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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
______________________________
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
NOVEMBER 13, 1997
______________________________
SHERIDAN ENERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
______________________________
DELAWARE 1-10201 76-0507664
-------- ------- ----------
(STATE OF (COMMISSION (IRS EMPLOYEE
INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
______________________________
1000 LOUISIANA
SUITE 800
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(713) 651-7899
________________________________________________________________________________
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Item 5. Other Events.
On November 13, 1997, Sheridan Energy, Inc. ("Sheridan" or the
"Registrant") entered into a definitive agreement (the "Agreement"), effective
as of November 1, 1997, to acquire (the "Acquisition") certain oil and gas
properties from Pioneer Natural Resources USA, Inc. ("Pioneer") in a cash-for-
assets transaction.
Pursuant to the terms of the Agreement, Sheridan will acquire for a
purchase price of $49.9 million Pioneer's interest in 436 wells (net 179) of
which 213 wells (net 154 wells) are being operated. The net current production
from the properties is over 14 million cubic feet of gas equivalents per day.
Upon execution of the Agreement, the Registrant deposited $500,000 with
Pioneer and is required to deposit an additional $4.5 million with Pioneer. If
the Registrant is unable to obtain a definitive agreement for financing of the
Acquisition, the deposits may be forfeitable.
Closing of the Acquisition is subject to a number of conditions including
the Registrant's right to make an environmental and other physical assessment of
the assets to be acquired and to conduct other due diligence concerning the
assets and the contracts relating to such assets.
In order to obtain financing for the Acquisition, the Registrant has
entered into a definitive agreement with Enron Capital & Trade Resources Corp.
("Enron") whereby Enron has indicated its commitment (the "Enron Commitment") to
acquire, for $10 million, shares of a new issue of the Registrant's senior
preferred stock and for an additional $10 million, 1,600,000 shares of the
Registrant's common stock. The Enron Commitment is subject to certain closing
conditions including closing of the Pioneer Acquisition and other matters
normally found in an agreement of this type.
In addition, the Registrant has executed a letter of intent with Bank One,
Texas N.A. (the "Bank") whereby the Bank has indicated a commitment to loan to
the Registrant, up to $40 million pursuant to a secured term loan agreement.
The Bank's obligation is subject to completion of its due diligence relating to
the Pioneer properties to be acquired by the Registrant, execution of definitive
agreements, and other conditions, representations, warranties and agreements
customary in a transaction of this type.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The financial statements required by this item will be filed by amendment
not later than sixty days after the date of the filing of this Form 8-K report.
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(b) Exhibits
10.1 Purchase and Sale Agreement by and between Pioneer Natural Resources
USA, Inc. and the Registrant dated as of November 13, 1997 - filed herewith.
10.2 Stock Purchase Agreement by and between Sheridan Energy, Inc. and
Enron Capital Trade and Resources Corp. dated November 28, 1997 - filed
herewith.
10.3 Letter of Intent executed by Bank One, Texas N.A. and the Registrant
- - filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SHERIDAN ENERGY, INC.
(REGISTRANT)
/s/ MICHAEL E. GERLICH
By: ____________________________
Michael E. Gerlich,
Chief Financial Officer
DATED: December 2, 1997
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EXHIBIT 10.1
PIONEER 1997 DIVESTITURE PACKAGE
PURCHASE AND SALE AGREEMENT
by and between
PIONEER NATURAL RESOURCES USA, INC.
as Seller
and
SHERIDAN ENERGY, INC.
Purchaser
November 13, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. SALE AND PURCHASE............................................. 1
1.1 Effective Time.............................................. 1
1.2 Sale and Purchase........................................... 1
1.3 Excluded Assets............................................. 2
ARTICLE 2. CONSIDERATION................................................. 2
2.1 Consideration............................................... 2
2.2 Manner of Payment........................................... 3
2.3 Like Kind Exchange Option................................... 3
2.4 Deposit..................................................... 3
ARTICLE 3. DEFECTS....................................................... 3
3.1 Definition of Acceptable Title.............................. 3
3.2 Definition of Permitted Emcumbrances........................ 4
3.3 Environmental and Physical Assessment....................... 5
3.4 Identified Claims........................................... 6
3.5 Notice of Defects........................................... 6
3.6 Remedy for Defects.......................................... 7
3.7 Preferential Purchase Rights and Consents to Assign......... 9
ARTICLE 4. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS............ 9
4.1 Existence................................................... 9
4.2 Power....................................................... 10
4.3 Authorization............................................... 10
4.4 Brokers..................................................... 10
4.5 Foreign Person.............................................. 10
4.6 No Liens.................................................... 10
4.7 Valid Agreements............................................ 10
4.8 No Reservations............................................. 10
4.9 Permits..................................................... 10
4.10 Compliance with Law......................................... 10
4.11 Taxes....................................................... 11
4.12 Access to Records........................................... 11
4.13 Litigation.................................................. 11
4.14 Royalties................................................... 11
4.15 Access...................................................... 11
LIMITATION AND DISCLAIMER OF REPRESENTATIONS AND WARRANTIES......... 11
4.16 Maintenance of Assets....................................... 12
4.17 No Encumbrances............................................. 12
4.18 Operations.................................................. 12
ARTICLE 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER........ 14
5.1 Existence................................................... 14
5.2 Power....................................................... 14
5.3 Authorization............................................... 14
5.4 Brokers..................................................... 14
5.5 Investment Intent........................................... 14
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ARTICLE 6. SELLER'S CONDITIONS OF CLOSING................................ 14
6.1 Representations............................................. 15
6.2 Performance................................................. 15
6.3 Officer's Certificate....................................... 15
6.4 Pending Matters............................................. 15
6.5 HSR Act..................................................... 15
ARTICLE 7. PURCHASER'S CONDITIONS OF CLOSING............................. 15
7.1 Representations............................................. 15
7.2 Performance................................................. 15
7.3 Officer's Certificate....................................... 15
7.4 Pending Matters............................................. 15
7.5 HSR Act..................................................... 15
ARTICLE 8. CLOSING....................................................... 15
8.1 Time and Place of Closing................................... 15
8.2 Closing Obligations......................................... 16
ARTICLE 9. POST-CLOSING OBLIGATIONS...................................... 16
9.1 Receipts and Credits; Suspense Funds........................ 16
9.2 Costs and Liabilities; Indemnity............................ 17
9.3 Further Assurances.......................................... 20
9.4 Delivery of Records......................................... 21
9.5 Access to Data.............................................. 21
9.6 Continued Accounting........................................ 21
ARTICLE 10. TERMINATION................................................... 21
10.1 Right of Termination........................................ 21
10.2 Effect of Termination under Section 10.1.................... 22
10.3 Effect of Termination under Section 2.4..................... 22
ARTICLE 11. TAXES......................................................... 22
11.1 Apportionment of Ad Valorem and Property Taxes.............. 22
11.2 Sales Taxes................................................. 23
11.3 Other Taxes................................................. 23
11.4 Cooperation................................................. 23
ARTICLE 12. PHYSICAL CONDITION OF THE ASSETS.............................. 23
12.1 Prior Use of Assets......................................... 23
12.2 Assumption of Assets in Present Condition................... 23
12.3 Casualty Loss............................................... 24
ARTICLE 13. MISCELLANEOUS................................................. 24
13.1 Governing Law............................................... 24
13.2 Entire Agreement............................................ 24
13.3 Waiver...................................................... 25
13.4 Captions.................................................... 25
13.5 Assignability............................................... 25
13.6 Notices..................................................... 25
13.7 DTPA Waiver................................................. 26
13.8 Expenses.................................................... 26
13.9 Severability................................................ 26
13.10 Damages..................................................... 26
13.11 No Third Party Beneficiary.................................. 27
13.12 Survival.................................................... 27
13.13 Counterparts................................................ 27
13.14 Certain Definitions......................................... 27
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13.15 Construction of Ambiguity................................... 27
13.16 Waiver of Jury Trial........................................ 27
13.17 Publicity................................................... 28
13.18 Accounting.................................................. 28
13.19 Operatorship................................................ 28
13.20 HSR Act..................................................... 29
13.21 Arbitration Procedures...................................... 29
13.22 Access to Records........................................... 30
Exhibit "A" - Subject Properties
Exhibit "B" - Form of Assignment and Bill of Sale
Schedule 4.13 - Retained Litigation
<PAGE>
PURCHASE AND SALE AGREEMENT
This PURCHASE AND SALE AGREEMENT (this "Agreement") is made this 13th day
of November, 1997, by and between PIONEER NATURAL RESOURCES USA, INC., a
Delaware corporation ("Seller"), and SHERIDAN ENERGY, INC ("Purchaser").
RECITALS:
WHEREAS, on the terms and conditions provided in this Agreement, Seller has
agreed to sell and Purchaser has agreed to purchase certain of Seller's
interests in certain oil and gas leases, agreements, contracts, real property,
personal property, equipment and related rights hereinafter defined.
NOW, THEREFORE, for good and valuable consideration and for the mutual
covenants contained herein, Seller and Purchaser hereby agree as follows:
ARTICLE 1. SALE AND PURCHASE
1.1 Effective Time. The effective time and date of the purchase and sale
contemplated hereby shall be 7:00 a.m., November 1, 1997, at the site of the
respective Subject Properties (the "Effective Time").
1.2 Sale and Purchase. Subject to the terms and conditions herein
contained, at Closing and as of the Effective Time, Seller shall sell, assign,
transfer and convey to Purchaser, and Purchaser shall purchase and receive, the
following described assets, less and except the Excluded Assets (the "Assets"):
(a) all right, title and interest of Seller as of the Effective Time (the
"Sale Interest") in and to (1) the wells, units, facilities and/or
plants described on Exhibit "A" ("Exhibit A Wells") attached hereto
and incorporated herein, (2) the oil, gas and mineral leasehold
estates and fee estates appurtenant to Exhibit A Wells, upon which
such wells are located or with respect to which such wells are
associated, and (3) all other interests in oil, gas and other minerals
of whatever nature appurtenant to Exhibit A Wells, including, without
limitation, all surface fee estates and working interests, farmout
rights and overriding royalty interests (reference being hereby made
to Seller's records and files located at 303 W. Wall, Suite 101,
Midland, Texas, for a more complete description of said leases,
leasehold and fee estates and interests), together with all of
Seller's right, title and interest in respect of and in any pooled,
communitized or unitized acreage of which any such leasehold, fee or
other interest is a part and all of the rights incident thereto (the
"Subject Properties");
(b) to the extent attributable or allocable to the Subject Properties,
right, title and interest of Seller (including, without limitation,
leasehold) as of the Effective Time in and to: (1) all wells
(including, but not limited to, the wells described in Exhibit "A" and
all other oil, gas, injection and water wells whether plugged or
unplugged and whether abandoned or not) ("Wells"), equipment, lease
equipment, signage, gathering pipelines, gas facilities, gathering
systems, gathering, storage, distribution, treating, processing and
disposal facilities and tanks, tools, buildings, inventory and all
other real or tangible personal property and fixtures which are
located on or directly and solely related to the Subject Properties,
including, without limitation, items of personal property described
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in Exhibit "A-1", but specifically excluding portable tools, snow
vehicles, equipment and other vehicles not used exclusively on or
exclusively appurtenant to the Subject Properties or the Wells, and
further excluding personal property not solely appurtenant to the
Wells and personal property temporarily located on the Subject
Properties; (2) all oil, gas, mineral and other hydrocarbon substances
produced on or after the Effective Time; (3) to the extent the same
are assignable or transferable by Seller, all orders, contracts, title
opinions and documents, abstracts of title, leases, deeds, unitization
agreements, pooling agreements, operating agreements, division of
interest statements, participation agreements, and all other
agreements and instruments; (4) all surface leasehold and fee estates,
easements, rights-of-way, licenses, authorizations, permits and
similar rights and interests, subject to the rights of third parties;
(5) except as expressly provided otherwise herein, all warranties,
covenants, indemnities and representations from third parties, and all
claims, rights and causes of action against third parties, asserted
and unasserted, known and unknown; (6) to the extent assignable and
subject to the rights of third parties, lease files, land files,
operating files, well files, oil and gas sales contract files, gas
processing files, logs, test data, production histories, division
order files, abstracts, title files and materials, and all other
books, files and records (the "Records"), and all rights thereto,
subject to the rights of third parties; and (7) all other rights,
privileges, benefits and powers conferred upon the owner and holder of
interests in the Subject Properties; and
(c) to the extent necessary for the ownership, use or development of the
Subject Properties and subject to the rights of third parties, the
right of ingress and egress with respect to the fee, fee mineral and
royalty interests and the SF Interests (as defined below in Section
1.3).
1.3 Excluded Assets. Notwithstanding anything in this Agreement to the
contrary, the Assets do not include and Purchaser agrees and acknowledges that
Seller has reserved from the Assets and hereby reserves unto itself any and all
rights, titles and interests in and to (a) fee, fee mineral and royalty
interests, specifically including but not limited to, (1) fee, fee mineral and
royalty interests which were conveyed to Parker & Parsley Producing L.P.
