<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ________)*
SHERIDAN ENERGY, INC.
- ------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $.01 per share
- ------------------------------------------------------------------------------
(Title of Class of Securities)
87 242 405 000
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(CUSIP Number)
Julia Heintz Murray, General Counsel - Finance
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, TX 77002
(713) 853-4794
- ------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
December 15, 1997
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(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
Page 1 of 8
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SCHEDULE 13D
CUSIP NO.: 87 242 405 000 PAGE 2 OF 8 PAGES
<TABLE>
<S> <C> <C> <C>
1 NAME OF REPORTING PERSON
S.S. OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Enron Capital & Trade Resources Corp.
- --------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS *
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
NUMBER OF -0-
SHARES --------------------------------------------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER
1,600,000 shares
EACH --------------------------------------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
-0-
PERSON ---------------------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
WITH 1,600,000 shares
- --------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,600,000 shares
- --------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
N/A
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
27.2 %
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14 TYPE OF REPORTING PERSON*
CO
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</TABLE>
Page 2 of 8
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SCHEDULE 13D
CUSIP NO.: 87 242 405 000 PAGE 3 OF 8 PAGES
<TABLE>
<S> <C> <C> <C>
1 NAME OF REPORTING PERSON
S.S. OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Enron Corp.
- --------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS *
WC
- --------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
- --------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES --------------------------------------------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER
1,600,000 shares
EACH --------------------------------------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
-0-
PERSON ---------------------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
WITH 1,600,000 shares
- --------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,600,000 shares
- --------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
N/A
- --------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
27.20%
- --------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3 of 8
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Item 1. Security and Issuer:
This statement relates to the Common Stock, par value $.01 per share
(the "Common Stock"), of Sheridan Energy, Inc., a Delaware corporation (the
"Issuer"). The address of the principal executive office of the Issuer is 1000
Louisiana, Suite 800, Houston, Texas 77002.
Item 2. Identity and Background:
This statement is being filed by (i) Enron Capital & Trade Resources
Corp., a Delaware corporation ("ECT"), whose principal business is the purchase
of natural gas, gas liquids and power through a variety of contractual
arrangements, marketing these energy products to local distribution companies,
electric utilities, cogenerators and both commercial and industrial end users,
and provision of risk management services, and (ii) Enron Corp., an Oregon
corporation ("Enron"), which is an integrated natural gas company that engages,
primarily through subsidiaries, in the gathering, transportation and wholesale
marketing of natural gas, the exploration for and production of natural gas and
crude oil, the production, purchase, transportation and worldwide marketing and
trading of natural gas liquids, crude oil and refined petroleum products, the
production and sale of cogenerated electricity and steam and the purchasing and
marketing of long-term energy-related commitments. ECT is a wholly-owned
subsidiary of Enron. ECT and Enron are referred to herein as the "Reporting
Entities".
The address of the principal business office of each of the Reporting
Entities is 1400 Smith Street, Houston, Texas 77002. Schedule I attached
hereto sets forth certain additional information with respect to each director
and each executive officer of ECT and Enron. The filing of this statement on
Schedule 13D shall not be construed as an admission that any person listed on
Schedule I hereto is, for the purposes of Section 13(d) or 13(g) of the
Securities Exchange Act of 1934, the beneficial owner of any securities covered
by this statement.
None of the Reporting Entities, nor, to their knowledge, any person
listed on Schedule I hereto, has been, during the last five years (a) convicted
of any criminal proceeding (excluding traffic violations or similar
misdemeanors) or (b) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, U.S.
federal or state securities laws or finding any violations with respect to such
laws.
Item 3. Source and Amount of Funds or Other Consideration:
On December 15, 1997, ECT purchased 1,600,000 shares of Issuer's
Common Stock par value $.01 per share (the "Common Stock"), for cash
consideration in the amount of $10,000,000. The source of the $10,000,000
consideration paid to Issuer for the Common Stock was working capital of ECT
and Enron.
Page 4 of 8
<PAGE> 5
Item 4. Purpose of Transaction:
The transaction described in Item 3 was a negotiated transaction with
the Issuer. The securities acquired by ECT were acquired for investment
purposes. ECT intends to review its investment in the Issuer on a continuing
basis and, depending upon the price of, and other market conditions relating
to, the Common Stock, subsequent developments affecting the Issuer, the
Issuer's business and prospects, other investment and business opportunities
available to ECT, general stock market and economic conditions, tax
considerations and other factors deemed relevant, may decide to increase or
decrease the size of its investment in Issuer (subject to the "standstill"
provision referenced herein).
The following transactions could result in the acquisition by ECT or
its affiliates of additional shares of Common Stock of the Issuer.
Proposed Acquisition of Additional Shares of Common Stock of the Issuer.
As of the date hereof, Grand Gulf Production, L.L.C. ("GGP", which is
not affiliated with the Reporting Entities or the Issuer) is negotiating
the sale of substantially all of its assets (the "Grand Gulf Assets") to
the Issuer in exchange for shares of the Issuer's Common Stock and
warrants to purchase shares of the Issuer's Common Stock, all of which
shares and warrants would be transferred to Joint Energy Development
Investments Limited Partnership ("JEDI"), an affiliate of the Reporting
Entities, in satisfaction of loans made by JEDI to GGP. In addition,
JEDI Hydrocarbon Investments I Limited Partnership ("JEDI I"), also an
affiliate of the Reporting Entities, is negotiating the sale of its
interest in the Grand Gulf Assets to the Issuer in exchange for shares
of the Issuer's Common Stock and warrants to purchase shares of the
Issuer's Common Stock (the sale of properties by GGP to the Issuer and
subsequent transfer of shares to JEDI by GGP in satisfaction of the
loan, and the sale of properties by JEDI I to the Issuer, are
collectively referred to as the "GGP Transactions"). Consummation of the
GGP Transactions would result in JEDI and JEDI I acquiring an aggregate
of 850,000 shares of the Issuer's Common Stock and warrants (which may
be exercised immediately upon issuance) to purchase an additional
150,000 shares of the Issuer's Common Stock; accordingly, upon
consummation of the GGP Transactions, ECT, JEDI I and JEDI would
collectively have beneficial ownership of 2,600,000 shares, or 37.78%,
of the Issuer's issued and outstanding Common Stock.
Option to Acquire Additional Shares of Common Stock of the Issuer.
Pursuant to the Stock Purchase Agreement, ECT acquired an option to
purchase an additional 165,000 shares of the Issuer's Common Stock at
par value in the event the GGP Transactions were not consummated by
January 15, 1998. Exercise of this option would increase ECT's
beneficial ownership to 1,765,000 shares, or 29.19%, of the Issuer's
issued and outstanding Common Stock.
The following transactions could result in the acquisition by ECT or
its affiliates of additional shares of Common Stock of the Issuer:
Acquisition of Preferred Stock of the Issuer. Contemporaneously with
the acquisition by ECT of the Issuer's Common Stock as described herein,
ECT also acquired 1,000,000 shares of the Issuer's Series A Preferred
Stock (the "Preferred Stock") for a purchase price of $10,000,000. The
terms of the Preferred Stock, set forth in the Certificate of
Designation that is included herewith as Exhibit 4, include certain
obligations to pay dividends in respect of the Preferred Stock and
redeem the Preferred Stock in certain circumstances.
Page 5 of 8
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The consent of the holders of the 66 2/3% of the shares of Preferred
Stock is required to, among other things, (i) increase or decrease the
aggregate number of authorized shares of the Preferred Stock, (ii)
exchange, reclassify, or cancel all or part of the Preferred Stock,
(iii) change the designations, powers, preferences, relative and other
special rights, or the qualifications, limitations or restrictions of
the Preferred Stock, (iv) issue additional securities convertible into
or exchangeable for, or reclassify any other securities into, shares of
the Preferred Stock, (v) create any security ranking senior to or on a
parity with (with respect to voting or dividends or upon liquidation,
dissolution or winding up) the Preferred Stock, (vi) approve any
material change in the principal business of the Corporation or (vii)
pay a dividend or distribution of cash or property in respect of, or
redeem, repurchase otherwise acquire, any "Junior Security" (as defined
in the Certificate of Designation, but including the Issuer's Common
Stock).
In the event of a default by the Issuer of its dividend or redemption
obligations under the terms of the Preferred Stock, the holders of the
Preferred Stock may elect that number of directors constituting a
majority of the Issuer's Board of Directors, and may require the Issuer
to redeem the Preferred Stock held by such holder at the "Mandatory
Redemption Price" (as defined in the Certificate of Designation). In
the event of a "Change of Control" of the Issuer (as defined in the
Certificate of Designation), the holders of the Preferred Stock may
require the Issuer to redeem the Preferred Stock held by such holder at
the Mandatory Redemption Price (as defined in the Certificate of
Designation).
Agreement with respect to election of Board of Directors of Issuer. As
described in more detail in Item 6 below, pursuant to the Stock Purchase
Agreement, ECT acquired the right to appoint up to two members of the
Issuer's Board of Directors, which is currently comprised of five
members and could be expanded to seven members to accommodate ECT's
designees. In connection therewith, pursuant to a Shareholders'
Agreement between ECT and Jeffrey E. Susskind (Chairman of the Board of
the Issuer and holder of 1,000,037 shares of the Issuer's Common Stock)
and his spouse, ECT and its affiliates agreed to vote shares of the
Issuer's Common Stock held by them in favor of the current members of
the Board of Directors, and the Susskinds agreed to vote shares of the
Issuer's Common Stock held by them in favor of ECT's nominees to the
Board of Directors. Pursuant to the Stock Purchase Agreement, the
Issuer agreed to not increase the size of the Board of Directors beyond
seven members (including ECT's designees) unless necessary to ensure
that such designees attained their positions on the Board of Directors.
ECT and Enron disclaim beneficial ownership of any shares of Common
Stock held by the Susskinds.
"Standstill" Agreement. As described in more detail in Item 6 below,
ECT agreed that none of ECT, JEDI, JEDI I nor their respective
subsidiaries would (i) purchase additional shares of the Issuer's
Common, except pursuant to the GGP Transactions, the option described
above, and certain other permitted transactions, or (ii) make or
participate in a solicitation of proxies to vote shares of the Issuer's
Common Stock.
Other than the transactions described herein, none of the Reporting
Entities nor to their knowledge, any person listed on Schedule I hereto, has
any plan or proposal that would result in any of the consequences listed in
paragraphs (a) - (j) of Item 4 of Schedule 13D.
Page 6 of 8
<PAGE> 7
Item 5. Interest in Securities of the Issuer:
As of the date of this report, ECT beneficially owns and has the sole
power to vote and dispose of 1,600,000 shares of the Common Stock, which
represents approximately 27.2% of the Issuer's Common Stock outstanding as of
the date hereof. Because ECT is an direct, wholly owned subsidiary of Enron,
Enron may also be deemed to beneficially own such shares. Enron disclaims
beneficial ownership of all such shares.
Other than the transactions described herein, none of the Reporting
Entities nor to their knowledge, any person listed on Schedule I hereto,
effected any transactions in shares of Common Stock of the Issuer during the
preceding sixty days.
Item 6. Contracts, Arrangements, Understanding or Relationships With Respect
to Securities of the Issuer:
Agreement with respect to election of Board of Directors of Issuer. The
Issuer's Board of Directors is currently comprised of five members. Pursuant to
the Stock Purchase Agreement, ECT has the right to appoint (i) two designees to
the Issuer's Board of Directors if ECT and its affiliates hold in excess of 14%
of the Issuer's Common Stock and (ii) one designee if ECT and its affiliates
hold in the range of 7% through 14% of the Issuer's Common Stock. Pursuant to
a Shareholders' Agreement between ECT and Jeffrey E. Susskind (Chairman of the
Board of the Issuer and holder of 1,000,037 shares of the Issuer's Common Stock)
and his spouse, ECT and its affiliates agreed to vote Issuer Common Stock held
by them in favor of the current members of the Board of Directors, and the
Susskinds agreed to vote Common Stock held by them in favor of ECT's designees
to the Board of Directors. The Shareholders' Agreement terminates at the
earlier of (i) the date that ECT no longer holds 7% of the Issuer's Common Stock
and (ii) December 15, 1999. ECT and Enron disclaim beneficial ownership of the
shares of Common Stock of the Issuer held by the Susskinds. ECT has the right to
appoint (i) two persons as observers to the Issuer's Board of Directors if ECT
and its affiliates hold in excess of 14% of the Issuer's Common Stock and (ii)
one person as an observer if ECT and its affiliates hold in the range of 7%
through 14% of the Issuer's Common Stock.
"Standstill" Agreement. Pursuant to the Stock Purchase Agreement,
ECT, JEDI and JEDI I and their respective subsidiaries affiliates agreed, for a
period of two years, (i) to not acquire additional shares of the Issuer's
Common Stock (other than in transactions approved by the Issuer's Board of
Directors, pursuant to the GGP Transactions or the option described above, and
certain inadvertent purchases), and (ii) to not make or participate in a
solicitation of proxies to vote or form a "group" for such purpose. This
provision of the Stock Purchase Agreement terminates in the event ECT's
designees are not elected to the Issuer's Board of Directors as required by the
Stock Purchase Agreement.
Certain demand and piggyback registration rights granted to ECT and
certain of its assignees by the Issuer are set forth in the Stock Purchase
Agreement.
Page 7 of 8
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Item 7. Material to be Filed as Exhibits:
<TABLE>
<S> <C>
Exhibit 1: Stock Purchase Agreement dated as of November 28, 1997 between the Issuer and ECT.
Exhibit 2: First Amendment to Stock Purchase Agreement dated as of December 15, 1997 between Issuer and
ECT.
Exhibit 3: Shareholders' Agreement dated as of December 15, 1997 among the Issuer, Jeffrey E. Susskind and
Janis Susskind and ECT.
Exhibit 4: Certificate of Designation, Preferences and Rights of Series A Preferred Stock.
</TABLE>
After reasonable inquiry and to the best knowledge and belief of the
undersigned, the undersigned certify that the information set forth in this
statement is true, complete and correct.
<TABLE>
<S> <C>
Date: December 23, 1997 ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ Peggy S. Menchaca
Name: Peggy S. Menchaca
Title: Vice President and Secretary
Date: December 23, 1997 ENRON CORP.
By: /s/ Peggy S. Menchaca
Name: Peggy S. Menchaca
Title: Vice President and Secretary
</TABLE>
Page 8 of 8
<PAGE> 9
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
ENRON CAPITAL & TRADE RESOURCES CORP.
<TABLE>
<CAPTION>
Name and Business Address Citizenship Position and Occupation
------------------------- ----------- -----------------------
<S> <C> <C>
1400 Smith Street
Houston, TX 77002
Mark A. Frevert U.S.A. Director; President - ECT Europe and Managing
Director
Mark E. Haedicke U.S.A. Director; Managing Director - Legal
Kevin P. Hannon U.S.A. Director; President and Chief Operating
Officer
Kenneth D. Rice U.S.A. Director; Chairman of the Board, Chief
Executive Officer and Managing Director;
Chairman and Chief Executive Officer - ECT
North America
Gene E. Humphrey U.S.A. Vice Chairman
Amanda K. Martin U.S.A. President - Energy and Finance Services
William O. Butler U.S.A. Managing Director
John B. Echols, Jr. U.S.A. Managing Director and Chief Accounting Officer
John J. Esslinger U.S.A. Director, Vice Chairman and Managing Director
Stephen A. Smaby U.S.A. Managing Director
Donald C. Bentley II U.S.A. Senior Vice President
Marty Sunde U.S.A. Senior Vice President
</TABLE>
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<TABLE>
<S> <C> <C>
Brian J. Barrington U.S.A. Vice President
Kevin W. Beasley U.S.A. Vice President
Philippe A. Bibi U.S.A. Vice President
Donald W. Black U.S.A. Vice President
Raymond M. Bowen U.S.A. Vice President
Harold G. Buchanan U.S.A. Vice President
Thomas M. Buiocchi U.S.A. Vice President
David K. Carboneau U.S.A. Vice President
Rebecca C. Carter U.S.A. Vice President and Chief Control
Officer
W. Craig Childers U.S.A. Vice President
David Cox U.S.A. Vice President
Wanda C. Curry U.S.A. Vice President
Michel Decnop U.S.A. Vice President
David W. Delainey Canada Vice President
Timothy J. Detmering U.S.A. Vice President
Janet R. Dietrich U.S.A. Vice President
Richard G. DiMichele U.S.A. Vice President
Raymond W. Doshier U.S.A. Vice President
James I. Ducat U.S.A. Vice President
William D. Duran U.S.A. Vice President
Jay L. Fitzgerald U.S.A. Vice President
Craig A. Fox U.S.A. Vice President
Dana R. Gibbs U.S.A. Vice President
</TABLE>
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<TABLE>
<S> <C> <C>
P. Stinson Gibner U.S.A. Vice President
Thomas S. Glanville U.S.A. Vice President
Monte L. Gleason U.S.A. Vice President
Julie A. Gomez U.S.A. Vice President
Eric Gonzales U.S.A. Vice President
John C. Gorman Canada Vice President
Barbara N. Gray U.S.A. Vice President, General Counsel,
Trading, and Assistant Secretary
Mary L. Hamilton U.S.A. Vice President
Dwayne L. Hart U.S.A. Vice President
Steven D. Heinz U.S.A. Vice President
John C. Henderson U.S.A. Vice President
Robert J. Hermann U.S.A. Vice President and General Tax Counsel
Clifford P. Hickey U.S.A. Vice President
Patrick H. Hickey U.S.A. Vice President
Leonard L. Hilton U.S.A. Vice President
Stephen R. Horn U.S.A. Vice President
William C. Horwitz U.S.A. Vice President
G. Douglas Hurley U.S.A. Vice President
Richard Ingersoll U.S.A. Vice President
Lee Jestings U.S.A. Vice President
Doy G. "Rocky" Jones U.S.A. Vice President
</TABLE>
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<TABLE>
<S> <C> <C>
Vince J. Kaminski U.S.A. Vice President
Darrell W. Kinder U.S.A. Vice President
Kyle Kitagawa Canada Vice President
Sheila A. Knudsen U.S.A. Vice President
Fred D. Lagrasta U.S.A. Vice President
John J. Lavorato Canada Vice President
Mark K. Lay U.S.A. Vice President
Daniel P. Leff U.S.A. Vice President
Randal T. Maffett U.S.A. Vice President
Thomas A. Martin U.S.A. Vice President
Grant S. Masson U.S.A. Vice President
James R. McBride U.S.A. Vice President
Michael R. McCall U.S.A. Vice President
Danny J. McCarty U.S.A. Vice President
George A. McClellan, III U.S.A. Vice President
Michael S. McConnell U.S.A. Vice President
J. Kevin McConville U.S.A. Vice President
Peggy B. Menchaca U.S.A. Vice President and Secretary
Michael Jaye Miller U.S.A. Vice President
Jordan H. Mintz U.S.A. Vice President, Tax and Tax Counsel
Kristina M. Mordaunt U.S.A. Vice President
</TABLE>
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<TABLE>
<S> <C> <C>
Mark S. Muller U.S.A. Vice President
Julia Heintz Murray U.S.A. Vice President, General Counsel,
Finance and Assistant Secretary
Scott M. Neal U.S.A. Vice President
Bradford C. Nebergall U.S.A. Vice President
David Parquet U.S.A. Vice President
Nicholas E. V. Perry U.S.A. Vice President
Bradley C. Petzold U.S.A. Vice President
Gregory F. Piper U.S.A. Vice President
J. Scott Porter U.S.A. Vice President
George W. Posey U.S.A. Vice President
Stephen C. Schneider U.S.A. Vice President
Robert C. Schorr U.S.A. Vice President
Donald P. Schroeder U.S.A. Vice President
Jeffrey A. Shankman U.S.A. Vice President
Richard S. Shapiro U.S.A. Vice President
Gregory L. Sharp U.S.A. Vice President
John R. Sherriff U.S.A. Vice President
William N. Shoff U.S.A. Vice President
Wynne M. Snoots U.S.A. Vice President
John M. Stokes U.S.A. Vice President
Bruce N. Stram U.S.A. Vice President
Colleen Sullivan-Shaklovitz U.S.A. Vice President
</TABLE>
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<TABLE>
<S> <C> <C>
Thomas M. Talley U.S.A. Vice President
Timothy E. Vail U.S.A. Vice President
Lawrence Greg Whalley U.S.A. Vice President
Robert R. White U.S.A. Vice President
Robert C. Williams U.S.A. Vice President and Assistant General
Counsel
Peter J. Wilt U.S.A. Vice President
Mario M. Yzaguirre U.S.A. Vice President
Victoria T. Sharp U.S.A. General Counsel
John T. Shortsleeve U.S.A. Treasurer
Elaine V. Overturf U.S.A. Deputy Corporate Secretary
Brent C. Bailey U.S.A. Assistant Secretary
Kate B. Cole U.S.A. Assistant Secretary
James E. Keller U.S.A. Assistant Secretary
</TABLE>
I-6
<PAGE> 15
DIRECTORS AND EXECUTIVE OFFICERS
ENRON CORP.
