           In
the event the Company proposes to undertake an issuance of New Securities, it
shall give to IFC certified written notice of its intention, describing the
type of New Securities, and their price and the general terms upon which the
Company proposes to issue the same.  IFC
shall have forty-five (45) days after any such notice is mailed or delivered to
agree to purchase its pro rata share of such New Securities for the price and
upon the terms specified in such notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.


5.7           IFC Policy Covenants.


(a)           The
Company and its Subsidiaries shall:


(i)            undertake
their Operations in compliance with (i) the Action Plan and (ii) the IFC
Performance Standards;


(ii)           periodically
review the form of the Annual Monitoring Report and advise IFC as to whether
revision of the form is necessary or appropriate in light of changes to the
Operations of the Company or any Subsidiary, or in light of environmental or social
risks identified by the Company’s S&E Management System, and revise the
form as agreed with IFC;


(iii)          use
all reasonable efforts to ensure the continuing operation of the S&E
Management System to assess and manage the social and environmental performance
of the Operations in compliance with the IFC Performance Standards;



 16














 


(iv)          within
sixty (60) days after the end of each fiscal year, deliver to IFC an Annual
Monitoring Report confirming compliance with the Action Plan, the social and
environmental covenants set forth in this Section 5.7 and Applicable S&E
Law or, as the case may be, identifying any non-compliance or failure, and the
actions taken to remedy any such deficiency, in form and substance satisfactory
to IFC; provided the Company may supplement any Annual Monitoring Report with
such information as may be useful to enhance its clarity and/or to better
illustrate the Company’s performance over time (e.g., charts, graphs);


(v)           within
three days after its occurrence, notify IFC of any social, labor, health and
safety, security or environmental incident, accident or circumstance having, or
which could reasonably be expected to have, any material impact on the
implementation or operation of the Operations in compliance with the IFC
Performance Standards or a Material Adverse Effect, specifying in each case the
nature of the incident, accident, or circumstance and the impact or effect
arising or likely to arise therefrom, and the measures the Company is taking or
plans to take to address them and to prevent any future similar event; and keep
IFC informed of the on-going implementation of those measures;


(vi)          not
amend the Action Plan in any material respect without the prior written consent
of IFC; and


(vii)         not
undertake, or invest in any Person engaged in, any of the activities set forth
on Annex B.


(b)           The
Company hereby agrees that no party hereto shall make (and no party hereto
shall authorize or permit any Affiliate or any other Person acting on its
behalf to make) any Prohibited Payment. 
Each of the parties hereto further covenants that should IFC notify the
Company of its concern that there has been a violation of the provisions of
this paragraph, the Company shall cooperate in good faith with it and its
representatives in determining whether such a violation has occurred, and shall
respond promptly and in reasonable detail to any notice from IFC, and shall
furnish documentary support for such response upon IFC’s request.


(c)           The
Company will disclose the tax, royalty and other material payments made
annually by the Company or any Affiliate to local and/or national governments
in the Republic of Peru or the Republic of Ecuador under the applicable
upstream license contracts.


5.8           Minimum Insurance. 
The Company shall cause its operations in Peru to effect and maintain
the insurance coverage specified in Annex C at all appropriate and necessary
times during the period in which the IFC owns Common Stock, under forms of
policies and with insurers and reinsurers acceptable to IFC.


5.9           Minority
Rights.  So long as IFC holds Shares comprising 5% or
more of the Common Stock, neither the Company nor its Subsidiaries shall
approve, authorize or enter into a transaction with respect to any of the
following without the prior written consent of IFC (such consent not to be
unreasonably withheld):



 17
 






 



(a)           the
consolidation or merger of the Company or any Subsidiary; provided that IFC’s
consent will not be required in the case of a merger of the Company if the
shareholders of the Company immediately preceding such merger continue to hold
more than 50% of the equity of the surviving entity, or in the case of a merger
of a Subsidiary of the Company, the surviving entity in such merger continues
to be a Subsidiary of the Company;


(b)            the
sale of all or substantially all of the assets of the Company or any
Subsidiary; provided that IFC’s consent will not be required in the case of the
sale of assets to a direct or indirect Subsidiary of the Company;


(c)           the
transformation of the Company or any Subsidiary into another form of entity; or


(d)            change
the nature of the Company’s or any of its Subsidiaries’ business as currently
conducted.