("PPPLP"), an affiliate of Seller, by all or any of Santa Fe Energy Resources,
Inc. ("SFER"), Santa Fe Energy Operating Partners, L.P. ("SFEOP") or SFER
Properties-A, Inc. ("SFERP-A") or any of their respective Affiliates, and (2) or
arising under that certain Exploration Agreement dated April 8, 1994, between
SFEOP and PPPLP and all property rights, grants, and interests created, made or
evidenced by such Exploration Agreement (collectively, the "SF Interests"), (b)
the right of ingress and egress for the purpose of mining, drilling, exploring,
operating, holding, producing and developing the fee, fee mineral and royalty
interests, the SF Interests or the Excluded Wells (as hereinafter defined) for
oil, gas, minerals and other hydrocarbon substances,(c) seismic, geologic and
geophysical records and data not specifically described in Section 1.2(b)(6)
above, and (d) any producing well and proration unit attributable to that well
not on Exhibit "A", ("Excluded Wells") notwithstanding the inclusion of leases
or other interests in the Subject Properties that are in such proration unit,
Purchaser shall have no right to own or participate in any production from such
Excluded Well ((a) through (d), collectively, the "Excluded Assets").
ARTICLE 2. CONSIDERATION
2.1 Consideration. As consideration for this Agreement and the transfer
of the Assets, at Closing, Purchaser shall pay to Seller $49,900,000 (the
"Purchase Price"), as may be adjusted pursuant hereto (the "Adjusted Purchase
Price"). The Purchase Price has been allocated by Purchaser as provided on
Exhibit "A".
2
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2.2 Manner of Payment. At Closing, except as provided in the following
Section 2.3, Purchaser shall pay Seller or Seller's designee the Adjusted
Purchase Price by wire transfer of immediately available funds as follows:
Account: Pioneer Natural Resources USA, Inc.
Account No: 1290288845
NationsBank of Texas, N.A.
ABA Routing No: 111000012
Attention: Frank Stowers
NationsBank of Texas-Midland
(915) 685-2179
2.3 Like Kind Exchange Option. Seller and Purchaser hereby agree that
Seller, in lieu of the sale of the Assets to Purchaser for the cash
consideration provided herein, shall have the right at any time prior to Closing
to assign all or a portion of its rights under this Agreement to a qualified
intermediary in order to accomplish the transactions contemplated hereby in a
manner that will comply, either in whole or in part, with the requirements of a
like kind exchange pursuant to Section 1031 of the Internal Revenue Code of
1986, as amended ("Code"). In the event Seller assigns its rights under this
Agreement pursuant to this Section 2.3, Pioneer Natural Resources USA, Inc.
shall remain responsible for all obligations and liabilities of Seller under or
arising from this Agreement and agrees to notify Purchaser in writing of such
assignment before Closing. If Seller assigns its rights under this Agreement,
Purchaser agrees to (i) consent to Seller's assignment of its rights in this
Agreement, (ii) deposit the Adjusted Purchase Price with the qualified escrow or
qualified trust account designated by Seller at Closing, and (iii) take such
further actions, at Seller's cost, as are reasonably required to effectuate the
transactions contemplated hereby pursuant to Code Section 1031, but, in so
acting, Purchaser shall have no liability to any party in connection with such
actions. All risks associated with any like kind exchange and compliance
thereof with applicable laws, rules and regulations shall be the sole
responsibility of Seller, and Seller agrees to indemnify and hold Purchaser
harmless from and against all costs, expenses, liabilities and obligations which
arise as a result of Purchaser's agreement contained in this Section 2.3.
2.4 Deposit. Upon the execution hereof, Purchaser shall pay to Seller
$500,000 ("Initial Deposit") and on November 24, 1997, an additional $4,500,000
("Final Deposit")(collectively the Initial Deposit and Final Deposit are the
"Deposit"). If Closing occurs, the Deposit shall be applied to reduce the
Purchase Price. If Purchaser fails to pay Seller the Final Deposit on or before
November 24, 1997, the Initial Deposit shall be retained by Seller and be the
property of Seller, this Agreement shall terminate subject to Section 10.3, and
Seller shall have no obligation or liability to Purchaser thereupon, thereafter,
or hereunder. If Purchaser is unable to secure, on or before December 1, 1997,
a valid and binding commitment for financing (with proof of same being subject
to the reasonable satisfaction of Seller) the Purchase Price at Closing,
Purchaser agrees that the Deposit is non-refundable and non-returnable, this
Agreement shall terminate subject to Section 10.3 and Seller shall have no
liability or obligation to Purchaser thereupon, thereafter or hereunder. If
Closing does not occur, for any other reason, the Deposit shall be applied as
provided in Section 10.2.
ARTICLE 3. DEFECTS
3.1 Definition of Acceptable Title. As used herein, the term "Acceptable
Title" shall mean, such right, title and interest that as to the existing
production from the currently producing intervals in the Exhibit A Wells, (a)
entitles Seller to receive not less than the net revenue interest set forth in
Exhibit "A" of all oil, gas and associated liquid and gaseous hydrocarbons
produced, saved and marketed from the currently producing intervals of the
respective Exhibit A Wells, (b) obligates Seller
3
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to bear costs and expenses relating to the maintenance, development, and
operation of all Exhibit A Wells relative to intervals with current production
in an amount not greater than the working interest set forth in Exhibit "A",
unless there is a corresponding and proportionate increase in the applicable net
revenue interest, and (c) except for Permitted Encumbrances, is free and clear
of all liens, claims, burdens and encumbrances; provided, however that (i) the
presence of a preferential right to purchase provision shall not be considered
to be a Defect (as defined in Section 3.5 below); and (ii) if Purchaser
demonstrates before or after Closing, subject to Section 13.12 below, that
Seller does not have or cannot convey Acceptable Title to a well described in
Exhibit "A" and, if so demonstrated after Closing, that Purchaser did not
receive at Closing an adjustment to the Purchase Price or other consideration on
account of such matter, and if Seller owns fee mineral interests or other
interests underlying the applicable proration or spacing unit on which such well
is located, Seller shall resolve such matter by, at Seller's option, either (1)
granting a lease (on mutually acceptable terms) on all or part of such
interests, or (2) conveying (which conveyance may be limited in term, similar to
an oil and gas lease) all or part of such interests to Purchaser and, if so
resolved, such matter shall not be considered a Defect for any purpose hereunder
if the interest so conveyed, or leased, will (after considering, in the case of
a lease, the royalty reserved to Seller under the lease) be sufficient so that,
after giving effect thereto, such matter will no longer exist (a "Further
Conveyance"); provided, however, that such Further Conveyance shall be limited
to the rights of Seller in and to all the intervals in the well from which
production is being obtained (from the subject well) at the Effective Time
insofar as such intervals underlie the proration or spacing unit attributable to
such well. Purchaser acknowledges and agrees that any net revenue interests and
working interests reflected on Exhibit "A" are for the convenience of Seller and
Purchaser and included solely for the purpose of determining Acceptable Title
prior to Closing; Seller does not and shall not represent or warrant that the
Sale Interest is equal to any such interests in any respect, but agrees that (i)
for purposes of determining Defects prior to Closing, with respect to those
Subject Properties listed on Exhibit "A" with "0.0000" "APO" interests, the
"APO" interests shall be deemed to be the same as the corresponding "BPO"
interests, and (ii) Purchaser may assert as a Title Defect (as defined in and
pursuant to Section 3.5 below) any matter reasonably expected, as to existing
production, to reduce the net revenue interest assigned to such Subject Property
or well or any matter reasonably expected, as to existing production, to
increase the working interest assigned to such Subject Property and well unless
there is a corresponding and proportionate increase in the applicable net
revenue interest.
3.2 Definition of Permitted Encumbrances. As used herein, the term
"Permitted Encumbrances" shall mean the following items, provided none of the
following items shall operate to increase the working interest of Seller as set
forth in Exhibit "A" for any of the Subject Properties, without a corresponding
increase in the applicable net revenue interest, or decrease the net revenue
interest of Seller set forth in Exhibit "A" for any of the Subject Properties:
(a) lessors' royalties, overriding royalties, production payments,
reversionary interests and similar burdens;
(b) division orders and sales contracts;
(c) preferential rights to purchase not identified in writing to Seller
pursuant to Section 3.7 below, or, if so identified, with respect to
which (1) waivers are obtained from the appropriate parties, (2) the
appropriate time period for asserting such rights has expired without
an exercise of such rights, or (3) appropriate parties have exercised
such rights and the Purchase Price has been adjusted where appropriate
with reference to the value allocated in Exhibit "A" to the affected
Asset ("Preferential Rights");
(d) rights to consent to assignments required by this Agreement held by
Persons other than governmental entities and not identified in writing
to Seller pursuant to Section 3.7
4
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below, or, if so identified, with respect to which (1) waivers or
consents are obtained from the appropriate parties, or (2) the
prescribed time period for denying such consent has expired;
(e) materialman's, mechanic's, repairman's, employee's, contractor's,
operator's, tax, and other similar liens or charges arising in the
ordinary course of business for obligations that are not delinquent and
that will be paid and discharged in the ordinary course of business;
(f) rights to consent by, required notices to, filings with, or other
actions by governmental entities in connection with the sale or
conveyance of oil and gas leasehold and fee estates or interests
therein, which consents, notices, filings and/or other actions are
customarily obtained after closing;
(g) easements, rights-of-way, servitudes, permits, surface leases and other
rights in respect of surface operations affecting the Assets;
(h) rights reserved to or vested in any governmental, statutory or public
authority to control or regulate any of the Assets in any manner, and
all applicable laws, rules and orders of any governmental authority
affecting the Assets;
(i) operating agreements, unit agreements, unit operating agreements,
pooling agreements and pooling designations affecting the Subject
Properties which are of public record or contained in the Records or
otherwise available to Purchaser and all actions taken or operations
occurring in the normal course of business pursuant to such
instruments;
(j) Title Defects that Purchaser may have expressly waived in writing or
which are deemed to have been waived pursuant to Section 3.6;
(k) all conveyances, reservations and exceptions of public record or
contained in the Records affecting the Assets which in the aggregate
are not such as to interfere materially with the ownership, operation
or use of any of the Subject Properties or materially reduce the value
thereof; and
(l) all other liens, charges, encumbrances, contracts, agreements,
instruments, obligations, defects and irregularities affecting the
Assets which in the aggregate are not such as to interfere materially
with the ownership, operation or use of the affected Subject Properties
or materially reduce the value thereof.
3.3 Environmental and Physical Assessment. Purchaser shall have the
right to make an environmental and other physical assessment of the Assets
during the period beginning on the date of execution of this Agreement and
ending at 5:00 p.m. on November 30, 1997 ("Examination Period"). During Seller's
normal business hours, Purchaser and its Representatives shall have the right to
enter upon the Assets and all buildings and improvements thereon, inspect the
same, conduct soil and water tests and borings, and generally conduct such
tests, examinations, investigations and studies as may be reasonably necessary
or appropriate for the preparation of appropriate environmental and other
reports relating to the Assets, their condition, and the presence of wastes or
contaminants. Seller shall be provided 48 hours prior notice of such
activities and shall have the right to (i) witness all such tests and
investigations, (ii) receive an equal distribution of all samples taken by
Purchaser or its Representatives, and (iii) prohibit such tests and
investigations which it reasonably believes could materially damage its
properties or business interests. Purchaser shall keep any data or information
acquired by all such examinations and the results of all analyses of such data
and information strictly
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confidential and not disclose any of the same to any Person unless otherwise
required by law or regulation and then only after written notice to Seller of
the need for disclosure and the identity of all intended recipients. Seller
hereby grants Purchaser access to the Assets to conduct its environmental and
other physical assessment upon the condition that, in accordance with Section
9.2, PURCHASER HEREBY INDEMNIFIES AND HOLDS SELLER AND ITS AFFILIATES AND THEIR
RESPECTIVE REPRESENTATIVES HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS FOR OR
RELATED TO PERSONAL INJURY OR PROPERTY DAMAGE ARISING OUT OF OR AS A RESULT OF
THE ACTIVITIES OF PURCHASER OR ITS REPRESENTATIVES ON THE ASSETS IN CONDUCTING
SUCH ENVIRONMENTAL AND PHYSICAL ASSESSMENTS. If during the Examination Period,
Purchaser determines in good faith that (i) there is a condition or circumstance
which constitutes a violation of applicable Environmental Law, or imposes an
obligation to remediate all or part of the Assets and requiring commencement of
said remediation on or before the Effective Time (even though the actual
remediation program may extend beyond the Effective Time) under any applicable
Environmental Law, pertaining to the environmental condition of the Assets, or
(ii) there is a claim, demand, filing, investigation, action, suit or other
legal or administrative proceeding asserted or otherwise initiated by a
governmental authority and arising from or related to the Subject Properties or
the ownership or operation of any thereof ("Environmental Defect"), Purchaser
may include notice of such Defect in any Notice of Defects delivered hereunder;
provided, that any such matter not included in a Notice of Defects shall be and
hereby is waived by Purchaser.