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS CITIZENSHIP POSITION AND OCCUPATION
------------------------- ----------- -----------------------
<S> <C> <C>
Robert A. Belfer U.S.A. Director
767 Fifth Avenue, 46th Fl. Chairman, President and Chief
New York, NY 10153 Executive Officer,
Belco Oil & Gas Corp.
Norman P. Blake, Jr. U.S.A. Director
USF&G Corporation Chairman, United States Fidelity
6225 Smith Ave. LA0300 and Guaranty Company
Baltimore, MD 21209
Ronnie C. Chan U.S.A. Director
Hang Lung Development Chairman of Hang Lung
Company Limited Development Group
28/F, Standard Chartered
Bank Building
4 Des Vouex Road Central
Hong Kong
John H. Duncan U.S.A. Directo
5851 San Felipe, Suite 850 Investments
Houston, TX 77057
Joe H. Foy U.S.A. Director
404 Highridge Dr. Retired Senior Partner,
Kerrville, TX 78028 Bracewell & Patterson, L.L.P.
Wendy L. Gramm U.S.A. Director
P.O. Box 39134 Former Chairman, U.S. Commodity
Washington, D.C. 20016 Futures Trading Commission
Robert K. Jaedicke U.S.A. Director,
Graduate School of Business Professor (Emeritus), Graduate
Stanford University School of Business
Stanford, CA 94305 Stanford University
</TABLE>
I-7
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<TABLE>
<S> <C> <C>
Charles A. Lemaistre U.S.A. Director
13104 Travis View Loop President (Emeritus), University of
Austin, TX 77030 Texas M.D. Anderson Cancer
Center
John A. Urquhart U.S.A. Director and Vice Chairman
John A. Urquhart Assoc. Enron Corp.
111 Beach Road President, John A. Urquhart
Fairfield, CT 06430 Associates
John Wakeham U.K. Director
Pinglestone House Former U.K. Secretary of State for
Old Alresford Energy and Leader of the
Hampshire S024 9TB Houses of Commons and Lords
United Kingdom
Charls E. Walker U.S.A. Director
Walker & Walker, LLC. Chairman, Walker & Walker, LLC
10220 River Road, Ste. 105
Potomac, Maryland 20854
Herbert S. Winokur, Jr. U.S.A. Director
Winokur & Associates, Inc. President, Winokur & Associates,
30 East Elm Ct. Inc.
Greenwich, CT 06830
1400 Smith Street
Houston, TX 77002
Kenneth L. Lay U.S.A. Director, Chairman and Chief Executive
Officer
Jeffrey K. Skilling U.S.A. Director, President and Chief
Operating Officer
J. Clifford Baxter U.S.A. Senior Vice President, Corporate
Development
Richard A. Causey U.S.A. Senior Vice President and Chief
Accounting and Information Officer
Edmund P. Segner, III U.S.A. Executive Vice President and Chief of
Staff
</TABLE>
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<TABLE>
<S> <C> <C>
James V. Derrick, Jr. U.S.A. Senior Vice President and General
Counsel
Andrew S. Fastow U.S.A. Senior Vice President, Finance
Stanley C. Horton U.S.A. Chairman and Chief Executive Officer,
Enron Gas Pipeline Group
Rebecca P. Mark U.S.A. Chairman and Chief Executive Officer,
Enron International, Inc.
Thomas E. White U.S.A. Chairman and Chief Executive Officer,
Enron Ventures Corp.
Rodney L. Gray U.S.A. Chairman and Chief Executive Officer,
Enron Global Power & Pipelines L.L.C.
</TABLE>
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<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
99.1 Stock Purchase Agreement dated as of November 28, 1997 between the Issuer and ECT.
99.2 First Amendment to Stock Purchase Agreement dated as of December 15, 1997 between Issuer and
ECT.
99.3 Shareholders' Agreement dated as of December 15, 1997 among the Issuer, Jeffrey E. Susskind and
Janis Susskind and ECT.
99.4 Certificate of Designation, Preferences and Rights of Series A Preferred Stock.
</TABLE>
<PAGE> 1
===============================================================================
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
SHERIDAN ENERGY, INC.
AND
ENRON CAPITAL TRADE & RESOURCES CORP.
DATED
NOVEMBER 28, 1997
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I.
DEFINITIONS
<S> <C> <C>
1.1 DEFINITIONS.........................................................1
ARTICLE II.
SALE AND PURCHASE OF SHARES; CLOSING
2.1 SALE AND PURCHASE OF SHARES.........................................7
2.2 CLOSING.............................................................7
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 CORPORATE EXISTENCE.................................................7
3.2 CORPORATE POWER AND AUTHORIZATION...................................7
3.3 BINDING OBLIGATIONS.................................................8
3.4 NO VIOLATION........................................................8
3.5 CONSENTS............................................................8
3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS..............................8
3.7 LIABILITIES; INDEBTEDNESS...........................................9
3.8 LITIGATION..........................................................9
3.9 MATERIAL CONTRACTS AND COMMITMENTS..................................9
3.10 TITLE TO PROPERTIES AND ASSETS; LEASES.............................11
3.11 COMPLIANCE WITH THE LAW............................................11
3.12 TAXES..............................................................11
3.13 EMPLOYEE BENEFIT MATTERS...........................................12
3.14 INVESTMENT COMPANY ACT.............................................13
3.15 PUBLIC UTILITY HOLDING COMPANY ACT.................................13
3.17 CAPITALIZATION.....................................................13
3.18 SUBSIDIARIES.......................................................14
3.19 ENVIRONMENTAL MATTERS..............................................14
3.20 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS..................16
3.21 NO PUBLIC OFFER....................................................16
3.22 INSURANCE..........................................................16
3.23 CERTAIN TRANSACTIONS...............................................16
3.24 USE OF PROCEEDS; MARGIN REGULATIONS................................17
3.25 PLUGGING AND ABANDONMENT OBLIGATIONS...............................17
</TABLE>
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<TABLE>
<S> <C> <C>
3.26 NO MATERIAL MISSTATEMENTS OR OMISSIONS.............................17
3.27 PIONEER TRANSACTIONS...............................................17
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 CORPORATE EXISTENCE................................................17
4.2 CORPORATE POWER AND AUTHORIZATION..................................17
4.3 BINDING OBLIGATIONS................................................18
4.4 NO VIOLATION.......................................................18
4.5 PURCHASE FOR INVESTMENT............................................18
4.6 FEES AND COMMISSIONS...............................................18
ARTICLE V.
COVENANTS
5.1 GENERAL............................................................18
5.2 NOTICES AND CONSENTS...............................................18
5.3 OPERATION OF BUSINESS..............................................18
5.4 FULL ACCESS........................................................19
5.5 NOTICE OF DEVELOPMENTS.............................................19
ARTICLE VI.
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF BUYER..................................20
6.2 CONDITIONS TO OBLIGATION OF SELLER.................................21
ARTICLE VII.
REGISTRATION RIGHTS
7.1 DEFINITIONS........................................................22
7.2 PIGGYBACK REGISTRATION.............................................22
7.3 DEMAND REGISTRATION................................................22
7.4 DELAY IN REGISTRATION..............................................23
7.5 DESIGNATION OF UNDERWRITER.........................................23
7.6 EXPENSES...........................................................23
7.7 INDEMNITIES........................................................24
7.8 OBLIGATIONS OF SELLER..............................................26
7.9 ASSIGNMENT OF REGISTRATION RIGHTS..................................27
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
7.10 LOCKUPS............................................................27
7.11 SUBSEQUENT GRANTS OF REGISTRATION RIGHTS...........................27
ARTICLE VIII.
OTHER PROVISIONS
8.1 FEES AND COMMISSIONS...............................................28
8.2 USE OF PROCEEDS....................................................28
8.3 NO RESTRICTIONS ON AFFILIATES......................................28
8.4 CERTAIN PUBLIC UTILITY MATTERS.....................................28
8.5 STANDSTILL.........................................................28
8.6 BUSINESS OPPORTUNITY MATTERS.......................................29
8.7 INDEMNIFICATION....................................................29
8.8 SURVIVAL OF TERMS; FAILURE TO CLOSE................................30
8.9 INFORMATION AND MEETINGS...........................................30
8.10 COMMODITY PRICE RISK PROGRAM.......................................30
8.11 NUMBER OF BOARD OF DIRECTORS.......................................30
8.12 OPTION.............................................................31
ARTICLE IX.
MISCELLANEOUS
9.1 AMENDMENTS; WAIVERS................................................31
9.2 SUCCESSORS AND ASSIGNS.............................................31
9.3 SEVERABILITY.......................................................31
9.4 DESCRIPTIVE HEADINGS...............................................32
9.5 GOVERNING LAW......................................................32
9.6 ENTIRE AGREEMENT...................................................32
9.7 EXECUTION IN COUNTERPARTS..........................................32
9.8 FURTHER COOPERATION................................................32
9.9 NOTICES............................................................32
9.10 NO WAIVER; REMEDIES CUMULATIVE.....................................32
9.11 EXHIBITS; SCHEDULES; AMENDMENT OF DISCLOSURE LETTER................32
9.12 DISPUTE RESOLUTION.................................................33
</TABLE>
-iii-
<PAGE> 5
EXHIBITS
Exhibit A - Form of Certificate of Designation
Exhibit B - Form of Shareholders' Agreement
-iv-
<PAGE> 6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of November
28, 1997, by and between Sheridan Energy, Inc., a Delaware corporation
("Seller"), and Enron Capital Trade & Resource Corp., a Delaware corporation
("Buyer").
RECITALS
Seller desires to issue and sell to Buyer, and Buyer desires to
purchase, subject to the terms and conditions set forth herein, (i) up to
1,765,000 shares of Common Stock (as hereinafter defined), and (ii) 1,000,000
shares of a new series of senior cumulative preferred stock of Seller as
hereinafter described.
Seller and Pioneer Natural Resources, Inc. ("Pioneer") have entered
into a Purchase and Sale Agreement dated November 13, 1997 (as the same may be
amended as permitted under this Agreement, the "Pioneer Purchase Agreement"),
pursuant to which Seller will purchase from Pioneer certain of the oil and gas
properties located in Oklahoma and the Gulf Coast Region owned by Pioneer,
together with all of Pioneer's interest in and to all personal property,
equipment, fixtures and data relating thereto, all as is more particularly
described therein (collectively, the "Pioneer Properties"). Seller has agreed to
use the consideration to be paid by Buyer for the Shares (as hereinafter
defined) for, among other things, part of the purchase price under the Pioneer
Purchase Agreement.
It is the desire of Seller and Buyer that the transactions contemplated
by this Purchase Agreement and the Pioneer Purchase Agreement shall close
simultaneously in accordance with the terms and conditions set forth herein and
therein.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
Definitions
1.1 DEFINITIONS. In addition to the capitalized terms defined elsewhere
in this Agreement, the following capitalized terms shall have the following
respective meanings when used in this Agreement:
"AFFILIATE" as applied to any specified Person means any other
Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such specified Person. The term
"control" (including, with correlative meanings, the terms
<PAGE> 7
"controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of
10% or more of the voting power (or in the case of a Person which is
not a corporation, 10% or more of the ownership interest, beneficial or
otherwise) of such Person or the power otherwise to direct or cause the
direction of the management and policies of that Person, whether
through voting, by contract or otherwise. For purposes of this
paragraph, "voting power" of any Person means the total number of votes
which may be cast by the holders of the total number of outstanding
shares of equity of any class or classes of such Person in any election
of directors (or Persons performing similar functions) of such Person.
For purposes of this Agreement (i) all executive officers and directors
of a Person shall be deemed to be Affiliates of such Person, and (ii)
for avoidance of doubt, Enron Corp. and its Affiliates shall be deemed
to be Affiliates of Buyer.
"CAPITALIZED LEASE OBLIGATIONS" means all payment obligations
arising under any lease of property which, in accordance with GAAP,
would be capitalized on Seller's or any of its Subsidiary's balance
sheet or for which the amount of the asset and liability thereunder as
if so capitalized should, in accordance with GAAP, be disclosed in a
note to such balance sheet.
"CERTIFICATE OF DESIGNATION" means the Certificate of
Designation relating to the Series A Preferred Stock, a form of which
is attached hereto as Exhibit A.
"CHARTER" means, for any Person, such Person's certificate of
incorporation, articles of incorporation or other organizational
documents, as the same may be amended.
"CLAIMS" shall have the meaning assigned to such term in
Section 8.7.
"CLOSING" shall have the meaning assigned to such term in
Section 2.2.
"CLOSING DATE" shall have the meaning assigned to such term in
Section 2.2.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and all rules and regulations promulgated
thereunder, and any successor statute.
"COMMISSION" shall have the meaning assigned to such term in
Section 3.6.
"COMMODITY PRICE RISK PROGRAM" means a program designed to
benefit from, or reduce or eliminate the risk of, fluctuations in the
price of hydrocarbons produced and sold from properties that are now or
hereafter owned by Seller or its Subsidiaries that are or could be
classified as "proved developed producing" by an independent petroleum
engineering consulting firm.
"COMMON STOCK" means the common stock, par value $.01 per
share, of Seller.
"CONSOLIDATED" refers to the consolidation of financial
statements in accordance with GAAP.
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<PAGE> 8
"DISCLOSURE LETTER" means that certain disclosure letter of
even date herewith delivered to Buyer by Seller relating to Seller's
disclosures in connection with its representations and warranties
hereunder.
"ENVIRONMENTAL LAWS" means any and all laws, statutes,
ordinances, rules, regulations, orders or determinations of any
Governmental Authority pertaining to health or the environment in
effect in any and all jurisdictions in which Seller or any Subsidiary
conducts business or at any time has conducted business, or where any
of their properties or operations or the Pioneer Properties are
located, including without limitation, the Clean Air Act, as amended,
the Comprehensive Environmental, Response, Compensation, and Liability
Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control
Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"),
as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Hazardous and Solid Waste
Amendments Act of 1984, as amended, the Hazardous Materials
Transportation Act, as amended, the Outer Continental Shelf Lands Act,
as amended, the Coastal Zone Management Act, as amended, and other
environmental conservation or protection laws. The terms "hazardous
substance" and "release" (or "threatened release") have the meanings
specified in CERCLA, and the terms "solid waste" and "disposal" (or
"disposed") have the meanings specified in RCRA; provided, however,
that to the extent the laws of the state in which any property or
operation is located has established a meaning for "hazardous
substance," "release," "solid waste" or "disposal" which is broader
than that specified in either CERCLA or RCRA, such broader meaning
shall apply.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) which together with Seller or a Subsidiary of Seller
would be deemed to be a "single employer" within the meaning of Section
4001 of ERISA.
"EXCHANGE ACT" shall have the meaning assigned to such term in
Section 3.6.
"FEE LETTER" means that certain letter agreement of even date
herewith regarding Seller's agreement to pay a structuring fee to ECT
Securities Corp.
"GAAP" means generally accepted accounting principles
(including principles of consolidation), in effect from time to time,
consistently applied.
"GOVERNMENTAL AUTHORITY" means any foreign or domestic
federal, state, county, municipal, or other governmental or regulatory
authority, agency, board, body, commission, instrumentality, court, or
any political subdivision thereof.
"GOVERNMENTAL REQUIREMENT" means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization
-3-
<PAGE> 9
or other direction or requirement (including but not limited to any of
the foregoing which relate to Environmental Laws, energy regulations
and occupational, safety and health standards or controls) of any
Governmental Authority.
"GRAND GULF LOI" means that certain letter of intent dated
October 31, 1997 among Seller, the JEDI Entities and Grand Gulf
Production L.L.C.
"GRAND GULF TRANSACTIONS" means the transactions contemplated
by the Grand Gulf LOI.