5.10         Most Favored Nation (MFN) Status.  If the Company enters into any subscription
agreement, stock purchase agreement or other agreement on or after the date
hereof and prior to the Closing to or with any Person that establishes rights
or benefits in favor of such Person with respect to the acquisition of Common
Stock or Stock Equivalents that are more favorable in any material respect to
such Person than the rights and benefits established in favor of IFC herein, the
Company will extend to IFC such rights and benefits established by such
subscription agreement, stock purchase agreement  or other agreement.


5.11         Use of Proceeds. 
The Company shall not use the proceeds of the subscription of the Shares
by IFC in reimbursement of, or for expenditures in the territories of any
country which is not a member of the World Bank or for goods produced in or
services supplied from any such country.


Section 6.  Indemnification.


6.1           Indemnification. 
The Company will indemnify and hold harmless IFC, its officers,
directors, employees, partners, affiliates, agents, representatives and legal
counsel (collectively, “IFC Agents”) with respect to which registration,
qualification or compliance has been effected pursuant to Section 5.2 or
5.3, against all claims, losses, damages and liabilities (or actions in respect
thereof) against or incurred by IFC or IFC Agents arising out of or based on
(A) (i) any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other similar document or any amendments or supplements thereto (including any
related registration statement and amendments or supplements thereto,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, and will reimburse IFC and IFC Agents for any reasonable legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damages, liability or action, as incurred, or
(ii) any violation by the Company of any federal, state or common law rule
or regulation applicable to the Company in connection with any such
registration, qualification or



 18
 






 



compliance, and will reimburse IFC, and IFC
Agents, for any legal and any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action; and (B) any breach of any covenant, agreement, representation or
warranty of the Company in this Agreement; provided, however, that the
Company shall not be liable under this Section 6: (a) in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by an instrument duly executed by
IFC and stated to be specifically for use in a Registration Statement,
(b) for any amount paid in settlement of claims without the Company’s
written consent (which consent shall not be unreasonably withheld), or
(c) with respect to clause (B) of this Section 6.1, to the extent that it
is finally judicially determined that such claim, loss, damage, liability or
expense resulted primarily from the willful misconduct, gross negligence or bad
faith of IFC; provided, further, that if and to the extent that such
indemnification is held, by final judicial determination to be unenforceable,
in whole or in part, for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of such indemnified claim, loss,
damage, liability or expense.  In
connection with the obligation of the Company to indemnify for expenses as set
forth in clause (B) of this Section 6.1, if an indemnified party is reimbursed
hereunder for any expenses, such reimbursement of expenses shall be refunded to
the extent it is finally judicially determined that the claim, loss, damage,
liability or expense in question resulted primarily from the willful
misconduct, gross negligence or bad faith of such indemnified party.


6.2           Notification; Procedure.


(a)           IFC
shall give notice to the Company promptly after it has received written notice
of any claim as to which indemnity may be sought, and shall permit the Company
to assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Company, who shall conduct the defense of such
claim or litigation, shall be approved by IFC (whose approval shall not be
unreasonably withheld).  IFC may
participate in such defense with separate counsel at its expense; provided,
however, that the Company shall bear the expense of such separate counsel if
representation of both parties by the same counsel would be inappropriate due
to actual or potential conflicts of interest between the Company and IFC.  The failure of IFC to give notice within a
reasonable period of time as provided herein shall relieve the Company of its
obligations under this Section 6, with respect to any expenses incurred by
IFC or IFC’s Agents before the date of such notice and to the extent that such
failure to give notice shall materially adversely prejudice the Company in the
defense of any such claim or any such litigation.  The Company, in the defense of any such claim
or litigation, shall not, except with the consent of IFC, 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 IFC of a
release from all liability in respect to such claim or litigation.