3.4 Identified Claims. During the Examination Period and in
accordance with Section 4.12, Seller shall make available to Purchaser for
examination and copying (at Purchaser's cost) any of the Records and Seller's
accounting records relating to the Assets as Purchaser may reasonably request.
Seller shall also permit Purchaser's Representatives to consult with Seller's
employees and Seller's independent contractors who have knowledge concerning the
Assets during normal business hours regarding such records; provided, that such
consultation shall not unreasonably disrupt the performance by such employee or
independent contractor of its duties with Seller. If during the Examination
Period, Purchaser determines in good faith that (I) payments due in respect of
the Assets for obligations, liabilities, costs and expenses arising outside the
normal course of business and relating to periods prior to the Effective Time
have not been paid (except for those amounts in suspense), or (ii) there are
unsatisfied claims, demands, liabilities or obligations in respect of the Assets
based upon omissions, events or occurrences resulting in obligations,
liabilities, costs or expenses arising outside of the normal course of business
and relating to periods prior to the Effective Time (collectively, "Identified
Claims"), Purchaser may include notice of such Identified Claims in any Notice
of Defects delivered hereunder; provided, that any such matter not included in a
Notice of Defects shall be and hereby is waived by Purchaser.
3.5 Notice of Defects. If any matter is discovered by Purchaser that, in
Purchaser's reasonable, good faith opinion, would (a) cause the title to current
production in Exhibit A Wells not be Acceptable Title (a "Title Defect"); (b)
constitute a breach of Seller's representations, warranties and agreements
contained herein (a "Contract Defect"); (c) constitute an Environmental Defect;
or (d) constitute an Identified Claim ((a) through (d) to the extent that each
such matter exceeds a value of $5,000, individually, a "Defect", and
collectively, the "Defects"), then if the total value of all Defects exceeds
$1,500,000, Purchaser may provide written notice (a "Notice of Defects")
thereof actually delivered to Seller not later than noon, December 1, 1997;
provided, however, that any notice concerning an uninsured Casualty Loss
occurring after the close of the Examination Period or Contract Defect not
discoverable from an examination of the Records, public records, Purchaser's
records, the records of any purchaser of production attributable to the Subject
Properties or a physical inspection of the Assets may be delivered to Seller on
or before noon of the business day immediately before the Closing Date, and
that, if so delivered, Purchaser's sole remedy therefor shall be as provided in
Section 3.6, with the procedure therein provided applicable thereto the same as
if such uninsured Casualty Loss or Contract Defect had been included in any
Notice of Defects delivered not later than noon, December
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1, 1997 (i.e., the value of any such uninsured Casualty Loss or Contract Defect
shall be included in the value of any other Defects included in a Notice of
Defects, or, if no Notice of Defects has been provided, then such uninsured
Casualty Loss or Contract Defect only may be included in a Notice of Defects
then given to Seller). A Notice of Defects shall specifically identify the
Defect and include (I) the Purchaser's purported value of each specific Defect
which value, except for Environmental Defects cannot exceed the value of the
affected Assets as set out on Exhibit "A", (ii) an identification of each
affected Asset, (iii) Purchaser's basis for determining the existence and value
of such Defect, together with all associated reports, opinions, data,
valuations, assessments, conclusions and supporting calculations, and (iv)
Purchaser's statement of steps necessary to cure each such Defect to its
satisfaction, all of which shall be kept strictly confidential, except to the
extent required by law, regulation or order of any court or other governmental
authority or as may be necessary to address Defects identified in a Notice of
Defects.
3.6 Remedy for Defects. In the event Purchaser delivers its Notice of
Defects as provided in Section 3.5, Seller and Purchaser may, at Seller's sole
discretion, meet and use their best efforts to agree in good faith on the
validity and value of each asserted Defect. If the dollar value of Purchaser's
asserted Defects exceed $1,500,000 then Seller may submit to arbitration, to be
conducted pursuant to Section 13.21 below, any dispute as to (i) whether an
alleged Defect actually exists, (ii) the actual value of any such alleged
Defect, or (iii) whether such Defect has been cured by Seller; while Purchaser
may submit to arbitration, to be conducted pursuant to Section 13.21 below, only
disputes as to whether such Defects have been cured by Seller. The
determination of the arbitration shall be final and binding for all matters
determined by such arbitrator; provided, however the determination of the
arbitrator shall not preclude further action by Seller pursuant to Seller's
options described in subparagraphs (B) and (C) below. In the event any matter
is submitted to arbitration pursuant hereto, the Closing Date may be extended
until the 4th business day following notification to the parties of the final
determination of the arbitrator. The value of all Defects shall be established
by the agreement of the parties or the findings of the arbitrator ("Defect
Value") and shall not be greater than the lesser of (a) the dollar value
asserted by Purchaser in its notice of Defects, or, (b) the cost to cure. If
any examination by Purchaser results in a finding that the interest of Seller is
greater than that stated in Exhibit "A" and such increase (which such increase
must be identified in any notice to Seller), serves to increase the value of the
Subject Property or component of the Assets, such increase shall also be
considered as part of the determination of the Defect Values.
(A) If the Aggregate Net Amount (as defined below) of Purchase Price
adjustments using the Defect Values total $1,500,000 or less, Seller,
at Seller's option, may elect not to meet with Purchaser to consider
Purchaser's asserted Defects; then, Purchaser shall accept and purchase
the Assets, including any Asset subject to any Defect, as provided
herein.
(B) In the event the Aggregate Net Amount of Purchase Price adjustments
using the Defect Values plus the amount of any uninsured Casualty
Losses and Casualty Losses not fully covered by insurance (to the
extent of such deficiency only), plus the value of any of the Subject
Properties (with reference to the allocated value thereof on Exhibit
"A" as a maximum) taken in condemnation or under the right of eminent
domain prior to the end of the Examination Period, or with respect to
which proceedings for such purposes shall be pending or threatened in
writing at such time, equals or exceeds $1,500,000 Seller shall either
(1) take such steps as are reasonably necessary to cure or minimize any
such Defects, or (2) delete from sale any property affected by an
asserted Defect, and adjust the Purchase Price by the allocated value,
or (3) allow an adjustment to the Purchase Price in the amount equal to
$.50 for each $1.00 by which the total of the Defect Values exceed
$1,500,000 resulting in the Aggregate Net Amount of Purchase Price
adjustments being reduced $1.00 for every $.50 of adjustment to the
Purchase
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Price allowed by Seller; with the election of options (1), (2) or (3)
to be in Seller's sole discretion.
(C) In the event the Aggregate Net Amount of Purchase Price adjustments
using the Defect Values plus the amount of any uninsured Casualty
Losses and Casualty Losses not fully covered by insurance (to the
extent of such deficiency only), plus the value of any of the Subject
Properties (with reference to the allocated value thereof on Exhibit
"A" as a maximum) taken in condemnation or under the right of eminent
domain prior to the end of the Examination Period, or with respect to
which proceedings for such purposes shall be pending or threatened in
writing at such time, equals or exceeds $2,500,000 ("Seller's
Termination Threshold") in Seller's sole discretion (in addition to all
other actions allowed in 3.6 (B) above) but without obligation, Seller
may terminate this Agreement without liability or further obligation to
Purchaser.
(D) If the Aggregate Net Amount of Purchase Price adjustments using the
Defect Values, plus the amount of any uninsured Casualty Losses and
Casualty Losses not fully covered by insurance (to the extent of such
deficiency only), plus the value of any of the Subject Properties (with
reference to the allocated value thereof on Exhibit "A" as a maximum)
taken in condemnation or under the right of eminent domain prior to the
end of the Examination Period, or with respect to which proceedings for
such purposes shall be pending or threatened in writing at such time,
exceeds $5,000,000 ("Purchaser's Termination Threshold") then Seller or
Purchaser may, upon written notice to the other, terminate this
Agreement, without liability or further obligation to the other party,
subject to Section 10.2.
(E) If the aggregate value of Preferential Rights, for which Seller has
received timely written notification from Purchaser as required by
Section 3.7 below and (1) prior to Closing, Seller has received written
notice from one or more holders of preferential rights of the holder's
intent to exercise the preferential right, or (2) holders of
preferential rights exercise their preferential rights at Closing, or
(3) the time period to exercise such preferential right has not
expired, equals or exceeds 30% of the Purchase Price, then Purchaser or
Seller may, upon written notice to the other, terminate this Agreement,
without liability or further obligation to the other party subject to
Section 10.2.
(F) Seller shall have no obligation hereunder to any Person to sell,
convey, deliver or otherwise transfer all or any part of the Assets if
Purchaser or Seller terminates this Agreement pursuant to the Seller or
Purchaser Termination Thresholds. Purchaser agrees and acknowledges
that except as specifically set forth herein Seller has no obligation
to adjust the Purchase Price with respect to Defects. If Closing
occurs, Purchaser shall be deemed to have waived or assumed any and all
claims, known and unknown, arising from or related to any and all
Defects or title to or other condition of the Assets, including,
without limitation, whether or not identified in a Notice of Defects,
and notwithstanding the fact that Seller may not have cured any such
Defect(s) to Purchaser's satisfaction, and Seller shall have no
obligation with respect thereto. As used in this Agreement, the
"Aggregate Net Amount" of Purchase Price adjustments shall be
determined by subtracting from the Defect Values (x) the value of all
interests by which Seller's actual interests in the Subject Properties
exceeds the net revenue interests set forth on Exhibit "A" hereto, (y)
the Defect Values which are cured or otherwise resolved to Purchaser's
reasonable satisfaction or (z) the amount of any adjustment to the
Purchase Price which seller elects to allow pursuant to
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subparagraph (B) above. If Purchaser provides Seller with a Notice of
Defects, Purchaser shall provide Seller copies of all pertinent
portions of applicable title opinions, data and curative information
available to it to enable the parties to make a determination on the
validity thereof.
3.7 Preferential Purchase Rights and Consents to Assign. Upon written
notification to Seller by Purchaser identifying Persons (and their addresses)
holding preferential rights to purchase affecting the Subject Properties or the
right to consent with respect to any assignments required hereby, other than
such consents of governmental authorities which are usually obtained in the
normal course of business after Closing, actually received by Seller not later
than the earlier of (i) fifteen (15) days prior to the Closing Date, or (ii)
five (5) business days prior to the latest date prior to Closing permitted by
the subject agreement for such notice to be provided, Seller shall send notice
of this Agreement to all such Persons (y) offering to sell to each such Person
the Subject Properties for which a preferential right is held on and subject to
the terms hereof and for the same allocated value for such Subject Properties
reflected on Exhibit "A", or (z) requesting, where appropriate, consent to any
assignment required in connection herewith. Purchaser shall be entitled to
review and approve the form of all such notices; provided, that such approval
shall not be unreasonably withheld or delayed. If, prior to Closing, any of
such Persons asserting a preferential purchase right notifies Seller that it
intends to consummate the purchase of the Subject Properties to which it holds a
preferential purchase right pursuant to the terms and conditions hereof, then,
subject to clause (ii) of Section 3.6 above, such Subject Properties shall be
excluded from the Assets to be conveyed to Purchaser under this Agreement and
the Purchase Price shall be reduced by the allocated value of such Subject
Properties reflected in Exhibit "A"; provided, however, that if the holder of
such preferential right fails to consummate the purchase of such Subject
Properties on the Closing Date, then Seller shall promptly so notify Purchaser,
and Seller shall sell immediately to Purchaser, and Purchaser shall purchase
from Seller, for a price equal to the allocated value of such Subject Properties
and upon the other terms of this Agreement, the Subject Properties to which the
preferential purchase right was asserted. All Subject Properties for which a
preferential purchase right has not been asserted prior to Closing by the holder
of such right, or with respect to which Closing does not occur on the Closing
Date following the assertion of a preferential purchase right, shall be sold to
Purchaser at Closing pursuant and subject to the provisions of this Agreement.
If one (1) or more of the holders of any preferential purchase rights notifies
Seller subsequent to Closing that it intends to assert its preferential purchase
right, Seller shall give notice thereof to Purchaser, whereupon Purchaser shall
satisfy all such preferential purchase right obligations of Seller to such
holders and shall indemnify and hold Seller harmless from and against any and
all claims, liabilities, losses, costs and expenses (including, without
limitation, court costs and reasonable attorneys' fees) in connection therewith,
and Purchaser shall be entitled to receive (and Seller hereby assigns to
Purchaser all of Seller's rights to) all proceeds received from such holders in
connection with such preferential purchase rights; Purchaser shall indemnify
and hold harmless Seller from and against any and all claims, liabilities,
losses, costs and expenses (including, without limitation, court costs and
reasonable attorneys' fees) asserted or incurred at any time (whether before or
after Closing) with respect to or arising directly or indirectly from the claims
of any Person to a preferential purchase right affecting any of the Assets
transferred to Purchaser hereunder.
ARTICLE 4. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
Seller represents, warrants to and covenants with Purchaser that:
4.1 Existence. Pioneer Natural Resources USA, Inc. is a Delaware
corporation, duly formed, validly existing and in good standing under the laws
of the State of Delaware.