"INADVERTENT PURCHASE" means any purchase of Common Stock, or
securities convertible into or exchangeable for shares of Common Stock,
by any Subsidiary of Buyer or the JEDI Entities on or prior to the
second anniversary of the Closing Date that is made (a) without the
actual knowledge of such Subsidiary with respect to the restriction set
forth in Section 8.5 hereof, and (b) without any purpose or intent to
increase the percentage of the Common Stock owned or controlled by
Buyer and its Affiliates.
"INDEBTEDNESS" means, with respect to any Person, the
principal of, premium, if any, and interest on: (a) indebtedness for
money borrowed from others whether or not evidenced by notes, bonds,
debentures or otherwise; (b) indebtedness of another Person guaranteed,
directly or indirectly, in any manner by such Person, including,
without limitation, through an agreement, contingent or otherwise, (i)
to purchase or pay any such indebtedness, (ii) to advance or supply
funds for the purchase or payment of such indebtedness, (iii) to
purchase and pay for property if not delivered or pay for services if
not performed, primarily for the purpose of enabling such other Person
to make payment of such indebtedness or to assure the owners of the
indebtedness against loss, or (iv) to maintain working capital, equity
capital or other financial condition of such other Person so as to
enable it to pay such indebtedness; (c) all indebtedness secured by any
Lien upon property owned by such Person, even though such Person has
not in any manner become liable for the payment of such indebtedness;
(d) all indebtedness of such Person created or arising under any
conditional sale, lease (intended primarily as a financing device) or
other title retention or security agreement with respect to property
acquired by such Person even though the rights and remedies of Seller,
lessor or lender under such agreement or lease in the event of default
may be limited to repossession or sale of such property; (e) all
obligations of such Person issued or assumed for the deferred purchase
price of property or services, including all trade credit, to the
extent such obligations have remained outstanding in excess of sixty
days; (f) Capitalized Lease Obligations and the present value of all
future lease payments under a lease other than Capitalized Lease
Obligations; (g) all unfunded post-retirement and postemployment
benefits including, without limitation, unfunded pension liabilities;
(h) mandatory redemption or mandatory dividend rights on ordinary
shares (or other equity); (i) obligations of discontinued businesses
that are subsumed within the single-sum amount of the net assets of the
discontinued operations being held for sale, and (j) all obligations of
such Person under or with respect to letters of credit.
"INTERIM BALANCE SHEET" shall have the meaning assigned to
such term in Section 3.6.
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<PAGE> 10
"INTERMEDIARY" shall have the meaning assigned to such term in
Section 8.1.
"JEDI ENTITIES" means Joint Energy Development Investments
Limited Partnership and JEDI Hydrocarbons Investments I Limited
Partnership
"KNOWLEDGE" or "KNOWN" means, with respect to Seller, those
individuals listed in Section 1.1 of the Disclosure Letter,
individually or collectively, have conducted such investigations and
inquiries that they reasonably believe to be most likely to confirm the
truth and accuracy of the matter being represented and warranted (or
have caused such investigations and inquiries to be made under their
supervision) and, after evaluating the findings of such investigation
and inquiries either (a) know that the matter being represented is true
and accurate or (b) have no reason to believe that the matter being
represented and warranted is not true and accurate.
"LIEN" means, with respect to any Person, any mortgage, deed
of trust, lien, security interest, pledge, lease, conditional sale
contract, claim, charge, easement, right of way, assessment,
restriction and other encumbrance of every kind.
"MATERIAL ADVERSE EFFECT" means any change or event that,
individually or in the aggregate, would or could reasonably be expected
to have a material adverse effect on (a) the assets, liabilities,
condition (financial or otherwise), business, results of operations or
prospects of Seller and its Subsidiaries on a Consolidated basis
assuming the consummation of the Pioneer Transactions, (b) the ability
of Seller to meet its obligations under this Agreement or with respect
to the payment of dividends on, or redemption of, the Series A
Preferred Stock on a timely basis or (c) the consummation of the
transactions contemplated hereby; provided, however, that any change or
event resulting from (i) changes in the prices of oil, gas, natural gas
liquids or other hydrocarbon products, (ii) changes in general economic
conditions, including general stock market conditions and interest rate
changes or (iii) the adverse determination of any pending litigation
disclosed in the Disclosure Letter shall not constitute a Material
Adverse Effect.
"PERMITS" means all licenses, permits, exceptions, franchises,
accreditations, privileges, rights, variances, waivers, approvals and
other authorizations (including, without limitation, those relating to
environmental matters) of, by or from Governmental Authorities
necessary for the conduct of the business of Seller and its
Subsidiaries as currently conducted and as proposed to be conducted by
Seller and its Subsidiaries after the Closing.
"PERMITTED LIENS" means (a) Liens created pursuant to the
Seller Senior Credit Facility, (b) Liens for taxes not yet due and
payable, (c) statutory Liens (including materialmen's, mechanic's,
repairmen's, landlord's, and other similar liens) arising in connection
with the ordinary course of business securing payments not yet due and
payable, and (d) such imperfections or irregularities of title, if any,
as (i) are not substantial in character, amount, or extent and do not
materially detract from the value of the property subject thereto, (ii)
do not and will not materially interfere with either the present or
intended use of such property, and (iii) do not and will not,
individually or in the aggregate, materially interfere with the conduct
of Seller's or its Subsidiaries current or proposed operations.
-5-
<PAGE> 11
"PERSON" means an individual or individuals, a partnership, a
corporation, a company, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization, any other form of legal entity, or a Governmental
Authority.
"PIONEER" shall have the meaning assigned to such term in the
recitals hereof.
"PIONEER PURCHASE AGREEMENT" shall have the meaning assigned
to such term in the recitals hereof.
"PIONEER PROPERTIES" shall have the meaning assigned to such
term in the recitals hereof.
"PIONEER TRANSACTIONS" means the transactions contemplated by
the Pioneer Purchase Agreement.
"PLAN" shall have the meaning assigned to such term in Section
3.13(a)(i).
"SEC DOCUMENTS" shall have the meaning assigned to such term
in Section 3.6.
"Securities Act" shall have the meaning assigned to such term
in Section 3.6.
"SELLER SENIOR CREDIT FACILITY" means that certain First
Amended and Restated Credit Agreement to be entered into by Seller, as
the borrower and Bank One Texas, N.A., as the lender, in connection
with the funding of the acquisition of the Pioneer Properties.
"SERIES A PREFERRED STOCK" means the Series A Preferred Stock,
par value $0.01, having the relative rights, preferences, privileges
and limitations set forth in the Certificate of Designation.
"SHARES" shall have the meaning assigned to such term in
Section 2.1.
"SUBSIDIARY" means, as to any Person, any corporation,
company, association, partnership, limited liability company or other
business entity of which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and
any partnership, limited liability company or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such
Person or one or more of its Subsidiaries or such Person and one or
more of its Subsidiaries.
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<PAGE> 12
ARTICLE II.
SALE AND PURCHASE OF SHARES; CLOSING
2.1 SALE AND PURCHASE OF SHARES. Subject to the satisfaction of the
terms and conditions herein set forth and in reliance upon the respective
representations, warranties, and covenants of the parties set forth herein or in
any document delivered pursuant hereto, at the Closing (a) Seller agrees to
deliver to Buyer, and Buyer agrees to accept, 1,600,000 shares of Common Stock
for $6.25 per share, and (b) Seller agrees to deliver to Buyer, and Buyer agrees
to accept, 1,000,000 shares of Series A Preferred Stock for $10.00 per share of
such Series A Preferred Stock. The shares of Common Stock and Series A Preferred
Stock to be acquired by Buyer hereunder are hereinafter referred to as the
"Shares."
2.2 CLOSING. The closing of the sale and purchase of the Shares (the
"Closing") will occur on the earlier to occur of (i) January 15, 1998, and (ii)
the date of the closing of the Pioneer Transactions (the "Closing Date"), or on
such other date as may be agreed by the parties, at the offices of Vinson &
Elkins L.L.P. At the Closing, Seller will, upon receipt of the purchase price
for the Shares by wire transfer of immediately available funds to an account
designated by Seller, or by such other method as is mutually agreed to by the
Buyer and Seller, deliver to Buyer (or its designee) the Shares, duly executed
and registered in the name of Buyer or its designee. Prior to the Closing,
Seller shall have filed with the Secretary of State of Delaware the Certificate
of Designation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 CORPORATE EXISTENCE. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Seller has full corporate power and authority to conduct its business as it is
now being conducted and to own, operate and lease the properties and assets it
currently owns, operates and holds under lease. Seller is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business activities or its ownership or leasing of property makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect. On or before the date hereof Seller has
delivered to Buyer's counsel true and complete copies of Seller's Certificate of
Incorporation and bylaws, together with all amendments thereto. Except for the
Certificate of Designation, no other amendment to Seller's Certificate of
Incorporation has been approved by the Board of Directors or stockholders of the
Corporation or filed with the Delaware Secretary of State.
3.2 CORPORATE POWER AND AUTHORIZATION. Seller is duly authorized and
empowered to issue the Shares and to execute, deliver, and perform this
Agreement and to consummate the transactions contemplated hereby and thereby.
All action on Seller's part requisite for the due issuance of the Shares and for
the due execution, delivery, and performance of this Agreement has been duly and
effectively taken. The execution and delivery of this Agreement and the
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<PAGE> 13
consummation of the transactions to be performed by Seller have been duly and
validly authorized by all necessary action on the part of the Board of
Directors of Seller, and no other corporate proceedings are necessary to
authorize the execution and delivery of this Agreement by Seller or to
consummate the transactions to be performed by Seller, other than filing the
Certificate of Designation with the Secretary of State of Delaware prior to the
Closing Date.
3.3 BINDING OBLIGATIONS. This Agreement, when executed and delivered,
shall constitute a legal, valid and binding obligation of Seller enforceable in
accordance with its terms, except insofar as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity. When issued to Buyer at the Closing upon
payment therefor as provided in this Agreement, the Shares will be validly
issued, fully paid and nonassessable and free and clear of any Liens.
3.4 NO VIOLATION. The execution and delivery of this Agreement, the
consummation of the transactions provided for herein and contemplated hereby,
and the fulfillment by Seller of the terms hereof, will not (a) conflict with or
result in a breach of any provision of the Charter or bylaws or other
organizational document of Seller or any of its Subsidiaries, (b) result in any
default or in any material modification of the terms of any material contract,
agreement, obligation, commitment applicable to Seller or its Subsidiaries, or
the creation of any Lien upon any of the properties or assets owned by Seller or
any of its Subsidiaries, (c) require any consent or approval (which has not been
obtained or waived) under any Permit or any note, bond, mortgage, indenture,
loan, distribution agreement, license, agreement, lease or material instrument
or material obligation to which Seller or any of its Subsidiaries is a party or
by which Seller or any of its Subsidiaries may be bound, or (d) violate any
Governmental Requirement or Permit applicable to Seller or any of its
Subsidiaries.
3.5 CONSENTS. All consents, approvals, qualifications, orders or
authorizations of, or filings with, any Governmental Authority, and all consents
under any contracts, agreements, or instruments by which Seller or any of its
Subsidiaries is bound or to which it or any of its Subsidiaries is subject, and
required in connection with Seller's valid execution, delivery, or performance
of this Agreement, and the consummation of the transactions contemplated hereby
has been obtained or made. To the knowledge of Seller and its Subsidiaries and
except as would not have a Material Adverse Effect, upon the consummation of the
Pioneer Transactions, all consents, approvals, qualifications, orders or
authorizations of, or filings with, any Governmental Authority, and all consents
under any contracts, agreements, or instruments by which Seller or any of its
Subsidiaries will be bound or to which it or any of its Subsidiaries will be
subject, with respect to the Pioneer Properties, shall have been obtained or
made.
3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS. (a) Seller and its
predecessor, TGX Corporation ("TGX"), have filed with the Securities and
Exchange Commission (the "Commission") all forms, reports, schedules, statements
and other documents required to be filed by them since January 1, 1994 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or the
Securities Act of 1933, as amended (the "Securities Act") (such documents, as
supplemented and amended since the time of filing, collectively, the "SEC
Documents"). The SEC Documents, including, without limitation, any financial
statements or schedules included therein, at the time filed (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
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<PAGE> 14
the dates of mailing, respectively) (a) did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (b) complied in
all material respects with the applicable requirements of the Exchange Act and
the Securities Act, as the case may be. The financial statements of Seller and
TGX included in the SEC Documents at the time filed (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
the dates of mailing, respectively) complied as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto, were prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Form 10-Q of the Commission), and fairly present (subject in the
case of unaudited statements to normal, recurring audit adjustments) the
Consolidated financial position of Seller or TGX, as the case may be, as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended. The Consolidated balance sheet for Seller included
in its quarterly report on Form 10-Q dated September 30, 1997 is referred to
herein as the "Interim Balance Sheet".
(b) Since September 30, 1997, there has been no Material Adverse Effect
with respect to Seller.
3.7 LIABILITIES; INDEBTEDNESS. Except for liabilities incurred in the
ordinary course of business and that would not, individually or in the
aggregate, have a Material Adverse Effect, Seller and its Subsidiaries do not
have (and, to the knowledge of Seller and its Subsidiaries, upon the
consummation of the Pioneer Transactions, will not have) any liabilities, direct
or contingent (including but not limited to liability with respect to any Plan
or, to Seller's knowledge, any Environmental Law) other than those provided for
in the Interim Balance Sheet or disclosed in Section 3.7 of the Disclosure
Letter. Except as would not have a Material Adverse Effect, Seller and its
Subsidiaries have (and to the knowledge of Seller and its Subsidiaries, upon the
consummation of the Pioneer Transactions, will have) no Indebtedness other than
the Indebtedness disclosed in Section 3.7 of the Disclosure Letter.
3.8 LITIGATION. Except as disclosed in Section 3.8 of the Disclosure
Letter, there is no action, suit or proceeding, or any governmental
investigation or any arbitration, in each case pending or, to the knowledge of
Seller, threatened against Seller or any of its Subsidiaries or any material
property of Seller or any Subsidiary thereof before any Governmental Authority
(i) which challenges the validity of this Agreement, or (ii) which, if adversely
determined, would have a Material Adverse Effect. To the knowledge of Seller,
there is no action, suit or proceeding, or any governmental investigation or any
arbitration, in each case pending or threatened affecting the Pioneer Properties
before any Governmental Authority which if adversely determined, would have a
Material Adverse Effect.
3.9 MATERIAL CONTRACTS AND COMMITMENTS. (a) Except as set forth in
Section 3.9 of the Disclosure Letter and except for the Pioneer Purchase
Agreement and the agreements relating to the Grand Gulf Transactions, Seller and
its Subsidiaries have no (i) employment or consulting contracts involving annual
payments by Seller or its Subsidiaries in excess of $100,000 and not cancelable
without liability on sixty days' notice or less; (ii) capital redemption or
purchase
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<PAGE> 15
agreements; (iii) agreements providing for the indemnification of other parties
for such parties' negligence or other fault (except for such obligations
incurred in the ordinary course of business as an operator of oil and gas
properties, including obligations under master service agreements, drilling
contracts and similar agreements) or the sharing of the tax liability of other
parties; (iv) collective bargaining agreements; (v) any gas sales or purchase
contract, gas marketing agreement or transportation agreement under which Seller
or its Subsidiaries is the seller, which contract or agreement is for a term of
greater than one year and provides for a fixed price; (vi) any agreement for
capital expenditures, the acquisition of commodities, equipment or material or
the construction of fixed assets which requires aggregate future payments by
Seller or its Subsidiaries in excess of $250,000; (vii) any agreement for, or
that contemplates, the sale of any interest in oil or gas leases which involves
payment (including property received in exchange or other non-cash
consideration) to Seller or its Subsidiaries in excess of $500,000; (viii) any
agreement which requires future payments by Seller or its Subsidiaries in excess
of $500,000 which is not otherwise specifically disclosed herein; (ix)
agreements containing covenants limiting or restricting the freedom of Seller or
its Subsidiaries to compete in any line of business or territory or with any
person or entity; (x) area of mutual interest agreements binding Seller or its
Subsidiaries, (xi) futures, hedge, swaps, collars, puts, calls, floors, caps,
options or other contracts that are intended to benefit from or reduce or
eliminate the risk of fluctuations in the price of commodities, including
hydrocarbons, or (xii) indentures, mortgages, promissory notes, loan agreements,
guaranties or other agreements or commitments for the borrowing of money or any
related security agreements (other than relating to the Indebtedness described
on Section 3.7 of the Disclosure Letter) (collectively, "Material Contracts").
Except as set forth in Section 3.9 of the Disclosure Letter hereof or as
specifically disclosed in the Pioneer Purchase Agreement, Seller has no
knowledge of any agreements of the types described in subsections (i)-(xii)
above that will be applicable to Seller or its Affiliates upon the consummation
of the Pioneer Transactions. None of the Material Contracts have been amended or
modified except as set forth in Section 3.9 of the Disclosure Letter.
(b) All of the Material Contracts and the Pioneer Purchase Agreement
are in full force and effect and constitute legal, valid and binding obligations
of Seller or its Subsidiaries, as applicable, and, to the knowledge of Seller,
the other parties thereto, enforceable in accordance with their respective
terms, except insofar as the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity. Neither Seller (or Seller's Subsidiaries, if applicable)
nor, to the knowledge of Seller, any other party to any Material Contract or the
Pioneer Purchase Agreement, is in default in complying with any provisions
thereof, and no condition or event or fact exists which, with notice, lapse of
time or both would constitute a default thereunder on the part of Seller (or
Seller's Subsidiaries, if applicable) or, to the knowledge of Seller, any other
party thereto, except for any such default, condition, event or fact that,
individually or in the aggregate, would not have a Material Adverse Effect.
(c) Neither Seller nor its Subsidiaries has any government contracts or
subcontracts. Seller has provided counsel to Buyer with a true and complete copy
of each contract, agreement and instrument listed in Section 3.9 of the
Disclosure Letter or has otherwise made such documents available for Buyer to
review.
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<PAGE> 16
3.10 TITLE TO PROPERTIES AND ASSETS; LEASES. (a) Except as set forth in
Section 3.10 of the Disclosure Letter or as would not have a Material Adverse
Effect, (i) Seller or its Subsidiaries has defensible title to all of its
properties and assets (real and personal, tangible and intangible) reflected on
the Interim Balance Sheet, and (ii) to the knowledge of Seller, upon the
consummation of the Pioneer Transactions and the filing of the assignments from
Pioneer to Seller covering the Pioneer Properties in the appropriate
county/parish records, Seller will have defensible title to the Pioneer
Properties, in each case free and clear of all Liens except the Permitted Liens.