(b)           If
the indemnification provided for in this Section 6 is held to be
unavailable to IFC with respect to any loss, liability, claim, damage or
expense, then the Company, in lieu of indemnifying IFC hereunder, shall
contribute to the amount paid or payable by IFC as a result of such loss,
liability, claim, damage, or expense in such proportion as is appropriate to
reflect the relative fault of the Company on the one hand and of IFC on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage or expense as well as any other relevant
equitable considerations; provided, that in no event shall



 19
 






 



any contribution by IFC under this Section 6 exceed the net
proceeds from the offering received by IFC. The relative fault of the Company
and of IFC shall be determined 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 Company or by IFC and
the parties’ relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.


(c)           All
indemnification rights hereunder shall survive the execution and delivery of
the Transaction Documents and the subscription contemplated herein for the
applicable statute of limitations, notwithstanding any inquiry or examination
made for or on behalf of, or any knowledge of IFC or the acceptance by IFC of
any certificate or opinion.


(d)           IFC
shall furnish to the Company such information regarding IFC and the
distribution proposed by IFC as the Company may reasonably request in writing
and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 6.


Section 7.  Survival of Representations and Warranties.  All representations, warranties and
agreements made by the Company and IFC in this Agreement or in any certificate
or other instrument delivered pursuant hereto shall survive the Closing and any
investigation and discovery by the Company or by IFC, as the case may be, made
at any time with respect thereto.


Section 8.  Miscellaneous Provisions.


8.1           Deliveries. 
The Company and IFC hereby covenant and agree to use their respective
reasonable best efforts to perform each of their obligations hereunder, to
deliver all certificates and to satisfy all other conditions set forth in this
Agreement and to close the transactions contemplated by this Agreement on the
Closing Date.


8.2           Successors and Assigns.  This Agreement is executed by, and shall be
binding upon and inure to the benefit of, the parties hereto and each of their
respective successors and assigns; provided, however, that
neither this Agreement nor any right pursuant hereto nor interest herein shall
be assignable except (a) by the Company with the consent of IFC, (b) by
the Company in connection with a merger, consolidation or sale of all or
substantially all of its assets, (c) by IFC with the prior written consent
of the Company or (d) the assignment of the rights of IFC set forth in
Sections 5.1 through 5.6 by IFC in connection with a sale or other transfer of
the Shares.  None of the provisions of
this Agreement shall be for the benefit of or enforceable by any other person.


8.3           Notices.  All
notices, demands and other communications provided for or permitted hereunder
shall be made in writing and shall be by registered or certified first-class
mail, return receipt requested, telecopier, courier service or personal
delivery:



 20
 






 



if to IFC at the following address:


International Finance
Corporation

2121 Pennsylvania Avenue, N.W.

Washington, D.C. 20433

United States of America

Facsimile:  +1 (202) 974-4768 

Attention:  Director

Oil Gas, Mining and Chemicals Department


	
  if to the Company at the
  following address:

  	
   

  	
  with a copy to:

  
	
  BPZ Energy, Inc.

  	
   

  	
  Adams and Reese LLP

  
	
  580 Westlake
  Park Blvd., Suite 525

  	
   

  	
  4400 One Houston Center

  
	
  Houston, Texas
  77079

  	
   

  	
  1221 McKinney

  
	
  Attn: Vice
  President — Finance and Chief

  	
   

  	
  Houston, Texas 77010

  
	
  Accounting
  Officer, Corporate Secretary

  	
   

  	
  Attn: Mark W. Coffin

  
	
  Fax: (281) 556-6377

  	
   

  	
  Fax: (713) 652-5152

  



 


All such notices and
communications shall be deemed to have been duly given: when delivered by hand,
if personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five business days after being deposited in the
mail, postage prepaid, if mailed; and when receipt is acknowledged, if
telecopied.