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4.2 Power. Seller has the requisite power and authority to enter into and
perform this Agreement and the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by Seller, and the transactions
contemplated hereby, will not (a) violate any provision of Seller's Articles of
Incorporation or other governing documents, (b) conflict with, result in a
breach of, constitute a default (or an event that with the lapse of time or
notice, or both would constitute a default) under any agreement or instrument to
which Seller is a party or by which Seller is bound, (c) to the best knowledge
and belief of Seller, violate any judgment, order, ruling, or decree applicable
to Seller and entered or delivered in a proceeding in which Seller was or is a
named party, or (d) to the best knowledge and belief of Seller, violate any
applicable law, rule or regulation.
4.3 Authorization. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite action on the part of Seller. This Agreement has
been duly executed and delivered on behalf of Seller, and at the Closing all
documents and instruments required hereunder to be executed and delivered by
Seller shall be duly executed and delivered. This Agreement and such documents
and instruments shall constitute legal, valid and binding obligations of Seller
enforceable in accordance with their terms subject, however, to the effect of
bankruptcy, insolvency, reorganization, moratorium and similar laws from time to
time in effect relating to the rights and remedies of creditors, as well as to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.4 Brokers. Seller has incurred no obligation or liability, contingent
or otherwise, for brokers' or finders' fees in respect of the matters provided
for in this Agreement which will be the responsibility of Purchaser, and any
such obligation or liability that might exist shall be the sole obligation of
Seller.
4.5 Foreign Person. Seller is not a "foreign person" within the meaning
of the Code.
4.6 No Liens. The Assets are not subject to any valid and enforceable
security interests, liens or mortgages.
4.7 Valid Agreements. Oil and gas leases and other material contracts and
agreements constituting a part of the Assets are valid and in full force and
effect, and Seller is not, or with the lapse of time or giving of notice or both
will not be, in material breach or material default, with respect to any of its
obligations thereunder and no party has given or threatened to give Seller
notice of any material default thereunder.
4.8 No Reservations. There are no reservations which affect the Assets
other than those currently of public record.
4.9 Permits. Seller possesses all material licenses, permits,
certificates, orders, approvals and authorizations necessary to own the Assets
and to carry on its business as now being conducted.
4.10 Compliance with Law. Seller is in compliance with all laws,
ordinances, rules, regulations and orders applicable to the Assets, including,
without limitation, all environmental laws, ordinances, rules, regulations and
orders, except to the extent of any non-compliance that is not reasonably
expected to result in a material adverse affect on the Assets; however, Seller
has not received any notice of any claimed noncompliance therewith. Seller is
not aware of any facts, conditions or circumstances in connection with, related
to or associated with the Assets that could reasonably be expected to give rise
to any claim or assertion that Seller, the Assets or the ownership or operation
of any thereof is not in material compliance with any applicable law, rule,
regulation, ordinance, or order of any governmental authority or with any term
or conditions of any applicable permit, license, approval, consent, certificate
or other authorization.
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4.11 Taxes. All ad valorem, property, production, severance, excise, and
similar taxes and assessments based on or measured by the ownership of property
or the production of hydrocarbons or the receipt of proceeds therefrom
attributable to the Assets that have become due and payable have been properly
and timely paid, except to the extent of any failure that is not reasonably
expected to result in a material adverse effect on the Assets.
4.12 Access to Records. Upon and after full execution hereof and receipt
of the Initial Deposit, Seller will provide Purchaser through Closing access to
the Records during normal business hours at their place of storage, and, at
Purchaser's cost, will assist Purchaser in obtaining access to and the right to
review and copy Records pertaining to the Subject Properties not in Seller's
possession or control. From and after the date of the execution of this
Agreement through the Closing Date, Seller shall not add to or remove from the
Records any contracts, instruments, documents or other materials except for such
additions and removals as are done in the ordinary course of business with
respect to ongoing operations.
4.13 Litigation. Other than the matters listed on Schedule 4.13
("Retained Litigation"), there is no litigation, investigation or other
proceeding in which Seller (or its direct predecessor in title) is a named party
which adversely affects any of the Assets, and to the best of Seller's knowledge
and belief there is no litigation, investigation or other proceeding, whether
pending or threatened in writing which is based upon omissions, events or
occurrences prior to the date of this Agreement which materially adversely
affects any of the Assets in which Seller in not a named party. Provided that
any litigation brought to the attention of Seller for which Seller is willing to
classify as Retained Litigation shall not be considered a breach of this
representation. Further, there are no lawsuits or claims by third parties,
which seek to prevent this transaction.
Notwithstanding any provision to the contrary, Seller shall retain all benefit,
responsibility, obligation and liability resulting from the Retained Litigation
and shall fully hold harmless and indemnify Purchaser from and against any loss,
cost, claim, damage, expense, demand, penalty or forfeiture arising from and
related to claims asserted, or claims that could have been asserted, in the
Retained Litigation and which occur entirely prior to the Effective Time.
Seller shall keep Purchaser fully informed as to any matters which may adversely
impact the Assets or any portion thereof and will not oppose any motion of
Purchaser to intervene in any of the Retained Litigation to the extent
Purchaser deems such intervention necessary to protect its interest in the
Assets.
4.14 Royalties. All royalties, rentals and other payments due with
respect to the Assets have been properly and timely paid.
4.15 Access. No physical condition exists upon any of the Subject
Properties which is reasonably expected to restrict access thereto.
LIMITATION AND DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT
ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES,
EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND, EXCEPT FOR THE REPRESENTATIONS
AND WARRANTIES CONTAINED IN SECTIONS 4.1 THROUGH 4.5 (WHICH SHALL SURVIVE
CLOSING) THE REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN SHALL TERMINATE IN
ALL RESPECTS UPON CLOSING. ANY ASSIGNMENT AND BILL OF SALE OR OTHER CONVEYANCE
EXECUTED AND DELIVERED PURSUANT HERETO SHALL BE: (a) WITHOUT ANY WARRANTY OR
REPRESENTATION OF TITLE, EITHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE; (b)
WITHOUT ANY EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION AS
TO THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE,
CONFORMITY TO MODELS OR
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SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY OF THE ASSETS OR THEIR FITNESS
FOR ANY PURPOSE; AND (c) WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER
WARRANTY OR REPRESENTATION WHATSOEVER. AT CLOSING, PURCHASER SHALL HAVE
INSPECTED OR WAIVED ITS RIGHT TO INSPECT THE RECORDS AND THE ASSETS FOR ALL
PURPOSES AND SATISFIED ITSELF AS TO THE PHYSICAL AND ENVIRONMENTAL CONDITION OF
THE ASSETS, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS
SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS
SUBSTANCES. PURCHASER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE ASSETS,
AND, PURCHASER SHALL ACCEPT ALL OF THE SAME IN THEIR "AS IS, WHERE IS"
CONDITION. IN ADDITION, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA,
REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR
HEREAFTER FURNISHED OR MADE AVAILABLE TO PURCHASER IN CONNECTION WITH THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE ASSETS, PRICING
ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY)
ATTRIBUTABLE TO THE ASSETS OR THE ABILITY OR POTENTIAL OF THE ASSETS TO PRODUCE
HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE ASSETS OR ANY OTHER MATTERS
CONTAINED IN CONFIDENTIAL INFORMATION OR ANY OTHER MATERIALS FURNISHED OR MADE
AVAILABLE TO PURCHASER BY SELLER OR BY SELLER'S AGENTS OR REPRESENTATIVES. ANY
AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER
MATERIALS FURNISHED BY SELLER OR BY SELLER'S AGENTS OR REPRESENTATIVES OR
OTHERWISE MADE AVAILABLE TO PURCHASER OR PURCHASER'S REPRESENTATIVES ARE
PROVIDED TO OR FOR THE BENEFIT OF PURCHASER AS A CONVENIENCE, AND SHALL NOT
CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST SELLER OR SELLER'S AGENTS OR
REPRESENTATIVES. ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT PURCHASER'S SOLE
RISK. THE ASSIGNMENTS AND BILLS OF SALE OR OTHER CONVEYANCES TO BE DELIVERED BY
SELLER AT CLOSING SHALL EXPRESSLY SET FORTH THE LIMITATIONS AND DISCLAIMERS OF
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS PARAGRAPH.
Seller covenants and agrees that from and after the execution of this
Agreement and until the Closing Date:
4.16 Maintenance of Assets. Seller will not sell, transfer, assign,
convey or otherwise dispose of any of the Assets subject to Seller's direct
control, other than (a) oil, gas and other hydrocarbons produced, saved and
sold in the ordinary course of business, (b) personal property and equipment
which is replaced with property and equipment of comparable or better value and
utility in the ordinary and routine maintenance and operation of the Subject
Properties, and (c) as required in connection with any exercise of preferential
rights or as otherwise required to satisfy obligations to third parties under
contracts presently existing.
4.17 No Encumbrances. Seller will not create any lien, security interest
or encumbrance on the Sale Interest, the oil or gas attributable to the Assets,
or the proceeds thereof, other than Permitted Encumbrances.
4.18 Operations. With respect to any of the Subject Properties operated
by Seller, Seller will, subject to the rights of affected parties under
applicable agreements:
(a) cause the Subject Properties to be developed, maintained and
operated in compliance with applicable laws, ordinances, rules,
regulations and orders and in a prudent, good and workmanlike
manner, maintain insurance now in force with respect to the
Subject Properties, and pay or cause to be paid all costs and
expenses in connection therewith;
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(b) not agree to participate in the drilling of any new well on the
Subject Properties or fail to participate in operations on the
Subject Properties proposed by other parties, without the advance
written consent of Purchaser, which consent (which may not be
unreasonably withheld) or non-consent must be given by Purchaser
within two (2) business days of the notice from Seller;
(c) not take any action or fail to take any action which is reasonably
expected to result in any termination of the leases forming a part
of the Subject Properties;
(d) perform and comply with all of its obligations under agreements
relating to or affecting the Subject Properties;
(e) carry on its business with respect to the Subject Properties in
substantially the same manner as it has heretofore, not
introducing any new method of management, operation or accounting
with respect to the Subject Properties except as may be required
by applicable statutes, rules or regulations or by applicable
presently existing contractual obligations;
(f) not enter into or assume any contract, agreement or commitment
which is not in the ordinary course of business as heretofore
conducted or which involves payments, receipts or potential
liabilities with respect to one individual Subject Property of
more than $25,000, excluding emergency expenditures; and
(g) not resign or otherwise voluntarily relinquish its rights as
operator of any Subject Property for which it serves as operator
on the date hereof.
(h) not grant any preferential right to purchase or similar right or
agree to require the consent of any party to the transfer and
assignment of the Assets to Purchaser, subject to existing
contractual obligations;
(i) not enter into any gas sales contract or crude oil sales or supply
contract with respect to the Subject Properties which is not
terminable without penalty upon notice of thirty (30) days or
less;
(j) not enter into any transaction the effect of which, considered as
a whole, would be to cause Seller's ownership interest in any of
the Subject Properties to be altered from its ownership interest
as of the date hereof;
(k) not enter into any settlement of or relinquish any outstanding
receivables which are a part of the Assets (including, without
limitations, the right to receive any retroactive price
adjustments, take-or-pay monies, FERC mandated refunds, accounting
adjustments, tax adjustments, and Minerals Management Service
refunds);
(l) if any approval or consent by any federal, state or local
governmental authority is required to vest Acceptable Title to any
of the Sale Interest in Purchaser at Closing, exercise its best
efforts, as reasonably requested in writing by Purchaser, to
obtain all such required approvals or consents at Purchaser's
expense;
(m) through Closing, give prompt written notice to Purchaser of any
notice of default (or written threat of default, whether disputed
or denied) received or
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given by Seller under any instrument or agreement affecting the
Subject Properties to which Seller is a party or by which it or
any of the Subject Properties is bound.
ARTICLE 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER
Purchaser represents and warrants to and covenants with Seller that:
5.1 Existence. Sheridan Energy Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
5.2 Power. Purchaser has the requisite power and authority to enter into
and perform this Agreement and the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Purchaser, and the
transactions contemplated hereby, will not (a) violate any provision of any
Purchaser's certificate or articles of incorporation or organization, as the
case may be, bylaws, regulations or other governing documents; (b) to the best
knowledge and belief of Purchaser, conflict with, result in a breach of,
constitute a default (or an event that with the lapse of time or notice, or both
would constitute a default) under any agreement or instrument to which Purchaser
is a party or by which Purchaser is bound, (c) to the best knowledge and belief
of Purchaser, violate any judgment, order, ruling, or decree applicable to
Purchaser and entered or delivered in a proceeding in which Purchaser was or is
a named party; or (d) to the best knowledge and belief of Purchaser, violate any
applicable law, rule or regulation.