To Seller's knowledge, all equipment now owned by Seller or its Subsidiaries (or
included in the Pioneer Properties) which is necessary to the business of Seller
or its Subsidiaries is in good condition and repair (ordinary wear and tear
excepted), except where the failure to be in good condition and repair would not
have a Material Adverse Effect.
(b) Except as set forth in Section 3.10 of the Disclosure Letter, but
only to the knowledge of Seller or its Subsidiaries with respect to oil and gas
leases not operated by any of Seller or its Subsidiaries and the Pioneer
Properties, the oil and gas leases in which Seller or its Subsidiaries own an
interest (and, upon the acquisition of the Pioneer Properties, will own an
interest) (i) have been (and, upon the acquisition of the Pioneer Properties, to
the knowledge of Seller will have been) maintained according to their terms and
in compliance with all material agreements to which such oil and gas leases are
subject, except where the failure to be so maintained or any noncompliance would
not have a Material Adverse Effect, and (ii) are (and, upon the acquisition of
the Pioneer Properties, will be) in full force and effect, except where the
failure to be in full force and effect would not have a Material Adverse Effect.
(c) All royalties, overriding royalties, compensatory royalties and
other payments due with respect to the oil and gas properties of Seller and its
Subsidiaries have been properly and correctly paid, except where the failure to
make such payment would not have a Material Adverse Effect. To the knowledge of
Seller and its Subsidiaries, upon the acquisition of the Pioneer Properties, all
royalties, overriding royalties, compensatory royalties and other payments due
with respect to such properties shall have been properly and correctly paid,
except where the failure to make such payment would not have a Material Adverse
Effect.
3.11 COMPLIANCE WITH THE LAW. Neither Seller nor any of its
Subsidiaries (i) is (or to the knowledge of Seller and its Subsidiaries, upon
the consummation of the Pioneer Transactions, will be) in violation of any
Governmental Requirement or (ii) has failed to obtain any Permit, necessary to
the ownership of any of their respective properties or the conduct of their
respective business, except where a violation or failure would not have a
Material Adverse Effect. Upon the consummation of the Pioneer Transactions,
Seller will have obtained all Permits known to Seller to be necessary to the
ownership of the Pioneer Properties, except where the failure to obtain such
Permits would not have a Material Adverse Effect.
3.12 TAXES. Seller and its Subsidiaries (i) have filed all tax returns
and reports ("Tax Returns") required to be filed by or with respect to Seller or
any of its Subsidiaries, (ii) have included all items of income, gain, loss,
deduction and credit or other items required to be included in each such Tax
Return, and (iii) have paid all taxes, assessments, fees, imposts, duties or
other charges, including any interest and penalties, (all collectively referred
to herein as "Taxes") due with respect to such Tax Returns. There is no claim
against Seller or any of its
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<PAGE> 17
Subsidiaries for any Taxes, and no assessment, deficiency or adjustment has
been asserted or proposed with respect to any Tax Return of or with respect to
Seller or any of its Subsidiaries which would have a Material Adverse Effect.
3.13 EMPLOYEE BENEFIT MATTERS. (a) Definitions. Where the following
words and phrases appear in this Agreement, they shall have the respective
meanings set forth below, unless the context clearly indicates to the contrary:
(i) Plan: Each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, including, but not limited to, any
employee benefit plan that may be exempt from some or all of the
provisions of ERISA, which is sponsored, maintained, or contributed to
by Seller or any of its Subsidiaries for the benefit of the employees,
former employees, independent contractors, or agents of Seller or any
of its Subsidiaries, or has been so sponsored, maintained or
contributed to since 1974.
(ii) Benefit Program or Agreement: Each personnel policy,
stock option plan, collective bargaining agreement, workers'
compensation agreement or arrangement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy, severance pay
plan, policy or agreement, deferred compensation agreement or
arrangement, executive compensation or supplemental income arrangement,
consulting agreement, employment agreement, and each other employee
benefit plan, agreement, arrangement, program, practice or
understanding, which is not described in Section 3.13(a)(i) and which
is sponsored, maintained, or contributed to by Seller or any of its
Subsidiaries for the benefit of the employees, former employees,
independent contractors, or agents of Seller or any of its
'Subsidiaries, or has been so sponsored, maintained, or contributed to
since 1974.
(iii) Benefit Plans: Collectively, the Plans and Benefit
Programs or Agreements.
(b) Employee Benefit Plan Compliance.
(i) Neither Seller nor any corporation, trade, business, or
entity under common control with Seller, within the meaning of Section
414(b), (c), (m), or (o) of the Code or Section 4001 of ERISA,
("Commonly Controlled Entity") contributes to or has an obligation to
contribute to, nor has Seller or any Commonly Controlled Entity at any
time within six years prior to the Closing Date contributed to or had
an obligation to contribute to, a multiemployer plan within the meaning
of Section 3(37) of ERISA or any plan subject to Title IV of ERISA; and
(ii) All obligations, whether arising by operation of law or
by contract, required to be performed in connection with the Benefit
Plans have been performed, and there have been no defaults, omissions,
or violations by any party with respect to any Benefit Plan or law
applicable thereto.
(iii) Each Plan that is intended to be qualified under Section
401(a) of the Code (A) satisfies the requirements of such Section, (b)
has received a favorable determination letter from the Internal Revenue
Service ("IRS") regarding such qualified
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<PAGE> 18
status and covering amendments required under the Tax Reform Act of
1986 ("TRA '86"), the Unemployment Compensation Amendments of 1992, the
Omnibus Reconciliation Act of 1993, the final nondiscrimination
regulations under Section 401(a)(4) of the Code, and all other
amendments required to be filed within the TRA '86 remedial amendment
period described in Internal Revenue Procedure 95-12 (the "TRA '86
Amendments") (or the TRA '86 Amendments to such Plans have been timely
made and filed with the IRS for such a determination letter), and (C)
has not, since receipt of the most recent favorable determination
letter, been amended or operated in a way that would adversely affect
such qualified status.
(c) NO ADDITIONAL RIGHTS OR OBLIGATIONS. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby will
not (A) require Seller or any of its Subsidiaries to make a larger contribution
to, or pay greater benefits under, any Benefit Plan than it otherwise would or
(B) create or give rise to any additional vested rights or service credits under
any Benefit Plan.
(d) NO ADDITIONAL SEVERANCE. Neither Seller nor any of its Subsidiaries
is a party to any agreement, nor has Seller or any of its Subsidiaries
established any policy or practice requiring it to make a payment or provide any
other form of compensation or benefit to any person performing services for
Seller upon termination of such services that would not be payable or provided
in the absence of the consummation of the transactions contemplated by this
Agreement.
(e) NO EXCESS PARACHUTE PAYMENTS. In connection with the consummation
of the transaction contemplated by this Agreement, no payments have or will be
made under the Benefit Plans which, in the aggregate, would result in imposition
of the sanctions imposed under Section 280G or Section 4999 of the Code.
3.14 INVESTMENT COMPANY ACT. Neither Seller nor any of its Subsidiaries
is an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
3.15 PUBLIC UTILITY HOLDING COMPANY ACT. Neither Seller nor any of its
Subsidiaries is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
3.16 NO RESTRICTIONS ON AFFILIATES. Except for any existing agreement
between Seller (or a Subsidiary of Seller) and an Affiliate of Buyer that
imposes restrictions or limitations on such Affiliate of Buyer, neither Seller
nor any of its Subsidiaries is (and, to the knowledge of Seller and its
Subsidiaries, upon consummation of the Pioneer Transactions, will be) a party to
any agreement that would purport to impose restrictions or limitations on Buyer
or any of its Affiliates.
3.17 CAPITALIZATION. The authorized capital stock of Seller consists of
(i) 20,000,000 shares of Common Stock, of which 4,281,471 shares are issued and
outstanding and an additional 450,000 shares are reserved for issuance under the
Sheridan 1997 Flexible Incentive Plan and (ii) 5,000,000 shares of preferred
stock, par value $0.01 per share, none of which have been
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<PAGE> 19
issued or are outstanding. Section 3.17 of the Disclosure Letter sets forth the
name and address of each person known to Seller to be the beneficial owner of 5%
or more of the outstanding shares of Common Stock. Except for the shares of
Common Stock and warrants to purchase Common Stock to be issued in connection
with the Grand Gulf Transactions and up to 450,000 shares of Common Stock
reserved for issuance upon purchases of shares of Common Stock under the
Sheridan 1997 Flexible Incentive Plan, there are no outstanding subscriptions,
warrants, options, calls, commitments or other rights to purchase or acquire, or
securities convertible into or exchangeable for, any capital stock of Seller or
its Subsidiaries. All of the outstanding shares of Common Stock are validly
issued, fully paid, and nonassessable.
3.18 SUBSIDIARIES. (a) Section 3.18 of the Disclosure Letter contains
(except as noted therein) a complete and correct list of Seller's Subsidiaries,
showing, as to each Subsidiary, the correct name thereof, the jurisdiction of
its organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by Seller and each other
Subsidiary. Except for the Subsidiaries, Seller does not own (and, upon the
consummation of the Pioneer Transactions will not own), directly or indirectly,
any interest or investment in any corporation, association, joint venture,
partnership, limited liability company or other business organization, firm or
enterprise of any character, other than interests under any joint operating
agreement of oil and gas property that expressly provides the relationship of
the parties created by such agreement is not intended to render the parties
thereto liable as partners. Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has full corporate power and authority to conduct its business
as it is now being conducted and to own, operate or lease the properties and
assets it currently owns, operates or holds under lease. Each Subsidiary is duly
qualified to do business and is in good standing in each jurisdiction where the
character of its business or the nature of its properties makes such
qualification necessary.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Section 3.18 of the Disclosure Letter as
being owned by Seller and its Subsidiaries have been validly issued, are fully
paid and nonassessable, and are owned by Seller or such other Subsidiaries free
and clear of any Liens (except as otherwise disclosed in Section 3.18 of the
Disclosure Letter).
(c) No Subsidiary of Seller is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement and customary
limitations imposed by corporate law statutes) restricting the ability of such
Subsidiary to pay dividends out of profits or make any other similar
distributions of profits to Seller or any of its Subsidiaries that owns
outstanding shares of capital stock or similar equity interests of such
Subsidiary.
3.19 ENVIRONMENTAL MATTERS. Except as set forth in Section
3.19 of the Disclosure Letter:
(a) to the knowledge of Seller and its Subsidiaries, the
properties and operations of Seller and its Subsidiaries are not, and
upon the consummation of the Pioneer Transactions, the Pioneer
Properties will not be, in violation of any Environmental Laws or any
order or requirement of any court or Governmental Authority to the
extent pertaining to health or the environment, except where a
violation would not have a Material Adverse
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<PAGE> 20
Effect, nor are there, and upon consummation of the Pioneer
Transactions will there be, any conditions existing on such property or
resulting from operations thereon that may give rise to any on-site or
off-site remedial obligations under any Environmental Law, except for
any condition that would not have a Material Adverse Effect;
(b) without limitation of Section 3.19(a) above, Seller and
its Subsidiaries are not subject to any pending or, to the knowledge of
Seller, threatened action, suit, investigation, inquiry or proceeding
by or before any court or Governmental Authority under any
Environmental Law;
(c) except as would not have a Material Adverse Effect, to the
knowledge of Seller all notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed by Seller and
its Subsidiaries under any Environmental Law, including without
limitation those relating to the treatment, storage, disposal or
release of a hazardous substance or solid waste into the environment,
have been duly obtained or filed, and Seller and its Subsidiaries are
in compliance with the terms and conditions of all such notices,
permits, licenses and similar authorizations;
(d) except as would not have a Material Adverse Effect, all
hazardous substances or solid wastes generated by or as a result of
operations on properties owned by Seller and its Subsidiaries (and to
the knowledge of Seller, upon the consummation of the Pioneer
Transactions, on the Pioneer Properties) and requiring disposal have
been transported only by carriers maintaining valid authorizations
under applicable Environmental Laws and treated and disposed of only at
treatment, storage and disposal facilities maintaining valid
authorizations under applicable Environmental Laws, and, to the
knowledge of Seller, such carriers and facilities have been and are
operating in compliance with such authorizations and are not the
subject of any pending or threatened action, investigation or inquiry
by any Governmental Authority in connection with any Environmental
Laws;
(e) except as would not have a Material Adverse Effect, to the
knowledge of Seller there are (and, upon consummation of the Pioneer
Transactions, there will be) no asbestos-containing materials on or in
any property owned or used by Seller and its Subsidiaries, and there
are (and, upon consummation of the Pioneer Transactions, there will be)
no storage tanks or similar containers exceeding 55 gallons in size on
or under any such properties from which hazardous substances, petroleum
products or other contaminants may be released into the surrounding
environment;
(f) without limiting the foregoing, to the knowledge of Seller
there is (and upon consummation of the Pioneer Transactions, there will
be) no material liability (accrued or contingent) to any
non-governmental third party in tort or under common law in connection
with any release or threatened release of any hazardous substances,
solid wastes, petroleum, petroleum products, and oil and gas
exploration and production wastes into the environment as a result of
operations conducted on its properties and the Pioneer Properties; and
(g) Section 3.19 of the Disclosure Letter also separately
lists for Seller and each Subsidiary any and all Claims against or
affecting it and relating to the release, discharge or
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<PAGE> 21
emission of any hazardous substance, or to the generation, treatment,
storage or disposal of any wastes, or otherwise relating to the
protection of the environment or to the non-compliance with any
notices, permits, licenses, consent decrees or other authorization and
the disposition of each such Claim. With respect to each such pending
or prior matter, Section 3.19 of the Disclosure Letter hereto lists the
date of the Claim, the claimant or investigating agency, the nature and
a brief description of the matter, the damages claimed or relief
sought, and the status or outcome of the matter. Except as set forth on
Section 3.19 of the Disclosure Letter, neither Seller nor any
Subsidiary has received any written notice that it is a potentially
responsible party under any Environmental Laws.
3.20 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS. Seller and its
Subsidiaries (i) own or have the right to use, free and clear of all Liens, all
patents, trademarks, service marks, trade names, and copyrights, and all
applications, licenses, and rights with respect to the foregoing, and all trade
secrets, including know-how, inventions, designs, processes, works of
authorship, computer programs, and technical data and information (collectively,
"Intellectual Property") used and sufficient for use in the conduct of its
business as now conducted and as proposed to be conducted following the
consummation of the Pioneer Transactions, without infringing upon or violating
any right, Lien, or claim of others, and (ii) except as described in Section
3.20 of the Disclosure Letter, is not obligated or under any liability
whatsoever to make any payments by way of royalties, fees, or otherwise to any
owner or licensee of, or other claimant to, any patent, trademark, service mark,
trade name, copyright, or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or otherwise.
3.21 NO PUBLIC OFFER. Neither Seller nor anyone acting on its behalf
has offered to any Person securities of Seller, nor any part thereof, nor any
instruments convertible, exercisable, or exchangeable into such securities, or
has solicited from any Person any offer to acquire the same, in a manner so as
to make the transactions contemplated by this Agreement not exempt from the
registration requirements of Section 5 of the Securities Act.
3.22 INSURANCE. Seller has previously provided to Buyer true and
complete copies of all of Seller's and its Subsidiaries' insurance policies.
Seller has given in a timely manner to its insurers all notices required to be
given under such insurance policies with respect to all claims and actions
covered by insurance, and no insurer has denied coverage of any such claims or
actions or reserved its rights in respect of or rejected any of such claims.
Seller has not received any notice or other communication from any such insurer
canceling or materially amending any of such insurance policies, and no such
cancellation is pending or threatened.
3.23 CERTAIN TRANSACTIONS. Except as set forth on Section 3.24 of the
Disclosure Letter, (a) neither Seller nor any of its Subsidiaries is indebted
directly or indirectly to any of its officers, directors or stockholders or to
their respective spouses or children in any amount whatsoever, (b) none of such
officers, directors or stockholders, or any members of their immediate families,
are indebted to Seller or any of its Subsidiaries, and (c) no officer, director
or stockholder, or any member of his immediate family, has a direct or indirect
financial interest in any material contract with Seller or any of its
Subsidiaries.
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<PAGE> 22
3.24 USE OF PROCEEDS; MARGIN REGULATIONS. All proceeds from the
issuance of Shares will be used by Seller only in accordance with the provisions
of Section 8.2 hereof. No part of the proceeds from the issuance of Shares will
be used by Seller to purchase or carry any Margin Stock or to extend credit to
others for the purpose of purchasing or carrying any Margin Stock. Neither the
purchase of the Shares nor the use of the proceeds thereof will violate or be
inconsistent with the provisions of Regulations G, T, U or X of the Federal
Reserve Board.
3.25 PLUGGING AND ABANDONMENT OBLIGATIONS. Except as set forth in
Section 3.25 of the Disclosure Letter and as would not have a Material Adverse
Effect, there is no well located upon any property owned by Seller or its
Subsidiaries (and to the knowledge of Seller and its Subsidiaries, upon the
acquisition of the Pioneer Properties, there will be no well located upon the
Pioneer Properties) that Seller or its Subsidiaries is currently obligated (or
would be obligated immediately following the acquisition of the Pioneer
Properties) by law or contract to plug and abandon.
3.26 NO MATERIAL MISSTATEMENTS OR OMISSIONS. Neither this Agreement nor
any certificates or documents made or delivered in connection herewith contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements herein or therein not misleading, in view of
the circumstances in which they were made. To the knowledge of Seller, there is
no fact or information relating to the business, prospects, condition (financial
or otherwise), affairs, operations, or assets of Seller or any of its
Subsidiaries or the Pioneer Transactions that has not been disclosed to Buyer in
writing by Seller which would result in a Material Adverse Effect.
3.27 PIONEER TRANSACTIONS. Except as set forth in Section 3.27 of the
Disclosure Letter or as would not have a Material Adverse Effect, neither Seller
nor its Subsidiaries has any knowledge of any fact, event, condition or
circumstance that would cause (i) the representations (without regard to any
materiality or material adverse effect qualifications in such representations)
made by Pioneer under the Pioneer Purchase Agreement to be untrue, or (ii) the
representations (without regard to any materiality or material adverse effect
qualifications in such representations) made by Seller in this Article III to be
untrue upon the consummation of the transactions contemplated by the Pioneer
Purchase Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYER\
Buyer represents and warrants to Seller as follows:
4.1 CORPORATE EXISTENCE. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.
4.2 CORPORATE POWER AND AUTHORIZATION. Buyer is duly authorized and
empowered to execute, deliver, and perform this Agreement and to consummate the
transactions contemplated hereby and thereby. All action on Buyer's part
requisite for the due execution, delivery, and performance of this Agreement has
been duly and effectively taken. The execution and delivery of this Agreement
and the consummation of the transactions to be performed by Buyer have been duly
and validly authorized by all necessary action on the part of the Board of
Directors of Buyer, and no
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<PAGE> 23
other corporate proceedings are necessary to authorize the execution and
delivery of this Agreement by Buyer or to consummate the transactions to be
performed by Buyer.