8.4           Expenses. 
The Company shall pay to IFC or as IFC may direct the fees and expenses
of IFC and its counsel incurred in connection with:


(a)           the preparation and/or review,
execution and, where appropriate, registration of this Agreement and any other
documents related to this Agreement;


(b)           the giving of any legal opinions
expressly required by IFC in this Agreement; and


(c)           any amendment, supplement or
modification to, or waiver under, this Agreement.


8.5           Counterparts; Facsimile Signature Pages.  This Agreement may be executed by facsimile
signatures. This Agreement may be executed in any number of counterparts, and
each such counterpart will for all purposes be deemed an original, and all such
counterparts shall constitute one and the same instrument.


8.6           Governing Law; Forum.


(a)           This
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of New York applicable to contracts entered into and to
be wholly performed therein.



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(b)           Any
dispute, controversy or claim arising out of, relating to, or in connection
with this Agreement, including any question regarding its existence, validity
or termination, shall be referred to and finally resolved by arbitration.  The arbitration shall be conducted in
accordance with the Rules of Arbitration of the International Chamber of
Commerce (the “ICC”) in effect at the time the arbitration is initiated, except
as they may be modified herein or by mutual agreement of the parties.  The place of arbitration shall be New York,
New York.  The arbitration shall be
conducted in the English language.


(c)           The
arbitration shall be conducted by three arbitrators.  The claimant shall nominate one arbitrator
and the respondent shall nominate another arbitrator.  If either side fails to nominate an
arbitrator within 30 days of receipt of the request for arbitration,  then that arbitrator shall be nominated by
the ICC.  The first two arbitrators
nominated in accordance with this provision shall nominate a third arbitrator
within 30 days after the nomination of the later-nominated of those two
arbitrators.  When the third arbitrator
has accepted the nomination, the two arbitrators making the nomination shall
promptly notify the parties of the nomination. 
If the first two arbitrators nominated fail to (i) nominate a third
arbitrator within the time period prescribed above or (ii) notify the parties
of the acceptance of a third arbitrator within 10 days after the time period
prescribed above, then the ICC shall nominate the third arbitrator and shall
promptly notify the parties of the nomination. 
The third arbitrator shall act as chair of the tribunal.


(d)           The
arbitration tribunal shall have the authority to make such orders for interim
relief, including injunctive relief, as it may deem appropriate, and any
interim measures ordered by the arbitrators shall be specifically enforced by
any court of competent jurisdiction. 
Each party hereto retains the right to seek interim measures from a
judicial authority, and any such request shall not be deemed incompatible with
the agreement to arbitrate or a waiver of the right to arbitrate.  The parties agree that, to the extent
permitted by applicable law, any ruling by the arbitration tribunal on interim
measures shall be deemed to be a final award with respect to the subject matter
of the ruling and shall be fully enforceable as such.


(e)           Subject
to paragraph (h) below, the arbitration tribunal shall have the authority to
order such production of documents as may reasonably be requested by any party
or by the tribunal itself.


(f)            The
arbitration award shall be in writing, state the reasons for the award, and be
final and binding on the parties.  The
award may include an award of costs, including reasonable attorneys’ fees and
disbursements.  Judgment upon the award
may be entered by any court having jurisdiction thereof or having jurisdiction
over the relevant party or its assets.


(g)           Each
party shall use its commercially reasonable efforts to ensure the arbitration
is concluded as quickly and as efficiently as possible.


(h)           Notwithstanding
anything to the contrary contained in this Section 8.6, the parties acknowledge
and agree that neither any provision of this Section 8.6 nor the submission by
IFC to any courts of competent jurisdiction pursuant thereto shall constitute a
waiver either before any Authority or court of law of any of the privileges and
immunities set



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forth in IFC’s Articles of Agreement, including without limitation (i)
the immunity of all of the assets of IFC from all forms of seizure, attachment
or execution before the delivery of final judgment against IFC, (ii) the
immunity of all of the assets of IFC from search, requisition, confiscation,
expropriation or any other forms of seizure by executive or legislative action,
(iii) the inviolability of IFC’s archives and (iv) the freedom of IFC’s assets
from restrictions of any nature.