5.3 Authorization. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite action on the part of Purchaser. This Agreement has
been duly executed and delivered on behalf of Purchaser, and at the Closing all
documents and instruments required hereunder to be executed and delivered by
Purchaser shall have been duly executed and delivered. This Agreement and such
documents and instruments shall constitute legal, valid and binding obligations
of Purchaser enforceable in accordance with their terms, subject, however, to
the effect of bankruptcy, insolvency, reorganization, moratorium and similar
laws from time to time in effect relating to the rights and remedies of
creditors, as well as to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
5.4 Brokers. Purchaser has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees in respect of the matters
provided for in this Agreement which will be the responsibility of Seller, and
any such obligation or liability that might exist shall be the sole obligation
of Purchaser.
5.5 Investment Intent. Purchaser is acquiring the Assets for Purchaser's
own account for investment, and not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities Act of 1933,
and shall not resell any or all of the Assets except in compliance with all
applicable securities laws.
ARTICLE 6. SELLER'S CONDITIONS OF CLOSING
Seller's obligation to consummate the transactions provided for herein is
subject only to the satisfaction or waiver by Seller on or before the Closing
Date of the following conditions:
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6.1 Representations. The representations and warranties of Purchaser
contained in Article 5 shall be true and correct in all material respects on the
Closing Date as though made on and as of that date.
6.2 Performance. Purchaser shall have performed in all material respects
the obligations, covenants and agreements hereunder to be performed by it at or
prior to the Closing.
6.3 Officer's Certificate. Each Purchaser shall have delivered to Seller
a certificate of an executive officer dated the Closing Date, certifying on
behalf of such Purchaser that the conditions set forth in Sections 6.1 and 6.2
have been fulfilled.
6.4 Pending Matters. No suit, action or other proceeding by a third party
or a governmental authority shall be pending or threatened which seeks
substantial damages from Seller in connection with, or seeks to restrain, enjoin
or otherwise prohibit, the consummation of the transactions contemplated by this
Agreement.
6.5 HSR Act. The waiting period required by the HSR Act (as defined in
Section 13.20 below) shall have expired or been terminated, if applicable.
ARTICLE 7. PURCHASER'S CONDITIONS OF CLOSING
Purchaser's obligation to consummate the transactions provided for herein
is subject only to the satisfaction or waiver by Purchaser on or before the
Closing Date of the following conditions:
7.1 Representations. The representations and warranties of Seller
contained in Article 4 shall be true and correct in all material respects on the
Closing Date as though made on and as of that date.
7.2 Performance. Seller shall have performed in all material respects the
obligations, covenants and agreements hereunder to be performed by it at or
prior to the Closing.
7.3 Officer's Certificate. Seller shall have delivered to Purchaser
certificates of executive officers of Seller's respective general partners,
dated the Closing Date, certifying on behalf of such Seller that the conditions
set forth in Sections 7.1 and 7.2 have been fulfilled.
7.4 Pending Matters. No suit, action or other proceeding by a third
party or a governmental authority shall be pending or threatened which seeks
substantial damages from Purchaser in connection with or, seeks to restrain,
enjoin or otherwise prohibit, the consummation of the transactions contemplated
by this Agreement.
7.5 HSR Act. The waiting period required by the HSR Act (as defined in
Section 13.20 below) shall have expired or been terminated, if applicable.
ARTICLE 8. CLOSING
8.1 Time and Place of Closing. If the conditions to Closing have been
satisfied or expressly waived by the party entitled to the benefits thereof, the
consummation of the transactions contemplated hereby ("Closing") shall take
place at one of Seller's offices on or before December 15, 1997, at 9:00 a.m, or
at such other place and time or in such other manner agreed upon by Seller and
Purchaser ("Closing Date"); provided, that Seller shall have the right to extend
Closing for up to fifteen
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(15) days to respond to any Notice of Defects provided by Purchaser and that any
extension by Seller shall not serve to provide Purchaser rights not otherwise
expressly provided herein, nor to extend any rights of Purchaser contained
herein, including, without limitation, those contained in Section 3.5.
8.2 Closing Obligations. At the Closing,
(a) Seller shall execute, acknowledge and deliver to Purchaser an
Assignment and Bill of Sale in substantially the form attached hereto
as Exhibit "B", conveying the Assets to Purchaser as provided hereby;
(b ) Seller and Purchaser shall execute, acknowledge and deliver transfer
orders or letters in lieu thereof directing all purchasers of
production to make payment to Purchaser of proceeds attributable to
the Sale Interest;
(c) Purchaser shall deliver the Adjusted Purchase Price as provided in
Article 2;
(d ) Purchaser and Seller shall execute and deliver a settlement statement
(the "Preliminary Settlement Statement") prepared by Seller and
setting forth the Purchase Price and all adjustments thereto agreed
upon by the parties, using the best information available, subject to
Section 13.18; an d
(e) Purchaser and Seller shall execute such other instruments and take
such other action as may be necessary to carry out their respective
obligations under this Agreement.
ARTICLE 9. POST-CLOSING OBLIGATIONS
9.1 Receipts and Credits; Suspense Funds. Subject to the terms hereof,
all monies, refunds, proceeds, receipts, credits, receivables, accounts and
income attributable to the purchased Assets (a) for all periods of time from and
after the Effective Time shall be the sole property and entitlement of the
Purchaser, and, to the extent received by Seller, Seller shall fully disclose
and account therefor to Purchaser promptly, and (b) for all periods of time
prior to the Effective Time shall be the sole property and entitlement of Seller
to the extent received by Purchaser or Seller prior to the Final Accounting Date
or allocated to Seller in the Final Accounting, and if received by Purchaser,
Purchaser shall fully disclose and account therefore to Seller promptly.
Purchaser shall pay Seller for Seller's share of hydrocarbons attributable to
the purchased Assets in storage above the pipeline connection or in transit on
the Effective Time at the relevant contract price. Until the Final Accounting
Date, Seller shall remain liable for all obligations, liabilities, costs and
expenses arising in the normal course of business directly related to activities
conducted prior to the Effective Date and which are discovered prior to the
Final Accounting Date, ("Seller's Expenses"). Seller and Purchaser recognize
that as of the Effective Time there may be over or under imbalances with respect
to gas production, gathering, transportation or processing attributable to the
Subject Properties ("Imbalances") all of which have been accounted for in the
Purchase Price. The parties hereby agree that (i) Imbalances shall not be
included in any Identified Claims asserted hereunder, and (ii) the Subject
Properties will be conveyed specifically subject to Imbalances which exist as of
the Effective Time, without any adjustment to the Purchase Price and with
Purchaser, as of Closing, bearing and assuming all obligations with respect to
any overproduction account or liability and receiving the benefit of and being
credited with any underproduction account or credit. At Closing, Seller shall
deliver to Purchaser all amounts in Seller's possession due third party owners
of interests in the Subject Properties, and Purchaser agrees that it shall be
solely responsible for the disposition of such funds, the payment thereof to the
rightful owners and the payment, if any, of royalty thereon (the "Suspense
Funds").
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9.2 Costs and Liabilities; Indemnity.
(a) As used in this Agreement, "claims" shall include costs, expenses,
obligations, claims, demands, causes of action, liabilities,
damages, fines, penalties and judgments of any kind or character,
whether matured or unmatured, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, known or unknown, and all
costs and fees (including, without limitation, interest,
attorneys' fees, costs of experts, court costs and costs of
investigation) incurred in connection therewith, including, but
not limited to claims arising from or directly or indirectly
related to royalty, operating, suspense and capital obligations
attributable to the Assets. As used in this Section 9.2, "Assets"
shall include the Suspense Funds.
(b) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IT IS
THE EXPRESS INTENT AND AGREEMENT OF SELLER AND PURCHASER THAT, IF
CLOSING OCCURS, PURCHASER SHALL ACCEPT THE ASSETS IN THEIR "AS IS,
WHERE IS" CONDITION, SUBJECT TO ANY AND ALL DEFECTS, DEFICIENCIES,
IRREGULARITIES AND CLAIMS RELATED OR ATTRIBUTABLE IN ANY MANNER
THERETO, INCLUDING, WITHOUT LIMITATION, TITLE DEFECTS, CONTRACT
DEFECTS, ENVIRONMENTAL DEFECTS, IDENTIFIED CLAIMS OR ANY OTHER
MATTER AFFECTING IN ANY RESPECT THE TITLE OR PHYSICAL CONDITION
OF, OR THE RIGHT TO OWN, USE, OPERATE, DEVELOP OR ENJOY, THE
ASSETS, WHETHER KNOWN OR UNKNOWN, LIQUIDATED OR UNLIQUIDATED,
FIXED OR CONTINGENT, DIRECT OR INDIRECT.
(c) AT CLOSING AND WITHOUT FURTHER ACTION OR DOCUMENTATION, PURCHASER
(1) SHALL ASSUME, BE RESPONSIBLE FOR AND COMPLY WITH ALL DUTIES
AND OBLIGATIONS, EXPRESS OR IMPLIED, ARISING AT ANY TIME WITH
RESPECT TO THE ASSETS, INCLUDING, WITHOUT LIMITATION (I) THOSE
ARISING UNDER OR BY VIRTUE OF ANY LEASE, CONTRACT, AGREEMENT,
DOCUMENT, PERMIT, LAW, STATUTE, RULE, REGULATION OR ORDER OF ANY
GOVERNMENTAL AUTHORITY OR COURT (SPECIFICALLY INCLUDING, WITHOUT
LIMITATION, ANY GOVERNMENTAL REQUEST OR OTHER REQUIREMENT TO PLUG,
RE-PLUG OR ABANDON ANY WELL OF WHATSOEVER TYPE, STATUS OR
CLASSIFICATION, OR TAKE ANY CLEAN-UP, REMEDIAL OR OTHER ACTION
WITH RESPECT TO THE ASSETS), (II) PREFERENTIAL RIGHTS TO PURCHASE
AND (III) THIRD PARTY CONSENTS; (2) SHALL ASSUME, BE RESPONSIBLE
FOR AND PAY ALL CLAIMS AFFECTING OR ARISING, DIRECTLY OR
INDIRECTLY, AT ANY TIME IN CONNECTION WITH THE ASSETS, INCLUDING,
WITHOUT LIMITATION, CLAIMS FOR PERSONAL OR PROPERTY INJURY OR
DAMAGE, ENVIRONMENTAL CLEANUP, REMEDIATION, OR COMPLIANCE, OR FOR
ANY OTHER RELIEF, ARISING DIRECTLY OR INDIRECTLY FROM OR INCIDENT
TO, THE USE, OCCUPATION, OPERATION, MAINTENANCE OR ABANDONMENT OF
OR PRODUCTION FROM THE PURCHASED ASSETS, OR CONDITION OF THE
ASSETS, WHETHER LATENT OR PATENT, INCLUDING, WITHOUT LIMITATION,
CONTAMINATION OF PROPERTY OR PREMISES WITH NATURALLY OCCURRING
RADIOACTIVE MATERIALS ("NORM"), AND WHETHER OR NOT ARISING SOLELY
FROM OR CONTRIBUTED TO BY THE NEGLIGENCE IN ANY FORM, WHETHER
ACTIVE OR PASSIVE, OR OF ANY KIND OR NATURE, OF SELLER OR ITS
PREDECESSORS IN TITLE OR THEIR RESPECTIVE AGENTS, EMPLOYEES OR
CONTRACTORS; AND (3) SHALL DEFEND, INDEMNIFY AND HOLD SELLER
HARMLESS FROM ANY AND ALL CLAIMS ARISING, ASSERTED OR DUE AT ANY
TIME IN CONNECTION WITH THE FOREGOING.
(d) From and after Closing, any claim for indemnity hereunder shall be
made by written notice, together with a written description of any
claims asserted stating the nature and basis of such claim and, if
ascertainable, the amount thereof. Purchaser shall have a period
of twenty (20) days after receipt of such notice within which to
respond thereto or, in the case of a claim which requires
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a shorter time for response, then within such shorter period as
specified by Seller in such notice (the "Notice Period"). If
Purchaser denies liability hereunder or fails to provide the
defense for any claim, Seller may defend or compromise the claim
as it deems appropriate without prejudice to any of Seller's
rights hereunder, with no right of Purchaser to approve or
disapprove any actions taken in connection therewith by Seller. If
Purchaser accepts liability and responsibility for the defense of
any claim, it shall so notify Seller as soon as is practicable
prior to the expiration of the Notice Period and undertake the
defense or compromise of such claim with counsel selected by
Purchaser and reasonably acceptable to Seller. If Purchaser
undertakes the defense or compromise of such claim, Seller shall
be entitled, at its own expense, to participate in such defense.
No compromise or settlement of any claim shall be made without
reasonable notice to Seller, and without the prior written
approval of Seller, unless such compromise or settlement includes
a general and complete release of Seller, its Affiliates and their
respective Representatives in respect of the matter, with
prejudice, and with no express or written admission of liability
on the part of Seller, its Affiliates and their respective
Representatives, and no constraints on the future conduct of its
or their respective businesses.
(e) Seller shall have the right at all times to participate, at its
sole cost, in the preparation for any hearing or trial related to
the indemnities set forth in this Agreement, as well as the right
to appear on its own behalf or to retain separate counsel to
represent it at any such hearing or trial.