4.3 BINDING OBLIGATIONS. This Agreement, when executed and delivered,
shall constitute a legal, valid and binding obligation of Buyer enforceable in
accordance with its terms, except insofar as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity.
4.4 NO VIOLATION. The execution and delivery of this Agreement, the
consummation of the transactions provided for herein and contemplated hereby,
and the fulfillment by Buyer of the terms hereof, will not (a) conflict with or
result in a breach of any provision of the Charter or bylaws or other
organizational document of Buyer, (b) result in any default or in any material
modification of the terms of any material contract, agreement, obligation,
commitment applicable to Buyer, (c) require any consent or approval (which has
not been obtained or waived) under any material instrument or material
obligation to which Buyer is a party or by which Buyer may be bound, or (d)
violate any Governmental Requirement applicable to Buyer.
4.5 PURCHASE FOR INVESTMENT. Buyer is acquiring the Shares for its own
accounts and not with a view to the public resale of all or any part thereof in
any transaction which would constitute a "distribution" within the meaning of
the Securities Act. Buyer acknowledges that the Shares have not been registered
under the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is
available.
4.6 FEES AND COMMISSIONS. Buyer has not retained any Intermediary in
connection with the transactions contemplated by this Agreement.
ARTICLE V.
COVENANTS
The parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
5.1 GENERAL. Each of the parties will use all reasonable efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and to make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Article VI).
5.2 NOTICES AND CONSENTS. Seller will give any notices to third
parties, and will use all reasonable efforts to obtain all third party consents,
that are required for the consummation of the transactions contemplated hereby.
5.3 OPERATION OF BUSINESS. Seller covenants and agrees that, unless
otherwise expressly contemplated by this Agreement (including Seller's
performance under the terms of the Pioneer Purchase Agreement, the execution of
the Seller Senior Credit Facility and the execution and
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consummation of agreements relating to the Grand Gulf Transactions) or
consented to in writing by Buyer, (x) Seller will:
(a) operate its business only in the usual and ordinary course
consistent with past practices;
(b) preserve its business and properties, including its
present operations, leases, working conditions and relationships with
lessors, licensors, suppliers, customers and employees;
(c) maintain and keep its properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted;
and
(d) keep in full force and effect insurance comparable in
amount and scope of coverage to that currently maintained;
and (y) Seller will not:
(a) make any declaration for setting aside or payment of
dividends or distributions in respect of shares of Common Stock or any
redemption, purchase or other acquisition of any of its securities;
(b) make any capital expenditures, or commit to make any
capital expenditures, other than in the ordinary course of business;
(c) except for borrowings under the Seller Senior Credit
Facility or the incurrence of other obligations in the ordinary course
of business (other than debt for borrowed money), incur any
Indebtedness; and
(d) amend or modify its Charter (except as set forth in the
Certificate of Designation) or, without the written consent of Buyer,
the Pioneer Purchase Agreement.
5.4 FULL ACCESS. Seller will permit representatives of Buyer to have
full access at reasonable times during normal business hours, in a manner that
will not interfere with the normal business operations of Seller, to all
premises, properties, personnel, books, records (including tax records),
contracts and documents of or pertaining to Seller and, to the extent it has the
right to do so, the Pioneer Properties.
5.5 NOTICE OF DEVELOPMENTS. Each party will give prompt written notice
to the other of any material adverse development causing a breach of any of its
representations and warranties under this Agreement. Seller shall give Buyer
prompt written notice of any breach by Pioneer of its representations,
warranties or covenants under the Pioneer Purchase Agreement.
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ARTICLE VI.
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the transactions contemplated hereby is subject to satisfaction of
the following conditions:
(a) the representations and warranties contained in Article
III, to the extent qualified as to materiality shall be accurate in all
respects, and, to the extent not so qualified, shall be accurate in all
material respects, as of the Closing Date as though such
representations and warranties had been made at and as of that time;
(b) Seller shall have performed and complied with all of the
covenants and agreements hereunder in all material respects through the
Closing;
(c) no action suit, or proceeding shall be pending before any
Governmental Authority wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would prevent consummation of any of
the transactions contemplated by this Agreement; and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect;
(d) the conditions to the closing of the Pioneer Transactions
set forth in the Pioneer Purchase Agreement shall have been satisfied
without having been waived, no event or circumstance shall exist that
would give Seller the right to terminate the Pioneer Purchase Agreement
and the Pioneer Transactions shall have been consummated;
(e) the terms of the transactions contemplated by the Seller
Senior Credit Facility shall be in accordance with the terms and
conditions set forth in the commitment dated November 20, 1997 from
Bank One Texas, N.A. to Seller and such transactions shall have been
consummated and the amounts thereunder that are necessary for the
acquisition of the Pioneer Properties shall have been funded by the
lender;
(f) the Certificate of Designation shall have been filed with
the Secretary of State of Delaware prior to the Closing Date.
(g) there shall have not occurred any events or developments,
individually or in the aggregate, resulting in a Material Adverse
Effect;
(h) Seller shall have paid all amounts payable pursuant to the
Fee Letter;
(i) if requested by Buyer, two designees of Buyer shall have
been appointed to the Board of Directors of Seller;
(j) all consents and approvals required for the consummation
of the transactions contemplated hereby shall have been obtained;
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(k) the Board of Directors of Seller shall have adopted and
approved a Commodity Price Risk Program covering a period of one to
three years, which program shall be in written form and shall be
mutually acceptable to Seller and Buyer;
(l) Seller shall have delivered to Buyer a certificate from an
officer of Seller to the effect that each of the conditions specified
above in Section 6.1(a)-(k) is satisfied in all respects;
(m) Seller and Buyer shall have entered a Shareholders'
Agreement with Seller's shareholder, Jeffrey E. Susskind and his spouse
(the "Susskinds"), providing for an agreement by the Susskinds not to
sell, transfer or otherwise dispose of more than 10% of their shares of
Common Stock for a period of one year after the Closing Date and to
vote their shares for Buyer's nominees to Seller's Board of Directors,
in the form attached hereto as Exhibit B;
(n) Buyer shall have received an opinion of Winstead Sechrest
& Minick P.C., dated as of the Closing Date, that addresses the matters
set forth in Sections 3.1, 3.2, 3.3, 3.4, 3.14, 3.15, the first
sentence in 3.17 and 3.21 hereof, including such exceptions and
assumptions as are customary in such opinions, in form and substance
reasonably acceptable to Buyer.
6.2 CONDITIONS TO OBLIGATION OF SELLER. The obligations of Seller to
consummate the transactions contemplated hereby are subject to satisfaction of
the following conditions:
(a) the representations and warranties contained in Article
IV, to the extent qualified as to materiality shall be accurate in all
respects, and, to the extent not so qualified, shall be accurate in all
material respects, as of the Closing Date as though such
representations and warranties had been made at and as of that time;
(b) Buyer shall have performed and complied with all of the
covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending before any
Governmental Authority wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would prevent consummation of any of
the transactions contemplated by this Agreement, and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect; and
(d) Buyer shall have delivered to Seller a certificate to the
effect that each of the conditions specified above in Section
6.2(a)-(c) is satisfied in all respects.
(e) Seller shall have received an opinion of (i) Julia Heintz
Murray, General Counsel of Buyer, addressing the matters set forth in
Section 4.1 and 4.2, and (ii) Vinson & Elkins L.L.P. addressing the
matters set forth in Section 4.4, in each case, dated as of the Closing
Date and including such exceptions and assumptions as are customary in
such opinions, in form and substance reasonably acceptable to Seller.
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ARTICLE VII.
REGISTRATION RIGHTS
The following provisions govern the registration of Seller's
securities:
7.1 DEFINITIONS. As used in this Article VII, the following terms have
the following meanings:
"HOLDERS" means the holders of Registrable Shares (which initially
shall be Buyer and/or its designee) and shall include transferees
to whom Holders are permitted to assign rights hereunder pursuant
to Section 7.9.
"INITIATING HOLDERS" shall mean Holders holding no less than
250,000 Registrable Shares.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such registration statement.
"REGISTRABLE SHARES" means the shares of Common Stock issued by
Seller to Buyer pursuant to this Agreement, and any shares of
Common Stock (including shares of Common Stock issuable upon the
exercise of options, warrants or other convertible or exchangeable
securities) received on or after the date hereof by Buyer (or any
Affiliate of Buyer) from Seller or otherwise in a transaction not
involving a public offering within the meaning of the Securities
Act.
7.2 PIGGYBACK REGISTRATION. If Seller at any time proposes to register
any shares of Common Stock (or securities convertible into or exercisable or
exchangeable for Common Stock), other than in a demand registration pursuant to
Section 7.3 of this Agreement and other than in a registration on Form S-4 or
Form S-8, it shall give notice to the Holders of such intention 20 days prior to
the filing of a registration statement with respect to such shares. Upon the
written request of any Holder given within 20 days after receipt of any such
notice, Seller shall include in such registration all of the Registrable Shares
indicated in such request, so as to permit the disposition of the shares so
registered. Notwithstanding any other provision of this Section 7.2, if the
managing underwriter advises Seller that marketing factors require a limitation
of the number of shares to be underwritten, the managing underwriter may limit
the number of shares that may be included in such registration and the reduced
number of shares, if any, to be sold shall be allocated among the Seller,
participating Holders and other persons participating in such registration in
proportion to the number of shares proposed to be sold by each party prior to
the imposition of a limitation by the managing underwriter. The rights of a
Holder to participate in a registration pursuant to this Section 7.2 shall
terminate at such time as such Holder hold less than 2% of the outstanding
shares of Common Stock.
7.3 DEMAND REGISTRATION. At any time and from time to time, one or more
Initiating Holders may request in writing that all or part of the Registrable
Shares shall be registered for sale
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under the Securities Act. Within 5 days after receipt of any such request,
Seller shall give written notice of such request to the other Holders and shall
include in such registration all Registrable Shares held by all such Holders who
wish to participate in such demand registration and provide Seller with written
requests for inclusion therein within 15 days after the receipt of Seller's
notice. Thereupon, Seller shall effect the registration of all Registrable
Shares as to which it has received requests for registration specified in the
request for registration. Seller shall not be required to effect any such
registration prior to the first anniversary date hereof; provided, however, that
the Initiating Holders may request registration hereunder prior to the first
anniversary hereof and in such event Seller shall undertake to issue the notices
referred to herein prior to such first anniversary so as to permit the filing of
registration statement promptly after such first anniversary. Notwithstanding
any other provision of this Article VII, if the managing underwriter advises the
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then there shall be excluded from such registration
and underwriting to the extent necessary to satisfy such limitation, first
shares to be offered by Seller or by shareholders other than the Holders, and
second, to the extent necessary, and only if all shares to be offered by Seller
and by shareholders other than Holders have been excluded, Registrable Shares.
Seller may not cause any other registration of securities for sale for its own
account (other than a registration effected solely to implement an employee
benefit plan) to be initiated after a registration requested pursuant to this
Section 7.3 and to become effective less than 90 days after the effective date
of any registration requested pursuant to this Section 7.3. Seller shall not be
required to effect more than three registrations pursuant to this Section 7.3.
7.4 DELAY IN REGISTRATION. If Seller shall furnish to the Holders a
certificate signed by the President of Seller stating that in the good faith
judgment of the Board of Directors of Seller it would be seriously detrimental
to Seller for a registration statement to be filed at such time or would
materially adversely affect a pending or proposed public offering of Seller's
securities, Seller shall have the right to defer the filing of a registration
statement requested pursuant to Section 7.3 hereof for a period of not more than
90 days after receipt of the request of the Holders under Section 7.3; provided,
however, that (i) Seller shall not utilize this right more than once in any
12-month period and (ii) except with respect to the first deferment of the
filing of a registration statement required pursuant to Section 7.3 because of
any pending or proposed public offering of Seller's securities, in the event of
any such pending or proposed public offering of Seller's securities, up to 25%
of the shares to be included in the registration for such public offering shall
be Registrable Shares at the request of such Holders.
7.5 DESIGNATION OF UNDERWRITER. In the case of any registration
effected pursuant to Section 7.3, the managing underwriter shall be reasonably
acceptable to the Initiating Holders and Seller.
7.6 EXPENSES. All expenses incurred in connection with any registration
under Sections 7.2 or 7.3 shall be borne by Seller; provided, however, that (i)
each of the Holders participating in such registration shall pay its pro rata
portion of the fees, discounts or commissions payable to any underwriter, and
(ii) the Holders participating in a third registration made pursuant to Section
7.3 shall bear their proportionate part of all SEC and NASD filing fees and
one-half of all other expenses incurred in connection with any such
registration.
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7.7 INDEMNITIES. In the event of any registered offering of Common
Stock pursuant to this Article VII:
(a) Seller will indemnify and hold harmless, to the fullest
extent permitted by law, any Holder and any underwriter for such
Holder, and each person, if any, who controls the Holder or such
underwriter, from and against any and all losses, damages, claims,
liabilities, joint or several, costs and expenses (including any
amounts paid in any settlement effected with Seller's consent) to which
the Holder or any such underwriter or controlling person may become
subject under applicable law or otherwise, insofar as such losses,
damages, claims, liabilities (or actions or proceedings in respect
thereof), costs or expenses arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact
contained in the registration statement or included in the prospectus,
as amended or supplemented, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading, and Seller
will reimburse the Holder, such underwriter and each such controlling
person of the Holder or the underwriter, promptly upon demand, for any
reasonable legal or any other expenses incurred by them in connection
with investigating, preparing to defend or defending against or
appearing as a third party witness in connection with such loss, claim,
damage, liability, action or proceeding; provided, however, that Seller
will not be liable in any such case to the extent that any such loss,
damage, liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission so made in strict conformity with written information
furnished by a Holder to the managing underwriter specifically for
inclusion therein; provided, further, that the indemnity agreement
contained in this subsection 7.7(a) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of Seller, which consent
shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf
of the selling Holder, the underwriter or any controlling person of the
selling Holder or the underwriter, and regardless of any sale in
connection with such offering by the selling Holder. Such indemnity
shall survive the transfer of securities by a selling Holder.
(b) Each Holder participating in a registration hereunder will
indemnify and hold harmless Seller, any underwriter for Seller, and
each person, if any, who controls Seller or such underwriter, from and
against any and all losses, damages, claims, liabilities, costs or
expenses (including any amounts paid in any settlement effected with
the selling Holder's consent) to which Seller or any such controlling
person and/or any such underwriter may become subject under applicable
law or otherwise, insofar as such losses, damages, claims, liabilities
(or actions or proceedings in respect thereof), costs or expenses arise
out of or are based on (i) any untrue or alleged untrue statement of
any material fact contained in the registration statement or included
in the prospectus, as amended or supplemented, or (ii) the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
and each such Holder will reimburse Seller, any underwriter and each
such controlling person of Seller or any underwriter, promptly upon
demand, for any reasonable legal or other expenses incurred by them in
connection with investigating,
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preparing to defend or defending against or appearing as a third party
witness in connection with such loss, claim, damage, liability, action
or proceeding; in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was so made in strict conformity with written
information furnished by such Holder to the managing underwriter
specifically for inclusion therein; provided, however, that the
indemnity agreement contained in this subsection 7.7(b) shall not apply
to amounts paid in settlement of any such claim, loss, damage,
liability, or action if such settlement is effected without the consent
of such Holder, which consent shall not be unreasonably withheld. In no
event shall the liability of any Holder exceed the gross proceeds
received by such Holder from the offering.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of subsections 7.7(a) or (b) of notice of the
commencement of any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the
provisions of said subsections 7.7(a) or (b), promptly notify the
indemnifying party of the commencement thereof; but the omission to
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than to the extent
the party to be notified is actually prejudiced thereby. In case such
action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party
shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any
action include both the indemnified party and the indemnifying party
and there is a conflict of interests which would prevent counsel for
the indemnifying party from also representing the indemnified party,
the indemnified party or parties shall have the right to select one
separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said subsections 7.7(a)
or (b) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i)
the indemnified party shall have employed counsel in accordance with
the provision of the preceding sentence, (ii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action and
within 15 days after written notice of the indemnified party's
intention to employ separate counsel pursuant to the previous sentence,
or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying
party. No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such
claim or litigation.
(d) If recovery is not available under the foregoing
indemnification provisions with respect to a matter referred to in
Sections 7(a) or 7(b) hereof, for any reason other than as specified
therein, the parties entitled to indemnification by the terms thereof
shall be
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entitled to contribution to liabilities and expenses as more fully set
forth in an underwriting agreement to be executed in connection with
such registration. In determining the amount of contribution to which
the respective parties are entitled, there shall be considered the
parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission, and any other equitable
considerations appropriate under the circumstances; provided that no
party shall be required to contribute an amount in excess of the amount
it would have been required to pay pursuant to the foregoing
indemnification provisions if they had been available.
7.8 OBLIGATIONS OF SELLER. Whenever required under this Article VII to
effect the registration of any Registrable Shares, Seller shall, as
expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its best
efforts to cause such registration statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Shares covered by such registration
statement;
(c) furnish to the Holder such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they
may reasonably request in order to facilitate the disposition of
Registrable Shares owned by them;
(d) in the event of any underwritten public offering, enter in
to and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such
offering; each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement;
(e) notify each Holder of Registrable Shares covered by such
registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of 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 act 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;
(f) cause all Registrable Shares registered pursuant hereunder
to be listed on each securities exchange on which similar securities
issued by Seller are then listed;
(g) provide a transfer agent and registrar for all Registrable
Shares registered pursuant hereunder and a CUSIP number for all such
Registrable Shares in each case not later than the effective date of
such registration; and
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(h) furnish, at the request of any Holder requesting
registration of Registrable Shares pursuant to this Section, on the
date that such Registrable Shares are delivered to the underwriters for
sale in connection with a registration pursuant to this Article VII, if
such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that
the registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the counsel representing
Seller for the purposes of such registration, in form and substance as
is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Shares and (ii) a letter dated
such date, from the independent certified public accountants of Seller,
in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Shares.