(i)            To
the extent that the Company may, in any proceeding brought arising out of or in
connection with this Agreement, or the breach, termination or invalidity
hereof, be entitled to the benefit of any provision requiring IFC in such suit,
action or proceeding to post security for the costs of such party or parties,
or to post a bond or to take similar action, the Company hereby irrevocably
waives such benefit, in each case to the fullest extent now or in the future
permitted under the applicable laws and regulations.


8.7           Attorneys’ Fees. 
If any party should institute any action to enforce or interpret any
term or provision of this Agreement, the party prevailing in such action, after
all appeals have been exhausted, shall be entitled to its reasonable attorneys’
fees, out-of-pocket disbursements and all other expenses from the
non-prevailing party in such action.


8.8           Entire Agreement. 
This Agreement (together with all Exhibits and Schedules hereto)
constitutes the entire understanding and agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior and
contemporaneous written and oral negotiations, discussions, agreements and
understandings with respect to such subject matter.


8.9           Section Headings.  The section and subsection headings contained
in this Agreement are included for convenience only and form no part of the
agreement between the parties.


8.10         Amendment.  Any
amendment of any provision of this Agreement shall be in writing and signed by
all parties.


8.11         Remedies and Waivers. 
No failure or delay by IFC in exercising any power, remedy, discretion,
authority or other rights under this Agreement shall waive or impair that or
any other right of IFC.  No single or
partial exercise of any right shall preclude its additional or future exercise.
No such waiver shall waive any other right under this Agreement.  All waivers or consents given under this
Agreement shall be in writing.


8.12         Interpretation. 
IFC and the Company have participated in the negotiation and drafting of
this Agreement. Accordingly, each of the parties hereby waives any statutory
provision, judicial precedent or other rule of law to the effect that
contractual ambiguities are to be construed against the party who shall have
drafted the same.


8.13         Severability. 
Whenever possible, each provision of this Agreement shall be interpreted
in such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be or become prohibited or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement, except to the



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extent that any provision would clearly be
contemplated by the parties to be conditioned upon the validity and
enforceability of such invalid or prohibited provision.


8.14         Public Announcements. 
The Company may, at its option, issue a press release regarding the
closing of this offering within a reasonable period after the Closing. Except
for such disclosure as the Company is advised by counsel is required to be
included in documents filed with the Securities and Exchange Commission or
otherwise required by law, the Company shall not use the name of, or make
reference to, IFC or any of its Affiliates in any press release or in any
public manner (including any reports or filings made by the Company under the
Exchange Act) without IFC’s prior written consent which consent shall not be
unreasonably withheld.


8.15         Additional Undertakings.  The Company hereby agrees to take whatever
additional action and to execute whatever additional documents IFC may
reasonably deem necessary or advisable in order to carry out or effect one or
more of the obligations or restrictions imposed on the parties hereto pursuant
to the express provisions of this Agreement.


8.16         English Language. 
All documents to be furnished or communications to be given or made
under this Agreement shall be in the English language or, if in another
language, shall be accompanied by a translation into English certified by an
authorized officer of the Company, which translations shall be the governing
version between the Company and IFC.


8.17         Definitions. 
Wherever used in this Agreement, unless the context otherwise requires,
terms defined in the Recitals shall have the same meanings unless otherwise
defined herein, and the terms set forth on Annex A hereto shall have meanings
indicated thereon.



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IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed and delivered by their respective representatives
hereunto duly authorized as of the date first above written.


BPZ ENERGY, INC.,

a Colorado corporation


By:
         /s/ Manuel Pablo
Zúñiga-Pflücker    


Name:  Manuel Pablo Zúñiga-Pflücker

Title:  President and Chief Executive
Officer

580 Westlake Park Blvd., Suite 525

Houston, Texas 77079


INTERNATIONAL FINANCE
CORPORATION


By:
         /s/ Rashad-Rudolf Kaldany                


Name:  Rashad-Rudolf Kaldany

Title:  Director

Oil Gas, Mining and Chemicals Department



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ANNEX A


Definitions


“Action Plan” shall mean the plan or plans developed by the Company
setting out specific social and environmental measures to be undertaken by the
Company, to enable the Operations to comply with the IFC Performance Standards,
as such may be amended or supplemented from time to time with IFC’s consent.