(f) THE INDEMNITIES PROVIDED IN THIS AGREEMENT SHALL EXTEND TO SELLER
AND ITS AFFILIATES AND ANY PERSON WHO AT ANY TIME HAS SERVED OR IS
SERVING AS A DIRECTOR, OFFICER, EMPLOYEE, CONSULTANT, INVITEE OR
AGENT THEREOF (EACH A "REPRESENTATIVE"), AND EACH OF THEIR
RESPECTIVE HEIRS, EXECUTORS, SUCCESSORS AND ASSIGNS, AND SHALL
APPLY TO ALL CLAIMS SUBJECT TO INDEMNITY HEREUNDER, INCLUDING
THOSE BASED ON NEGLIGENCE OF ANY NATURE, INCLUDING SOLE
NEGLIGENCE, SIMPLE NEGLIGENCE, CONCURRENT NEGLIGENCE, ACTIVE
NEGLIGENCE, PASSIVE NEGLIGENCE, STRICT LIABILITY OR FAULT OF
SELLER (OR ANY OTHER INDEMNIFIED PARTY) OR ANY OTHER THEORY OF
LIABILITY OR FAULT, WHETHER OF LAW (WHETHER COMMON OR STATUTORY)
OR IN EQUITY; PROVIDED, HOWEVER, PURCHASER SHALL NOT BE LIABLE FOR
OR INDEMNIFY SELLER FOR ANY CLAIM ASSERTED BY PURCHASER AND
ARISING FROM A BREACH BY SELLER OF THIS AGREEMENT. THE
INDEMNIFICATION PROVISIONS OF THIS SECTION 9.2 SHALL BE IN
ADDITION TO ANY OTHER INDEMNITY PROVISIONS CONTAINED IN THIS
AGREEMENT, AND IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT THE
TERMS OF THIS SECTION 9.2 SHALL CONTROL OVER ANY CONFLICTING OR
CONTRADICTING TERMS OR PROVISIONS CONTAINED IN THIS AGREEMENT, AND
SHALL SURVIVE CLOSING.
(g) To the extent, but only to the extent, Purchaser provides Seller
specific written notice of said claims within twelve (12) months
after the Closing Date, Seller shall retain liability for any and
all claims asserted by unaffiliated third parties and pertaining
to the Assets (1) to the extent and only to the extent the
adjudicated liability specifically excluding Defense Costs, as
hereinafter defined,
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for such claims exceeds $1,500,000 and is based on a breach of
Environmental Laws by Seller (including Mesa Operating Company and
Parker & Parsley Development L.P.) prior to the Effective Time and
pertains to that period of time of Seller's (including Mesa Operating
Company and Parker & Parsley Development L.P.) ownership or operation
of the Assets prior to the Effective Time ("9.2(g)(1) Environmental
Liability") or (2) to the extent and only to the extent the
adjudicated liability for such claims, specifically excluding Defense
Costs, exceed $1,500,000 and are based on the non-payment,
underpayment, or mispayment of royalties properly due from Seller
(including Mesa Operating Company and Parker & Parsley Development
L.P.) prior to the Effective Time and pertains to that period of time
of Seller's (including Mesa Operating Company and Parker & Parsley
Development L.P.) ownership or operation of the Assets prior to the
Effective Time ("9.2(g)(2) Royalty Liability") (it being acknowledged
and agreed that Purchaser shall be solely responsible for any and all
claims for which a Claim Notice is not given within twelve(12) months
after the Closing Date and for 9.2(g)(1) Environmental Liability
claims up to $1,500,000 or 9.2(g)(2) Royalty Liability claims up to
$1,500,000). The provisions of this subsection (g) shall not relieve
Purchaser of any obligation or liability of Purchaser under Section
3.3 arising from breaches of its obligation of confidentiality or its
indemnification obligations thereunder.
For the purposes of this Agreement, Environmental Laws shall mean any
and all ("Laws"), as hereinafter defined, that relate to: (i) the
prevention of pollution or environmental damage, (ii) the remediation
of pollution or environmental damage, and/or (iii) the protection of
the environment generally; including without limitation, the Clean Air
Act, as amended, the Clean Water Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, the Federal Water Pollution Control Act, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, the Safe
Drinking Water Act, as amended, the Toxic Substance and Control Act,
as amended, the Superfund Amendments and Reauthorization Act of 1986,
as amended, the Hazardous and the Solid Waste Amendments Act of 1984,
as amended, and Oil Pollution Act of 1990, as amended and Laws shall
mean laws, statutes, ordinances, permits, decrees, orders, judgments,
rules or regulations (including without limitation Environmental Laws)
which have been promulgated, issued or enacted by a governmental
entity or tribal authority having appropriate jurisdiction and are in
existence as of the Effective Time.
If a claim is asserted against a Purchaser for which the Seller may
have retained liability, it shall be a condition precedent to the
Seller's obligation under this Section 9.2 (g) that the Purchaser give
Seller written notice of such claim setting forth full particulars of
the claim (including a copy of the written claim, if any) as then
known by the Purchaser "Claim Notice". Purchaser shall make
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a good faith effort to notify the Seller within one (1) month of
receipt of a claim and shall in all events effect notice within such
time as will allow the Seller a reasonable period of time in which to
evaluate and timely respond to said claim.
Seller may at any time assume the defense of said claim with counsel
selected by the Seller and reasonably satisfactory to the Purchaser.
Purchaser shall cooperate in all reasonable respects in such defense.
Purchaser shall promptly send written notice to Seller (and Seller
written notice to Purchaser where Seller has assumed the defense of
the claim) of any proposed settlement of a claim for which this
Section 9.2.(g) may be applicable. The parties shall endeavor to
cooperate to promptly determine the acceptability of said settlement
offer(s).
Purchaser shall solely bear all the costs of defense and investigation
and all other related costs and expenses pertaining to each claim to
the extent such claim does not exceed $1,500,000 in actual adjudicated
liability under 9.2(g)(1) or each claim does not exceed $1,500,000 in
actual adjudicated liability under 9.2(g)(2). In the event that actual
adjudicated liability for a claim, for which a Claim Notice was timely
delivered to Seller by Purchaser under 9.2(g)(1) above exceeds
$1,500,000 or under 9.2(g)(2) above exceeds $1,500,000 and all other
requirements under this Section 9(g) have been met (except as
otherwise provided in the second to the last sentence of this
paragraph) AND Purchaser has expended $500,000 in the defense of said
claim, limited to incurred reasonable out-of-pocket costs of defense
and investigation of said claim, including but not limited to fees of
outside counsel, court costs and outside consultants and contractors
but excluding Purchaser's overhead or personnel and all other in-house
costs and expenses and specifically excluding amounts for which
Purchaser is entitled to reimbursement by third parties such as
insurers, working interest owners or joint venturers ("Defense
Costs"), then after Defense Costs exceed said $500,000 for each said
claim Seller will share 50% of the Defense Costs in excess of said
$500,000 for each said claim. Notwithstanding the previous sentence,
Seller shall have no obligation to share in the Defense Costs where
Seller has assumed the defense of said claim as provided in this
Section 9.2(g). Purchaser shall provide regular accounts (at least
every 30 days for said claim) to Seller of its Defense Costs of claims
and Seller shall have the right to audit Purchaser's records regarding
such expenditures upon reasonable request.
9.3 Further Assurances. After Closing, Seller and Purchaser agree to take
such further actions and to execute, acknowledge and deliver all such further
documents that are necessary or useful in carrying out the purposes of this
Agreement or of any document delivered pursuant hereto.
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9.4 Delivery of Records. As soon as reasonably possible but no later than
thirty (30) days after the Closing Date, Seller shall deliver originals (or
copies where originals are not available) of the Records to Purchaser; provided,
that Seller (i) shall exercise its best efforts to provide Purchaser at Closing
or as soon thereafter as is practicable with all Records necessary to assume and
conduct operations of the Assets, and (ii) shall have the right to retain, as
its own, original Records that pertain to the Excluded Assets along with copies
of the other Records Seller wishes to retain to be made at Seller's cost.
9.5 Access to Data. Subject to the rights of third parties and Seller's
proprietary rights, Seller shall provide Purchaser with reasonable access to
Seller's books and records after Closing as necessary for Purchaser to prepare
its financial statements. For a period of two (2) years after Closing, Seller
will permit Purchaser or its Representatives to review, from time to time in
Seller's offices during normal business hours, Seismic data, which exists or to
which Seller has rights at the Effective Time and which directly pertains to the
Assets and which Seller owns or for which Seller has a license (but only to the
extent such review by Purchaser or its Representative is not prohibited by the
terms of the license that is applicable to the data that Purchaser desires to
review ). In order to schedule any such review, Purchaser shall contact
Seller's Vice President of Exploration - Domestic Exploration at Seller's
notice address indicated in Section 13.6.
9.6 Continued Accounting. Upon written request by Purchaser on or before
Closing, Seller shall continue to perform normal accounting for all Assets for a
period ending one month after the month of Closing, but in no event beyond
January 31, 1998.
ARTICLE 10. TERMINATION
10.1 Right of Termination. This Agreement and the transactions
contemplated hereby may be terminated at any time at or prior to the Closing:
(a) By Seller if Closing does not occur on or before December 31,
1997;
(b) By mutual consent of the parties;
(c) By Purchaser or Seller in accordance with Section 3.6;
(d) By Purchaser by notice delivered to Seller on or before Closing if
all conditions described in Article 7 shall not have been met and
such noncompliance shall not have been caused or waived by the
actions or inactions of Purchaser; provided that Purchaser may
exercise its right to terminate under this Section 10.1 (d), in
the event Seller fails to meet the conditions of Closing as stated
in Section 7.1, regardless of whether Purchaser has previously
included such breach in a Notice of Defects, whether such breach
would constitute a Defect or whether Purchaser would be entitled
to relief under Section 3.6 as a result thereof.
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(e) By Seller by notice delivered to Purchaser on or before Closing if
(1) all conditions described in Article 6 shall not have been met
and such noncompliance shall not have been caused or waived by the
actions or inactions of Seller, or (2) Purchaser has not made the
filings and requests required of it by the first sentence of
Section 13.20 prior to October 15, 1997.
10.2 Effect of Termination under Section 10.1. If this Agreement is
terminated pursuant to Section 10.1, this Agreement shall become void and of no
further force or effect (except for the provisions of Sections 3.3, 4.4, 5.4,
13.1 through 13.11 and 13.14 through 13.17, each of which shall survive such
termination and continue in full force and effect); provided, however, (I) that
if either party is in material default of its obligations under this Agreement
at the time this Agreement is so terminated, such defaulting party shall
continue to be liable to the other party for damages and other remedies
available at law or in equity (including, without limitation, for specific
performance) in respect of such default and such liability shall not be affected
by such termination; and (ii) if this Agreement is so terminated by Purchaser,
in the absence of a material default hereunder by Purchaser, the Deposit shall
be returned to Purchaser, or if so terminated by Seller, as the result of a
default hereunder by Purchaser, the Seller may, in its sole discretion, elect to
retain the Deposit as liquidated damages (it being agreed by the parties that
damages in said event would be extremely difficult to determine, and that the
Deposit represents a fair and reasonable estimate of such damages under the
circumstances, and does not constitute a penalty). Notwithstanding anything to
the contrary contained in this Agreement, upon any termination of this Agreement
pursuant to Section 10.1 by Seller, in the absence of a material default
hereunder by Seller, Seller shall be free immediately to enjoy all rights of
ownership of the Assets and may sell, transfer, encumber or otherwise dispose of
the Assets to any party without any restriction under this Agreement and without
any impairment of its rights hereunder to seek and recover damages from
Purchaser arising from any default hereunder by Purchaser; provided, that
Seller's right to seek specific performance of Purchaser's obligations hereunder
shall be waived upon any such disposition of the Assets and that its right to
seek or recover any other damages shall be waived upon its express election to
retain the Deposit in lieu of any other remedy against Purchaser, including
specific performance hereunder.
10.3 Effect of Termination under Section 2.4. If this Agreement is
terminated pursuant to Section 2.4, this Agreement shall become void and of no
further force or effect (except for the provisions of Sections 3.3, 4.4, 5.4,
13.1 through 13.11 and 13.14 through 13.17, each of which shall survive such
termination and continue in full force and effect); provided, however, the
Deposit, or any part thereof, shall not be returnable or refundable.
ARTICLE 11. TAXES
11.1 Apportionment of Ad Valorem and Property Taxes. All ad valorem
taxes, real property taxes, personal property taxes, and similar obligations
concerning the Assets with respect to the tax period in which the Effective Time
occurs ("Property Taxes") shall be apportioned as of the Effective Time between
Seller and Purchaser. Seller shall file or cause to be filed all required
reports and returns incident to the Property Taxes and shall pay or cause to be
paid to the taxing authorities all Property
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Taxes relating to the tax period in which the Effective Time occurs. Purchaser
shall pay to Seller Purchaser's pro rata portion of Property Taxes within thirty
(30) days after receipt of Seller's invoice therefor.