7.9 ASSIGNMENT OF REGISTRATION RIGHTS. Any Holder may assign all of its
rights under this Article VII to any transferee who acquires 100,000 or more
Registrable Shares. The transferor shall, within 20 days after such transfer,
furnish Seller with written notice of the name and address of such transferee
and the securities with respect to which such registration rights are being
assigned.
7.10 LOCKUPS. Each Holder agrees, so long as such Holder holds 2% or
more of the outstanding shares of Common Stock, that upon request by the
managing underwriter in any underwriting of Common Stock or securities
convertible into or exchangeable for Common Stock, it will agree not to sell or
otherwise dispose of its shares of Common Stock without the consent of such
managing underwriter for such period of time (which may not exceed 180 days)
from the effective date of the registration statement as may be requested by
such underwriters; provided, however, that the obligations of such Holders
pursuant to this Section 7.10 shall be conditioned upon the receipt by such
underwriters of lockup agreements for the same period of time and on the same
terms as the time period and terms requested of such Holders from each executive
officer, director and holder of 10% or more of the outstanding shares of Common
Stock.
7.11 SUBSEQUENT GRANTS OF REGISTRATION RIGHTS. After the date hereof,
except with respect to the Grand Gulf Transactions, Seller will not enter into
any agreement granting any holder or prospective holder of any securities of
Seller registration rights (i) unless such registration rights include lockup
provisions which are the same as those provisions set forth in Section 7.10
hereof, and (ii) unless any demand registration rights granted to such holders
or prospective holders expressly permit the Holders to participate in any such
demand registration and provide for cutbacks as requested by a managing
underwriter on a pro rata basis among such holders or prospective holders and
any Holders electing to participate in such offering on a pro rata basis based
on the number of shares for which registration is requested.
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ARTICLE VIII.
OTHER PROVISIONS
8.1 FEES AND COMMISSIONS. Seller agrees to pay, and to indemnify and
hold harmless Buyer from and against liability for, any compensation to any
finder, broker, agent, financial advisor, or other intermediary (collectively,
an "Intermediary") in connection with the transactions contemplated by this
Agreement , and the fees and expenses of defending against such liability or
alleged liability. Seller further agrees to pay to Buyer on demand and whether
or not the transactions contemplated by this Agreement are consummated, all
legal, professional and other bills and costs incurred by Buyer and its
Affiliates in connection with the negotiation and preparation of this Agreement
and the evaluation of, and due diligence investigation with respect to, the
transactions contemplated hereby (including, without limitation, survey, title
due diligence and filing fees and expenses, whether incurred by Buyer, its
Affiliates or counsel or other third party professionals); provided, however,
Seller shall only be liable for the first $75,000 of Buyer's third party legal
fees and 50% of such legal fees that exceed $75,000. Seller shall also pay all
the amounts required to be paid by Seller in accordance with the Fee Letter.
8.2 USE OF PROCEEDS. The entire amount of the cash proceeds from the
issuance of the Shares shall be used by Seller on the Closing Date to pay a
portion of the purchase price under the Pioneer Purchase Agreement and for
general corporate purposes.
8.3 NO RESTRICTIONS ON AFFILIATES. As long as Buyer or any of its
Affiliates hold any shares of Common Stock or Series A Preferred Stock, neither
Seller nor any of its Subsidiaries will enter into any agreement that would
purport to impose restrictions or limitations on the business, operations or
assets of Buyer or its Affiliates. For purposes of this Section 8.3, the term
"Affiliate" when used to refer to Affiliates of Buyer, shall exclude Seller and
its Affiliates.
8.4 CERTAIN PUBLIC UTILITY MATTERS. Except as contemplated herein,
Seller will not take any action that would be inconsistent with the
representations contained in Sections 3.15 and 3.16 hereof so long as the Buyer
or its Affiliates holds any shares of Common Stock or Series A Preferred Stock.
For purposes of this Section 8.4, the term "Affiliate" when used to refer to
Affiliates of Buyer, shall exclude Seller and its Affiliates.
8.5 STANDSTILL. For two years after the Closing Date, none of Buyer,
the JEDI Entities or their respective Subsidiaries (a) will purchase any
additional shares of Common Stock, or securities convertible into or
exchangeable for shares of Common Stock, other than (i) in transactions approved
by the Board of Directors of Seller, (ii) the purchase of shares of Common Stock
in connection with the Grand Gulf Transaction acquisition, (iii) the purchase of
shares of Common Stock pursuant to the provisions of Section 8.12 hereof, or
(iv) an Inadvertant Purchase, and (b) make or participate in making any
solicitation of proxies to vote Common Stock of Seller or form, join or
participate in a "group" for the purpose of the foregoing without the approval
of the Board of Directors of the Seller. Notwithstanding anything herein to the
contrary, the provisions of this Section 8.5 shall terminate and have no further
force or effect if (x) at any time in which Buyer and its Affiliates hold more
than 14% of the issued and outstanding shares of Common Stock, less than two
designees of Buyer are elected to Seller's Board of Directors within 30 days
after Buyer has
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requested the nomination and election of such designees, or (y) at any time in
which Buyer and its Affiliates hold in the range of 7% through 14% of the issued
and outstanding shares of Common Stock, one designee of Buyer is not elected to
Seller's Board of Directors within 30 days after Buyer has requested the
nomination and election of such designee (including as a result of the death or
voluntary resignation of such a designee). Other than as expressly provided
herein, Buyer will be free to exercise its rights as a stockholder, voting or
otherwise, and regardless of whether the exercise of such rights might influence
management, the Board of Directors or the stockholders of Seller. Buyer agrees
that in the event that it transfers more than 10% of the issued and outstanding
shares of Common Stock (determined as of the time of such transfer), then the
transferee of such shares shall be bound by the restrictions set forth in this
Section 8.5 to the extent the same are in full force and effect at the time of
such transfer.
8.6 BUSINESS OPPORTUNITY MATTERS. (a) Seller and Buyer acknowledge and
agree that neither Buyer nor any of its Affiliates shall be expressly or
implicitly restricted or proscribed pursuant to this Agreement, the relationship
that exists between Buyer and Seller or otherwise, from engaging in any type of
business activity or owning an interest in any type of business entity,
regardless of whether such business activity is (or such business entity engages
in businesses that are) in direct or indirect competition with the businesses or
activities of Seller or any of its Affiliates. Without limiting the foregoing,
Buyer and Seller acknowledge and agree that (i) neither Seller nor its
Affiliates nor any other Person shall have any rights, by virtue of this
Agreement, the relationship that exists between Buyer and Seller or otherwise,
in any business venture or business opportunity of Buyer or any of its
Affiliates, and neither Buyer nor its Affiliates shall have any obligation to
offer any interest in any such business venture or business opportunity to
Seller, any Affiliate of Seller or any other Person, or otherwise account to any
of such Persons in respect of any such business ventures, (ii) the activities of
Buyer or any of its Affiliates that are in direct or indirect competition with
the activities of Seller or any of its Affiliates are hereby approved by Seller,
and (iii) it shall be deemed not to be a breach of any fiduciary or other
duties, if any and whether express or implied, that may be owed by Buyer or its
Affiliates to the Seller or its Affiliates for Buyer to permit itself or one of
its Affiliates to engage in a business opportunity in preference or to the
exclusion of Seller, its Affiliates or any other Person.
(b) Neither Seller or its Affiliates shall enter into any "area of
mutual interest" agreement of similar agreement that could or would have the
effect of binding Buyer or any of its Affiliates or their respective properties.
(c) For purposes of this Section 8.6, the term "Affiliate" when used to
refer to Affiliates of Buyer, shall exclude Seller and its Affiliates.
8.7 INDEMNIFICATION. Seller agrees to indemnify, defend, and hold
harmless Buyer and each Affiliate of Buyer from, against, and in respect of any
and all claims, demands, losses, reasonable costs and expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties and reasonable attorneys' fees (collectively, "Claims"), that Buyer
shall incur or suffer, which arise, result from, or relate to (a) any breach of,
or failure by Seller or any of its Subsidiaries to perform, any of its
representations, warranties, covenants, or agreements in this Agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by Seller or any of its Subsidiaries in connection with the
transactions contemplated by this
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<PAGE> 35
Agreement, or in the Charter of Seller or any of its Subsidiaries or (b) any
claims of any applicable Governmental Authority or other Person arising under
any Governmental Requirement (including without limitation any Environmental Law
or regulation under ERISA).
8.8 SURVIVAL OF TERMS; FAILURE TO CLOSE. All representations,
warranties, indemnities, and covenants contained herein or made in writing by
any party in connection herewith will survive the execution and delivery of this
Agreement and any investigation made at any time by or on behalf of Buyer;
provided, however, that any Claim with respect to the breach thereof may be made
only if the party claiming such breach shall have notified the responsible party
hereunder (a) in the case of the representations and warranties of Seller
contained in Article 3 and of Buyer contained in Article 4 and the covenants of
Seller contained in Article V, on or before first anniversary of the Closing
Date, and (b) at any time, in the case of all other provisions. Notwithstanding
anything herein to the contrary, in the event the Closing has not occurred on or
before January 15, 1998, because one or more conditions set forth in Article VI
has not been satisfied, Buyer may terminate its obligations under this Agreement
by written notice to Seller; provided, however, that the provisions of Sections
8.1 and 8.7 shall survive any such termination.
8.9 INFORMATION AND MEETINGS. For so long as Buyer and its Affiliates
hold any shares of Common Stock or Series A Preferred Stock, Buyer shall be
entitled to (a) receive notice of each meeting of the Board of Directors of
Seller or each matter to be acted on by consent (in each case as provided for
directors in the bylaws of Seller) and, so long as Buyer and its Affiliates hold
7% or more of the issued and outstanding shares of Common Stock, to have (i) two
observers present at each such meeting if Buyer and its Affiliates hold more
than 14% of the issued and outstanding shares of Common Stock or (ii) one
observer present at each such meeting if Buyer and its Affiliates hold in the
range of 7% through 14% of the issued and outstanding shares of Common Stock
(and any such observers shall enter into a confidentiality agreement with the
Seller providing for such observers to keep confidential any confidential or
proprietary information which such observer obtains from any such meeting of the
Seller's Board of Directors, provided that the information to be kept
confidential shall not include information which (x) is or becomes generally
available to the public other than as a result of acts by the observers, (y) was
in the observers' or Buyer's, or Buyer's Affiliate's, possession prior to the
date it was disclosed to the observers, or (z) is or becomes available to
observers or Buyer, or Buyer's Affiliate, on a nonconfidential basis from a
source other than Seller or its Subsidiaries), (b) to receive, promptly after
they are produced, all management reports and management accounts relating to
Seller and its Subsidiaries and (c) upon reasonable notice, to have reasonable
access to the books and records of Seller and its Subsidiaries, including
statutory books, minutes books, accounting records and customer lists.
8.10 COMMODITY PRICE RISK PROGRAM. Seller shall, and shall cause its
Subsidiaries to, comply with the Commodity Price Risk Program adopted by the
Board of Directors of Seller on or prior to the Closing as contemplated pursuant
to Section 6.1(k) hereof, and neither Seller nor any of its Subsidiary shall
amend or modify such program without the prior written consent of Buyer.
8.11 NUMBER OF BOARD OF DIRECTORS. Seller agrees that it shall not
increase the size of its Board of Directors to a number greater than seven
(inclusive of Buyer's two designees), unless otherwise necessary to permit the
holders of the Series A Preferred Stock to exercise their rights with respect to
the election of directors to serve on the Board of Directors of Seller.
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<PAGE> 36
8.12 OPTION. (a) In the event that the Grand Gulf Transactions are not
consummated on or before January 15, 1998, then Buyer shall have the option (the
"Option") to purchase 165,000 shares of Common Stock of Seller from Seller for
the price equal to the par value of each Option Share (the "Option Price"). To
exercise the Option, Buyer shall deliver a written notice ("Option Notice") to
Seller on or before the second business day following January 15, 1998, stating
its intention to purchase the Option Stock in accordance with the terms hereof.
The closing shall occur at the offices of Vinson & Elkins L.L.P. on the fifth
business day after the exercise of such Option, unless Seller and Buyer agree in
writing upon a different place or date. At the closing of the sale of the Option
Stock from Seller to Buyer, the following actions shall occur:
(i) Seller shall deliver a certificate or certificates for the
Option Shares, duly executed and registered in the name of Buyer or its
designee; and
(ii) Buyer shall pay the Option Price to Seller in immediately
available funds.
(b) Seller agrees that, when issued to Buyer at the closing of the sale
of the Option Shares upon payment of the Option Price therefor, the Option
Shares will be validly issued, fully paid and non-assessable, and free and clear
of any Liens.
ARTICLE IX.
MISCELLANEOUS
9.1 AMENDMENTS; WAIVERS. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by Seller therefrom, shall in any
event be effective unless the same shall be in writing and signed by Buyer (and,
in the case of Article VII hereof, Buyer and each permitted transferee of Buyer
or Buyer of the rights thereunto), and then such waiver or consent shall be
effective only in the specific instance or for the specific purpose for which
given.
9.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors of the parties hereto, whether so expressed or not and the
permitted assigns of the parties hereto including, without limitation and
without need of any express assignment. This Agreement and the rights and
obligations of Seller shall not be assigned without the prior written consent of
Buyer. Buyer may not assign or transfer any or all of its rights and obligations
under this Agreement without the consent of Seller except (i) prior to the
Closing, to an Affiliate with respect to which it has the power to direct or
cause the direction of the management and policies of such Affiliate (whether
through voting, by contract or otherwise), (ii) following the Closing, to an
Affiliate, and (iii) as provided in Section 7.9 hereof.
9.3 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder
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<PAGE> 37
of this Agreement unless the consummation of the transaction contemplated hereby
is materially and adversely affected thereby.
9.4 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience of reference only and do not constitute a part of
and shall not be utilized in interpreting this Agreement.
9.5 GOVERNING LAW. Seller hereby consents and agrees that this
Agreement shall be deemed a contract and instrument made under the laws of the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of the State of Texas, without regard to principles of
conflicts of law.
9.6 ENTIRE AGREEMENT. This Agreement, the Fee Letter and the Disclosure
Letter constitutes the entire agreement among Seller and Buyer concerning the
matters referred to herein and therein, and, except only with respect to the
break up fee described in the commitment letter between Seller and Buyer dated
November 14, 1997, supersede all prior agreements and understandings among
Seller and Buyer relating to the subject matter hereof and thereof. There are no
unwritten oral agreements between or among the parties.
9.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument.
9.8 FURTHER COOPERATION. At any time and from time to time, and at its
own expense, Seller shall promptly execute and deliver all such documents and
instruments, and do all such acts and things, as Buyer may reasonably request in
order to further effect the purposes of this Agreement.
9.9 NOTICES. All notices, requests, and other communications to any
party hereunder shall be in writing (including telecopy) and shall be given to
such party at its address or telecopy number set forth on the signature pages
hereof or such other address or telecopy number as such party may hereafter
specify by notice to the other parties.
9.10 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
Buyer in exercising any right or remedy under this Agreement and no course of
dealing among Seller and Buyer shall operate as a waiver thereof, nor shall any
single or partial exercise of any right or remedy under this Agreement preclude
any other or further exercise thereof or the exercise of any other right or
remedy under this Agreement. The rights and remedies expressly provided are
cumulative and not exclusive of any rights or remedies that Buyer would
otherwise have. No notice to or demand on Seller not otherwise required by this
Agreement or shall entitle Seller to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of Buyer to
any other or further action in any circumstances without notice or demand.
9.11 EXHIBITS; SCHEDULES; AMENDMENT OF DISCLOSURE LETTER. The exhibits
and the Disclosure Letter attached to this Agreement are incorporated herein and
shall be considered to be a part of this Agreement for the purposes stated
herein, except that in the event of any conflict
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<PAGE> 38
between any of the provisions of such exhibits or schedules and the provisions
of this Agreement, the provisions of this Agreement shall prevail. Seller may,
from time to time, prior to the Closing, by written notice to Buyer, supplement
or amend the Disclosure Letter to correct any matter that would constitute a
breach of any representation or warranty of such Seller herein contained;
provided, however, except as provided in the following sentence, no such
supplement or amendment will affect the rights or obligations of the parties to
this Agreement (including without limitation Buyer's rights and obligations
under Section 6.1(a) hereof) until after the Closing Date. Notwithstanding any
other provision hereof, if the Closing occurs, any such supplement or amendment
of the Disclosure Letter will be effective to cure and correct for
indemnification purposes (but only for such purposes) any breach of any
representation, warranty or covenant that would have existed by reason of Seller
not having made such supplement or amendment.
9.12 DISPUTE RESOLUTION. (a) Any controversy, dispute or claim arising
out of or relating to this Agreement or the transactions contemplated hereby (a
"Dispute") shall be submitted to non-binding mediation upon the request of
Seller or Buyer on the following terms. Upon the request of either party, a
neutral mediator acceptable to both parties (the "Mediator") shall be appointed
within fifteen (15) days. The Mediator shall attempt, through negotiations in
any manner deemed reasonably appropriate by the Mediator, in which the parties
shall participate, to resolve the Dispute. The Mediator shall be compensated
at a rate agreeable to Seller, Buyer and the Mediator, and each of Seller and
Buyer shall pay its pro rata share of such compensation and other expenses of
the mediation.
(b) In the event that the Dispute has not been resolved within 30 days
after the appointment of the Mediator, the Dispute shall be resolved by
arbitration administered by the American Arbitration Association (the "AAA") in
accordance with the terms of this Section 9.12, the Commercial Arbitration Rules
of the AAA, and, to the maximum extent applicable, the United States Arbitration
Act. Judgment on any matter rendered by arbitrators may be entered in any court
having jurisdiction. Any arbitration shall be conducted before three
arbitrators. The arbitrators shall be individuals knowledgeable in the subject
matter of the Dispute. Each party shall select one arbitrator and the two
arbitrators so selected shall select the third arbitrator. If the third
arbitrator is not selected within thirty (30) days after the request for an
arbitration, then any party may request the AAA to select the third arbitrator.