“Affiliate” shall mean with respect to any Person, shall mean any
Person that, along or together with any other Person, directly or indirectly,
Controls, is Controlled by, or is under common Control with, such Person.


“Annual Monitoring Report” shall mean the annual monitoring report
setting forth the specific social, environmental and developmental impact
reporting requirements of the Company and its Subsidiaries in respect of their
Operations, as such may be amended or supplemented from time to time with IFC’s
consent.


“Applicable S&E Law” shall mean all applicable statutes, laws,
ordinances, rules and regulations of the Republic of Peru and Republic of
Ecuador, including but not limited to any license, permit or other governmental
Authority imposing liability or setting standards of conduct concerning any
environmental, social, labor, health and safety or security risks of the type
contemplated by the IFC Performance Standards.


“Authority” shall mean any
national, supranational, regional or local government or governmental,
administrative, fiscal, judicial, or government-owned body, department,
commission, authority, tribunal, agency or entity, or central bank (or any
Person, whether or not government owned and howsoever constituted or called,
that exercises the functions of a central bank).


“Control” shall mean the possession, directly or indirectly, by a
Person of the power to direct or cause the direction of the management and
policies of another Person through the ownership of voting securities or
otherwise; provided that the direct or indirect ownership of more than
twenty-five percent (25%) of the voting share capital of a Person is deemed to
constitute control of that Person, and “Controlling” and “Controlled” have
corresponding meanings; provided, further, that in no event shall
IFC be deemed to control the Company as a result of this definition or
otherwise.


“Co-Sale Agreement” shall mean the Co-Sale Agreement to be entered into
between IFC, the Company, Manuel Pablo Zúñiga-Pflücker and Fernando Zúñiga y
Rivero on the Closing Date.


“Encumbrance” shall mean any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right of way,
encroachment, private building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other
title.



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“IFC Performance Standards” shall mean IFC’s Performance Standards on
Social & Environmental Sustainability, dated April 30, 2006, copies of
which have been delivered to and receipt of which have been acknowledged by the
Company.


“Material Adverse Effect” shall mean a material adverse effect on (i)
the Company’s (on a fully consolidated basis) business prospects, results of
operations, or financial condition; or (ii) the validity or enforceability of,
or the ability of the Company (on a fully consolidated basis) to comply with
its obligations under this Agreement or any other Transaction Document.


“Official” shall mean any officer of a political party or candidate for
political office in the Republic of Peru or the Republic of Ecuador or any
officer or employee (i) of the central, state or local government (including
any legislative, judicial, executive or administrative department, agency or
instrumentality thereof) or (ii) of a public international organization.


“Operations” shall mean the operations, activities and facilities of
the Company and its Subsidiaries (including the design, construction,
operation, maintenance, management and monitoring thereof, as applicable).


“Person” shall mean any natural person, corporation, company,
partnership, firm, voluntary association, joint venture, trust, unincorporated
organization, Authority or any other entity whether acting in an individual,
fiduciary or other capacity.


“Prohibited Payments” shall mean any offer, gift, payment, promise to
pay or authorization of the payment of any money or anything of value, directly
or indirectly, to or for the use or benefit of any Official (including to or
for the use or benefit of any other Person if the Company knows, or has
reasonable grounds for believing, that the other Person would use such offer,
gift, payment, promise or authorization of payment for the benefit of any such
Official), for the purpose of influencing any act or decision or omission of
any Official in order to obtain, retain or direct business to, or to secure any
improper benefit or advantage for, the Company, its Affiliates or any other
Person; provided that any such offer, gift, payment, promise or authorization
of payment shall not be considered a Prohibited Payment if, in IFC’s reasonable
opinion, it (i) is lawful under applicable written laws and regulations or (ii)
is made for the purpose of expediting or securing the performance of a routine
governmental action (as such term is construed under applicable law).