11.2 Sales Taxes. The Purchase Price excludes any sales taxes or other
taxes required to be paid in connection with the sale of property pursuant to
this Agreement. Purchaser shall be liable for all sales, use and other taxes,
conveyance, transfer and recording fees and real estate transfer stamps or taxes
that may be imposed on any transfer of property pursuant to this Agreement.
These taxes shall be collected and remitted under applicable law. Purchaser
shall indemnify and hold Seller harmless with respect to the payment of any of
these taxes including any interest or penalties assessed thereon.
11.3 Other Taxes. All taxes (other than income taxes) which are imposed
on or with respect to the production of oil, natural gas or other hydrocarbons
or minerals or the receipt of proceeds therefrom (including but not limited to
severance, production, and excise taxes) shall be apportioned between the
parties based upon the respective shares of production taken by the parties.
From and after Closing, Purchaser shall be responsible for paying or withholding
or causing to be paid or withheld all such taxes and for filing all statements,
returns, and documents incident thereto.
11.4 Cooperation. Each party to this Agreement shall provide the other
party with reasonable access to all relevant documents, data and other
information which may be required by the other party for the purpose of
preparing tax returns and responding to any audit by any taxing jurisdiction.
Each party to this Agreement shall cooperate with all reasonable requests of the
other party made in connection with contesting the imposition of taxes.
Notwithstanding anything to the contrary in this Agreement, neither party to
this Agreement shall be required at any time to disclose to the other party any
tax return or other confidential tax information.
ARTICLE 12. PHYSICAL CONDITION OF THE ASSETS
12.1 Prior Use of Assets. THE ASSETS HAVE BEEN USED FOR OIL AND GAS
DRILLING AND PRODUCING OPERATIONS AND RELATED OIL FIELD OPERATIONS. PHYSICAL
CHANGES IN THE LAND MAY HAVE OCCURRED AS A RESULT OF SUCH USES. THE ASSETS ALSO
MAY INCLUDE BURIED PIPELINES AND OTHER EQUIPMENT, WHETHER OR NOT OF A SIMILAR
NATURE, THE LOCATIONS OF WHICH MAY NOT NOW BE KNOWN BY SELLER OR READILY
APPARENT BY A PHYSICAL INSPECTION OF THE PROPERTY. PURCHASER UNDERSTANDS THAT
SELLER DOES NOT HAVE THE REQUISITE INFORMATION WITH WHICH TO DETERMINE THE EXACT
NATURE OR CONDITION OF THE ASSETS OR THE AFFECT ANY SUCH USE HAS HAD ON THE
PHYSICAL CONDITION OF THE LANDS BURDENED BY THE ASSETS.
12.2 Assumption of Assets in Present Condition. PURCHASER ACKNOWLEDGES
THAT (I) THE CONSUMMATION OF THIS AGREEMENT BY PURCHASER SHALL BE ON THE BASIS
OF ITS OWN INVESTIGATION OF THE PHYSICAL CONDITION OF THE ASSETS, INCLUDING,
WITHOUT
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LIMITATIONS, SUBSURFACE CONDITION; (ii) THE ASSETS HAVE BEEN USED IN THE MANNER
AND FOR THE PURPOSES SET FORTH ABOVE AND THAT PHYSICAL CHANGES TO THE ASSETS AND
THE LANDS BURDENED THEREBY MAY HAVE OCCURRED AS A RESULT OF SUCH USE; AND (iii)
NORM AND MAN-MADE MATERIAL FIBERS ("MMMF") MAY BE PRESENT AT SOME LOCATIONS.
PURCHASER ACKNOWLEDGES THAT NORM IS A NATURAL PHENOMENON ASSOCIATED WITH MANY
OIL FIELDS IN THE UNITED STATES AND THROUGHOUT THE WORLD. PURCHASER SHALL MAKE
ITS OWN DETERMINATION OF THIS PHENOMENON AND OTHER CONDITIONS. SELLER DISCLAIMS
ANY LIABILITY ARISING OUT OF OR IN CONNECTION WITH ANY PRESENCE OF NORM OR MMMF
ON OR AFFECTING THE ASSETS. IN ACCORDANCE WITH SECTION 9.2 AND AT CLOSING,
PURCHASER SHALL ASSUME THE RISK THAT THE ASSETS MAY CONTAIN WASTES OR
CONTAMINANTS AND ADVERSE PHYSICAL CONDITIONS, INCLUDING THE PRESENCE OF
PIPELINES, EQUIPMENT AND OTHER ITEMS OF PERSONAL PROPERTY, AND WASTES OR
CONTAMINANTS WHICH MAY NOT HAVE BEEN REVEALED BY PURCHASER'S INVESTIGATION. IN
ACCORDANCE WITH SECTION 9.2 AND AT CLOSING, ALL RESPONSIBILITY AND LIABILITY
RELATED TO DISPOSALS, SPILLS, WASTES, OR CONTAMINATION, OR OTHER ADVERSE
PHYSICAL CONDITIONS ON, BELOW, OR RELATED TO OR AFFECTING THE ASSETS SHALL BE
ASSUMED BY PURCHASER AND PURCHASER SHALL, NOTWITHSTANDING WHEN THE BASIS FOR ANY
CLAIM, ACTION, SUIT, JUDGMENT (INCLUDING, WITHOUT LIMITATION, THOSE FOR DEATH,
PERSONAL INJURY OR PROPERTY DAMAGE) SHALL HAVE OCCURRED, INDEMNIFY, DEFEND AND
HOLD SELLER HARMLESS THEREFROM PURSUANT TO SECTION 9.2.
12.3 Casualty Loss. In the event of any material damage by fire or other
casualty to any of the Assets prior to the Closing ("Casualty Loss"), this
Agreement shall remain in full force and effect, and as to each affected Asset,
Seller shall at its election either collect (and when collected pay over to
Purchaser) or assign to Purchaser any and all insurance claims related to such
damage, and Purchaser shall take title to the affected Asset without reduction
in the Purchase Price.
ARTICLE 13. MISCELLANEOUS
13.1 Governing Law. This Agreement and all instruments executed in
accordance herewith shall be governed by and interpreted in accordance with the
laws of the State of Texas, without regard to conflict of law rules that would
direct application of the laws of another jurisdiction, except to the extent
that it is mandatory that the law of the jurisdiction wherein the Assets are
located shall apply. In the event of any litigation or other proceeding in
connection with this Agreement, the venue for any such proceeding shall be in a
court of competent jurisdiction located in Texas, and the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs incurred
therein from the other party, in addition to any damages awarded.
13.2 Entire Agreement. This Agreement, all agreements and instruments
executed in connection herewith and the Confidentiality Agreement dated on or
about September 25, 1997, between Sheridan Energy, Inc. and Pioneer Natural
Resources USA, Inc. (the "Confidentiality Agreement") and that letter agreement
("Letter Agreement") by and between Sheridan Energy, Inc. and Pioneer Natural
Resources USA, Inc. dated October 28, 1997 (and said Letter Agreement remains in
24
<PAGE>
full force and effective) constitute the entire agreement between the parties
and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. No supplement, amendment,
alteration, modification, waiver or termination of this Agreement shall be
binding unless executed in writing by the parties hereto.
13.3 Waiver. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provisions hereof (whether
or not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
13.4 Captions. The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
13.5 Assignability. Except pursuant to a like kind exchange pursuant to
Section 2.3, neither party hereto shall assign (whether before, at or after
Closing) this Agreement or any of its rights or obligations hereunder without
the prior written consent of the other party, which may be withheld for any or
no reason. Any assignment made without such consent shall be void. Except as
otherwise provided herein, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns.
13.6 Notices. Any notice provided or permitted to be given under this
Agreement shall be in writing, and may be served by personal delivery or by
registered or certified U.S. mail, addressed to the party to be notified,
postage prepaid, return receipt requested. Notice deposited in the mail in the
manner hereinabove described shall be deemed to have been given and received on
the date of the delivery as shown on the return receipt. Notice served in any
other manner (including by facsimile delivery) shall be deemed to have been
given and received only if and when actually received by the addressee. For
purposes of notice, the addresses of the parties shall be as follows:
SELLER:
- -------
Pioneer Natural Resources USA, Inc.
Attn: Tim Dove and W.T. Howard
1400 Williams Square West
5202 North O'Connor Blvd.
Irving, Texas 75039-3746
Telephone: 972/444-9001
Fax: 972/402/7057
WITH COPY TO: Marc Dingler
303 W. Wall, Suite 101
Midland, Texas 79701
Telephone: (915) 683-4768
Fax: (915) 571-5815
PURCHASER:
- ---------
25
<PAGE>
Sheridan Energy, Inc,
1000 Louisiana, Suite 800
Houston, TX 77002
Telephone: 713/651-7899
Fax: 713/651/3056
Attn: Bill Berilgen/Jon Wright
Each party shall have the right, upon giving three (3) days prior notice to the
other in the manner hereinabove provided, to change its address for purposes of
notice to any other appropriate street address.
13.7 DTPA Waiver. TO THE EXTENT APPLICABLE TO THE ASSETS OR ANY PORTION
THEREOF, PURCHASER HEREBY VOLUNTARILY WAIVES THE PROVISIONS OF THE TEXAS
DECEPTIVE TRADE PRACTICES ACT, CHAPTER 17, SUBCHAPTER E, SECTIONS 17.41 THROUGH
17.63, INCLUSIVE (OTHER THAN SECTION 17.555, WHICH IS NOT WAIVED), TEX. BUS. &
COM. CODE., A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. IN ORDER
TO EVIDENCE ITS ABILITY TO GRANT SUCH WAIVER, PURCHASER HEREBY REPRESENTS AND
WARRANTS TO SELLER THAT IT (I) IS IN THE BUSINESS OF SEEKING OR ACQUIRING, BY
PURCHASE OR LEASE, GOODS OR SERVICES FOR COMMERCIAL OR BUSINESS USE; (II) HAS
CONSULTED WITH AN ATTORNEY OF PURCHASER'S OWN CHOOSING; (III) HAS KNOWLEDGE AND
EXPERIENCE IN FINANCIAL, BUSINESS AND OIL AND GAS MATTERS THAT ENABLE IT TO
EVALUATE THE MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED HEREBY; (IV) IS
NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION; AND (V) THAT THIS WAIVER
IS A MATERIAL AND INTEGRAL PART OF THIS AGREEMENT AND THE CONSIDERATION THEREOF.
13.8 Expenses. Each party shall be solely responsible for all expenses
incurred by it in connection with this transaction (including, without
limitation, fees and expenses of its own legal counsel and accountants).
13.9 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced under any rule of law, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in a materially adverse manner with respect
to either party.
13.10 Damages. The parties waive any rights to punitive and
incidental or consequential damages resulting from a breach of this Agreement.
13.11 No Third Party Beneficiary. This Agreement is not intended to
create, nor shall it be construed to create, any rights in any third party under
doctrines concerning third party beneficiaries.
26
<PAGE>
13.12 Survival. The representations and warranties of the parties
under this Agreement shall not survive, but shall terminate upon and be
extinguished by, Closing; provided, however, that (i) all representations,
waivers, covenants, agreements and indemnities contained entirely within
Sections 1.2, 3.6, 3.7, 4.1 through 4.5 and 5.1 through 5.6, and Articles 9, 11,
12 and 13 of this Agreement shall survive the Closing, and (ii) Seller's
obligation with respect to Further Conveyances (as defined in Section 3.1 above)
shall expire on the first anniversary of the Closing Date with respect to
matters not asserted prior to such anniversary date with the specificity
required of Notice of Defects given hereunder; further provided, that,
notwithstanding anything herein to the contrary, Purchaser expressly agrees and
acknowledges that it shall have no remedy or recourse against Seller or its
Affiliates or any of their respective Representatives with respect to the
condition of the Assets or any representation or warranty made in connection
with this Agreement, except as expressly provided by Section 3.6.
13.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.14 Certain Definitions. As used in this Agreement, (a) the term
"Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person; (b) the term
"Person" means an individual, corporation, partnership, association, joint stock
company, trust or trustee thereof, estate or executor thereof, unincorporated
organization or joint venture, court or other governmental unit or any agency or
subdivision thereof, or any other legally recognizable entity; and (c) the terms
"to [Seller's or Purchaser's, as the case may be] knowledge" or "known to" and
other terms of similar import shall mean, with respect to the referenced party,
only the then existing actual non-privileged knowledge of any president or vice
president of such party or of such party's general or managing partner or agent,
as the case may be, and are not intended to imply that such party in fact has
actual knowledge of the subject matter to which such terms apply.
13.15 Construction of Ambiguity. In the event of any ambiguity in any
of the terms or conditions of this Agreement, including any exhibits hereto and
whether or not placed of record, such ambiguity shall not be construed for or
against any party hereto on the basis that such party did or did not author the
same.
13.16 Waiver of Jury Trial. SELLER AND PURCHASER DO HEREBY IRREVOCABLY
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
13.17 Publicity. Seller and Purchaser shall consult with each other
with regard to all publicity and other releases and disclosures to be made prior
to or within 60 days following, at or after Closing concerning this Agreement
and the transactions contemplated hereby, which are not otherwise expressly
permitted by the Confidentiality Agreement, and, except as required by
applicable law or the applicable rules or regulations of any governmental body
or stock exchange, neither party shall make
27
<PAGE>
any disclosure or issue any publicity or other release without the prior written
consent of the other party, which consent shall not be unreasonably withheld or
delayed.