The arbitrators may engage engineers, accountants or other consultants they deem
necessary to render a conclusion in the arbitration proceeding. To the maximum
extent practicable, an arbitration proceeding hereunder shall be concluded
within 180 days of the filing of the Dispute with the AAA. Arbitration
proceedings shall be conducted in Houston, Texas. Arbitrators shall be empowered
to impose sanctions and to take such other actions as the arbitrators deem
necessary to the same extent a judge could impose sanctions or take such other
actions pursuant to the Federal Rules of Civil Procedure and applicable law. At
the conclusion of any arbitration proceeding, the arbitrators shall make
specific written findings of fact and conclusions of law. The arbitrators shall
have the power to award recovery of all costs and fees to the prevailing party.
All fees of the arbitrators and any engineer, accountant or other consultant
engaged by the arbitrators, shall be shared equally unless otherwise awarded by
the arbitrators.
(c) Nothing in this Section 9.12 shall limit or delay the right of
Buyer to exercise the remedies available to it under the Certificate of
Designation.
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<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
SHERIDAN ENERGY, INC.
By: /s/ B. A. BERILGEN
---------------------------
B. A. Berilgen, President
Address for Notice:
1000 Louisiana, Suite 800
Houston, Texas 77002
Attention: B.A. Berilgen
Telecopy:
---------------------------
ENRON CAPITAL TRADE &
RESOURCES CORP.
By: /s/ JAMES R. McBRIDE
--------------------------------
Address for Notice:
Enron Capital and Trade Resources
Attn: Donna W. Lowry
1400 Smith Street
Houston, Texas 77002
Phone: (713) 853-1939
Fax: (713) 646-4039 or (713) 646-4946
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<PAGE> 40
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<PAGE> 1
FIRST AMENDMENT
TO
STOCK PURCHASE AGREEMENT
This First Amendment to Stock Purchase Agreement (this "Amendment") is
made and entered into effective as of December 15, 1997 by and between ENRON
CAPITAL & TRADE RESOURCES CORP., a Delaware corporation ("Buyer"), and SHERIDAN
ENERGY, INC., a Delaware corporation ("Seller").
WHEREAS, reference is hereby made to that certain Stock Purchase
Agreement dated November 28, 1997, by and between Seller and Buyer (the
"Purchase Agreement"); and
WHEREAS, Seller and Buyer desire to amend the Purchase Agreement as
provided herein; and
WHEREAS, capitalized terms used but not defined herein shall have the
meanings given thereto in the Purchase Agreement;
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, Seller and Buyer hereby agree as follows:
1. Section 8.11 of the Purchase Agreement is amended by deleting same
and substituting the following in lieu thereof:
8.11 BOARD OF DIRECTORS. Seller acknowledges that Buyer is
entitled to have certain designees appointed to the Board of Director
of Seller; in particular, in the event that Buyer and its Affiliates
hold (i) more than 14% of the issued and outstanding shares of Common
Stock, Buyer is entitled to have two designees of Buyer appointed to
the Board of Directors of Seller or (ii) in the range of 7% through 14%
of the issued and outstanding shares of Common Stock, Buyer is entitled
to have one designee of Buyer appointed to the Board of Directors of
Seller. In the event Buyer is entitled to have designees appointed to
the Board of Directors of Seller pursuant to the preceding sentence,
and such designees to which Buyer is entitled have not been appointed
to the Board of Directors of Seller at the time of Buyer's written
notice to Seller requesting the appointment of such directors, then
Seller, upon receipt of written notice by Buyer, shall cause the
designees requested by Buyer (to which Buyer is entitled to have
appointed to the Board of Directors of Seller pursuant hereto) to be
appointed to the Board of Directors of Seller (including as a result of
the death or voluntary resignation of a member of the Board of Director
of Seller that is a Buyer designee). Unless otherwise necessary to
permit the holders of the Series A Preferred Stock to exercise their
rights with respect to the election of directors to serve on the Board
of
<PAGE> 2
Directors of Seller, Seller agrees that it shall not increase the size
of its Board of Directors to a number greater than seven (inclusive of
Buyer's designees).
2. Section 6.2(e)(ii) of the Purchase Agreement is hereby amended to
delete the reference to "Section 4.4" therein and substitute the reference
"Section 4.3" in lieu thereof.
3. Except as expressly amended hereby, the Purchase Agreement shall
remain in full force and effect as heretofore entered into. Seller and Buyer
hereby ratify and confirm the Purchase Agreement as hereby amended.
4. All references to the "Stock Purchase Agreement" or to the
"Agreement" in the Purchase Agreement or any other document, instrument,
agreement or writing delivered pursuant thereto shall hereafter be deemed to
refer to the Purchase Agreement as amended hereby.
5. The Purchase Agreement as amended hereby shall be governed, and
construed in accordance with, the laws of the State of Texas, without giving
effect to principles of conflicts of law.
6. This Amendment may be executed in counterparts, and each
counterpart, when executed and delivered, shall constitute an original agreement
enforceable against all who signed it, and all separate counterparts shall
constitute the same agreement.
<PAGE> 3
WITNESS the execution hereof effective as of the date first written
above.
SHERIDAN ENERGY, INC.
By: /s/ Michael A. Gerlich
---------------------------
Name: Michael A. Gerlich
--------------------------
Title: Chief Financial Officer
and Vice President
-------------------------
ENRON CAPITAL & TRADE
RESOURCES CORP.
By: /s/ JAMES R. McBRIDE
-------------------------
James R. McBride
<PAGE> 1
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement (this "Agreement") dated as of the 15th
day of December, 1997, is by and among SHERIDAN ENERGY, INC. (the "Company"),
JEFFREY E. SUSSKIND and JANIS SUSSKIND (collectively, "Susskinds") and ENRON
CAPITAL & TRADE RESOURCES CORP., a Delaware corporation ("ECT").
W I T N E S S E T H:
WHEREAS, the Susskinds are the current owners of a substantial number
of shares of Common Stock (as hereinafter defined);
WHEREAS, contemporaneously herewith, ECT is to acquire a substantial
number of shares of Common Stock (as hereinafter defined);
WHEREAS, the Company, the Susskinds and ECT desire to enter into this
Agreement to evidence their agreement regarding certain matters related to the
Common Stock;
NOW, THEREFORE, in consideration of the mutual agreements and promises
herein contained and on this date made and other consideration, the sufficiency
of which is hereby acknowledged, the Susskinds, ECT and the Company, each with
the other, do hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Certain Defined Terms. As used in this Agreement, the following
terms shall have the meanings indicated:
Affiliate: As applied to any specified Person means any other Person
directly or indirectly controlling, controlled by, or under direct common
control with, such specified Person. The term "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of 50% or more of the voting power (or in the case of a Person which
is not a corporation, 50% or more of the ownership interest, beneficial or
otherwise) of such Person or the power otherwise to direct or cause the
direction of the management and policies of that Person, whether through voting,
by contract or otherwise. For purposes of this paragraph, "voting power" of any
Person means the total number of votes which may be cast by the holders of the
total number of outstanding shares of equity of any class or classes of such
Person in any election of directors (or Persons performing similar functions) of
such Person.
Agreement: This Shareholders' Agreement, as the same may be
supplemented or amended from time to time.
<PAGE> 2
Board: The Board of Directors of the Company.
Common Stock: The common stock, par value $.01 per share, of the
Company or any successor class of the Company's common stock.
ECT Group: ECT, the JEDI Entities, and any direct or indirect
transferee of the ECT Shares provided such transferee is an Affiliate of ECT or
the JEDI Entities.
ECT Shares: All of the shares of Common Stock beneficially owned by ECT
and the JEDI Entities as of the effective date of this Agreement, or as to which
beneficial ownership is hereafter acquired by such parties, and any shares of
Common Stock issued in exchange for, as a dividend on, or in replacement or upon
conversion of, or otherwise issued in respect of any such shares of Common Stock
(including Common Stock issued in one or more stock dividends, splits or
recombinations or pursuant to one or more exercises of preemptive rights, if
any).
Family Member: means, with respect to a Person who is an individual,
(a) the spouse of such Persons, (b) the Personal Representatives of such Person
(whether appointed by will or order of a court having jurisdiction) (c) such
Person's descendants or their spouses, (d) any trust having as its beneficiaries
such Person or such Person's descendants, and (e) any trust established for the
benefit of such Person's spouse or the spouse of such Person's descendants.
JEDI Entities: means Joint Energy Development Investments Limited
Partnership and JEDI Hydrocarbons Investments I Limited Partnership.
Person: means an individual or individuals, a partnership, a
corporation, a company, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization, any
other form of legal entity, or a governmental authority.
Personal Representative: means the personal representative of a Person
that is an individual, whether appointed by will or by a court having
jurisdiction over such Person or the estate of such Person.
Susskind Group: The Susskinds and any direct or indirect transferee of
the Susskind Shares provided such transferee is an Affiliate or Family Member of
the Susskinds.
Susskind Shares: All of the shares of Common Stock beneficially owned
by the Susskinds as of the effective date of this Agreement, or as to which
beneficial ownership is hereafter acquired, and any shares of Common Stock
issued in exchange for, as a dividend on, or in replacement or upon conversion
of, or otherwise issued in respect of any such shares of Common Stock (including
Common Stock issued in one or more stock dividends, splits or recombinations or
pursuant to one or more exercises of preemptive rights, if any).
-2-
<PAGE> 3
1.2 For purposes of this Agreement, shares of Common Stock shall be
deemed to be beneficially owned by a Person if such Person would be deemed to be
the beneficial owner of such shares under Rule 13d-3 of the Securities Exchange
Act of 1934, as amended.
ARTICLE II
LOCKUP PROVISION
2.1 Lockup. For one year after the date hereof, the Susskinds agree
that they shall not sell or otherwise dispose of more than ten percent of the
shares of Common Stock beneficially owned as of the date hereof by the
Susskinds.
ARTICLE III
VOTING AGREEMENT
3.1. ECT Designees. Notwithstanding the general right to vote on
matters as provided under the General Corporation Law of the State of Delaware,
the Susskinds agree, at any meeting of stockholders (whether regular or special)
of the Company or in any action by written consent by such stockholders, if the
ECT Group holds, in the aggregate, 7% or more of the issued and outstanding
shares of Common Stock, to cause all of the Susskind Shares held by the Susskind
Group to be voted (I) for two nominees designated by the ECT Group, if the ECT
Group holds, in the aggregate, in excess of 14% of the issued and outstanding
shares of Common Stock, or for one nominee designated by the ECT Group, if the
ECT Group holds, in the aggregate, in the range of 7% through 14% of the issued
and outstanding shares of Common Stock, (ii) in order to fill any vacancy or
vacancies caused by the removal, death or resignation of any member of the Board
who was the nominee designated by the ECT Group, for a person or persons who
shall be designated for nomination by the ECT Group, and (iii) upon the request
of the ECT Group, for the removal (with or without cause) of any member of the
Board who was the nominee designated by the ECT Group (provided that any such
removal is permitted by the Company's Certificate of Incorporation and/or
bylaws). A member of the ECT Group shall notify the Susskinds of its designated
nominee or nominees and the Susskinds agree to cause the Susskind Shares held by
the Susskind Group to be voted in accordance with the preceding sentence.
3.2. Susskind Group. Notwithstanding the general right to vote on
matters as provided under the General Corporation Law of the State of Delaware,
if the ECT Group, holds, in the aggregate, 7% or more of the issued and
outstanding shares of Common Stock, ECT shall and shall cause any member of the
ECT Group, at any meeting of stockholders (whether regular or special) of the
Company, or by any action by written consent of such stockholders, to cause all
of the ECT Shares to be voted for each member of the Board as of the date hereof
(currently Jeffrey E. Susskind, B.A. Berilgen, David Scheiber, Jonathan P.
Carroll, and Michael A. Gerlich) who may be designated by the Susskind Group.
The Susskind Group shall notify ECT of its designated nominee or nominees and
the ECT agrees to cause the ECT Shares to be voted in accordance with the
preceding sentence.
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<PAGE> 4
3.3. Stockholder Groups. Any transferee of ECT or the ECT Group which
is an Affiliate of ECT or any Person in such group and, in the case of the
Susskind Group, any transferee of the Susskinds or the Susskind Group that is an
Affiliate or a Family Member of the Susskinds or the Susskind Group, shall
execute and deliver a counterpart of this Agreement to the Company with copies
to the other parties hereto as evidence that the shares of Common Stock held by
such transferee are held subject to the terms, conditions and restrictions set
forth in this Agreement
3.4. Legends. A legend will be added to the ECT Shares and to the
Susskind Shares to the effect that such shares are subject to this Voting
Agreement.
ARTICLE IV
MISCELLANEOUS
4.1. Remedies. Each party hereto acknowledges that a remedy at law for
any breach or attempted breach of this Agreement will be inadequate, agrees that
each other party hereto shall be entitled to specific performance and injunctive
and other equitable relief in case of any such breach or attempted breach, and
further agrees to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such injunctive or any other equitable
relief.
4.2. Termination. The provisions of this Agreement shall terminate upon
the earlier of (i) December 15, 1999, or (ii) the date upon which the ECT Group
holds less than 7% issued and outstanding Common Stock.
4.3. Amendment. This Agreement may only be amended by an instrument in
writing signed by the parties hereto.
4.4. Notices. Any notice, request, reply, instruction or other
communication (herein severally and collectively called notice ) in this
Agreement provided or permitted to be given to the Company or to any Stockholder
must be given in writing and may be given or served by depositing the same in
the United States mail, in certified or registered form, postage fully prepaid,
addressed to the party or parties to be notified, with return receipt requested,
or by delivering the same in person to such party or parties. Notice deposited
in the United States mail, mailed in the manner hereinabove described, shall be
effective upon deposit. Notice given in any other manner shall be effective only
if and when received by the party to be notified. For purposes of notice
hereunder:
the address for ECT shall be:
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002
Attn: Donna W. Lowry
Phone: (713) 853-1939
Fax: (713) 646-4039 or (713) 646-4946
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<PAGE> 5
the address for the Company shall be:
Sheridan Energy, Inc.
1000 Louisiana, Suite 800
Houston, Texas 77002
Attention: B.A. Berilgen
the address for the Susskinds shall be:
Jeffrey and Janis Susskind
100 Wilshire Blvd., 15th Floor
Santa Monica, California 90401
4.5. GOVERNING LAW. THIS AGREEMENT SHALL BE SUBJECT TO AND
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
4.6. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
heirs, executors, distributees, successors and assigns; provided, however, that
such transferee of any party hereto shall have complied with the requirements of
Section 3.3 hereof.
4.7 Representations. The Susskinds hereby jointly and severally
represent and warrant that as of the date of the execution of this Agreement
they own in the aggregate 1,000,037 shares of Common Stock.
4.8. Invalid Provisions. Should any portion of this Agreement be
adjudged or held to be invalid, unenforceable or void, such holding shall not
have the effect of invalidating or voiding the remainder of this Agreement, and
the portion so held invalid, unenforceable or void shall, if possible, be deemed
amended or reduced in scope, or to otherwise be stricken from this Agreement to
the extent required for the purposes of validity and enforcement thereof.
4.9. Section Headings. The section and paragraph headings contained
herein are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement.
4.10. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute only one
instrument.
4.11. Entire Agreement. This Agreement and the Stock Purchase Agreement
constitutes the entire agreement among the parties hereto pertaining to the
subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties, and there
are no agreements between the parties in connection with the subject matter
hereof except as set forth specifically herein and therein.
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<PAGE> 6
4.12. Arbitration (a) Any controversy, dispute or claim arising out of
or relating to this Agreement or the transactions contemplated hereby (a
"Dispute") shall be submitted to non-binding mediation upon the request of
parties hereto on the following terms. Upon the request of either a member of
the ECT Group (an "ECT Member") or a member of the Susskind Group (a "Susskind
Member"), a neutral mediator acceptable to all parties (the "Mediator") shall be
appointed within fifteen (15) days. The Mediator shall attempt, through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate, to resolve the Dispute. The Mediator shall
be compensated at a rate agreeable to the ECT Group, the Susskind Group and the
Mediator, and each of the ECT Group and the Susskind Group shall pay their pro
rata share of such compensation and other expenses of the mediation.
(b) In the event that the Dispute has not been resolved within 30 days
after the appointment of the Mediator, the Dispute shall be resolved by
arbitration administered by the American Arbitration Association (the "AAA") in
accordance with the terms of this Section 4.12, the Commercial Arbitration Rules
of the AAA, and, to the maximum extent applicable, the United States Arbitration
Act. Judgment on any matter rendered by arbitrators may be entered in any court
having jurisdiction. Any arbitration shall be conducted before three
arbitrators. The arbitrators shall be individuals knowledgeable in the subject
matter of the Dispute. Each of the ECT Group and the Susskind Group shall select
one arbitrator and the two arbitrators so selected shall select the third
arbitrator. If the third arbitrator is not selected within thirty (30) days
after the request for an arbitration, then any party may request the AAA to
select the third arbitrator. The arbitrators may engage engineers, accountants
or other consultants they deem necessary to render a conclusion in the
arbitration proceeding. To the maximum extent practicable, an arbitration
proceeding hereunder shall be concluded within 180 days of the filing of the
Dispute with the AAA. Arbitration proceedings shall be conducted in Houston,
Texas. Arbitrators shall be empowered to impose sanctions and to take such other
actions as the arbitrators deem necessary to the same extent a judge could
impose sanctions or take such other actions pursuant to the Federal Rules of
Civil Procedure and applicable law. At the conclusion of any arbitration
proceeding, the arbitrators shall make specific written findings of fact and
conclusions of law. The arbitrators shall have the power to award recovery of
all costs and fees to the prevailing party. All fees of the arbitrators and any
engineer, accountant or other consultant engaged by the arbitrators, shall be
shared equally unless otherwise awarded by the arbitrators.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by themselves or by their respective representatives thereunto duly
authorized as of the date first above set forth.
SHERIDAN ENERGY, INC.
By: /s/ MICHAEL A. GERLICH
-----------------------------
Name: Michael A. Gerlich
----------------------------
Title: Chief Financial Officer
and Vice President
---------------------------
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<PAGE> 7
/s/ JEFFREY E. SUSSKIND
----------------------------------
Jeffrey E. Susskind
/s/ JANIS SUSSKIND
----------------------------------
Janis Susskind
ENRON CAPITAL & TRADE
RESOURCES CORP.