“S&EA” shall mean the social and environmental assessment of the
Operations, prepared by the Company in accordance with the IFC Performance
Standards.


S&E Management System” shall mean the social and environmental
management system of the Company that enables the Company to identify, assess
and manage risks in respect of the Operations on an ongoing basis.


“Stock Equivalents” shall mean preference shares, bonds, loans,
warrants or other similar instruments or securities which are convertible into
or exercisable or exchangeable for, or which carry a right to subscribe for or
purchase, Common Stock of the Company convertible into or exercisable or
exchangeable for Common Stock, in each case, on an as converted basis.



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“Subsidiary” shall mean, with respect to any Person, (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at the time stock of any class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is owned by such Person directly or
indirectly through one or more Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
directly or indirectly through one or more Subsidiaries of such Person has more
than a 50% equity interest.


“Transaction Documents” shall mean the Articles of Incorporation of the
Company, the Co-Sale Agreement, this Agreement, and all exhibits, schedules,
and certificates attached or delivered pursuant thereto.


“World Bank” shall mean the International Bank for Reconstruction and
Development, an organization established by Articles of Agreement among its
member countries.


In addition to the terms defined above, the
following terms shall have the respective meanings assigned thereto in the
Sections indicated below.


	
  Defined Term

  	
   

  	
   

  	
   

  	
  Section

  	
   

  	
  Defined Term

  	
   

  	
   

  	
   

  	
  Section

  
	
  Agreement

  	
   

  	
  Preamble

  	
   

  	
  Piggyback Registration

  	
   

  	
  §5.3(a)

  
	
  Balance Sheet
  Date

  	
   

  	
  §2.9

  	
   

  	
  Plan

  	
   

  	
  §2.15

  
	
  Closing

  	
   

  	
  §1.1

  	
   

  	
  Proprietary Rights

  	
   

  	
  §2.18

  
	
  Closing Date

  	
   

  	
  §1.1

  	
   

  	
  Public Filings

  	
   

  	
  §2.24

  
	
  Common Stock

  	
   

  	
  Recitals

  	
   

  	
  Public Filing Rules

  	
   

  	
  §2.24

  
	
  Company

  	
   

  	
  Preamble

  	
   

  	
  Registration Expenses

  	
   

  	
  §5.2(c)

  
	
  Company
  Financial Statements

  	
   

  	
  §2.8

  	
   

  	
  Registration Statement

  	
   

  	
  §5.2

  
	
  Contractual
  Obligations

  	
   

  	
  §2.4

  	
   

  	
  Registration Statement
  Filing Deadline

  	
   

  	
  §5.2

  
	
  Effectiveness
  Deadline

  	
   

  	
  §5.2

  	
   

  	
  Registration
  Termination Date

  	
   

  	
  §5.2

  
	
  Exchange Act

  	
   

  	
  §2.24

  	
   

  	
  Related Party

  	
   

  	
  §2.22

  
	
  GAAP

  	
   

  	
  §2.8

  	
   

  	
  Requirement of Law

  	
   

  	
  §2.4

  
	
  ICC

  	
   

  	
  §8.6

  	
   

  	
  Rule 144

  	
   

  	
  §3.5

  
	
  IFC

  	
   

  	
  Preamble

  	
   

  	
  Selling Expenses

  	
   

  	
  §5.2(c)

  
	
  IFC Agents

  	
   

  	
  §6.1

  	
   

  	
  Shares

  	
   

  	
  §1.1

  
	
  Securities Act

  	
   

  	
  §1.2

  	
   

  	
  Subsidiary

  	
   

  	
  §2.1

  
	
  New Securities

  	
   

  	
  §5.6(a)

  	
   

  	
   

  	
   

  	
   

  
	
  November
  Registration Statement

  	
   

  	
  §2.25

  	
   

  	
   

  	
   

  	
   

  



 


 



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