13.18 Accounting.
A. Seller shall deliver to Purchaser on or before the second
business day prior to Closing the Preliminary Settlement
Statement setting forth any adjustments to the Purchase Price
provided for in or required by this Agreement. The Preliminary
Settlement Statement shall be prepared in accordance with this
Agreement and with standard industry and accounting practices. In
connection with the preparation of the Preliminary Settlement
Statement, the Purchase Price shall be (1) increased by (a) the
costs and expenses that are attributable to the Subject
Properties for the period from the Effective Time to the Closing
Date that are paid incurred or assessed by Seller (including, but
not limited to, Seller's internal cost for administrative
overhead which, if not otherwise established, shall be the COPAS
rate otherwise applicable for each well operated by Seller), and
(b) other amounts due Seller and contemplated hereby, and (2)
reduced by (a) proceeds received by Seller for hydrocarbons
attributable to the Subject Properties produced after the
Effective Time, (b) Seller's Expenses and (c) other amounts due
Purchaser and contemplated hereby.
B. Within 150 days after the Closing, Seller shall make a good faith
effort to prepare, in accordance with this Agreement and with
standard industry and accounting practices, and deliver to
Purchaser, a final accounting statement showing the proration and
calculation of credits and payment obligations of Purchaser and
Seller hereunder. As soon as reasonably practicable after receipt
thereof, Purchaser shall deliver to Seller a written report
containing any changes that Purchaser proposes to be made to such
statement. The parties shall use their best efforts to reach
agreement (the "Final Accounting") on the final accounting
statement on or before the 180th day after the Closing Date (such
date the "Final Accounting Date", whether or not Seller and
Purchaser have agreed on the Final Accounting). Once the Final
Accounting has been agreed to by Purchaser and Seller, there
shall be no further adjustments to the Purchase Price. At
Closing, except for the payments to and rights of Seller and
Purchaser expressly provided for in Section 9.1, Purchaser shall
assume and acquire all rights, obligations and liabilities
relating to the Assets whether arising before or after the
Effective Time, as provided in Article 9.
13.19 Operatorship. Seller does not represent to Purchaser that
Purchaser will automatically succeed to the operatorship of any given Subject
Property as to which Seller is currently the operator. Purchaser recognizes and
agrees that Purchaser will be required to comply with applicable operating
agreements, unit operating agreements or other similar contracts relating to any
elections or other selection procedures in order to succeed Seller as operator.
28
<PAGE>
13.20 HSR Act. The parties shall exercise their best efforts to file
(or will cause their ultimate parent entities to file) with the United States
Federal Trade Commission and the United States Department of Justice all
notifications and reports required for the transaction contemplated hereby under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"), if
applicable and shall request early termination of the prescribed waiting period.
Both parties shall use their best efforts to promptly supply any supplemental or
additional information which may be requested in connection therewith pursuant
to the HSR Act and shall comply in all material respects with the requirements
of the HSR Act. Closing of the transaction contemplated hereby shall not occur
unless and until all necessary filings and notifications under the HSR Act have
been made, including the provision of any required additional information or
documents, and the waiting period referred to in such Act shall have expired or
terminated.
13.21 Arbitration Procedures. If either party desires to arbitrate, as
specified in Article 3, such arbitration shall be conducted as set forth below.
(A) Within 3 business days of delivery of the Arbitration Notice the parties
shall jointly select an acceptable person as the sole arbitrator under this
Agreement. If the parties are unable to agree upon the designation of a person
as arbitrator, then either Seller or Purchaser, or both such parties, may in
writing request the American Arbitration Association to appoint a qualified
arbitrator.
(B) Any arbitration hearing shall be held at a place in Dallas Texas acceptable
to the arbitrator.
(C) The arbitrator shall settle disputes regarding whether or not Termination
Threshold has been met and specifically (I) whether an alleged Defect actually
exists, (ii) the actual value of any such alleged Defect, or (iii) whether such
Defect has been cured by Seller. The arbitrator shall do this in accordance with
the Texas General Arbitration Act and the Rules of the American Arbitration
Association, to the extent such rules do not conflict with the terms of such Act
or the terms hereof. Such arbitrator shall hear all arbitration matters arising
under Article 3. The decision of the arbitrator shall be binding upon the
parties, and may be enforced in any court of competent jurisdiction. Seller and
Purchaser, respectively, shall bear their own legal fees and other costs
incurred in presenting their respective cases. The charges and expenses of the
arbitrator shall be shared equally by Seller and Purchaser.
(D) The arbitration shall commence within 5 business days after the arbitrator
is selected as set forth in this Section. In fulfilling his duties hereunder,
the arbitrator shall be bound by the terms of this Agreement. In fulfilling any
of his arbitration duties, the arbitrator may consider such other matters as in
the opinion of the arbitrator are necessary or helpful to make a proper
evaluation. Additionally, the arbitrator may consult with and engage
disinterested third parties, including, without limitation, petroleum engineers,
attorneys and consultants, to advise the arbitrator.
(E) If any arbitrator selected hereunder should die, resign or be unable to
perform his duties hereunder the parties or if the parties are unable to agree,
the American Arbitration Association shall
29
<PAGE>
select a replacement arbitrator. The aforesaid procedure shall be followed from
time to time as necessary.
13.22 Access to Records. During the Examination Period, at Purchaser's
request Seller will allow Purchaser access to Records which are available in
Seller's Midland Office beginning at 7:00 a.m. and ending at 7:00 p.m. Monday
through Friday (except on November 27 and 28) and on Saturdays (except for
November 29) from 8:00 a.m. to 12:00 noon.
EXECUTED as of the date first set forth above.
SELLER:
------
PIONEER NATURAL RESOURCES USA, INC.
By: /s/ A. R. Alameddine
---------------------------------------
Name: A. R. Alameddine
---------------------------------------
Its: Vice President of Development
---------------------------------------
PURCHASER:
---------
SHERIDAN ENERGY, INC.
By: /s/ B.A. Berilgen
---------------------------------------
Name: B.A. Berilgen
---------------------------------------
Its: President and Chief Executive Officer
---------------------------------------
30
<PAGE>
EXHIBIT 10.2
================================================================================
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
SHERIDAN ENERGY, INC.
AND
ENRON CAPITAL TRADE & RESOURCES CORP.
DATED
NOVEMBER 28, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS
-----------
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
3.16 NO RESTRICTIONS ON AFFILIATES...........................................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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
EXHIBITS
--------
Exhibit A - Form of Certificate of Designation
Exhibit B - Form of Shareholders' Agreement
-iv-
<PAGE>
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>
"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>
"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>
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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"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.
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"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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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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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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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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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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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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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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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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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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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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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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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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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 into 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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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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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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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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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>
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/ Jim 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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EXHIBIT A
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
<PAGE>
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 2/3% 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
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<PAGE>
the 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
-3-
<PAGE>
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:
Year Following
--------------
Anniversary Date Redemption Price
---------------- ----------------
1 $10.50
2 $10.30
3 $10.20
4 and thereafter $10.00
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
Anniversary 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>
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 exercising such
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<PAGE>
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
redeemed 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>
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>
III. The Resolution was adopted by the Board of Directors of the
Corporation on ______, 1997.
IV. The Resolution was duly adopted by all necessary action on the part
of the Corporation.
DATED: ____________, 1997.
SHERIDAN ENERGY, INC.
By:__________________________________
President
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<PAGE>
EXHIBIT B
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement (this "Agreement") dated as of the __th 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.
<PAGE>
Agreement: This Shareholders' Agreement, as the same may be supplemented
or amended from time to time.
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).
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<PAGE>
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>
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
the address for the Company shall be:
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<PAGE>
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.
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
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<PAGE>
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 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 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:________________________
Name:______________________
Title:_____________________
___________________________
Jeffrey E. Susskind
---------------------------
Janis Susskind
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<PAGE>
ENRON CAPITAL & TRADE
RESOURCES CORP.
By:________________________
Name:______________________
Title:_____________________
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<PAGE>
EXHIBIT 10.3
BANK ONE, TEXAS N.A.
TERMS AND CONDITIONS
NOVEMBER 20, 1997
LENDER: Bank One, Texas, National Association ("BOT" or "Bank").
BORROWER: Sheridan Energy, Inc. ("Sheridan" or "Borrower").
FACILITY: Secured reducing revolving credit facility, subject to
semi-annual Borrowing Base reviews.
PURPOSE: To finance acquisition and development of oil and gas
properties, specifically the acquisition of the "Mid-
Continent" and "Gulf Coast" properties from Pioneer
Natural Resources, which properties have been reviewed by
the Bank's engineering staff for purposes of this
financing proposal.
COMMITMENT
AMOUNT: Not to exceed the Borrowing Base.
BORROWING BASE: $40,000,000 effective November 1, 1997. Borrowing Base to
be redetermined semi-annually, or more often if necessary
as determined by Bank in its sole discretion. Next
Borrowing Base determination scheduled for April 1998.
REPAYMENT: Monthly interest payments. Availability of Commitment
Amount will reduce by $625,000 effective December 1,
1997, and by $550,000 effective January 1, 1998 and
continuing each month through the next Borrowing Base
determination. Thereafter, Commitment Amount will reduce
by an amount determined in connection with Borrowing Base
redetermination.
MANDATORY
REPAYMENT: Mandatory prepayments required to extent that
outstandings exceed Borrowing Base.
MATURITY: June 30, 2000.
INTEREST RATE: At the option of Borrower, BOT Base Rate floating or
LIBOR plus 2.50%. Available LIBOR periods are 1, 2, 3 or
4 months.
<PAGE>
Sheridan Energy, Inc.
Summary of Terms and Conditions
Page 2
FACILITY FEE: $300,000. $100,000 payable upon delivery of commitment,
with remaining balance payable at closing.
COMMITMENT FEE: 0.375% per annum on unused Commitment Amount payable
quarterly in arrears.
COLLATERAL: Perfected first lien on all assets of Borrower, including
without limitation oil and gas properties, inventory,
account receivable, and equipment owned by Borrower.
LOAN AGREEMENT: This Facility will be subject to the negotiation and
execution of mutually acceptable Loan Documents. The Loan
Documents will include, without limitation, a Loan
Agreement that will contain certain representations and
warranties, affirmative covenants, negative covenants and
events of default that are customary for transactions of
this type.
The covenants will include, but will not necessarily be limited to, the
following:
. The Borrower will be required to hedge the interest
rate risk associated with a minimum of $20,000,000 of
the Commitment Amount for a minimum of 24 months. All
interest rate hedges will be executed with Bank One,
or an entity acceptable to Bank.
. A prepayment fee will be payable in the event this
facility is refinanced by a credit facility from
another commercial bank, or is canceled before
maturity. Such prepayment fee will be $250,000 for
calendar 1997 or 1998 and $150,000 for calendar 1999.
. The Borrower will be required to limit General and
Administration Expenses to a maximum of 14% of gross
revenues as determined on a rolling four quarter
basis.
. The Borrower will be required to maintain a minimum
ratio of Cash Flow to Debt Service 1.10 to 1.00.
Cash Flow will be defined as net income from
operations plus depreciation, amortization, depletion
and other non-cash expenses less non-cash revenues
less mandatory capital expenditures. Debt Service will
be defined as the principal outstanding plus letters
of credit issued under the Note at the end of any
fiscal quarter divided by 20 plus preferred dividends
paid.
. Bank's commitment is contingent upon Borrower's
successful placement of a minimum of $20,000,000
preferred or common stock in a form acceptable to the
Bank. Cash dividends will be allowed if Borrower
maintains a minimum ratio of Cash Flow to Debt
Service of 1.20 to 1.00, no uncured events of default
exist, and the payment of such dividends does not
result in an event of default.
<PAGE>
Sheridan Energy, Inc.
Summary of Terms and Conditions
Page 3
. Bank's commitment is contingent upon satisfactory
title review by Bank's counsel on properties
comprising a minimum of 85% of the Borrowing Base PW
value.
. All other terms and conditions found in the First
Amended and Restated Credit Agreement between Sheridan
Energy, Inc. and Bank One, Texas, NA effective
September 30, 1007 will continue in full force and
effect.
This represents the terms and conditions on which Bank One, Texas, N.A. is
willing to increase the Available Commitment under the Existing Credit
Agreement. This commitment is subject to the execution of documentation
acceptable to Bank and Borrower. Additional terms and conditions may be
required as the Bank and Sheridan complete their title due diligence and final
documentation. This commitment will expire on November 20, 1997 at 5:00 p.m.
CST unless accepted by Sheridan evidenced by signing in space below and
accompanied by the $100,000 non-refundable fee referred to herein.
ACCEPTED
this 20th day of November, 1997.
Sheridan Energy, Inc.
By: /s/ B.A. Berilgen
_________________________________________
Title: President and Chief Executive Officer
_______________________________________