By: /s/ JAMES R. MCBRIDE
-----------------------------
Name: James R. McBride
----------------------------
Title: Vice President
---------------------------
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<PAGE> 1
EXHIBIT 99.4
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A PREFERRED STOCK
Pursuant to Section 151(g) of the Delaware General Corporation Law
----------------
SHERIDAN ENERGY, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that the
following resolutions were duly adopted by the Board of Directors of the
Corporation by unanimous written consent of the Board of Directors pursuant to
Section 228 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by Article Four of the Certificate of
Incorporation, a series of Preferred Stock be, and it hereby is, created out of
the authorized but unissued shares of Preferred Stock of the Corporation, such
series to be designated "Series A Preferred Stock" (the "Series A Preferred
Stock") to consist of 1,900,000 shares, par value $0.01 per share, of which the
powers, designations, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof shall be as follows:
1. Amount. The number of shares constituting the Series A
Preferred Stock shall be 1,900,000.
2. Payment of Dividends. Holders of the Series A Preferred Stock are
entitled to receive when, as and if declared by the Board of Directors, out of
the funds of the Corporation legally available therefore cash dividends in an
amount equal to $0.60 per share, payable semi-annually, on June 15 and December
15 in each year commencing on June 15, 1998, except that if any such day is not
a business day in Houston, Texas, then such dividends shall be payable on the
next succeeding business day (each such date on which a dividend is payable is
referred to herein as a "Dividend Payment Date"). At the option of the
Corporation, upon declaration of the Board of Directors, dividends may be paid,
in whole or in part, by issuing additional fully paid and non-assessable shares
of the Series A Preferred Stock (the "Preferred Dividend Stock") in an amount
equal to .0675 additional shares of Series A Preferred Stock for each Series A
Preferred Stock then issued and outstanding, payable semi-annually on each
Dividend Payment Date. Dividends on the Series A Preferred Stock are cumulative
from the date of original issuance of shares of Series A Preferred Stock, and
will be payable, when, as and if declared, to holders of record on the
applicable record date as shall be fixed by the Board of Directors. Dividends in
arrears may be declared and paid at any time, without reference to any regular
dividend payment date, to holders of record on such date not exceeding 60 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
The amount of Preferred Dividend Stock issuable to a holder by way of a dividend
shall be computed on the basis of the aggregate number of shares of Series A
Preferred Stock registered in such holder's name on the record date fixed for
the payment of such dividend plus the amount of accrued but not declared
dividends of Preferred Dividend Stock. Dividends payable for any period less
than a full semi-annual period shall be
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<PAGE> 2
computed on the basis of a 360-day year of twelve 30-day months. Dividends
shall accrue whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends. Accrued but unpaid
dividends will not bear interest.
3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights with respect thereto:
(A) Each share of Series A Preferred Stock shall entitle the
holder thereof to the voting rights required by applicable law.
(B) The consent of the holders of at least 66_% of the
outstanding shares of the Series A Preferred Stock, voting separately
as a single class, in person or by proxy, either in writing without a
meeting or at an annual or a special meeting of shareholders called for
the purpose, shall be necessary to (i) increase or decrease the
aggregate number of authorized shares of the Series A Preferred Stock,
provided that such decrease shall never be below the number of then
outstanding shares of Series A Preferred Stock, (ii) effect an
exchange, reclassification, or cancellation of all or part of the
Series A Preferred Stock, (iii) change the designations, powers,
preferences, relative and other special rights, or the qualifications,
limitations or restrictions thereof, of the Series A Preferred Stock
(which change shall apply equally to the then outstanding shares of
Series A Preferred Stock), (iv) issue any additional shares of or
securities convertible into or exchangeable for, or reclassify any
other shares of other classes or series into, shares of the Series A
Preferred Stock, (v) create any equity security ranking senior to or on
a parity with (with respect to voting or dividends or upon liquidation,
dissolution or winding up) the Series A Preferred Stock, (vi) approve
any material change in the principal business of the Corporation or
(vii) pay a dividend or distribution of cash or property in respect of,
or redeem, repurchase otherwise acquire, any Junior Security (as
hereinafter defined), provided, however, that no change in the dividend
rate can be effected without the consent of all holders of the Series A
Preferred Stock. In all cases where the holders of shares of the Series
A Preferred Stock have the right to vote separately as a class, all
such holders shall be entitled to one vote for each share held by them.
The term "Junior Securities" as used herein shall mean any of the
Corporation's capital stock other than the Series A Preferred Stock.
(C) If at any time (i) dividends on the Series A Preferred
Stock shall be in arrears for more than thirty days after the
applicable Dividend Payment Date or (ii) the Corporation shall be
obligated to and shall have failed to redeem any shares of the Series A
Preferred Stock pursuant to Section 6, and for so long thereafter as
shares of the Series A Preferred Stock remain outstanding, at the
election of the holders of the Series A Preferred Stock (exercisable by
notice to the Corporation from a majority of the holders of the then
outstanding shares of Series A Preferred Stock), the holders of the
Series A Preferred Stock shall have the voting power, voting separately
as a single class, to elect such number of directors as constitutes a
majority of the Board of Directors of the Corporation. Under such
circumstances, the holders of the Series A Preferred Stock shall be
authorized to exercise such voting powers by increasing the size of the
Board of Directors and filling the
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<PAGE> 3
resulting vacancies. The directors elected by the holders of the Series
A Preferred Stock may be removed from the Board of Directors only by a
vote of the holders of a majority of the then outstanding shares of the
Series A Preferred Stock. If the office of a director elected by the
holders of the Series A Preferred Stock becomes vacant by reason of
resignation, death or removal, the vacancy shall be filled by the vote
of the holders of a majority of the outstanding shares of the Series A
Preferred Stock, voting separately as a single class. Holders of the
Series A Preferred Stock shall not be entitled to cumulate their shares
for the election of directors. The holders of the Series A Preferred
Stock may assign their rights under this Section 3(C) to appoint a
majority of the Board of Directors of the Corporation.
4. Liquidation Preference. In the event of any liquidation,
dissolution, or winding up of the affairs of the Corporation, whether voluntary
or otherwise ("Liquidation"), after payment or provision for payment by the
Corporation of the debts and other liabilities of the Corporation, each holder
of the Series A Preferred Stock shall be entitled to receive an amount in cash
for each share of the then outstanding Series A Preferred Stock held by such
holder equal to $10.00 per share (such amount being referred to herein as the
"Liquidation Preference"), plus accrued and unpaid dividends on each such share
(whether or not declared), and shall not be entitled to any further payment,
before any distribution shall be made to the holders of any Junior Securities
upon the Liquidation of the Corporation. Written notice of any Liquidation of
the Corporation, stating a payment date and the place where the distributable
amounts shall be payable, shall be given by mail, postage prepaid, not less than
30 days prior to the payment date stated therein, to the holders of record of
the Series A Preferred Stock, if any, at their respective addresses as the same
shall appear on the books of the Corporation. For the purposes of this Section
4, the merger or consolidation of the Corporation into or with any other
corporation, or the merger of any other corporation into it, or the sale, lease
or conveyance of all or substantially all the assets, property or business of
the Corporation, shall not be deemed to be a Liquidation of the Corporation,
unless such merger, consolidation, sale, lease or conveyance shall be in
connection with a dissolution or winding up of the business of the Corporation.
5. Redemption at the Option of the Corporation. (A) The
Corporation, at its option, may redeem the shares of Series A Preferred Stock,
in whole or in part, out of funds legally available therefor, at any time or
from time to time, subject to the notice provisions, provisions for partial
redemption and provisions limiting the Corporation's optional redemption rights
described below, at the redemption price ("Redemption Price") as follows:
(i) 50% of the number of shares of Series A Preferred Stock
issued and outstanding on the date of the first redemption of the
Series A Preferred Stock may be redeemed at the price of $10.00 per
share plus an amount equal to accrued and unpaid dividends on such
shares (whether or not declared), if any, to (and including) the date
fixed for redemption, whether or not earned or declared; and
(ii) the remaining number of shares of Series A Preferred
Stock issued and outstanding on the date of the first redemption and
all shares of Series A Preferred Stock issued after the date of the
first redemption may be redeemed at the price described below
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<PAGE> 4
that is set opposite each year following the Anniversary Date
(as hereinafter defined) in which such shares may be redeemed, plus an
amount equal to accrued and unpaid dividends, if any, on such shares
(whether or not declared), to (and including) the date fixed for
redemption, whether or not earned or declared:
<TABLE>
<CAPTION>
Year Following
Anniversary Date Redemption Price
---------------- ----------------
<S> <C>
1 $10.50
2 $10.30
3 $10.20
4 and thereafter $10.00
</TABLE>
The term "Anniversary Date" as used herein shall mean [December 15, 1997].
(B) In the event the Corporation shall redeem shares of Series A
Preferred Stock under this Section 5, notice of such redemption shall be given
by first class mail, postage prepaid, mailed not less than 30 nor more than 60
days prior to the redemption date, to each holder of record of the shares to be
redeemed, at such holder's address as the same appears on the stock records of
the Corporation. Each such notice shall state: (i) the redemption date; (ii) the
number of shares of Series A Preferred Stock to be redeemed and, if less than
all the shares held by such holder are to be redeemed, the number of such shares
to be redeemed from such holder; (iii) the Redemption Price; (iv) the place or
places where certificates for such shares are to be surrendered for payment of
the Redemption Price; (v) that dividends on the shares to be redeemed shall
cease to accrue on such redemption date.
(C) Upon surrender in accordance with said notice of the certificates
for any such shares so redeemed (properly endorsed or assigned for transfer, if
the Board of Directors shall so require and the notice shall so state), such
shares shall be redeemed by the Corporation at the applicable Redemption Price
aforesaid. If fewer than all the outstanding shares of Series A Preferred Stock
are to be redeemed, shares to be redeemed shall be selected by the Corporation
from outstanding shares of Series A Preferred Stock not previously called for
redemption by lot or pro rata (as near as may be) or by any other method
determined by the Board of Directors of the Corporation in its sole discretion
to be equitable. If fewer than all the shares represented by any certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
(D) Upon the occurrence of any Default (as defined in Section 6(C)) or
Change in Control (as defined in Section 6(C)), the Corporation may not exercise
its redemption rights pursuant to this Section 5.
(E) On or before the expiration of the third year following the Date,
the Corporation shall only have the right to redeem outstanding shares of Series
A Preferred Stock pursuant to this Section 5 with proceeds received from the
sale by the Corporation of (i) equity securities of the Corporation or (ii)
assets of the Corporation (excluding the sale of oil, gas, natural gas liquid or
condensate in the ordinary course of business).
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<PAGE> 5
6. Mandatory Redemption. (A) On [December 15], 2002, the Corporation
shall redeem, for cash, all of the outstanding shares of the Series A Preferred
Stock at the Mandatory Redemption Price (as hereinafter defined).
(B) Upon the occurrence of a Change of Control (as hereinafter
defined) with respect to the Corporation, any holder of Series A Preferred Stock
may require, at the holder's option, for a period of 90 days after receipt of a
notice by the Corporation to the holders of the Series A that a Change of
Control has occurred, the Corporation to redeem the shares of Series A Preferred
Stock held by such holder, in whole or in part, at the Mandatory Redemption
Price. A "Change in Control" shall be deemed to have occurred (i) upon a merger,
consolidation or reorganization or similar transaction that requires approval of
holders of Common Stock, or any person or "group" (as defined in Rule 13d-5
under the Securities Exchange Act of 1934, as amended) (other than Enron Capital
Trade & Resources Corp. or its Affiliates or Jeffrey E. Susskind and his
Affiliates) becoming the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange of 1934, as amended) of a 50% or more of the outstanding
voting securities of the Corporation, (ii) upon the sale of all or substantially
all of the Corporation's assets, or (iii) upon the execution of an agreement by
the Corporation to do any of the foregoing. The term "Affiliate" shall mean any
person, corporation or other entity controlling, controlled by or under common
control with the party in question and, as used in this definition, the term
"control," including the correlative terms "controlling," "controlled by" and
"under common control with" shall mean possession, directly or indirectly, of
the power to direct or cause the direction of management or policies (whether
through ownership of securities or any partnership or other ownership interest,
by contract or otherwise) of a person, corporation or other entity.
(C) Upon the occurrence of a Default (as hereinafter defined) with
respect to the Corporation, any holder of Series A Preferred Stock may require,
at the holder's option, the Corporation to redeem the shares of Series A
Preferred Stock held by such holder, in whole or in part, at the Mandatory
Redemption Price. A "Default" shall mean shall be deemed to have occurred if at
any time (i) dividends payable on the shares of Series A Preferred Stock at the
time outstanding have not been fully paid on the Dividend Payment Date;
provided, however, if such dividends are paid on or before the 30th day
following such Dividend Payment Date, the Corporation shall not be considered in
Default, (ii) directors elected by the holders of the Series A Preferred Stock
pursuant to Section 3 are not permitted to serve on the Board of Directors of
the Corporation, (iii) the consent of the holders of Series A Preferred Stock in
not obtained pursuant to the terms of Section 3(B), or (iv) the Corporation
breaches any covenant made with respect to the Series A Preferred Stock.
(D) A holder of Series A Preferred Stock may exercise the mandatory
redemption rights pursuant to Sections 6 (A), (B), and (C) by delivering notice
of such exercise to the Corporation, together with the certificate or
certificates representing such shares. Upon receipt of such redemption notice,
the Corporation shall, within 30 days, calculate the Mandatory Redemption Price
as of the end of the month preceding the month in which the Corporation receives
such notice; provided that with respect to the exercise of the mandatory
redemption right set forth in Section 6(C), the Corporation shall calculate the
Mandatory Redemption Price within 5 days after the receipt of such redemption
notice. The Corporation shall pay to the holder
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<PAGE> 6
exercising such redemption right the Mandatory Redemption Price times the number
of shares redeemed on or before the 45th day of the receipt by the Corporation
of the redemption notice; provided that with respect to the exercise of the
mandatory redemption right set forth in Section 6(C), the Corporation shall pay
to the holder exercising such redemption right the Mandatory Redemption Price
within 10 days after the receipt of such redemption notice.
(E) The term "Mandatory Redemption Price" shall mean with respect to
(i) the exercise of a mandatory redemption right pursuant to Section 6(A),
$10.00 per share of Series A Preferred Stock, plus all accrued and unpaid
dividends (whether or not declared), (ii) the exercise of a mandatory redemption
right pursuant to Section 6(B), $10.10 per share of Series A Preferred Stock,
plus all accrued and unpaid dividends (whether or not declared), or (iii) the
exercise of a mandatory redemption right pursuant to Section 6(C), $10.50 per
share of Series A Preferred Stock, plus all accrued and unpaid dividends
(whether or not declared), if exercised prior to the third anniversary of the
Anniversary Date or $10.00 per share of Series A Preferred Stock, plus all
accrued and unpaid dividends (whether or not declared), if exercised on or after
the third anniversary of the Anniversary Date.
7. Reacquired Shares. Any shares of the Series A Preferred Stock or
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Series A Preferred Stock to be created by resolution or resolutions of the Board
of Directors, subject to the conditions and restrictions on issuance set forth
herein.
8. Covenant. (a) For so long as any shares of the Series A
Preferred Stock are outstanding, neither the Corporation nor its Consolidated
Subsidiaries shall incur, create or assume any Indebtedness (as hereinafter
defined), if, taking into account such Indebtedness, the Corporation's aggregate
Indebtedness would exceed 70% of the estimated value of future gross revenues
(estimated in accordance with the requirements of the Securities and Exchange
Commission) to be generated from the production of proved reserves, net of
estimated production and future development costs, using prices and costs in
effect as of the date indicated, without giving effect to non-property related
expenses such as general and administrative expenses and future income tax
expenses or to depreciation, depletion and amortization, discounted using an
annual discount rate of 10% as reported in the Corporation's most recent Annual
Report on Form 10-K, or if no Form 10-K is available as of the most recent
fiscal year end (adjusted for any material asset sales or acquisitions since the
date of the last determination).
(b) The following definitions shall apply to terms used in this
Section 8:
(i) "Indebtedness" means for any Person the sum of the
following (without duplication): (a) all obligations of such Person for
borrowed money or evidenced by bonds, debentures, notes or other
similar instruments; (b) all obligations of such Person (whether
contingent or otherwise) in respect of bankers' acceptances, surety or
other bonds and similar instruments; (c) all obligations of such Person
to pay the deferred purchase price of property or services (other than
for borrowed money) arising in the ordinary course of business of such
Person to the extent that such obligations have remained outstanding in
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<PAGE> 7
excess of sixty days; (d) all obligations under leases which shall have
been, or should have been, in accordance with GAAP, recorded as capital
leases in respect of which such Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or in respect of which
obligations such Person otherwise assures a creditor against loss; (e)
all Indebtedness and other obligations of others secured by a lien on
any asset of such Person, whether or not such Indebtedness is assumed
by such Person; (f) all Indebtedness and other obligations of others
guaranteed by such Person; (g) all obligations or undertakings of such
Person to maintain or cause to be maintained the financial position or
covenants of other Persons; (h) payments received in consideration of
oil, gas, or other minerals yet to be acquired or produced at the time
of payment (including without limitation obligations under
"take-or-pay" contracts to deliver gas in return for payments already
received) or obligations to deliver goods or services in consideration
of advance payments therefor; (i) obligations arising under futures
contracts, swap contracts, or similar agreements, except for those
entered into by the Corporation in accordance with its Commodity Price
Risk Program adopted in December 1997; (j) obligations arising with
respect to letters of credit or applications or reimbursement
agreements therefor; (k) mandatory redemption or mandatory dividend
rights on capital stock (including Series A Preferred Stock); and (l)
all unfunded postretirement and postemployment benefits including,
without limitation, unfunded pension liabilities;
(ii) "Consolidated" refers to the consolidation of financial
statements in accordance with GAAP;
(iii) "GAAP" means generally accepted accounting principles
(including principles of consolidation), in effect from time to time,
consistently applied;
(iv) "Subsidiary" means, as to any Person, any corporation,
company, association, partnership, limited liability company or other
business entity of which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and
any partnership, limited liability company or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such
Person or one or more of its Subsidiaries or such Person and one or
more of its Subsidiaries; and
(v) "Person" means an individual or individuals, a
partnership, a corporation, a company, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, any other form of legal entity, or a
governmental authority.
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<PAGE> 8
III. The Resolution was adopted by the Board of Directors of the
Corporation on November 24, 1997.
IV. The Resolution was duly adopted by all necessary action on the
part of the Corporation.
DATED: December 11, 1997.
SHERIDAN ENERGY, INC.
By: /s/ B.A. Berilgen
-------------------------------
President
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